Emerging Economies, Emerging Markets

Question 1

Before being referred to as emerging countries, they were referred to “less economically advanced countries”. What were the 3 main similarities b/w these countries at the time ?

Answer 1

• the income per citizen is very low (at the time, the income in America was 20x the average in China — today it is 5x more)
• they have a big population which means: there is labor available + potential new customers available
• it referred to countries which were experiencing a fast economic growth

Question 2

GDP of the following countries (2016): China, India, France, USA, UK, European Union, Russia, Brazil, Ivory Coast and Ethiopia.

Answer 2

China: 6.7%
India: 7.1%
France: around 1%
USA: 1.5%
UK: 1.8%
EU: below 2%
Russia: around 0%
Brazil: around 0%
Ivory Coast: 8.8%
Ethiopia: 7.6%

Question 3

What is the main asset of these emerging countries ? Why?

Answer 3

Cheap labor.
Because they set up factories to produce low margin and labor intensive goods that they will send back on their domestic markets.

Question 4

Why is not about low skilled jobs anymore?

Answer 4

Today labor is more and more skilled + innovation (a lot of investment on R&D), they invest in design and quality. They are creating new business models and acquiring new skills and are entering new markets.

Question 5

What makes these countries’ multinationals more competitive?

Answer 5

They understood that there is a domestic market, they started developing new products for the poor (e.g: Tata in India + “pay as you go subscription” in Mexico)

Question 6

What does it mean when a country opens its economy?

Answer 6

There is more competition. So not all companies are able to survive because they are not competitive enough, but on the other hand, the companies that survive are the most successful and competitive ones “the survival of the fittest” - Darwin.

Question 7

What is state capitalism ?

Answer 7

It means that there is capitalism, but the state either owes companies or plays a major supporting role in directing them. It is a combination of government ressources and innovation.

Question 8

What impact does the rise of a new middle class in those emerging countries can have ?

Answer 8

The balance of powers is changing as well as the world.
Now, emerging countries invest in developed countries. + emerging multinational companies take over famous companies (e.g: Tata bought UK companies, Mittal took over Arcelor, Grupo Bimbo bought Western Foods)
They are also investing and targeting other markets (especially in Africa)

Question 9

Why are Western companies worried about those emerging companies taking over ?

Answer 9

• There are jobs at stake (e.g: Arcelor was taken over by Mittal — because not enough profit was made + wanted to close a company => this creates unemployment)
• the economic growth of emerging countries is growing at a slower pace:
  • emerging countries are still considered as risky (corruption & bribery, political power, risk of a sudden rise in taxes, civil war)
  • wages and living standards have increased a bit => some companies relocate because the cost of producing has increased and they are looking out for countries with cheaper production (e.g: Bangladesh)
  • it is faster for a country starting from a very low economy to have a high growth, but there is a limit (e.g: Ivory Coast)
  • when living conditions increase, the population is likely to age which means fewer workers and more retired people (which costs a lot of money for a state)