MARY THE QUEEN COLLEGE (P)

Institute of Business Education

Guagua, Pampanga

International Business and Trade

JESSIE D. MANAPSAL, Ph.D.

Professor
 C 4 Emerging Markets vs. Mature Economies

• One of the trends gaining popularity these days in business management

is the homogenization of the consumer. It is said that because of advances
in communication technology which allows people from different continents
to see the trends and developments in other regions, there is greater
convergence in the behaviour of consumers. Consequently markets can
be the approached with a single strategy in this scenario. There are,
however, real and tangible boundaries between markets, or countries, that
a manager has to be wary of. Differences in the stages of society’s
economic and cultural development are still real. These require a different
approach in the manner business is done.
 C 4 Emerging Markets vs. Mature Economies

• What is Emergent with Emerging?

• Much of current mainstream media and business literature use the term
emerging markets very liberally to refer to the more talked about
developing economies like the group collectively called as BRIC Brazil,
Russia, India and China), or the then tiger economies of Southeast Asia or
even the rising bloc of the Eastern European nations.
• Emerging market economies (EME) are economies in transition. They are
in the process of moving to a more liberal economic system while at the
same time trying to build accountability within. Economic reform programs
are being or will be implemented leading to a stronger and more
responsible economic performance level, transparency and efficiency in
the capital market.
 C 4 Emerging Markets vs. Mature Economies
• An EME is also most likely a recipient of aid and guidance from wealthier
countries or organizations like the World Bank and the International
Monetary Fund. As the country starts to build confidence in the local
economy, it experiences an increase in both its local and foreign portfolio
and direct investments. This is a signal that the rest of the world has taken
notice. Emerging markets provide opportunity for investors who looking to
add some risk to their portfolios while expecting higher returns.
• EME are also vulnerable to currency speculations because of the potential
political disorder, or simply the loss of faith in the risk in the financial and
banking system. Still, foreign investors establish businesses in EME as
they provide an opportunity for expansion, either as a place for a new
factory, or for new sources of revenue. Emerging economies embrace and
accept the overseas business because of the perceived benefits such as
additional employment, transfer of labor, and managerial skill, as well as
technology know-how.
 C 4 Emerging Markets vs. Mature Economies

• The Global Economic Power Shift

• Over the past years, countries metamorphosed and experienced very rapid
structural changes, narrowing surely, if not slowly, the income disparities
between the rich and the poor countries. During the past decades,
emerging markets have integrated en masse into the world economy. Their
experiences have been similar usually export led economic development,
and then followed by a spike in their domestic demand, leading to growth
and development. In the longer term, the path to development these
countries have taken may give way to separation in the event of a global
adjustment in demand. Signs of these were seen in 2008 as the global
crisis adversely affected the export markets of several emerging
economies. Countries with relatively easier access to overseas markets, or
have a vast reserves of resources that still needed or possess large
domestic markets are the most likely to be protected from a crisis of any
kind.
 C 4 Emerging Markets vs. Mature Economies

• The World Bank and the International Monetary Fund

• There are several organizations and mechanisms that developed
countries, or even developing countries themselves, use to organize and
raise funds to channel aid. The effort could be unilateral, as in the of the
United States Agency for International Development (USAID). It could be
multilateral, like the Asian Development Bank (ADB). Also resources could
come from the private or the public sector. However, there remain still two
main international economic development economies – the World Bank
and the International Monetary Fund, both formally established in 1944,
and also collectively known as the Bretton Woods Institutions.
• Since the 1950’s, the World Bank (WB) has been providing financial aid
and loans to developing countries for poverty alleviation programs,
structural adjustment, rural development schemes, training bureaucrats
and for improving infrastructure.
 C 4 Emerging Markets vs. Mature Economies

• The International Monetary Fund (IMF) initially was mainly for preserving
global financial stability between 1950 and 1970. After the 1970’s oil crisis
however, the IMF also started to provide financial aid and conditional loans
to developing countries to foster economic growth (Bumba, 2008).
• Over the years, both institutions have provided vast amounts of aid and
loans.

• The goals adopted by the United Nations as part of the Millennium

Development Goal, these are:
• 1. Eradicating hunger
• 2. Achieving universal education
• 3. Empowering women
 C 4 Emerging Markets vs. Mature Economies

• 4. Reducing child mortality

• 5. Improving maternal health
• 6. Combating HIV/AIDS and other diseases
• 7. Ensuring environmental sustainability
• 8. Developing a global partnership for development

• It is not surprising that both the IMF, and the WB, enthusiastically endorsed
these goals, since these are aligned to the organizations’ goals of
economic development and poverty reduction.
 C 4 Emerging Markets vs. Mature Economies
• Winning Emerging Markets
• Complexity is the daily life of our international business manager. While not all
would be exposed to the high-stakes role of managing multiple markets and
being constantly cognizant of their differences, most, if not all managers, would
have interaction with different teams from across several countries. Knowledge
of what the more common differences could be that colleagues work in can
provide insights and improve overall team dynamics at the very least.

