The Emerging Markets as the Driving Force of the Global Economy

2021-05-12 04:56:19
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Executive Summary

The economic growth in the traditionally dormant countries has led to the change and improvement of these countries status in the global market. Due to the economic power these countries hold, they have been able to grow rapidly and expand much faster as compared to the traditional economic giants of the globe. As have been discussed in this paper, is the understanding of BRICS, why they have grown exponentially, some of the challenges organizations face in operating in such economies and some of the opportunities they follow in such economies. Additionally, this paper has explicitly discussed China and looked at some of the factors that make it an economic giant as compared to other countries in the BRICs before deriving into a conclusion.

Keywords: Emerging Markets, Economic Growth China, Challenges, Opportunities, BRICS

Emerging Market: Challenges and Opportunities Facing Foreign Company Seeking To Invest In China Emerging Market

INTRODUCTION

The beginning of millennium gave birth to an era where the emerging markets assert themselves as the driving force of the global economy. As opposed to the other period, the United States still maintains its leading economic and military position as the Europe holds the legacy of its rich imperial past and the leading role they played in the industrial revolution. However, the axe of the global economy keeps on changing in so many irreversible ways as the developed economies account for reduced proportion of the global wealth, consumption of the wealth, level of investments, the amount of trade and even technology generated in the world. As have been discussed in this paper, is an explanation and understanding of the developing markets, emerging economies and the developed countries with the primary focus created in the BRICS and specifically China.The Rise of emerging markets and their growing importance in the global economyThe rise of emerging markets after almost 200 years of being relatively dormant, and minor players in the global economy; has caused one of the most significant shift in the global economy and the geopolitical structure from the beginning of industrial revolution. However, the shift considered to be most sudden, as it was unexpected even though it has redefined in which the world can be seen. Besides, it defines how the world sees the markets that are most coveted by the consumers goods producers and various investors and the companies that wish to be global leaders (Kumar and Pattnaik 2014 p. 6). In addition to that, it re-defines the cities that are growing faster and defining the role that they play in the global environments. The shift is, therefore, important as it generates new business opportunities, supports a new breed of the competitive multinational companies that are based in the emerging markets thus forcing the global leaders to adapt to the strategies of such countries or, at least, be ready to face investing decline (Enderwick 2007 p.178).

Today, the rise of emerging markets is associated with the definition of the future of the global economy (Rao-Nicholson, Khan and Stokes 2016). As of the year, 2000 in research that was conducted by the Euro Monitor International, 37% of the Global GDP was contributed by the emerging markets. Its therefore, projected that by 2020, more half of the Global GDP will be added by these markets, thus defining the future of investments and the entire global business arena.

As the developed economies recover from the global recession, the emerging markets, however, enters a period that is characterized by slower growth even though its projected that the global economic growth will still be influenced by these markets (Sauvant, Mendoza and Irmak 2008 p.158; Rao-Nicholson, Khan and Stokes 2016). Even though the spotlight of the emerging economies have focused on the BRIC nations, the influence that these economies are creating the world are far reaching and has focused on the smaller economies such as the MINT, which as well redefines the future of trade in the global economy (Global 2016). However, as of 2013, neither of the BRIC features in the ten fastest growing economies thus showing how the small economies within the emerging markets are also positively redefining the future of trade in the globe.

Advanced economies, developing economies, and emerging economies differencesDeveloped markets are the easiest to identify and just as its phrase defines, and they are the countries that have economically advanced compared to the others as explained by Clara (2015). They have a very high capital market and very high levels of liquidity and good regulatory bodies. In addition to that, the developed markets have large market capitalization and very high levels of per capita income. Developed markets are, therefore, found in North America, Western Europe, and Australia and also the United States, Canada, the UK and Germany, New Zealand and Japan.

However, different entities and bodies have a divergent view on how developed economy can be defined thus making the issue so much confusing. Therefore, it can make a country be considered developed by one firm and be an emerging market to another firm. A good example is the South Koreas definition by FTSE and the MSCI. As explained by FTSE, South Korea is an emerging market as MSCI explains it as a developed market (Montiel 2011 p.10).

