Opportunities in Emerging Market Economies Appear In Face of Global Recession Prepared by Chris Schaffer April 2009
Summary The global economic downturn has put a focus on stagnation, declining economic growth, and widespread skepticism as to both a remedy and a turnaround.However, lucrative opportunities have materialized in the economies of rapidly developing economies (RDEs), also known as emerging market economies.RDEs had a projected economic growth of 6.1% in 2009, while developed economies do not have any growth projection.In addition, consumer spending is still increasing in RDEs.The global nature of the economic downturn means companies worldwide are competing for energy, skilled and unskilled labor, knowledge, financing and everything else.This, combined with the growth of the RDEs, puts companies in a position to take advantage of the emerging opportunities in the face of the global recession and turning a crisis into an advantage. Using Emerging Markets to take Advantage of the “Trading-Down” Phenomenon Companies are reacting to the “trading down” phenomenon in which consumers are selecting lower-priced goods, by relying on RDEs, due in large part to their lower production costs compared with developed economies.A recent Boston Consulting Group survey noted that consumers are hunting for high quality bargains in greater numbers in all categories.In this context, Emerging Market economies offer both lower production costs and cost advantages in shipping costs as well as currency exchange rates.This reduces overall costs and can serve the ever cost-conscious consumer better.Countries such as the “BRIC economies” - Brazil, Russia, India and China highlight emerging market economies which companies can take the steps to develop strategic global advantages. Infrastructure Investment in Emerging Markets Research has pointed to opportunities related to the substantial infrastructure investment in the BRIC countries: $6.6 billion USD in China for airports, railroad tracks and other projects; port capacity development in China; $460 billion USD on infrastructure in India for the next five years; significant infrastructure investments in Brazil and Russia.This is an especially profitable opportunity for global engineering and capital-goods companies. Consumer Spending on the Rise in Emerging Markets As previously noted, consumer spending is rising in emerging market economies.This opens up opportunities for goods and services providers in these economies to take advantage of this trend and to do so in major population centers – China, 1.3 billion; India, 1.1 billion; Brazil, 190 million; Russia, 140 million; Vietnam, 85 million to name several.With these emerging market economies offering growing populations of younger people with growing incomes, a willingness to spend and interests in purchasing name-brand products. Besides BRIC’s, Sub-Saharan Africa Offers Opportunity In addition to the BRIC economies, increased investment in Sub-Saharan African emerging market economies points to the region’s opportunities.With the gap of foreign investment over foreign aid steadily increasing , an evolving middle class and a new trading partner in the form of China, Africa is a continent that offers companies a multiplicity of emerging market economies.David Nellor, the International Monetary Fund’s (IMF) senior adviser for Africa noted that “growth is taking off” in Africa and further IMF studies point to the average annual growth from 2004 to 2008 as more than 6% - a higher rate than developed economies.China has become a major trading partner, and trade between the continent and China has increased 30% per year, over $106 billion in 2008.They are active in the oil, mining and forestry industries in nations such as Congo, Zambia and Angola among others.Africa is evolving into an increasing business destination, with opportunities rapidly evolving in its emerging market economies, representing another means for companies to adapt to the current economic climate and seek out a new strategic global advantage.
Chris Schaffer is Vice President at MFM Lamey Group, LLC.
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