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In the last few years, emerging markets have been gaining increasing attention as key actors in global economic growth. They have become powerhouse economies for foreign investments as they represent 59 percent of the total global gross domestic product (GDP).
What Countries are Emerging Markets?The Morgan Stanley Capital International Emerging Market Index considers 26 countries as emerging markets. These include Brazil, China, India, Mexico, South Africa, Argentina, Colombia, Czech Republic, Greece, Hungary, Egypt, Russia, Indonesia, Korea, Pakistan, Chile, Peru, Malaysia, Philippines, Poland, Qatar, Thailand, Saudi Arabia, Taiwan, Turkey, and United Arab Emirates.Certainly, companies from all over the world are seeking out valuable business opportunities in emerging markets, identifying a greater potential for success due to their rapid growth. According to the International Monetary Fund (IMF) forecast, emerging countries are expected to grow faster than their developed counterparts; being at 4.8 percent in 2020 versus 3.6 percent, respectively.However, these markets are vulnerable to other risks. So, if you want to venture into emerging markets, you must take into account the following challenges and opportunities.
New Consumers and a Wide Talent PoolOver the past decades, major emerging markets have experienced a booming in their population. In fact, sixteen out of the twenty largest cities in the world are considered as emerging markets―cities like Jakarta, Delhi, Manila, Shanghai, Beijing, Sao Paolo, Mexico City, among others.Furthermore, the Organization of Economic Cooperation and Development (OECD) has estimated that middle-class spending in emerging economies will boost by 2030; going from a global consumption of 25 percent in 2009 to almost 70 percent in the next 11 years. This represents a great opportunity for your business to acquire new consumers as well as talented workers for your economic growth. Additionally, there is a higher probability of achieving a good return on investment.
International TradeEmerging markets offer multiple advantages when it comes to international trade. For example, in Latin America, countries like Brazil, Mexico, Chile, and Argentina have represented more than 70 percent of all the exports and imports to international markets during the past fifteen years.Nevertheless, if you want to take advantage of international trades, you must identify the main trading alliances and the top exports of each emerging market. For instance, Mexico is considered as the 9th largest export economy worldwide, resulting in a great exporter of products such as vehicles, electrical machinery, crude petroleum, and more.
Economic, Political and Cultural InstabilityEmerging economies are exposed to various risks as they need to keep improving in terms of economic and political stability. Some of these countries present different challenges at various levels, for example:
- Tax complexity.
- Imposing regulations and laws (bureaucracy and corruption).
- Challenges when trading across borders.
- Financial infrastructure deficiencies.
- Unstable political climates.
- Lack of regulatory frameworks.