Emerging Markets - Assignment Example

Emerging Markets Name Institution Date Part A: What is the Future of Emerging Economies? Introduction In the past decade the economies of emerging economies have grown at impressive rates. These impressive growths occurred in the midst of recession and economic slowdown in the G7economies. The emerging economies of Brazil, Russia, India, China and South Africa helped the world recover from the 2008 financial crisis, and their buoyant economies were the backbone of the global economy following the downturn. The strong economic growth in the emerging economies led to a rise of a wealthy middle class, and a subsequent increase in purchasing power. Investors rushed into these emerging economies hoping to benefit from the increase in purchasing power. However, growth in the emerging economies has slowed down leading to investors pulling out of the countries. However, many analysts argue that fears of economic meltdown in emerging economies are unfounded. Discussion As the US and parts of Europe hits by recession in recent years start to recover, the former shining stars of the recession are hitting hard times. Once supercharged growth rates are sluggish at best and some currencies have fluctuated greatly (Talley 2016). The result is that investors are fleeing emerging markets as future outlooks are gloomy. Many are worried that emerging markets are headed for a crisis the size of the 1997 East Asia financial crisis (Schuman 2015). However, this is a big mistake by international investor. Emerging markets will not collapse under the present short-term uncertainty. Emerging nations will continue to hold the best prospects for the future as compared to the mature economies. Investors’ worries regarding the future of emerging economies are not entirely baseless. In a recent forecast, the IMF highlighted the slowdown in growth in the emerging markets. The IMF growth forecast for the emerging economies estimated that 4.2 per cent expansion among the emerging nations (Schuman 2015). In contrast, the emerging market was making huge leaps six years ago with economic growth rates of more than 7.4 per cent. In 2015, China reported its lowest growth rate in 50 years, while Russia and Brazil have recorded negative growth in the same period (Talley 2016). In contrast, South Africa and India have continued to report modest growth rates. Terrible economic policies are the main cause of the slowdown in growth. According to Schuman (2015), politicians in China, and other emerging nations have failed to put in place reforms to drive further growth. For example, China’s economy is still focused on production and remains investment heavy. Further reforms in China should include opening of markets and adoption of a consumption based approach to economic matters. India has done little to make its economy more resilient, and open it up for further growth. However, the prospects for growth remain positive in India. India can further enhance it growth rate by implementing much needed reforms related to investment (Schuman 2015). On the other hand, Russia foreign policy stance is affecting the country’s economic position. The natural resources-dependant Russian economy has suffered as a result of western economic sanctions related to Russia’s role in the Ukrainian conflict. However, the emerging economies have proven they are more resilient and stable than they have ever been (Schuman 2015). Despite losing more that $900 billion between June 2014 and July 2015, the world’s 19 major emerging nations have remained stable and resilient. According to Schuman (2015), the amount withdrawn by investors is double what they took away during the 2008 financial crisis. Fortunately, this large withdrawal has only had limited effect with some currencies touching lows last witnessed 25 years ago. The resilience of emerging markets despite huge capital outflows indicates that predictions of an impending economic meltdown have no basis. According to Schuman (2015), many emerging economies have been able to withstand capital outflows amounting to half of their value without any financial stress. Many emerging countries have also lowered their debt levels and thus reduced the vulnerability to currency fluctuations. For example, China has one of the largest currency reserves while other emerging economies continue to illustrate financial strength by recording external surpluses. While these factors do not guarantee that a crisis will not occur, they show that emerging markets are more stable and resilient than they have ever been. Emerging economies can return on a healthy growth trajectory if reforms are implemented urgently. However, many emerging economies don’t seem enthusiastic about introducing new economic policies (Schuman 2015). In Brazil, economic uncertainty continues to grow as a result of corruption scandals in the Brazilian government. However, all is not lost as the Indian premier has supported moves to open up the Indian market to more foreign investors. Despite these doubts the emerging economies appear to have a bright future in the long-term. The middle class consumption in the developed world will continue to be stabilizing factor in the global economy (Schuman 2015). However, the middle class in emerging economies will continue expanding offering growth prospects for businesses. For example, Chinese consumption is expected to