• Consumer Behavior
• Consumers and customers from mature economies have more spending
power, and therefore high priced luxury items are more appealing to them than
to developing country consumers. The former are also more sophisticated.
Their sales and product decisions may be beyond the product and the sales
process.
 C 4 Emerging Markets vs. Mature Economies

• Consumers from developing countries may not all be conscious about

brands. They may not even aware of the global brands. There is less
brand loyalty and value for money is a big consideration.

• Manpower Skills and Educational Levels

• The skill sets of people can also vary depending on the level of importance
respective governments put on education among other factors.
Multinational and international businesses promote diversity and improve
skill set levels of their employees through cross-posting, training, job
rotation, or job enhancement. A good human resource management
strategy needs to consider the quirks of different markets and cultures to
leverage these differences to the organization’s advantage.
 C 4 Emerging Markets vs. Mature Economies

• Attitudes towards Technology

• Emerging markets are often behind in the technology investment curve.
However, this situation is changing. Emerging market countries are
increasing their technology expenditures relative to mature markets.
Already by 2009, the ten largest emerging markets are expected to spend
558 billion US dollars on IT and telecommunications
• Readiness of infrastructure is a closely related matter. In a specific firm
example, investments to automate a process that makes economic sense
in one market may not be practical in another. Operations and processes
in transitional economies tend to prefer the more manual intensive since
labour costs may be relatively lower, in general, and investments towards
automation may just not be possible.
 C 4 Emerging Markets vs. Mature Economies

• The Role of Government, Bureaucracy and Cost of Doing Business

• The role of the government plays in the markets has been discussed.
Mature economies tend to be more open and capitalistic with the rules of
the game clearly stated out. Transition economies are often still struggling
to establish institutions and policies in place and this can be a challenge to
the international business manager.

• Industry Attractiveness
• Because emerging countries are still in the starting point of their growth
paths, some industries pose an inherent attractiveness. Among emerging
markets in general, the brightest opportunities for growth come from the
following:
• 1. Financial and consulting services
 C 4 Emerging Markets vs. Mature Economies

• 2. Four Fs: Food, Fashion, Furniture, Fun

• 3. Triple Ts: Transport, Telecommunication, Tourism
• 4. Infrastructure
• 5. Consumer durables
• 6. IT-enabled and IT services
• 7. Logistics and retailing
• 8. Health care and medical tourism
• 9. Education
• 10. Construction and real estate
 C 4 Emerging Markets vs. Mature Economies
• The PESTEL Framework
• PESTEL is simply acronym for the different forces that a business needs to consider as
part of its due diligence. Some of the forces to be discussed have already mentioned in
the chapter on Markets and Government but for completeness these will be covered in
brief.

• Political forces
• Some of the things to be considered are:
• 1. Ideological beliefs: communism, socialism, capitalism, liberal, conservative, left wing
or right wing.
• 2. Governments, political parties and people
• 3. Government ownership of business and extent of trade liberalization in all or selected
industries.
• 4. Nationalism is the collective emotion that can cloud or even prevent rational dealings
with foreigners and can manifest in.
 C 4 Emerging Markets vs. Mature Economies

• Economic and Socioeconomic Forces

• Socioeconomic data provide information on the number and profile of the
people. Economic dimensions tell us whether these people have
purchasing power. It is not enough that current information on the above is
available. One should be able to plan for the future and predict trends.
Professional resources are available readily for this purpose. Assessment
and forecasts need to be done on the economic conditions at the national
and international levels to appraise the overall outlook of the economy, and
to assess the impact of economic changes on the firm.

• Socio-cultural forces
• Culture is the sum total of the beliefs, rules, techniques, institutions, and
artifacts that characterize human populations. It is learned, not innate
 C 4 Emerging Markets vs. Mature Economies

• Culture affects all business functions in:

• 1. Marketing
• 2. Human Resource Management
• 3. Production and Finance

• Legal forces
• International business is affected by many types of laws and regulations on
multiple subjects that have been issued by states, nations, and international
organizations.

• Common considerations in Legal forces

• 1. Taxation
 C 4 Emerging Markets vs. Mature Economies

• 2. Anti-Trust
• 3. Tariffs and custom duties
• 4. Trade quotas
• 5. Health packaging requirements
• 6. Product liability
• 7. Business contracts
• 8. Intellectual properties

• Labor forces
• Perhaps labor is the most important consideration in establishing a
business in any territory, if managers truly believe that the most valuable
resource a company can have is still human capital.
 C 4 Emerging Markets vs. Mature Economies

• The dimensions for evaluation of the labor force include:

• 1. Labor quality
• 2. Labor quantity
• 3. Labor mobility
• 4. Labor productivity
• 5. Unit labor cost
• The other dimensions concerning labor may overlap with the social cultural
forces. Sensitivities towards social status, gender, or race have to be
carefully put in place.
• Another important consideration relating to labor is concerning Labor
Unions. In Germany, the worker’s union wields a strong influence on the
labor laws and practices for the country.
 Reference

• Mondejar, R. et al (2010), Introduction to International Business and

Globalization, Manila, SINAG-TALA Publishers
Thank you!