Summary Notes for Emerging Markets Course at University

MN20599
Business & strategy in emerging markets

Lecture 1
Introduction to the course

Who are the Emerging Markets?




- BRIC: Brazil, Russia, India, China
- New Frontier Economies: Chile, Egypt, Indonesia, Malaysia, Mexico, Pakistan, Peru,
Philippines, South Africa, Thailand, Turkey
o Frontier markets are less than capital markets in the developing world
o Countries that are more established than the least developed countries but
still less established than the emerging markets.
o Also known as “pre-emerging markets”
- Collectively, emerging markets are also developing countries

,Varied classification




Different index have different interpretations of what an EM is

https://www.ftserussell.com/blogs/what-we-mean-emerging
https://www.msci.com/market-classification
https://frontera.net/news/2-what-constitutes-an-emerging-market/
https://www.spglobal.com/spdji/en/indices/equity/sp-emerging-markets-core/
#overview
https://www.goldmansachs.com/what-we-do/investment-management/private-wealth-
management/intellectual-capital/isg-insight-2013.pdf

What are the characteristics of the emerging markets?
 Fast economic growth
 Liberalisation of trade, integration of countries in
 Fast industrialization
 Poor infrastructure development but improving
 Political instability
 High workforce
 Market potential
 High investment return
 Information asymmetry

Do you feel secure when buying a used car in your country?

Differences between developed markets and EMs

,- Doing business in EMs
o Less efficient
o Low quality of production
o Poor infrastructure
o Lack of expertise, need more time to learn
o Takes longer

- Features of well-functioning markets
o Greater degree of transparency
o Relatively low transaction costs
o Shorter time period to complete transactions

Defining EMs

Emerging markets: countries experiencing a transition phase from developing markets
to developed markets due to rapid growth and industrialization

Features:
- Started an economic reform process aimed at alleviating problems, e.g., poverty,
poor infrastructure, and overpopulation
- Achieved a steady growth in GDP per capita
- Increased integration in the global economy
- New challenges: economic growth slow down, political uncertainty



Institutional features in EMs

- Challenges in EMs:
o Uncertainty
o Information asymmetry
o High transaction cost
o Lengthy bureaucratic process
o Relationship-based transaction
 Negative externality
 Exclude everyone who isn’t in the relationship
 Not based on the competition or the capabilities
o Buyer and seller are not easily or efficiently able to come together

But why should we still do business in EMs?

, Lot of issues in EM (huge inflation, government power, lots of money, unemployment)
But high growth

OECD video:
Growth stronger and faster in emerging markets than in the developed countries of the
OECD
China which produces 17% of global GDP today is expected to pass the US and become
the world’s biggest economy with 28% of the global GDP in 2030
China and emerging countries’ fast development will be driven by a better educated and
more productive workforce


Learning achievements: example

- Attain familiarity with business contexts in EMs, understand business opportunities
and challenges
o e.g., What are some new business opportunities arising from changes in
EMs?

- Develop analytical and creative skills to support decision-making in these contexts
o e.g., As a manager, how are you going to negotiate deals with your Chinese
business partners?

- Develop solutions to strategic and operational challenges in these contexts
o e.g., Discuss the criteria involved in selecting partners in EMs
o How do MNEs compete in EMs?