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January 18 , 2017
AFM 333 Lecture 5:
Midterm March 6 , 2017
Content will most-likely be moved to March 1 , 2017.
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.
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
• 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
• 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,
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
• Intel and Microsoft have much of their programming activities performed in
• Investments from abroad benefit emerging markets as they lead to new jobs,
production capacity, transfer of technology. and linkages to the global
Adavanced Economy Now South Korea
Japan used to be the world’s workshopbecame big, as a technological manufacturer
The world’s workshop then became Taiwan and Korea, then Chinahowever they are also
producing high-end technology.
What is the next economy to emerge?
Relative Political StabilityThe one thing all emerging economies have had.
Estimating the Potential of Emerging Markets:
• Estimations are challenging because of peculiar economic and social environments in
• Limited availability and reliability of data
• Market research can be very costly and less precise, as compared to the advanced
• Market potential indicators include: GDP growth rate, income distribution, commercial
infrastructure, unemployment rate, and consumer expenditures
for discretionary items. Page 3 of 4