Emerging Economies

Business outgrowth in uphill Economies Business discipline in Emerging Economies Coursework Coursework Contents A. In your opinion, what is the future of emerge economies? victuals your answer with relevant evidence. (2000 words)3 Introduction4 What be emergent economies4 Future of emergent economies5 Micro scotch approach6 Long-term sparingal perspectives7 The Euro perspective8 Facts close to the future9 Forecast11 Opinion12 Risks for appear markets12 B. critically con range the factors driving the growth of emerging MNEs. employ relevant company and kingdom examples. calciferol words)14 What argon MNEs (Multi case Enterprises)15 Facts about MNEs15 C. How formidable is the arguing posed by emerging markets MNEs to the Western companies? Could it be country- or/and sector-specific? (500 words)18 References21 Business Development in Emerging Economies Coursework Submission A. In your opinion, what is the future of emerging economies? Support your answer with relevant e vidence. (2000 words) B. Critically discuss the factors driving the growth of emerging MNEs. Use relevant company and country examples. (500 words) C.How formidable is the competition posed by emerging markets MNEs to the Western companies? Could it be country- or/and sector-specific? (500 words) A. In your opinion, what is the future of emerging economies? Support your answer with relevant evidence. (2000 words) Introduction What ar emerging economies The emerging markets story began al most(prenominal) thirty age ago. In the mid-1980s, developed economies started on a debt-fueled consumer spending binge that lasted more than two decades. This provided an incredible chance for developing economies.So, emerging markets or emerging economies ar nations with social or business activity in the process of fast growth and industrialization. The seven largest emerging and developing economies by either nominal realize Domestic Product or GDP (Purchasing Power Parity) are china, bra zil nut, Russia, India, Mexico, In have onesia, and Turkey. Some characteristics that define an economy as emerging are the following * Intermediate income its PPP per capital income is comprised between 10 % and 75 % of the add up EU per capital income. Catching-up growth during at least the last decade, it has experienced a b encounter economical growth that has narrowed the income gap with advanced economies. * Institutional transformations and economic opening during the same boundary, it has under repeln profound institutional transformations which contri only whened to integrate it more deeply into the world economy. Hence, emerging economies appears to be a by- harvest-home of the current planetaryization. Emerging markets are sought by investors for the prospect of high returns, as they often experience faster economic growth as measured by GDP.Investments in emerging markets come with much(prenominal) greater risk due to political instability, domestic base problems, currency volatility and limited equity opportunities ( some large companies may console be state-run or private). Also, local stock exchanges may not offer liquid markets for outside investors. These countries do not section any common agenda, so in that respect are heterogeneous lists of emerging markets, developed by various analysts such(prenominal) as The Economist, the International Monetary Fund, Dow Jones etc.. If we had to make a outline list it would be the followingAfghanistan Estonia Lithuania Qatar Sudan Argentina Hong Kong Malaysia Romania Taiwan Bahrain Hungary Mauritius Russia Thailand Bangladesh India Mexico Saudi Arabia Turkey Brazil Indonesia Morocco Singapore Tunisia Bulgaria Iran Nigeria Slovakia UAE chile Israel Oman Slovenia Ukraine chinaware Jordan Pakistan South Africa Venezuela Colombia Kuwait Peru Sri Lanka Vietnam Czech Republic Latvia Philippines South Korea Sudan Egypt Estonia Poland Qatar Taiwan Future of emerging economiesIn the knightly deca de emerging markets have established themselves as the worlds best sprinters. As straight crises tripped up America and then Europe, China barely broke stride. Other big developing nations paused for wind only briefly. Investors bet that rapid growth in emerging markets was the new normal, while leaders from capital of Red China to Brazil lectured the world on the virtues of their state-centric economic models. More than 80% of the worlds race lives in countries with emerging economies. As we open fire see in Figure 1, the share of emerging markets in globose output has increased from below 20% in the early 90s, to more than 30% today.Considering the exist of living differences, the share of emerging economies in world GDP already exceeds 45%, which is 13 division points higher than in the early 90s. According to the International Monetary Funds (IMF), realness Economic Outlook, this share leave behind exceed 50% in 2013. Figure 1 Share of emerging economies in world GDP in recent periods While these economies are already large, they keep festering strongly. Growth in emerging economies and increased resistance to economic and financial shocks mean good intelligence information for the planetary economy, which can definitely rely on the dynamism of emerging economies more than it did in the past.The residents of emerging economies countries benefited a lot from this rapid growth, as it led to rising living standards. During the period 2000-2009, the per capita GDP in these countries increased by more than 70%. The integration of emerging economies in world markets for goods and services happened smoothly. Regarding worldwide exports of goods and services, the share of emerging economies almost doubled between the early 90s and 2010, reaching 35%. Microeconomic approach The most important role of the emerging economies and reflected at the micro level.Specifically, six of the 25 largest companies in the world, for example, in terms of market valu e come from emerging markets. These companies are listed below, according to orbicular 2000 list for 2012, an annual ranking of the top 2000 public companies in the world by Forbes magazine. The ranking is base on a mix of four metrics sales, profit, assets and market value. Rank Company Headquarters labor Profits ( meg $) Assets (billion $) Market Value (billion $) 05 Industrial and Commercial confide of China China Banking 25. 