While no generally agreed upon definition for emerging markets exists, the term refers to low-income countries which generally have a rapid pace of economic development and where government policies favour economic liberalization (Hoskisson et al, 2000).
These markets not only do some have high economic growth rates but nearly all have high population growth rates (Reynolds, 2006).
Some countries can be identified as big emerging markets. According to the World Bank, the five biggest emerging markets are China, India, Indonesia, Brazil and Russia. Other countries that are also considered as emerging markets include Mexico, Argentina, South Africa, Poland, Turkey, and South Korea.
Department of Commerce estimates that over 75 percent of the expected growth in the world trade over the next two decades will come from the more than 130 developing and newly industrialized countries; a small core of these countries will account for more than half of that growth. Commerce researcher also predict that imports to the countries identified as big emerging markets, with half of the world’s population and accounting for 25 percent of the industrialized world’s GDP today, will by 2010 be 50 percent of that of the industrialized world (Cateora et al, 2006).
World Bank has estimated that if current trend continue, by 2020 the Chinese economy could be larger than that of the United States, while the economy of India will approach that of Germany (Economist, 1994).
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CHARACTERISTIC OF EMERGING MARKETS
Emerging markets stand out due to a number of major characteristics. Certain of these may well apply to other markets as well, but an emerging market generally carries a large number of these features. The main characteristics of big emerging markets can be summarized as follows:
a) high growth rate:
Emerging markets generally enjoy high growth rates which are often perceived as attractive by investors, although some countries usually described as emerging do have even shrinking economies (Arnold et al, 1998).
According to Bridgewater (et al, 2002), emerging markets, such as China, which had the fastest growing, and India, the second fastest growing GDP in the world, represented attractive investment opportunities. That is to say, they are the world’s fastest growing economies.
b) High level of risk and extremely volatile:
The second feature of emerging markets, beyond the opportunity they represent for business growth and high returns, is that they entail greater risk that do mature markets. In other words, the strong growth potential of many emerging market economies is accompanied by volatility and high risks (Hitt et al, 2000).
Although market potential in emerging markets is high, this may be realized only in the long term, but in the short term, international entrants face high levels of uncertainty and turbulent market conditions (Bridgewater et al, 2002).
In brief, emerging markets are difficult places to do business. There are often complex regulations and difficult bureaucracies. Information is scare and enforcing contracts takes time. To put it more simply, they entail volatility and risk.
c) High population:
The market potential of these big markets in terms of population size is immense. As mentioned before, these countries constitute approximately 75 % of the global population. For instance, China’s overall population exceeds 1.3 billion, about one-fifth of the world’s population.
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d) Regional economic drivers and major political importance:
Big emerging markets are regional economic powerhouses with large populations, large resource bases, and large markets. Their economic success will spur development in the countries around them; but if they experience an economic crisis, they can bring their neighbors down with them.
Within their regions, they have also major political importance. Furthermore, they are critical participants in the world’s major political, economic, and social affairs. They are seeking a larger voice in international politics and a bigger slice of the global economic pie.
e) Have undertaken significant programs of economic reform:
Emerging markets have embarked on economic development and reform programs, and have begun to open up their markets and emerge onto the global scene. They are characterized as transitional, meaning they are in the process of moving form a closed to an open market economy while building accountability within the system.
That is to say, they are transitional societies that are undertaking domestic economic and political reforms. They adopt open door policies to replace their traditional state interventionist policies that failed to produce sustainable economic growth.
f) Large markets:
The unmet needs of the emerging or developing world represent huge potential markets (Kotler et al, 2005).
Many of these countries lack modern infrastructure, much of the expected growth will be in industrial sectors such as information technology, environmental technology, transportation, energy technology, healthcare technology, and financial services (Cateora et al, 2006).
In brief, they represent considerable markets for a wide range of products, and there is no doubt that they will become more significant buyers of goods and services than industrialized countries.
g) Others:
Other characteristics of big emerging markets are as follows: they are all physically large, and they will engender further expansion in neighbouring markets as they grow (Cateora et al, 2006).
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References
Arnold, D.J., and Quelch, J.A (1998), “New Strategies in Emerging Markets, Sloan Management Reviews, Fall, p.7-20
Bridgewater, S, and Egan, C. (2002), “International Marketing Relationships”, Palgrave, p.231
Cateora, P.R., and Ghauri, P.N. (2006), “International Marketing”, European Edition, McGraw-Hill, p.250-273
Economist (1994), “War of the Words”, A Survey of the Global Economy, October 1, p.3-4
Hitt, M.A., Dacin, T.M., Levitas, E., Arregle, J., and Borza, A. (2000), “Partner Selection in Emerging and Developed Market Contexts: Resource-Based and Organizational Learning Perspectives”, Academy of Management Journal, 43 (3): p. 449-467
Hoskisson, R.E, Eden, L., Lau, C.M., and Wright, M. (2000), Academey of Management Journal. 43(3): p.267-294
Kotler, P., and Keller, K.L. (2005), “Marketing Management”, 12th Edition, Prentice Hall, p.668-675
Reynolds, P. (2006), “Lecture Notes”
