AFM 333 Lecture 5: AFM_333__January_18th_2017

4 Pages

Accounting & Financial Management
Course Code
AFM 333
Mark Anarson

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Page 1 of 4 January 18 , 2017 AFM 333 Lecture 5: Emerging Markets: Midterm March 6 , 2017  Content will most-likely be moved to March 1 , 2017.  Midterm Review Understanding Emerging Markets: Classifying Countries based on Economic Development: Advanced economies are post-industrial countries characterized by high per capita income, highly competitive industries, and well-developed commercial infrastructure. • Examples- world’s richest countries and include Australia, Canada, Japan, New Zealand, the United States, and Western European countries. rd Developing economies (Previously Known as: 3 World) are low-income countries characterized by limited industrialization and stagnant economies. • Examples- low-income countries, with limited industrialization and stagnant economies- e.g. Bangladesh, Nicaragua and Zaire. • Much higher birthrates (younger population) Emerging market economies are a subset of former developing economies that have achieved substantial industrialization, modernization, improved living standards and remarkable economic growth. • Examples- some 27 countries in East and South Asia, Latin America, Middle East and Eastern Europe- including Brazil, Russia, India, China (so called BRIC countries—4 biggest emerging). • As compared to advanced, were developing but not as developed as advanced. • High growth rates (5-6+ for an emerging) • Improving rapidly • Typically the average age is 26-low 30s Emerging Market Dynamics: • Emerging markets account for over 30 percent of world GDP. They represent over 30 percent of exports and receive over 30 percent of FDI. • Mid-2000s, the emerging markets collectively enjoyed an average annual GDP growth rate of nearly 7%, a remarkable feat – much faster than advanced economies • Benefit from: low-cost labor, knowledge workers, government support, low-cost capital, and powerful, highly networked conglomerates Page 2 of 4 What Makes Emerging Markets Attractive? 1. . Emerging Markets as Target Markets • Many have huge middle classes with significant income for buying electronics, cars, health care services, and countless other products. • Many exhibit high economic growth rates. 2. 2. Emerging Markets as Manufacturing Bases • Home to low-wage, high-quality labor for manufacturing and assembly operations • Large reserves of raw materials and natural resources as in South Africa, Brazil, Russia 3. Emerging Markets as Sourcing Destinations • MNEs have established numerous call centers in Eastern Europe, India, the Philippines, and elsewhere. • Dell and IBM outsource certain technological functions to knowledge workers in India. • Intel and Microsoft have much of their programming activities performed in Bangalore, India. • Investments from abroad benefit emerging markets as they lead to new jobs, production capacity, transfer of technology. and linkages to the global marketplace. Adavanced Economy Now South Korea Japan used to be the world’s workshopbecame big, as a technological manufacturer The world’s workshop then became Taiwan and Korea, then Chinahowever they are also producing high-end technology. What is the next economy to emerge? Relative Political StabilityThe one thing all emerging economies have had. Estimating the Potential of Emerging Markets: • Estimations are challenging because of peculiar economic and social environments in these countries. • Limited availability and reliability of data • Market research can be very costly and less precise, as compared to the advanced economies. • Market potential indicators include: GDP growth rate, income distribution, commercial infrastructure, unemployment rate, and consumer expenditures for discretionary items. Page 3 of 4
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