increase by 60 per cent in just one decade. An estimate points out that the middle class will have expanded by over 3 billion people by the year 2050 (Schuman 2015). Almost all new members of the middle class will be drawn from emerging economies. It is also estimated that by 2050, the emerging economies will account for two-thirds of global consumption. Conclusion Arguably, the future prospects of emerging economies are bright and in sharply contrast with the predictions of economic meltdown. Emerging countries have proved that their economies are stable and resilient as they have survived the drastic removal of capital by foreign investors. The emerging economies are expected to implement reforms that will be the basis of a new phase of growth. Even at present rates, the middle class in emerging markets will expand to become a major economic force by the year 2050. The estimated expansion of the middle class in emerging economies by almost 3 billion people make emerging economies attractive destination for investment in the future. Part B: Emerging Multinational Expansion More and more multinational are setting up operations in develop markets and developing markets formerly dominated by Western Multinationals. In recent years, multinational from the emerging economies have expanded rapidly, many are now successful global businesses. Some of the growth factors that led to the rapid expansion of emerging multinationals include stiff competition at home and political drivers. For example, Chinese firms were forced to seek opportunities for global expansion after entry of foreign competitors in the Chinese market. Many western multinational established production facilities in China, meaning local firms lost their traditional cost advantages. Consequently, Chinese firms started to seek opportunities for international expansions to cater for overcapacity (Guillen and García-Canal 2012). Many Chinese firms are now among the globe’s 500 leading companies as a result of the expansion. Political drivers are also key drivers of the internalization of firms from the emerging economies. Some emerging economies participate in business through flagship multinationals which have significant financial clout as a result of state backing (Guillen and García-Canal 2012). For example, China has several state owned construction firms that are now among the globe’s leading construction firms (Arabian Industry 2015). The giant Chinese construction firms benefit from state negotiated infrastructure contracts in other emerging economies, and the developing world. Part C: How Formidable are Emerging Multinationals? Many of emerging multinationals are formidable opponents to established western rivals and in some cases have displaced Western Multinational as market leaders. One of the biggest strengths of emerging multinationals is their significant financial clout gained partly by trading in their high growth home markets for decades (Ying 2008). For example, Lenovo was able to expand its operations by buying the PC business of IBM. Emerging multinationals ability to leverage technology is also a major strength. For example, Mexican baker Bimbo was able to overwhelm established rival Sara Lee by leveraging IT in its business strategy (Guillen and García-Canal 2012). To beat Sara Lee, Bimbo used a computerized distribution system to deliver fresher bread than its rival. Bimbo pioneered the use of tricycles to navigate narrow streets in older parts of Chinese towns. Bimbo’s innovation success is linked to the baker’s insistence on trial-and-error in an effort to understand new markets and develop solutions that fit them. Emerging multinationals have also used novel strategies to enter and conquer developed markets. One good example is Chinese Haier which was able to establish strong market presence in the United States from humble beginnings (Guillen and García-Canal 2012). Haier started their operations in the US by targeting the compact refrigerator market dominated by college students. Later, Haier introduced wine coolers and other products targeted at niche markets. As its market grew, Haier gradually introduced its entire product line in the US. Today, Haier is the largest manufacturer of household appliances in the world. Other examples of emerging markets multinationals that have used novel strategies to break into developed markets include Modelo; a Mexican Brewer (Guillen and García-Canal 2012). References Arabian Industry 2015,Pictures: The 25 biggest contractors in the world,accessed 16 April 2016,,http://www.arabianindustry.com/construction/photos/2013/jun/20/pictures-the-25-biggest-contractors-in-the-world-4349865/ Guillen, M. and García-Canal, E., 2012. Emerging markets rule: Growth strategies of the new global giants. McGraw Hill Professional. Schuman, M. 2015, Emerging Markets Are Still the Future. Bloomberg BusinessNews , September 3, 2015, accessed16 April 2016, http://www.bloomberg.com/news/articles/2015-09-03/emerging-markets-are-still-the-future Talley, I 2016, Why Emerging Markets Are Melting Down, and Why It Matters, in 10 Charts, The Wall Street Journal, January 7, accessed 16 April 2016,, http://blogs.wsj.com/economics/2016/01/07/why-emerging-markets-are-melting-down-and-why-it-matters-in-10-charts/ Ying, F., 2008, The rise of emerging market multinationals and its impact on marketing. Marketing Intelligence & Planning, 26(4), pp.1-11 Read More