Download Introduction to Emerging Markets

Welcome to class of
Introduction to Emerging Markets
by
Dr. Satyendra Singh
University of Winnipeg
Canada
Why Emerging Markets Now?
• No fighting!
• More confidence in governance/people/system
• Economic reform/free market policies
– Tariff/quota ↓, FDI ↑, investors as partners, deregulated industry,
privatization of state-owned firms
• Sense of market development in EMs
– Two market segments (Urban and rural)
– First mover advantage/educate customers
• Change in culture
– Social mobility ↑  demand for expensive products
– Buy now, pay later
Whys is EM important?
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Because
Advances in technology,
Increase in world travel, and
Trend toward globalization
– Means, more market
Characteristics of EM
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GNI per capita per year < $10,000
High birth rate
Low education
Undeveloped infra structure
Several languages/dialects
Close family ties
Less women in workforce
Cultural issues
Unstable government
Definitions of EM
• ING and Morgan Stanley (EM and developed)
– Per capita income < $10000
– Unstable and irresponsible macroeconomic policies
– Insufficient shares on the stock exchange
• WTO (developed and developing)
– Self selection criteria
– Out of 149, 50 are designated as least developed
• UN and World Bank (EM and developed)
– Based on score on Human Development Index
• Life expectancy
• Adult literacy rate and educational attainment
• GDP (better than GNI; it excludes foreign remittances)
Common Traits of Big EM
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Physically large
Significant populations
Represent markets for a wide range of products
Strong rate/potential of/for growth
Undertaken programs of economic reform
Major political importance within their regions
Regional economic drivers
Engender neighbouring markets as they grow
Research shows that
• If Per capita income/ year > $5000
– people become more brand conscious
– forgo many local brands to seek out foreign
brands they recognize
• At $10,000
– they join those with higher incomes elsewhere
who are exposed to the same global information
sources. They join the “$10,000 Club” of
consumers with homogeneous demands who
share a common knowledge of products and
brands.
• Then, they become global consumers
EM: Eastern Europe
• Czech Republic and Poland
– Quick to implement free market policies
• Hungary and Romania
– Slow  bureaucrats from communists days
• Yugoslavia
– Ethnic and religious divisions – Albania, Bosnia
• Czech, Hungary, Slovak, Poland  OECD
– I.e., accept the obligation to modernize the economies
• Baltic statesEstonia, Latvia, LithuaniaWTO/EU
– Quick to move away from soviet-style economies
– Drop Rubal, tariff-free, free-market economy
EM: Asia
• 4 tigers/dragons  HK, S Korea, Taiwan, S’pore
– From assembly line to electronics, machines, ship building
• Japan is lagging behind
– S Korea links with China, USSR, and influences the region
• China  dual economy  socialism/capitalism
– In future, GNP of China = USA
– China now in WTO  should follow the WTO rules
– Human rights, legal system, corruptions, protectionism
• India
– free-market economy, > 51% share, no import restrictions
– 400m MIG/HIG, 800m LIG consumers
Canada’s Relations with the EMs
• Canada has good relations with
– South America, NAFTA, Africa
• Canada’s role in E. Europe is limited
• Canada is interested in ASEAN
– 4 tigers + Indonesia, Malaysia, Philippines, Thailand
• Canada is a member of APEC
– Apprehensive in pursuing substantial business due to
risks
International Agencies…
• Organization For Economic Cooperation and
Development (OECD)
– Group of developed countries dedicated to
promoting economic expansion in its membernations
• Organization of Petroleum Exporting
Countries (OPEC)
– Cartel of 12 petroleum exporting countries
• Middle East (6): Iran, Iraq, Kuwait, Qatar, Saudi Arabia
and UAE
• Africa(4): Algeria, Angola, Libya and Nigeria
• Other (2): Indonesia and Venezuela
Other non OPEC oil exporting countries: UK, Russia, Mexico, Norway
International Agencies
• WTO Principles
– Trade will be without discrimination
– Trade should be freer, with trade barriers negotiated
downward
– Trade should be predictable
– Trade should be more competitive
– Trade should be more beneficial for less developed
countries, encouraging development and economic
reform
– protects copyrights, trademarks, trade secrets, and
other intellectual property matters
– Disagreement on agricultural policies
• India, Brazil…