1 2,039. 1 237. 4 07 PetroChina China Oil and bobble 20. 304. 7 294. 7 10 Petrobras Brazil Oil and gas 20. 1 319. 4 180 13 China Construction Bank China Banking 20. 5 1,637. 8 201. 9 15 Gazprom Russia Oil and gas 31. 7 302. 6 159. 8 19 Agricultural Bank of China China Banking 14. 4 1,563. 9 154. 8 Long-term economic perspectives The present of emerging economies seems promising, yet the future seems even better. According to forecasts for pine-term growth based on demographic trends and models of capital ingathering and productivity, it seems that t he role of emerging economies in the orbiculate economy go forth be even larger.More specifically, according to various surveys, the growth prospects of these economies are striking. The share of Brazil, Russia, India and China, if considered together, could by 2025 correspond to a rate of more than 50% share of the current six largest industrialized economies and to e very(prenominal)wherecome it in less than 40 years. The Euro perspective From the perspective of the euro, the ontogenesis role of emerging economies provides various opportunities. More specifically, the dynamic growth of emerging economies is increasing demand for authentic goods and tradable services where the euro order has a comparative advantage.Also, competition from emerging markets increases motivation for further progress in structural reforms in the euro zone, which are either way necessary. In addition, the Eurozone is capable of seizing new opportunities created by emerging economies. Exports and im ports of goods and services of the euro zone represent a significant share of the GDP. Considering this, it is remarkable that the share of the euro zone exports (excluding trade inside the euro zone) to Asia increased from 19% in 2000 to 22% in 2009, while exports to the United States lessen from 17% to 12% over the same period.Chinas share in total exports of the euro zone increased from 2% in 2000 to 5. 3% in 2009. Exports to Russia more than doubled over the same period from 1. 8% to 3. 9%, thus exceeding the exports to Japan, although the share of Russia was higher in 2008 (5. 0%), before the global trade collapsed. A corresponding trend was observed in India, though on a much smaller scale, as Indias share was 1. 7% of euro zone exports in 2009. The crisis When the global financial crisis struck, emerging economies responded energetically China launched a huge stimulus, Brazils state-owned banks avished credit, interest place were slashed. They succeeded so well that by 201 0 they were hale to reverse course. To squash price pressures they raised interest rates, curbed speculation and allowed their currencies to appreciate. With a lag, that tightening has had the predicted result. Still, the slowdown has proven much sharper than endureed. Europes sovereign-debt crisis is partly to blame. It has sapped demand for the developing worlds fabricate exports and restrained prices of their commodities South Africa is a notable casualty.European banks had been conduits for foreign money flowing into emerging markets. Now they are pulling back as they grapple with the problems at home. The issues of slowing growth, high government debts, rising unemployment, and senescent populations within developed economies such as the United States presented headwinds for emerging market countries, which in the past had been much more reliant on the health of developed markets. However, because of earlier fiscal discipline, countries such as China, Brazil and Indonesia w ere able to stimulate economies on their own with low interest rates and massive stimulus packages.The important banks were recourse to those who needed to borrow money, in order to avoid a major crisis. In declination 2011 and February 2012, the European Central Bank announced long-term refunding, while European banks borrowed about 1 cardinal euros. The U. S. Federal Bank, along with many central banks from developed countries went on with liquidity injections. That move resulted to massive relief, as the markets stabilized and industrial production increased again. The question then was if this would last, allowing the global economy to keep on growing.This was more of c erstrn for emerging economies, which were considered to be safer than economically advanced countries. many a(prenominal) of them faced difficulties when they actually started developing, as they had to deal with massive poverty. Facts about the future Sadly, many emerging-world governments have interpreted the crisis in rich-world finance as a reason to preserve a more muscular role for the state. China has reserved roughly sectors for state-owned enterprises. In Brazil the big state- affirmled cover company, Petrobras, and the tate-controlled banks have become virtual appendages of government insurance policy. Having so much leverage over the economy is indeed helpful during a crisis, but in the long run it pass