Emerging Markets

Topics: Emerging markets, Developed country, Developing country Pages: 6 (1831 words) Published: April 20, 2013
BusinessDictionary.com defines an emerging market as,

“New market structures arising from digitalization, deregulation, globalization, and open standards, that are shifting the balance of economic power from the sellers to the buyers. In such markets information is freely and widely available, and is almost instantly accessible. To compete in these scenarios, a firm must adopt new processes based information technologies, and must keep a close watch on the price, quality, and convenience trends.”1

While this definition seems quite convoluted, emerging markets can be summarized as “nations with social or business activity in the process of rapid growth and industrialization.”2 This generalization may seem to be somewhat broad, but when the two are combined we can get an understanding of what exactly is going on with emerging markets and how they are differentiated from developed markets.

Essentially in looking at these definitions, there are four major characteristics. The first is that they have large populations and thus are regional economic leaders, due to their large markets. This is key as emerging markets are transitioning to consumer based economies, and thus need to have enough people to support consumerism. The second is that they are in transformation socially and politically in order to drive these changes. Emerging market politics is moving away from high government intervention and regulation. The third aspect is that they are they are the fastest growing economies in the world. And lastly, they are playing a more vital role in the world’s political, economic and social affairs.3 With this in mind, it is important to focus on growth, and as such, the role that politics and government play in creating these markets. It seems to be a choice from the emerging country’s government that allows for Foreign Direct Investment (FDI) and thus allows for the growth that is needed to become a consumer society.

Growth Factors
Since 2001, annual growth in emerging markets has averaged 6.4%. In contrast, rich economies have averaged 1.6%. We can see positive relationships that exist between economic freedom, inflation, and employment. Economic freedom pays social dividends, and positive relationships can be seen between economic freedom and life expectancy, literacy, political openness, and environmental sustainability. Collectively, the data indicates a positive relationship between economic freedom and various measures of economic performance and quality of life. Countries have increasingly abandoned the policies of state control and adopted the principles of capitalism and the practices of economic freedom. Throughout the world, governments have deferred to the laws of supply and demand—the invisible hand of the marketplace rather than the visible hand of politicians—to anchor the philosophy and regulate the practices of their economic environments. The global financial crisis has disrupted interpretations, and as a result, in emerging economies, criticism of economic freedom has turned to praise for its virtues.4 The primary factors that explain this growth of emerging markets can be summarized as follows: * The global financial crisis has slowed and shrunk many developed economies. In the West, it has reset the game, triggering market reforms and tighter regulation. In the East, it has endorsed growing government involvement in allocating resources. * Emerging markets see opportunity in every difficulty rather than difficulties in every opportunity. * Countries with emerging economies advocate different views of trade and investment regulation. * Diminishing roles of rich economies are coupled with the accelerating scope of emerging economies. * Developing countries have an ambition to improve infrastructure, increase productivity, create jobs, and alleviate poverty. * Emerging economies are reinventing systems of production and distribution as well as experimenting with entirely new...
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