Emerging Markets: Opportunities & Challenges

Guides

02 March 2023 • 8 min read

Emerging Markets: Opportunities & Challenges

Raghav Sand

By taking a strategic and flexible approach, businesses can capitalize on the opportunities presented by emerging market economies' dynamic and rapidly evolving markets.

Emerging market economies are countries that are experiencing rapid economic growth and development.

Emerging market economies can be found in different regions of the world, including Asia, Africa, the Middle East, and Latin America. They are generally considered to be at an early stage of economic development than advanced economies, such as the United States, Japan, or Western Europe. These countries often have the potential to become major economic powers in the future, and are typically characterized by a growing middle class, improving infrastructure, and a relatively open business environment.

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The term "emerging market" was coined in the 1980s by the International Finance Corporation (IFC), a member of the World Bank Group. The IFC used the term to describe countries with low to middle per capita income that were seeking to modernize their economies and become more integrated into the global economy.

While there are many opportunities for businesses in these markets, there are also several challenges that must be considered. Here are some of the main opportunities and challenges of doing business in emerging market economies:

Opportunities:

  • Growing consumer markets: Emerging market economies often have large and rapidly growing consumer markets. As incomes rise, consumers in these markets are increasingly able to afford products and services that were previously out of reach.
  • Low labour costs: Many emerging market economies have low labour costs, which can be attractive to businesses looking to reduce their costs and increase their competitiveness.
  • Access to natural resources: Many emerging market economies are rich in natural resources, which can be an asset for businesses in industries such as mining, energy, and agriculture.

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  • Strategic location: Emerging market economies are often strategically located, providing access to key markets and transportation routes.
  • Innovation: Emerging market economies are often characterized by a culture of innovation, as businesses and entrepreneurs seek to overcome challenges and take advantage of opportunities in these dynamic markets.
  • Early-mover advantage: Businesses that enter an emerging market early can establish a strong brand presence and build customer loyalty, giving them an advantage over later entrants.
  • Local partnerships: Partnering with local businesses and entrepreneurs can help companies navigate local regulations, cultural differences, and business practices.
  • Government incentives: Governments in many emerging market economies offer incentives to attract foreign investment, such as tax breaks, subsidies, and special economic zones.

Challenges:

  • Infrastructure: Many emerging market economies have poor infrastructure, which can make it difficult to transport goods, communicate with customers and suppliers, and access reliable sources of energy and water.
  • Regulations: Regulations in emerging markets can be complex and difficult to navigate. Compliance with local laws and regulations can be time-consuming and expensive, and failure to comply can result in legal and financial penalties.
  • Lack of skilled labour: Many emerging market economies have a shortage of skilled labour, which can make it difficult to find qualified employees. This can also lead to high turnover rates and increased training costs.

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  • Currency risks: Emerging market economies often have volatile currencies, which can create risks for businesses that operate in these markets. Exchange rate fluctuations can impact the cost of goods, profits, and cash flow.
  • Lack of legal protection: Many emerging market economies have weak legal systems, which can make it difficult to protect intellectual property, enforce contracts, and resolve disputes.
  • Cultural differences: Cultural differences between the home country and the emerging market economy can make it difficult to establish effective business relationships and communicate with customers and employees.
  • Corruption: Corruption is a common problem in many emerging market economies and can create challenges for businesses in areas such as licensing, permits, and customs clearance.
  • Political instability: Emerging markets are often characterized by political instability, which can make it difficult to do business. Changes in government, corruption, and political unrest can all have a negative impact on business operations.
  • Access to financing: Many emerging market economies have underdeveloped financial systems, which can make it difficult to access financing for business operations and expansion.

Summary

Overall, doing business in emerging market economies can be challenging, but it also offers significant opportunities for businesses that are willing to take on the risks and invest in these markets. Success in these markets requires careful planning, local knowledge, and a willingness to adapt to the unique challenges and opportunities that arise in each market.

Today, emerging market economies are home to some of the world's fastest growing and most dynamic businesses and are attracting increasing attention from investors and multinational corporations seeking new opportunities for growth and expansion.

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