If you ask a conference room full of business executives how they would distinguish emerging markets from developed economies, variants of three stories will likely arise. Emerging markets such as Brazil, China, India and Russia, some will certainly say, are emerging by virtue of their recent fast economic growth.
The opening of these large economies to global capital, technology, and talent over the past two decades has fundamentally changed their economic and business environments. As a result, the GDP growth rates of these countries have dramatically outpaced those of more developed economies, lifting millions out of poverty and creating new middle classes–and vast new markets for consumer products and services. Large, low-cost and increasingly educated labor pools, meanwhile, give these markets tremendous competitive advantage in production, and information technology is enabling companies to exploit labor in these markets in unique ways.
Other executives will focus on emerging markets as emerging competitors. On the macro level, a landmark*Goldman Sachs*report published in 2003 forecast that the economies of Brazil, China, India and Russia could grow to be collectively larger than the G-6 economies (United States, Japan, United Kingdom, Germany, France and Italy) in U.S. dollar terms before the middle of the twenty-first century.
Commentator Fareed Zakaria sees this “rise of the rest” as a transformative, tectonic shift in the distribution of global power. Companies based in these economies, meanwhile, are already challenging multinationals based in the developed world–and not only in their home emerging markets. China-based*Lenovo*‘s purchase ofIBM*‘s personal computer business in 2004 and the acquisition of Jaguar and Land Rover by India’s*Tata Motors*in 2008 are only two examples of the increasing global mergers and acquisitions activity by emerging market-based firms. Some observers see the financial crisis of 2008–2009 as an inflection point, accelerating the emergence of these markets as dominant players in the global economy.
A deeper discussion might elicit a list of the persistent headaches of doing business in emerging markets. These markets, the executives might say, are prone to financial crises. Intellectual property rights are insecure. Navigating government bureaucracies can be thorny. Product quality is unreliable. Local talent is insufficient to staff operations. Reliably assessing customer credit is difficult. Overcoming impediments to distribution can be frustrating. Sorting through investment opportunities or performing due diligence on potential partners is often a guessing game. Others might throw up their hands and say that corruption is so endemic in emerging markets that the risks simply outweigh the potential rewards.
Based on many of these signs of emergence, some might say, emerging markets are not distinctly different from other markets; rather, they are simply starting from a lower base and rapidly catching up. Indicators such as the growing numbers of emerging market-based companies listed on the New York Stock Exchange or the*growing ranks of billionaires from emerging markets*listed annually by Forbes illustrate this trend.