Doing Business in Emerging Markets Oludele John Akanbi Nexford University Culture in A Global Business Environment Dr. Debbie Wilson January, 2020 Factors Responsible For Economic Growth In The Emerging Countries (BRIC) The word BRIC stands for Brazil, Russia, India, and China. These nations are part of emerging economies and have become strong players in the production of manufactured goods, services, and raw materials. Their emergence as economic powerhouses is shown by the steady growth of the market value of the goods and services produced by these economies over time Capital
Formation These countries have been able to strategically raise the level of capital in their economies thereby raising the level of production.
Hence, they can accelerate the pace of growth saves a high ratio-of their income, with the aim of raising the level of their capital assets. Adequacy of capital has contributed to their growth and driven a developmental plan to greater success.
Some of the emerging markets have lager natural resources like landmass, water, forest, oil, natural gas or mineral deposits.
The exploitation and exportation of these commodities have boosted economic growth. Also, these resources are been exploited to boost local production. These societies have also shown improvement in the way the manage their natural resources to ensure that they contribute to economic growth.
Physical Capital or Infrastructure These countries have also witnessed increased investment in physical capital, such as factories, machinery, and roads. These investments have lowered the cost of economic activity. Newer and Better factories and machinery have replaced physical labor and have enhanced productivity.
Enhanced productivity has also lead to an increase in output. robust infrastructure has also reduced inefficiencies in logistics and operational cost to businesses Larger Growing Population These countries have a large growing population workforce. These workforces provide the available labor at very low wages. The BRIC countries have some of the high population within the employment age brackets, which means a higher workforce. Investment in Human Capital These countries have over the year invested in human capital. The investment led to growth in an improvement of skills, abilities, and training.
This improves the quality of the labor force. The effect of the quality shows in the significant growth of the economies since skilled labor is more productive. Technical Knowledge and General Education These countries have also witnessed improvements in technology. The increase in the level of technical know-how has a direct bearing on the pace of their development. Technology has enabled them to increase productivity with the same levels of labor, thus accelerating growth and development. The growth in technical know-how means factories can produce more goods at lower costs.
The countries have been able to steadily raised their level of productivity as scientific and technological knowledge advances and better products are introduced. Legal Framework There have been improvements in the legal framework in the emerging markets. These have led to institutional frameworks that regulate economic activities. The stronger regulatory system has led to improvement and confidence in economic activities. Desire to Develop The BRIC countries have shown a great desire to develop. There is a growing level of consciousness, desire and demand from people to get out of poverty in these countries. T
his could be seen in the attitude of the people to acquire more skills and improve the quality of products. Scope For Western Countries To Do Business In The BRIC Countries Emerging Markets such as Brazil, Russia, India, and China, (BRIC) have for a while now been large, fast-growing economies. Hence they are attractive and provide primary targets for those businesses seeking new sources of growth in this age of globalization. This essay explores the scope for western countries to carry out businesses in the BRIC countries.
The rise in new consumer demand Emerging markets Due to the growing level of income of workers in the emerging markets, international companies are now looking at emerging markets as a way of increasing sales and profit. Large retailers such as Tesco, Wal Mart, and Carrefour have opened businesses in the emerging market to tap into the rising demands in these merging markets. Emerging markets provide low-cost production hubs Emerging markets serve as a low-cost production hub for western countries. A lot of companies are still shifting production to cheaper countries.
This allows them to take advantage of low labor costs in these markets compared to developed economies. Setting up factories in emerging markets cuts across industries from electronics to defense. Intel and Apple are examples of companies that have plants in the emerging markets where most of the components of their products are manufactured and assembled. Creating cheaper and simpler products Western companies are creating cheaper and simpler products for emerging market consumers whose ability to buy goods and services may not be as high as that of the wealthier economies.
Firms, such as Samsung and Fiat, develop cheaper and simpler products targeted at specific emerging markets or regions. Later these products are adapted and exported into richer economies, to generate new sales and at higher prices than the emerging market prices. Growth in the knowledge of emerging markets A good number of western companies have been operating in one or more emerging markets for at least a decade.
Therefore the institutional knowledge of these countries is much higher than it was prior years. Companies such as Coca Cola, Unilever, and Nestle have operated in most of the emerging markets for many decades. The knowledge gained by these forerunners companies serves as reference points. New western businesses seeking to expand into international markets can take advantage of their lesson learned to ease and facilitate their entrance into the emerging markets.
High Potential for Rewards Most business executives hold the view that the potential gains for investing both the BRIC countries and other emerging markets are more than the risks. Growth in local companies that can be engaged for partnerships and alliances. There is a growth in the number of competent local companies which can offer partnership and alliances to western business. This has increased the ease of entering the emerging market and make the local knowledge more available. Two years ago it paid US$1.4 billion for a big Russian fruit juice maker, Lebedyansky, in one of the biggest soft drinks deals in recent years. For Pepsi to boost sales in Russia, and the wider Eastern Europe region, it makes use of a local brand name and indeed local products.
Challenges Developed Countries Would Face When Doing Business In Emerging Markets Market Volatility – The rate of market indices changes in emerging markets is very high. This gives a lot of concerns for investors. A higher percentage of most emerging markets economies is dependent on commodity export and the changes in the commodity prices impact investment value. Inadequate Infrastructure – In most emerging markets, there are issues of inadequate, non-existent or poorly maintained infrastructure. Some of the emerging markets do not have a well-developed local distribution framework. This creates the need for additional logistics and operational overheads for foreign businesses.
Sustainability has become a critical issue. Societies need to create a balance between environmental degradation and growth in the economy is now at the fore of global discourse. Proper environmental management is now part of social responsibility and with tough regulations. Western businesses need to be conscious of this when operating in emerging markets. Ethical Issues – The society's position on some ethical issues is through the prism of their culture and societal setting. There have been cases of unethical practices such as bribery and corruption in business transactions. The western business must be wary of such unethical practices.
There is also an issue of cultural risks in emerging economies and western firms must overcome the obstacles posed by such risks. Each culture sees products through the prism of their cultural perspective and this differs from nation to nation. This also affects product usage. Hence, western business moving to emerge market must manage their expectations
The legal framework in many emerging societies is still evolving and many of the laws have not been tested. Also, there could be an issue of ethics among professionals in the local society and western business need to be able to navigate through all these for successful operations References Accessing International Markets. 2010 Great Expectations: Doing business in emerging markets.