on stifle competition, starve the private sector of capital, deter foreign investment and know-how, and cut through with(predicate) corruption. When the dust settles, emerging markets will still be growing faster than they did before 2003. But get back up to the speed of the past decade will mean maintaining the macroeconomic discipline and returning to the microeconomic reforms that made it possible in the first place.A strong infrastructure has significant long-term benefits, such as a growing manufacturing base, an educated workforce and more mobile, and therefore more easily employable, societies. The build-out of strict asset infrastructure in China, which has been strong over the past 15 years, continues today, particularly as the population becomes more urbanized. Brazil also continues to invest in infrastructure, with estimates in excess of $800 billion in infrastructure spending as the country prepares to host the 2014 FIFA World Cup and the 2016 Summer Olympic Games. For example, the case of India.Since 2009, India has purposely inflated its deficit in order to offset the economic slowdown. monetary expansion was very in force(p) in promoting growth of demand and supply after several years restriction. However, now the expansion is limited. opposed developed countries, most developing economies are under puffinessary pressure, which can be worse than additional expensed. Thus, the short-term future seems to be reserving various dangers. Nevertheless, medium and long-term perspectives about emerging economies are positive. Countrie s that drive home money, invest in human capital and provide good governance can achieve rapid growth again.India, for example, saves and invests more than 30% of its GDP, devoting a significant percentage of these sources to infrastructure. Thus, the possibility of India exaggerateing its business increases. Investors seem to take seriously into account this perspective. They seem to be very hesitant towards investments in private equity funds. Nonetheless, they provided India with 43,8 billion dollars in long-term reckon investments during 2011-2012. Despite the current crisis, the outlook seems encouraging for new(prenominal) emerging economies too, such as Brazil, China and Indonesia.Its obvious that during the second half of 2011, developing economies that have faced the economic crisis kind of well, started to feel pressure as the euro zone crisis was getting worse. Growth in Brazil, India, China and other countries noted a remarkable slow down. Global economy seems to be focusing on fast-growing(prenominal) markets that are outside BRIC (Brazil, Russia, India and China) as there is the perception that they are capable of integrating faster than the BRIC countries into the global economy due to a look of trade, investment, technological and cultural criteria.These markets achieve constantly high rates of economic growth at the same level with the BRIC countries. Turkey, Indonesia and Mexico come just after China and India in terms of GDP growth between 2000 and 2015. Peru, Colombia, Venezuela, Malaysia and Vietnam, along with some countries and regions of Africa are ready to be include in the list with the most dynamic countries in the world, regarding investments. Its becoming more and more admittible that these countries are the most significant sources of income for the future years.Same prospects seem to appear for South Africa, Indonesia, Mexico and Turkey, which are considered to be the most free-enterprise(a) ones. Executives from all arou nd the economy world claim that they are planning to raise their investments in these markets. As goods and services trade goes back to the levels it was before the financial crisis and the flow of funds appears to steadily increase, technology and cross-border exchange of ideas will continue forcing growth and promoting globalization. Forecast Forecasts concerning the period of time from now and by 2015 dont seem really encouraging for Europe and emerging economies.The last years liquidity injection was deemed to be an efficient policy, but it was certainly not a radical solution. No crisis looms, but serious concern is justified, for the emerging world faces two distinct risks a cyclical slowdown and a longer-term erosion of potential growth. The first should be reasonably easy to deal with. The second will not. Fiscal discipline and investment has delivered for emerging economies up to this point. This can significantly contribute to future growth. If Europe can succeed in promo ting large fiscal and banking reforms and put its economy in order, the crisis will probably subside.Otherwise it will remain until the end of 2014 and then Europe will be before high risk once again. Regarding the developing countries, they will definitely be influenced by the U. S. and Europe the two largest economies in the world. Their slowdown will directly affect all developing countries. The analyst, Jean Louis Martin claims though, that emerging economies will account for 52% of the global economy. His forecast is based on current prices and exchange rates-compared with 38. 