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12.04.2010
15:00

Emerging Markets

In this week’s blog I will be sharing my opinion and thoughts on emerging markets regarding the following: opportunities, risks, market entry and outlook for the future.

Opportunities?

Most certainly! Volatility and inefficiencies are both common characteristics of emerging markets. Wherever there exists volatility and inefficiencies in an economy or market there are opportunities to provide a service or product and make a profit while doing so.

Risk?

A higher risk generally exists in emerging markets due to instability and inefficient infrastructures which support business operations. Many of these inefficiencies are opportunities in their own right and adoption of the associated risk is the same factor that feeds into the potentially big profits.

One could liken emerging markets to the stock market, as both are volatile. That said people still invest in the stock market both when it is up and down! As long as the basic foundation of a market economy, namely the protection of property rights, is in place and has a legitimate judicial system to enforce them, research into possible investment opportunities in the respective emerging market are worthwhile.

Entering an emerging market?

Many big companies have had well reported flops on their attempted entry into an emerging market and almost every time the lack of local knowledge has been what has led to their failure. Hence, companies should use management with local knowledge; otherwise a much lower chance of success will exist. Thus recruit local talent!

Outlook?

As developed markets reach both maturity and saturation the search for value and new areas of growth becomes more difficult. Hence the outlook for emerging markets is bright, as mature markets growth stifles. In addition, the aging population of developed countries is in turn shrinking the markets for many products and service, whereas the emerging markets’ young populations could offer alternatives for companies facing such pressures. The growing income and middle class in emerging markets makes them attractive and hence it is worth pursuing investments in such markets.

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