Emerging Economies: An Overview
Emerging economies, often referred to as emerging markets, represent nations that are in a transitional phase of economic development, characterized by increasing engagement in global business and industrialization. Prominent examples include Brazil, China, India, and Russia, as well as regions in Latin America and Africa, which are experiencing varied rates of growth and reform. The term "rapidly developing economies" is also used to describe countries like Chile and Malaysia, which are advancing at an accelerated pace.
In the early twenty-first century, emerging markets have become significant contributors to global economic growth, driven by their large populations, lower labor costs, and abundant natural resources. Unlike historical waves of emerging economies, which typically grew from wealthier backgrounds, current players often thrive in competitive domestic markets, making it challenging for established companies from the U.S. and Europe.
The BRIC nations, comprising Brazil, Russia, India, and China, are now at the forefront, with discussions of expanding this grouping to include other nations such as South Africa and Indonesia. These economies are increasingly competing in various industries, transforming global commerce and prompting American firms to adapt to a rapidly evolving market landscape. Despite facing challenges such as economic slowdowns and shifting trade policies, emerging economies continue to reshape the dynamics of international trade and investment.
Emerging economies overview
The term "emerging economy," or "emerging market," is used to describe a developing region of the world as it makes its first emergence into global business activity and industrialization. Developing nations such as Brazil, China, India, Russia, and parts of Latin America and Africa are examples of today’s emerging economies.
Another term, "rapidly developing economies," has been coined to describe regions that are experiencing accelerated growth. Chile, Malaysia, and the United Arab Emirates are examples of rapidly developing economies.
Economists describe the climate of rapid growth and globalization in the twenty-first century, along with the shrinking of the economic gap between first world and third world nations, as the most significant change in the world’s economic climate since the United States rose to lead the industrialized world over 100 years ago. These same economists warn that American companies will have to quickly learn how to compete with new entrants to the global market, many of which are able to undercut Western prices in part due to lower overhead costs and cheap labor.
Understanding the Discussion
Cross-cultural literacy: Familiarity with the effects of a nation’s culture on the way international business is conducted.
Emerging economies: Countries in a transitional period, usually with low-to-middle per capita income, and in the midst of developments and reforms to allow opening, or emergence for the first time into the global marketplace. Also known as emerging markets.
Exchange rate: The rate at which the currency of one nation is converted into that of another.
Free trade: A free flow of goods and services between nations.
Rapidly developing economies (RDE): Emerging economies that are growing at an accelerated pace.
World Bank: An international institution established in 1945 to make loans to developing nations with the stated intention of reducing global poverty.
History
More developing countries are entering the global marketplace simultaneously than ever before. These countries include former Soviet bloc nations that have opened their borders to free trade and allowed economic reforms. Economists note that emerging markets and developing countries also appear to be growing at the fastest pace since the 1970s, presenting both challenges and opportunities for nations, such as the United States, with experience in the global market. Emerging markets are the current largest contributor to overall worldwide economic growth.
American companies have faced competition from overseas before, but today’s emerging economies are growing with more speed and stability than nations have in the past, and they are transforming the rules of global commerce in the process.
Throughout the 1960s and 1970s, Western European corporations such as Germany’s Volkswagen emerged onto the global market. Later, Japanese companies such as Toyota and Sony entered the market, followed in the 1990s by South Korean firms Samsung and Hyundai. Nations emerged one at a time, and each time American companies were faced with increased competition. These businesses had enough time to react and respond to each newcomer. Adaptation and change were necessary for US products to survive and thrive in the global marketplace. However, some industry and product categories such as automotive and consumers electronic products are still dominated by non-US firms. In April of 2007, Toyota surpassed General Motors as the largest automaker in the world. Meanwhile, US consumers’ homes are filled with appliances and consumer electronics from Sony, LG, Samsung, and others.
In the past, as one newly developing region experienced dramatic growth, another experienced setbacks, ensuring that only one or two new competitors would rise at a time. Today, however, rapid economic growth is occurring throughout numerous emerging economies. Corporate America and the rest of the industrialized world view this new steady, evenly-spread growth as a serious threat.
The emerging economies of the early twenty-first century exhibit some key advantages that make them different from the rise of German, Japanese, and Korean companies in past decades. Nations like Brazil, Russia, India, and China (known as the BRIC countries) have large populations and a comparatively lower standard of living than the United States and other wealthy Western nations, providing an enormous potential workforce that is willing to perform for a much lower wage than their Western counterparts. Many emerging nations are also in possession of large quantities of low-cost materials, fuel, and land. In addition, global communications have allowed emerging economies the same access to market trends, technological advancements, innovation, talent, potential investors, and information as any industrialized nation. Growing companies in emerging nations around the world have access to unparalleled management talent, worldwide investors, global research and development networks, as well as low-cost local engineers, production workers, materials, land, and fuel.
Another way that today’s emerging economies differ from those of the past is in the markets in which they have succeeded before their emergence into the global economy. Yesterday’s emerging economies tended to have earned large profits locally in their relatively wealthy home nations before they went global. In contrast, the companies emerging from comparatively poor nations like India and China have had to grow in desperately competitive domestic markets and outperform both local rivals and Western multinational corporations. These emerging corporations have learned to make profits at price levels that are impossible for US or European companies to duplicate. For example, generic pharmaceutical companies in India, such as Ranbaxy, can offer products to their local customers at 1 to 2 percent of the price at which they would be sold in the United States.
Emerging Economies Today
The largest and best-known emerging economies in the early twenty-first century are the BRICs, as they are called (Brazil, Russia, India, and China). However, as other emerging markets come to the fore, suggestions for expanding the acronym include BRICS (to include South Africa) or BRIICS (to also include Indonesia). This next wave of emerging economies also includes Mexico, Pakistan, Turkey, and Iran, among others. These nations may be poised to equal or surpass strong emerging countries such as Brazil and Russia, though they may not be able to catch up to India and China in economic growth. Emerging economies’ portion of the world gross domestic product (GDP) may grow from one-fifth to one-third on the strength of this next wave.
Emerging economies are competing with the United States in industries such as telecommunication services, home appliances, agricultural equipment, building materials, aircraft, and pharmaceuticals. With their large populations providing an abundant work force, and with lower overhead expenses allowing for much lower prices for consumers, these new competitors are changing the global marketplace and challenging US companies to change with it. US President Barack Obama traveled to India in November 2010. Following his trip, he hailed India as a growing export market for American goods. In February 2011, new trade agreements with India were estimated to be worth approximately $15 billion.
In 2015, emerging economies, which accounted for 40 percent of global financial output, slowed, resulting largely from China’s slowing economy. With the 2016 election of Donald Trump in the United States and nationalist-protectionist sentiments on the rise in other parts of the world too, the outlook for free trade, long assumed to be crucial for emerging economies, dimmed. However, despite the trade war Trump launched with China, analysts found that in 2018, trade between emerging economies continued to account for an estimated 20 percent of the value of all global trade, up from about 8 percent in 1995.
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