Additionally, defining emerging markets also vary and can be very tricky to understand. However, it can be defined a short, a country that is in the process of rapid growth and developed characterized with much lower per capita incomes and petite mature capital markets as compared to the developed countries (Montiel 2011 p.10). This, therefore, includes the BRICs and the PIIGS not forgetting the upcoming MINT (Global 2016). Besides, a developing or also known as the frontier market is defined as the subset of the emerging market category. In more basic and straight forward terms, a frontier market is an emerging market (Rao-Nicholson, Khan and Stokes 2016). This type of market has little liquidity; it has marginally developed capital markets and with low per capita income compared to the developed emerging markets such as China and Brazil. However, these are markets with high-risk investors due to their nature. They have not yet undergone a meaningful economic development thus having a reduced potential for rapid growth. Good examples of the frontier markets include Columbia, Indonesia, Vietnam, Turkey and South Africa.

In general, the developed economies are considered to be safer for most investors compared to both developing and the emerging markets Kvint (2010) explains. This, therefore, creates a consideration for the foreign investors coming into the new markets as they get to consider the difference between the developed and the emerging markets. This, therefore, makes it easy to easy to understand the liquidity, risk, and the growth potential of that particular country.

What makes emerging markets attractive for international business?Emerging markets such as China presents the world with an unexplained market. These markets provide the international companies such as the multinationals with the opportunities for growth as they provide ready markets and available labour. Specifically, China provides international investors and companies with the availability of cheap labour, ready market and a subsequent availability of cheap raw material. In return, these companies can maximize their profits, by cutting on the coast of labour and that of the raw material.

In addition to that, good governance in countries like China has led to development of good infrastructure, thus laying a good foundation for doing businesses. With a good support, Khanna, Palepu and Bullock (2010) explain that consumer spending increases, thus making the rate of economic expansion is such markets to be faster compared to the developed economies.

In 2008, the gross domestic product of China increased by 7% as compared ti that of the United States that grew by 1.1% as explained by Grewal (2009). However, the growths contributed by improved infrastructure moderate amount of consumer debt found in China thus enabling the country to expand faster compared to the developed economies.

Furthermore, emerging markets like China also provides the international companies with a permissive and appropriately structured markets that have the business-friendly environment. The markets also present a platform for manufacturing since the raw material is not fully exploited. The labor forces are also readily available, meaning, there is the presence of a well-trained workforce who are ready to take the duties presented by the international companies. They are not only trained in particular fields but a wide area thus making their knowledge valuable to the investors.

The potential risks and challenges of doing business in emerging marketsToday, the majority of the global population is found in the emerging markets giving an indication that the world is moving from an era where people are dependent on the basic needs to an era of consumption-oriented as Ciravegna, Fitzgerald and Kundu (2014) puts it. This tendency has, therefore, created an environment for more new consumers of the products and services across the emerging markets thus transforming them into huge consumption hubs for the international companies. The international businesses and investors, therefore, views this as an opportunity to be capitalized on thus moving businesses to the markets that were traditionally considered as low production assembly centres just as Rao-Nicholson, Khan and Stokes (2016) explains.

However, most of the emerging economies suffer from political instability, legal and financial systems and also violates the currencies and the liquidity issues. Specifically, China as one of the emerging markets is faced with the cultural risks (Van de Kuil 2008 p.46). Usually, most of the multinational companies are faced with the challenge of cultural difference which hinders how they operate. As they are used in operating in developed countries, they emulate the same thus leading to their failure. It was, however, evident with the Coca-Cola industry first entry into China that they made a wrong translation meaning something else within the Chinese culture. Not only in China, but this is a risk that is present in nearly all the emerging markets in the globe.

Furthermore, corruption found in the emerging markets is something that risks the performance of international businesses and the multinationals. In some of the developing economies, the main challenge is inefficient infrastructure they have, very high tariffs which see the government only to protect the local businesses, ignoring foreign investors (Van de Kuil 2008 p.34). Beside...

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