EMERGING MARKETS



Emerging markets are those countries or geographic regions in which a previously untapped potential for U.S. exports or investment might be anticipated. Nations typically characterized under this banner are often developing countries, but they may also be economically formidable countries with markets that are increasingly open to exports. "The BEMs [big emerging markets] share certain characteristics," wrote Mark Tran in Working Woman. "They have large territories and populations, and they are undertaking extraordinary development projects that call for new infrastructure, such as power-generating plants and telecommunications systems. And, of course, with development comes increased demand for consumer goods, like computers and washing machines. These countries have pursued economic policies leading to faster growth and expanding trade and investment with the rest of the world. They aspire to be technological leaders. Their economic growth would have enormous spillover into their respective regions, and they all have political clout." In the mid-1990s, the International Trade Administration cited ten emerging markets as particularly important to U.S. companies with overseas ambitions: Argentina, Mexico, Brazil, Turkey, Poland, South Africa, India, South Korea, the Association of South East Asian Nations (ASEAN), and the Chinese Economic Area (China, Hong Kong, and Taiwan).

International trade analysts note, however, that the above-mentioned areas are by no means the only developing markets on the planet. Other nations commonly mentioned as key emerging markets for various U.S. exporting sectors include Chile, Vietnam, Malaysia, Thailand, the Czech Republic, Hungary, Uruguay, and Paraguay. In addition, Russia—though riddled with political instability, worrisome trends toward totalitarian government control, economic confusion, a weak technological infrastructure, and a lack of business expertise—is regarded as a potentially lucrative market.

In previous eras, international business activity in the ITA's BEMs and other promising areas was primarily the province of large companies with millions of dollars in investment resources and, often, a multinational presence in Europe and other economically powerful areas. In the 1990s, however, small-and mid-sized businesses staked out a sizable piece of the emerging market action for themselves. "Fortune 500 companies are no longer the only ones doing business beyond our borders," said the U.S. Secretary of Commerce in 1997. "Small-and medium-sized firms—manufacturing, telecom, high-tech, and information systems, among others—are positioning themselves to become global economic players. We will help them do that by assisting them in reaching promising new markets."

FACTORS IN BEM DESIGNATION

Countries and regions that come to be known as promising, largely untapped markets often reach that status only after making changes in their internal political and economic structure. Indeed, liberalization of trade regulations between an emerging nation and America, which is an important factor in any analysis of emerging markets, typically only occur in reaction to fundamental political changes within that market. For example, U.S. interest in Vietnam as a market jumped significantly after that nation and the United States formally opened relations in 1995.

Political factors from abroad have also helped some nations emerge as U.S. export and investment destinations. Turkey's active role as an alternative Moslem economic system to such fundamentalist Islamic models of Iran has been vital in helping it establish itself as a major regional player in the Islamic states of the former Soviet Union, such as Kazakhstan and Turkmenistan. The mutual lifting of restrictions in trade simultaneously from both the United States and from another nation could also earmark that nation as an emerging market for U.S. goods. Certainly, the passage of the North American Free Trade Agreement (NAFTA) marked a significant change in Mexico's status as a trading partner of the United States. Some countries or regions, meanwhile, come to be regarded as promising markets by dint of internal economic reforms.

The list of top emerging markets is an everchanging one, subject to economic, political, military, and environmental influences. Some nations lose their footing, scaring away investors and exporters because of political instability, unfair trade practices, economic uncertainty, or other factors. Some emerging markets do so well, however, that they eventually graduate to "established market" status.

BUSINESS CHALLENGES IN EMERGING MARKETS

The potential rewards of making a successful entry into an emerging market are considerable, and analysts contend that many U.S. companies—large and small—have the capacity to dramatically strengthen businesses that devise effective strategies. But business consultants and trade observers acknowledge that establishing a presence in an emerging market is a process that typically has its share of trials and tribulations. Small business owners considering an entrance into one of these markets—whether that entrance takes the form of opening an office or trying to sell a product—should weigh several factors before making the move.

First, companies thinking about doing business in emerging markets should recognize that such efforts are almost certainly doomed to fail if the firm's affairs are a mess back home. "There is a myth passed from entrepreneur to entrepreneur," stated Jane Applegate in Strategies for Small Business Success. "If your business isn't doing so well at home, think globally. That's where all the money is, and millions of consumers are hungry for American goods. The problem is, it's a myth. If your business is faltering domestically, you won't have the time, money, or resources to crack the global market."

Even if the firm's domestic business is a sound one that provides a good foundation for international expansion, emerging markets present certain problems. "Relationships take longer to develop, and businesses in these countries rarely commit to your terms unless they're certain they can meet them," wrote Charlotte Mulhern in Entrepreneur. "They also may be unable to respond to sudden increases in product demand, due to frequent lapses in electrical power or unreliable transportation. And of course, fax and phone lines are often nonfunctional." Some countries are also bedeviled with high crime rates, political instability, and other unattractive features.

But Applegate noted several steps that small business owners can take to increase their odds of success in emerging market ventures:

Small business owners that follow the above guidelines will be well-equipped to make their mark in emerging markets, provided, of course, that their products or services are desired by the targeted populace. But as one small business owner who successfully expanded into a number of new markets told Working Woman, "There is so much demand for virtually everything, everywhere's an opportunity. The world is moving much closer together, and if you want to do business today, you had better become an international person even if you're fixing skateboards on the street corner."

FURTHER READING:

Applegate, Jane. Strategies for Small Business Success. Plume, 1995.

Baird, Inga S., Marjorie A. Lyles, and J.B. Orris. "The Choice of International Strategies by Small Businesses." Journal of Small Business Management. January 1994.

Guse, Brian, and Patricia Jehle. "Ag Link: Small Businesses' Connection to Emerging Markets." Ag Exporter. February 2001.

Mulhern, Charlotte. "The Road Less Traveled: Don't Disregard the Potential of Developing Nations." Entrepreneur. February 1998.

Tran, Mark. "The World is Your Market." Working Woman. December-January 1998.

"The World Will Beat a Path to Your Door." Inc. May 15,1996.



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