Emerging markets represent a real potential for entrepreneurs and investors wishing to expand their activities abroad. However, venturing into an emerging market can be as risky as it is advantageous. Ian Herbison, CEO of Speyside, a consultant and emerging market specialist, talks to Expat.com about the strengths and weaknesses of key emerging markets.
Which are the biggest emerging markets at the moment, and what are the conditions that have seen them rise to the top of the pack?
Understanding of what is and isn't an emerging market varies widely. By any measure China is at least the world's second largest economy, and by some measures, it has overtaken the USA to be number one, but for many, it still does the hallmarks of an emerging market, and I would agree with that.
Alongside China you have the other BRICs; Brazil, Russia and India that are also in the top bracket. What has made them successful? There are huge differences between each of these countries. Petro chemicals have driven Russia's rise and Brazil is also very heavily driven by commodities. But what they all have in common is demographics: large populations, rapidly urbanizing, and a growing domestic middle class. This has been key to their success.
Which emerging markets were historically viewed as having a lot of potential but have stagnated? In your opinion, why is this the case?
When this question comes up I always think first of Argentina. In the late 1800s and early 1900s, Argentina was one of the most highly educated countries in the world and one of the top three trading nations in the world. However, in the last fifty years, its strong position has been reversed by bad politics and policy. Much more recently there is a serious risk that the gains made since the fall of the Berlin Wall in Hungary and Poland may be reversed by bad politics and policy.
In Africa too, many commentators talked excitedly about the “African Rise” – that the continent's time had come – then a blend of bad politics, governance, and the commodities crash made growth stagnate. It is not inevitable that emerging markets will emerge.
How do big companies and small businesses benefit from entering emerging markets?
Many emerging markets are characterized by a fast growing middle class, fast changing consumer habits and a lack of developed infrastructure, products and services. In other words, inadequate supply, latent demand and great opportunities for the right market entrants.
What are the industry sectors that are currently thriving in some of the larger emerging markets?
Traditionally many EMs have been dominated by oil and gas, mining, metals and agriculture commodities. However, it is B2B and B2C companies that are seeing the fastest growth. Healthcare, financial services, consumer goods and IT and Communication sectors have tremendous potential.
What are some of the issues companies and organizations frequently face when they enter emerging markets? And what are the biggest changes they have to deal with if they are moving from a developed market?
Major challenges include the complexity and bureaucracy involved with doing business and the problem of navigating corruption. That said, many of our clients — major multinational companies — have a much easier time avoiding bribery and corruption issues than their local counterparts, as partners and customers know that MNCs would rather walk away than acting corruptly. Bureaucracy, regulatory and political risk are key.
