Understanding Emerging Markets

1. What are advanced economies, developing economies, and emerging markets? What are the major distinctions among these three country groups? |Advanced economies |Developing economies |Emerging markets | | | | | |- high per-capita income |-low income |- improved living standards | |- highly competitive industries |-limited industrialization |- achieved industrialization and modernization | |- well-developed commercial infrastructure |- stagnant economies |- rapid economic growth | |- U. S, U.

K, Germany, Japan | |-China, Taiwan, Hongkong | | |- African, Asian, Eastern Europe, South | | | |American countries | | 2. Explain the major reasons why firms would want to do business in emerging markets. What makes these markets attractive? Global sourcing: huge demand, outsourcing • Growth rate of the middle class in these countries promise a potential consumer market with huge demand for exporting. To a certain extent, an emerging market is really a market where a middle class is emerging.

As jobs and opportunities are created, more people move out of poverty and into a comfortable middle zone where they can afford some luxuries that were previously unimaginable. Ex: Electronic industry in Korea is huge Agriculture is a major sector in Thailand Solar and wind power are big in Brazil (Looking into Asia’s middle class, The emergence of a large and dynamic middle class raises Asia’s profile as an attractive market destination for products ranging from consumer goods to financial services.

There are even hopes that the Asian consumer will replace the US as “world consumer of last resort”, although this seems unlikely in the foreseeable future) • Low labor cost benefits MNEs in manufacturing activities as well as value-adding activities. If a nation’s businesses can produce something at a lower cost than it can be produced elsewhere, even after adjusting for extra time and higher error rates, the country is going to benefit from trade. And that’s where emerging markets find their niches.

Ex: in 1990’s many Canadian garment manufacturing companies moved production to Asia, South Asia, and Parts of Latin America due to cheap labor cost. 3. How can managers examine the true market potential of emerging markets? Managers follow one of 3 ways a. Consider per-capita income: using per-capital GDP figures present accurately the amount of products that consumers can buy in a given country, using their own currency and consistent with their own standard of living. b.

Size and growth rate of middle class: The middle class can contribute to higher and more sustainable economic growth and support larger domestic demand. In addition, the middle class plays an important role in the political dynamics of market economy. c. Index: i. Market size ii. Market growth rate iii. Market intensity iv. Commercial Infrastructure v. Economic Freedom vi. Market Receptivity vii. Country risk 8. How can firms show corporate social responsibility in emerging markets and developing economies?

Firms show CSR through the actions associated with philanthropyor charity, i.e. through corporate social investment in education, health, sports development, the environment, and other community services. Making an economic contribution is often seen as the most important ande? ective way for business to make a social impact, i. e. through investment, jobcreation, taxes, and technology transfer. Business often ? nds itself engaged in the provision of social services that wouldbe seen as government’s responsibility in developed countries, for example,investment in infrastructure, schools, hospitals, and housing. 7.

What types of business approaches can firms use when doing business in emerging market? There are 3 types of business aproaches that firms can use when doing business in emerging market. The first type of approaches is Partnering with family conglomerates. That’s mean firms can corporate with the family conglomerates which are the most important players and strong in capital investment in order to reduce the risk, time, and capital requirements of entering target markets; develop helpful relationships with goverments and other local players; target market opportunities more rapidly and effectively; overcome infrastructure-reated hurdles; and leverage FC’s resources and local contacts. The second type of approaches is marketing to goverments in emerging markets.

Since governments in emerging markets are important potential customers for various types of pruducts and services, marketing to them is a very useful way for firms when doing business there. The third type is follwing various approaches to skillfully challenge emerging market competitors.