In recent years emerging markets are becoming more and more attractive for global companies as target markets, sources of inputs and as global production sites, R&D hubs and opportunities for market development (Khanna and Palepu ). The case “Tata Group: India’s New Global Challenger” illustrates that Indian companies are also becoming more important in the international market (Sirkin and Hemerling). There are several reasons why international companies and investors should consider emerging countries as strong market players. The first reason is the rate of economic growth in emerging countries that by far exceeds that in the developed world. This opens new growth opportunities in terms of new suppliers, partners and customers. The second reason relates to the growing competitiveness of firms from emerging markets.
Companies from mature markets have to consider the emerging competition both because new rivals are capturing larger segments of their rapidly developing home markets, as well as due to the fact that companies from emerging countries may in the long-run threaten the dominance of established players also in the developed world. Therefore, locating businesses in emerging countries could help corporations from mature markets to share the benefits of low input costs, to start penetrating emerging markets and to keep track of the moves of their potential competitors. The third reason relates to the growing wealth of the consumers in developing countries. High economic growth in the region increases the number of people, who can afford buying products from the developed world.
Since the demand in developing countries continues to grow, while developed markets offer little expansion opportunities, it is important for companies from the developed world to spread their activities into developing markets. Improved governmental policies, which aim to attract foreign direct investment and capital to fuel growth, create another incentive for the companies to go to emerging countries. Therefore, companies from developed countries go into emerging markets in order to take advantage of this unique opportunity.
Lastly, financial markets offer benefits for the companies that operate in emerging markets. In the light of the recent economic crisis that hit developed countries especially hard, investors’ confidence in mature markets has been shattered. On the other hand, new ventures in developing world started to receive higher valuations and are approved by the financial community. This fact suggests that companies that decide to establish operations in a developing country or to outsource some of activities may enjoy better interest rates, higher valuations and wider acceptance by the financial community (Brandes Investment Partners).
Brandes Investment Partners . Five compelling reasons to allocate to emerging markets. 10246 PUB 0312. San Diego, CA: 2012. Web. . Khanna, Tarun, and Krishna G. Palepu. Winning in Emerging Markets: A Road Map for Strategy and Execution. Boston, MA: Harvard Business Harvard, 2010. Print. Sirkin, Harold L., and James W. Hemerling. Globality. London, UK: The Boston Consulting, 2008. Print.