The economy in industrial countries may be declining, but emerging markets such as China and Russia are in high demand. Although it’s true that new investment opportunities abound, tapping into new sales markets still poses significant ch...
The economy in industrial countries may be declining, but emerging markets such as China and Russia are in high demand. Although it’s true that new investment opportunities abound, tapping into new sales markets still poses significant challenges and risks for companies.
What are emerging markets?
Emerging markets is another term used for the “second-world countries”, which include China, Russia, Saudi Arabia, Israel, South Africa, and Brazil. Unlike developing countries, these countries are emerging as industrial countries. They are characterized by rapid industrialization, which can be measured by economic development indicators such as gross domestic product. According to the World Bank and the International Monetary Fund, some 40 countries are classified as emerging markets.
There are different groups of countries within these emerging markets, for example Brazil, Russia, India, China, and South Africa, which are referred to as the BRICS countries. The Next Eleven countries – Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, the Philippines, South Korea, Turkey, and Vietnam – are poised to succeed the BRICS countries. Their demographic situation, population figures, and young age structure mean that these countries have significant potential for growth. The East and Southeast Asian nations of Taiwan, South Korea, Singapore, Indonesia, Malaysia, and the Philippines are also classified as Tiger States.
Investing in emerging markets: Opportunities and risks
The high economic growth potential of emerging markets offers investors the opportunity to profit from investing in rapidly growing and future-oriented companies. But it still makes sense, of course, to view each emerging market on a case-by-case basis. If an emerging market has large deposits of a raw material like oil, for example, it can generate lucrative revenue for that country. At the same time, it may also be predestined for crisis: a drop in demand for that raw material will also cause a drop in the country’s growth.
Emerging markets where population figures are rising rapidly are far more stable. These countries depend on exports, labor is cheap, and the growing domestic market will also stimulate the economy. That is why many manufacturers base their production in countries like China; low wages mean that the profit margin is higher than in industrial countries. In addition, businesses also have the opportunity to test a product or service in a new market.
However, investing in an emerging market isn’t always risk-free, as these countries are highly dependent on the political situation and the corresponding economic decisions, which cannot always be predicted. On the other hand, political elections and choices can also have a positive effect on investment and the country’s economic development. As a general rule, businesses and investors should familiarize themselves thoroughly with the political and economic circumstances in each emerging market before making an investment.
Using e-commerce to access emerging markets
If companies want to tap into new sales markets, then using e-commerce platforms can pay off. The increasing use of mobile devices and mobile Internet access means demand is high for online retail. Most people in emerging markets are just as well connected as comparable groups in industrial countries, plus, the urbanization that continuous growth is bringing to emerging markets is contributing to the increasing popularity of online shopping for cross-border products and consumer goods.