Emerging markets are countries with thriving economies such as China and India. Today, there is middle class in emerging markets, which has created target markets for firms (Ernst & Young 2). The large numbers of middle class in emerging markets with disposable incomes provide huge markets for firms.
This is suitable for investments because EMs provide stronger potentials for growths. Beyond the BRIC (Brazil, Russia, India, and China), there are still other emerging markets that firms can exploit for economic advantage.
Emerging markets have fast developing infrastructures that can support manufacturing bases. Manufacturing bases are the strongest drivers of today’s global economies as witnessed in the China’s manufacturing sector.
EMs have attractive markets from the middle class, raw materials, affordable labour, natural resources, and low costs of manufacturing. Hence, investors find EMs attractive for business (Cavusgil, Knight and Riesenberger 265).
Most firms in advanced economies have resorted to transfer or delegation of non-critical aspects of operations to other specialised workers in foreign countries. India, Philippines, and South Africa have emerged as the most preferred sourcing destinations. Multinational firms consider sourcing practices as value-adding practices. Moreover, such firms become efficient, enhance competitive advantage, and focus on their core competencies.
The Boston Consulting Group notes that EMs are the ‘hotbed’ for builders or acquirers of global branches (Boston Consulting Group 1).
The focus of merger and acquisition (M&A) is on energy and natural resources, satisfying the rising demands of the middle class, meeting technology and management challenges, and as a platform for global expansions. M&E is now common in BRICs and other countries with potential to support global expansions. Starbucks, Unilever, and Cardinal Health are some of the multinational firms that have sought M&E in EMs.
Karolyi, Ng, and Prasad have noted that investors or financiers in the advance economies have increasingly focused on EMs as they invest their funds in overseas assets (Karolyi, Ng and Prasad 33). For instance, there are massive capital inflows and capital account surplus in China. The country has “higher exports than its imports, has trade surplus and inflows of private capital” (Karolyi et al 33).
While EMs present good business opportunities for expansion, there is also a considerable influence on the environment as firms in EMs put pressure on the world resources. Today, China has the highest number of polluted cities in the world due to its thriving manufacturing sector.
Moreover, the country has focused on massive exploitation of oil and coal resources to fuel its growth. Conversely, Western firms in EMs use modern technologies and equipment to protect the environment. For example, Arcelik must observe strict environmental regulation on usages of water and electricity in washers (Cavusgil et al 277).
Family conglomerates (FCs) are private and highly diversified businesses that are common in EMs. Consequently, FCs have become critical parts of the global business as other firms seek to expand their operations. Multinational firms have collaborated with FCs in overseas operations. Moreover, FCs also have extensive capital to invest in new ventures and several distribution channels.
Cavusgil and colleagues noted that Astra in Indonesia have their “own financing operations in the form of insurance companies, banks, and securities brokers” (Cavusgil et al 273) while others possess a deep understanding of local markets and consumers.
The essay has explored emerging markets and their critical roles in the global economies. It shows that EMs are important sources of sourcing, manufacturing, target markets, investments, and expansion, but they put pressure on the available natural resources and promote environmental pollution.
Boston Consulting Group. As the Pace of M&A Picks Up, Emerging Markets Stand Out. 29 Aug. 2013. Web.
Cavusgil, Tamer, Gary Knight and John Riesenberger. International Business: Strategy, Management and the New Realities 3rd ed. New York: Prentice Hall, 2010. Print.
Ernst & Young. Hitting the sweet spot: The growth of the middle class in emerging markets. The United Kingdom: EYGM Limited, 2013. Print.
Karolyi, Andrew, David T. Ng, and Eswar S. Prasad. “The Coming Wave: Private investors from emerging market economies increasingly put their funds in overseas assets.” Finance & Development 50.2 (2013): 30-33. Print.