Table of Contents
In the last few years, emerging markets have been gaining increasing attention as key actors in global economic growth. These rapidly expanding economies have grown to represent 59 percent of worldwide GDP, and major opportunities in emerging markets have seen then becoming magnets for foreign investments.
Emerging markets are generally defined as those economies that are transitioning into developed status, characterized by having a unified currency, stock market and banking system.
They are generally going through industrialization, while their rapid recent economic expansion has seen them become home to fast-growing populations of middle class consumers.
Which countries are emerging markets?
According to the Emerging Market Index, published by Morgan Stanley Capital International (MSCI), 24 countries are defined as emerging markets.
These include Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, South Korea, Kuwait, Malaysia, Mexico, Peru, the Philippines, Poland, Qatar, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey and the 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 pool
Over 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.
Emerging 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 instability
Emerging 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.
A partner for expanding your business into emerging markets
If you want to take advantage of emerging market opportunities, you need to comprehend the culture, understand the language and get to know every regulation of your destination. For this reason, it is essential to partner with an International PEO when seeking to enter into brand new markets.
With an International PEO, you will have support from local experts who know exactly how the economic and political landscape works―particularly when it comes to hiring local talent. An International PEO makes it easier to visualize the panorama of opportunities and challenges for your business.