The aim of the report is to describe the comparison between advanced economics, developing economics and emerging markets. Advanced economies refer to the developed countries that have high Gross Domestic Product (GDP) per capita level and significant extent of industrialization. Developing economies refer to the countries with less developed industrial base as well as low HDI (Human Development Index). Emerging markets also termed as emerging economies refers to the countries that invest in productive capacity (Cavusgil et al. 2014). These markets are important as they enhance growth in the global economy. The study also highlights on the factors that make emerging markets attractive to the international firms.
Recent study reflects that emerging market and developing economies have larger economies than advanced nations. The emerging markets have developing manufacturing base with proper infrastructure. In fact, they are the suppliers of natural resources to advanced manufacturing countries. Emerging markets are less affluent and have lower standard of living. Literacy in these markets is not high as compared to developed economies and has less economic as well as political stability (Cavusgil, Ghauri and Akcal 2012). Although the industrialization process in these emerging markets is the beginning, it has the potential for higher growth. On the other hand, developed economies have proper infrastructure as well as higher standard of living.
One of the differences between emerging markets and advanced economies is the earnings of the people, sometimes relates to per capita income (Mirzaei, Moore and Liu, 2013). In addition, investments in emerging markets carry potentially higher risk as compared to the developed economies. The developed economies tend to have higher GDP per capita income with respect to emerging markets. There are times when the emerging markets are heavily dependent on situation in developed economies. Even the income level of the people living in emerging nations is less as compared to advanced economies (Claessens and Yurtoglu 2013). However, when the global financial crisis hit developed economies, it adversely affected the emerging markets owing to fall in demand for products and services. Furthermore, the emerging markets attract flows of funds for longer term in comparison to advanced economies. The GDP growth rate estimation by IMF (International monetary Fund) reflects that emerging markets expands at faster rate with respect to advanced economies.
Figure 1: Growth of emerging market picking up
Source: (Chakravarty, 2017)
The above chart compares the growth between emerging market and developing economies with advanced economies from 1990 to 2017. It highlights that the growth rate in emerging markets increased during the years 2003-2007as compared to advanced economies. After the financial crisis, the growth rate in advanced economies had declined and hence the difference between advanced economies and emerging markets continued to be substantial. Even the shares of some advanced economies in world GDP that was 63.8% in the year 1990 decreased to 41.8 % in 2017. Moreover, the share of few emerging markets became bigger than that of the developed economies.
There are certain factors that make emerging markets attractive to the international firms. The emerging markets offer foreign firms opportunities for development through their available labor as well as ready market. In fact, these markets present the entities with permissive as well as well -structured market along with proper business environment. As the manufacturing platform, it provides proper manufacturing infrastructure to the firms (Chen and Yu 2012). In addition, the emerging markets present competent and cheapest labor forces to the international companies. Furthermore, it reduces the risk of the international firms as it diversifies their investment. Huge multinational companies such as Apple, Microsoft sought in investing in these emerging markets as it offers low corporation tax rates. The firms get attracted in these markets as they benefits from external economies of scale- growth of transport links as well as service sector. Apart from this, low non tariff barriers is another factor that attracts the international firms to expand their business in the emerging markets. Another factor that attracts the foreign firms in the emerging markets is less competitive business environment (Wild, Wild and Han, 2014). In addition, political as well as economic stability also facilitates the international firms in expanding their business and influx of Foreign Direct Investment (FDI) in the emerging markets. Stability represents predictability as well as opportunity for companies to gain good foresight for their future. Hence, the emerging markets help the international companies to grow at faster rate and attain higher profitability.
The above study shows that emerging market is one of the main driving factors for global growth. The emerging economies are highly susceptible to volatile swings in currency mainly dollar. This is because these economies do not have power in influencing these movements. Although there are several positive factors that attract international firms in emerging markets, there are few risks that is inherent while pursuing the opportunities. Therefore, the foreign firms must be aware of all characteristics of the emerging nation before expanding its business.
Cavusgil, S.T., Knight, G., Riesenberger, J.R., Rammal, H.G. and Rose, E.L., 2014. International business. Pearson Australia.
Cavusgil, S.T., Ghauri, P.N. and Akcal, A.A., 2012. Doing business in emerging markets. Sage.
Chen, C.J. and Yu, C.M.J., 2012. Managerial ownership, diversification, and firm performance: Evidence from an emerging market. International Business Review, 21(3), pp.518-534.
Claessens, S. and Yurtoglu, B.B., 2013. Corporate governance in emerging markets: A survey. Emerging markets review, 15, pp.1-33.
Mirzaei, A., Moore, T. and Liu, G., 2013. Does market structure matter on banks’ profitability and stability? Emerging vs. advanced economies. Journal of Banking & Finance, 37(8), pp.2920-2937.
Wild, J.J., Wild, K.L. and Han, J.C., 2014. International business. Pearson Education Limited.
Chakravarty, M. (2017). Advanced economies vs emerging markets. [online] https://www.livemint.com/. Available at: https://www.livemint.com/Opinion/ck1EMSGaPQvksrMeC45QsI/Advanced-economies-vs-emerging-markets.html [Accessed 27 Dec. 2017].
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