Question

What is an “emerging market?” How does it differ from a “developing country?” Discuss the differences and indicate how this impacts doing business in either an emerging market or a developing country.

Answer 1

Emerging Market

• An Emerging Market is a country that has some characteristics of a developed market, but does not satisfy standards to be termed a Developed Market
• This include countries that may become developed markets in the Future or were in the past.
• The Economies of China and India are considered to be the Largest Emerging Markets.
• Emerging Markets also Known as Emerging Economies or Developing Countries, are nations that are investing in more Productive Capacity
• They are moving away from their Traditional Economies that have relied on agriculture and export of raw materials.
• Leaders of Developing countries wants to create a better quality of life for their people.
• They are rapidly industrializing and adopting a free market or Mixed Economy

Five Defining Characteristics of Emerging Market Countries

1. Lowe-Than-Average Per Capita Income: Emerging markets have lower-than-average per capita income. Low income is the first important criteria because this provides an incentive for the second characteristic which is rapid growth.To remain in power and to help their people, leaders of Emerging markets are willing to undertake the rapid change to a more industrialized economy.
2. Brisk Economic Growth: In 2018 the economic growth of most of the developed countries such as United Sates, Germany, Mexico and Japan was less than 3%. Growth in Egypt, Poland, Bolivia and Malaysia was 4% or more.China, Vietnam and India saw their Economy grow by around 7%.
3. High Volatility: Rapid social change leads to the third characteristics which is high volatility. That can come from three factors: Natural Disasters, External Price Shocks and Domestic policy instability.
4. Currency Swings: Emerging Markets are more susceptible to volatile currency swings, such as those involving the U.S Dollar.
5. Potential For Growth: This Growth requires a lot of Investment capital. But the capital markets are less mature in these countries than the Developed Markets.

Investing in Emerging Markets

• Emerging Markets offer large opportunities for foreign investment. Ideally those, that invite sound investment must have a stable government with low corruption incidences, low debt-to-GDP ratio and a good pool of labor.
• Many of these Developing markets though poses less than ideal Conditions
• There are many ways to take advantage of high growth rate and opportunities in emerging markets.
• The best is to pick an Emerging Market Fund.
• They may expose investors to great risk from;

1. Weak market capacity- constrained financial system.
2. Political Instability
3. Low Corporate governance and transparency
4. Limited Legal Protection for investors.
5. High cost of doing business- explicit and implicit cost such as commission, fees, taxes
6. Volatility- High Market and currency Fluctuations
7. Restrictions on foreign accessibility.