9% in 2011. Opinion Looking through the past as thoroughly as I can, and considering the risks, my opinion about a potential recovery tends to be negative.A slump in these countries thus looks unlikely so, however, does a return to the past decades growth rates. China, for one, doesnt want it. Its economy has become over-reliant on investment its leaders want to guide in a phase of more sustainable but slower growth, led by consumers. beyond China, it is increasingly clear that many emerging economies have been growing beyond their underlying potential. Optimists once aspect India could sustain Chinese-style growth of over 9% a year but that led to stubborn inflation and current-account deficits, suggesting that Indias potential growth may be more like 6-7%.There is no guarantee that emerging markets will experience stable, sustainable development, since numerous economic and political risks are lurking. Emerging countries are still vulnerable to economic changes that occur in developed countries. Risks for emerging markets Theres a number of potential sources of macroeconomic and political instability such as high fiscal deficits, over-dependence on oil revenues and gas, increasing disparities in income leading to social tensions and acroeconomic and financial instability. Many reports also highlight the pressures on native resources from the rapid growth in emerging economies , including the increasing difficulty of keeping global warming within the maximum limit of two degrees Celsius. While new unconventional sources like shale gas have decrease fears of depletion of fossil fuels, the risks associated with the most unstable global climate patterns are expected, to follow a steady upwards trend.Issues such as taxation of executive compensation, the proper scope of financial regulation, and international MA have come to the foreground in the wake of the crisis, and stark international differences in opinions and policies on these matters are already evident. The differences will only become more pronounced as discussions about the appropriate near-term policy response to the crisis give way to debates about who should pay and how much.The multinational firms best able to anticipate and control the related risks and opportunities will have the strongest competitive edge. B. Critically discuss the factors driving the growth of emerging MNEs. Use relevan t company and country examples. (500 words) What are MNEs (Multinational Enterprises) As the name implies, a multinational corporation is a business concern with operations in more than one country. These operations outside the companys home country may be linked to the parent by merger, operated as subsidiaries, or have considerable autonomy.Firms tend to locate where barriers are easier to overcome. For firms in emerging countries, this initially meant locating in nearby countries with regional, cultural or language ties (so-called South-South FDI). This trend seems to be changing, however, as firms from emerging economies gain prominence. Facts about MNEs There are over 40,000 multinational corporations currently operating in the global economy, in addition to approximately 250,000 overseas affiliates lead cross-continental businesses.The top multinational corporations are headquartered in the United States, Western Europe, and Japan they have the capacity to determine global t rade, production, and financial transactions. Multinational corporations are viewed by many as favoring their home operations when do difficult economic decisions, but this tendency is declining as companies are forced to respond to increasing global competition. Multinational corporations follow three general procedures when seeking to access new markets * merger with or direct acquisition of existing concerns * resultant market entry and joint ventures Heres an example of incidental market entry, which often includes foreign direct investment, which involves the establishment or acquisition of concerns operating in street corner markets related to the parent companys product lines in the new country of operation. Japans Sony Corporation made use of sequential market entry in the United States, beginning with the establishment of a small television assembly plant in San Diego, California, in 1972. For the next two years, Sonys U. S. perations remained confined to the manufactur e of televisions, the parent companys leading product line. Sony branched out in 1974 with the creation of a magnetic tape plant in Dothan, Alabama, and grow further by opening an audio equipment plant in Delano, Pennsylvania, in 1977. After a period of consolidation brought on by an unfavorable exchange rate between the yen and dollar, Sony continued to expand and diversify its U. S. operations, adding facilities for the production of computer displays and data storage systems during the 1980s.In the 1990s, Sony further diversify it U. S. facilities and now also produces semiconductors and individualized telecommunications products in the United States. Sonys example is a classic case of a multinational using its impression product line to defeat indigenous competition and lay the foundation for the sequential expansion of bodied activities into related areas. Multinational corporations are thus able to penetrate new markets in a assortment of ways, which allow existing concer ns in the market to be accessed a varying degree of autonomy and control over operations.Multinationals today are viewed with increased suspicion given their perceive lack of concern for the economic well-being of particular geographic regions and the public impression that multinationals are gaining power in relation to national government agencies, international trade federations and organizations, and local, national, and international labor organizations. Despite such concerns, multinational corporations appear poised to expand their power and influence as barriers to international trade continue to be removed.They share many common traits, including the methods they use to penetrate new markets, the manner in which their overseas subsidiaries are tied to their headquarters operations, and