MBA Research

Trend #33: Emerging Markets

This month’s Action Brief explores massive growth in emerging markets that provides businesses with opportunities, while challenging the United States’ superpower status. The continued growth may change how U.S. companies need to operate in those markets. This growth is also leading to increasing income inequality in some emerging economies and provides a potential role for businesses to make contributions that may narrow these gaps. 

Business Implications

Doing business in countries with emerging and, at times, untapped markets can be financially rewarding, enabling businesses to increase production and sales while potentially decreasing overall manufacturing costs. It also allows them to expand their global brand recognition. Emerging markets are typically identified as countries whose economies are growing, have some economic and governmental stability, have an expanding infrastructure and are becoming increasingly global. Examples of these countries include China, Brazil, India, Argentina, and South Africa. 

On the other hand, it poses risks due to cultural differences, political unrest, and fewer sanctions governing business-related transactions. Bribery is at the top of the list of executives’ concerns, followed by violations of sanctions, money laundering, organized crime, potential terrorist financing, and personal security. Property ownership rights vary from one country to the next, making it imperative for businesses to thoroughly understand their protection and support of intellectual-property rights as well as any facilities and equipment in the country.

Over the past 15 years, Brazil’s economy has changed from one that wasn’t noteworthy to the world’s seventh biggest economy. It offers ample business opportunities, especially in conjunction with tourism and the upcoming 2016 Summer Olympics. But, its growing economy and strengthened military presence are accompanied by political unrest, interest rates at a nine-year high, and an emerging trend of wealthy Brazilians’ buying luxury goods abroad instead of at home. The country has the highest per capita income of any of the BRICS countries, Brazil, Russia, India, China and South Africa. Businesses are facing rapidly changing political and economic conditions that will potentially impact their Brazilian business operations. This underscores the need for a deep knowledge of the local business climate.

While being classified as a country with an emerging market can be a sign of financial health, many of the countries with this designation find themselves in environments with growing income disparities. Countries such as China, India, and the Russian Federation, have seen disparities widen with respect to income, education, and career progression. Reducing income inequality can help promote economic growth and is a key factor to sustaining a healthy economy. Access to education, training, healthcare, and well-designed redistributive policies can help countries narrow income gaps.

Exercising corporate social responsibility in emerging markets is one way that businesses can potentially help countries with emerging economies grow in a way that brings the majority of citizens along to greater prosperity. As the prosperity grows, so do business markets and financial returns on investments . For instance, the Coca-Cola company developed partnerships with healthcare management organizations, pharmaceutical companies, and medical treatment providers in Africa to help respond to the HIV/AIDS crisis there. Such initiatives help make the world a better place to live. They also build brand recognition, generally leading to greater use of those companies’ products and services as the economies grow.

Classroom Implications

Teachers can have students take an example of a business and evaluate how it would grow or prosper given varying conditions in different countries. The exercise should involve evaluating risks and economic factors, comparing size of workforces, developing potential production plans, and trouble-shooting around quality issues. 

Since the world is watching Brazil right now, have students monitor the current and emerging conditions there, especially with the 2016 Summer Olympics on the horizon. This would provide an interesting case study on emerging markets for students. Students can also discuss the mosquito-borne Zika virus’ impact on travel to the games due to attendee and participant concerns about the risk of the global spread of disease. Help students understand that the Zika concerns may limit Brazil’s economic benefits of the games.

Students should become familiar with income inequalities both in the U.S. and in other countries. It is important for them to learn about other indicators that stack-up to differentiate the “haves” from the “have-nots.” Looking at examples of corporate social responsibility both at home and abroad will get students thinking about their role in addressing inequality across the globe.

Monopoly is a game sometimes used to teach students about inequality and social stratification in society. Use the following link to access a description of how the game is played and a set of revised Monopoly rules for this purpose: https://www.socialpsychology.org/action/pdf/2011monopoly-rules.pdf