their interaction with national governmental agencies and national and international labor organizations. In particular, factors that benefit MNEs growth are * labor is relatively cheap * Ow nership advantages encompass the development and ownership of proprietary technology or widely recognized imperfections that other competitors cannot use.Empirical analysis shows that multinationals are often technological leaders that invest hard in developing new products, processes and brands, which are then kept confidential and are protected by intellectual property rights * technology being adopted is leapfrogging much of the legacy IT infrastructure that is still in use in developed countries * Localization advantages refer to the benefits that come from locating near the final buyers or closer to more abundant and cheaper production factors, such as expert engineering or stark materials multinationals internalize the benefits from owning a particular technology, brand, expertness or patent that they find too risky or unprofitable to rent or license to other firms due to the difficulties of enforcing international contracts * management and production expertise from the pa rent concern Other concerns raised by respondents included government regulation, established competition, and the availability of communications and digital infrastructure. C. How formidable is the competition posed by emerging markets MNEs to the Western companies? Could it be country- or/and sector-specific? 500 words) Right now more than 20,000 multinationals are operating in emerging economies. According to the Economist, Western multinationals expect to find 70% of their future growth there40% of it in China and India alone. But if the fortune is huge, so are the obstacles to seizing it. On its 2010 Ease of Doing Business Index, the World Bank ranked China 89th, Brazil 129th, and India 133rd out of 183 countries. Summarizing the banks conclusions, the Economist wrote, The only way that companies can prosper in these markets is to cut costs relentlessly and accept profit margins close to zero. Western companies have had many difficulties debut emerging markets to date, as the y seemed to apply a wrong entering strategies, which were due to lack of knowledge and experience. Many companies have already been lured by the promise of profits from selling low-end products and services in high mess to the very poor in emerging markets. And high-end products and services are widely available in these markets for the very few who can afford them You can buy a Mercedes or a washing machine, or stay at a nice hotel, almost anywhere in the world.Our experience suggests a removed more promising place to begin between these two extremes, in the vast middle market. Consumers there are defined not so much by any particular income band as by a common circumstance Their needs are being met very poorly by existing low-end solutions, because they cannot afford even the cheapest of the high-end alternatives. Companies that devise new business models and offerings to better meet those consumers needs affordably will discover enormous opportunities for growth.Take, for examp le, the Indian consumer durables company Godrej & Boyce. Founded in 1897 to sell locks, Godrej is today a diversified manufacturer of everything from safes to hair dye to refrigerators and washing machines. In workshops we conducted with key managers in the appliances division, refrigerators emerged as a high-power area Because of the cost some(prenominal) to buy and to operate them, traditional compressor-driven refrigerators had penetrated only 18% of the market. The markets and operating environments in India are radically different fromMNCs home markets, making it possible a wide range of competitive encounters and outcomes. For example, there are several layers of product and customer segments that reward different approaches from competitors, making it possible for both local challengers and patient MNCs to find different starting places and, over time, compete more directly. Competition appears to be formidable for Western companies, since they are not really qualified to d eal with MNEs of emerging markets, which keep on developing.Furthermore, it seems that the competition could definitely be both country and sector specific, as, regardless of the difference in trends perceived as important and the reported level of preparedness, companies, both Western and emerging multinationals, take a similar approach to the critical actions needed to address emerging countries consumer market trends. These include developing new products and services, adapting the brand strategy, conducting market research, and adapting the marketing communication strategy.References * Contessi S. , El-Ghazaly H.. (2010). Multinationals from Emerging Economies Growing but Little Understood. Availablehttp//research. stlouisfed. org/publications/regional/10/07/multinational. pdf. * Matthew J. Eyring, Mark W. Johnson, and Hari Nair. (2011). New Business Models in Emerging Markets. Available http//hbr. org/2011/01/new-business-models-in-emerging-markets/ar/1 * Ernst & Young. (2013). Focusing on emerging markets. Available http//www. net. gr/? i=news. el. article&id=338400 * Jean Louis Martin. (2012). Emerging Economies in 2020. Available http//www. capital. gr/news. asp? id=1497484 * mystical author. (2013). Challenges in development of emerging economies. Available http//www. stockwatch. com. cy/nqcontent. cfm? a_name=news_view&ann_id=165565 * K. Ghosh and L. Yu. (2012). The future of emerging markets. Allianz Global Investors. 12 (1), 1-4 * AmCham and Booz & Company.