Emerging economies, also known as emerging markets or developing countries, are the ones that are investing in more productive capacity. The World Bank defines developing countries as those with either low or lower middle per capita income. Till July 2016, low-income economies are defined as those with a GNI per capita, calculated using the World Bank Atlas method, of $1,025 or less in year 2015; lower middle-income economies are those with a GNI per capita between $1,026 and $4,035; upper middle-income economies are those with a GNI per capita between $4,036 and $12,475; high-income economies are those with a GNI per capita of $12,476 or more.
Such countries are moving away from their traditional primary industries, including agriculture, fishing, mining and the export of raw materials that have relied on. Leaders of these developing countries want to improve the well-being of their people. Therefore, they are rapidly industrializing and moving towards territory industries. They have long been regarded as the “promised land” of the multinational companies.
In today’s global environment, MNCs seek sustainable competitive advantage, they need to develop effective strategies to deal with these emerging markets. These emerging economies, such as India, offer investors higher potential returns, but they also involve greater risk than developed countries like the United States. The risks are due to high rate of illiteracy and poverty coupled with poor infrastructure, high inflation rate etc. Further, consumer expectations and value systems in these markets are quite different from those of developed countries.
With markets in developed world almost stagnant, MNCs can grow and make profit only by customizing their strategies specifically for these Third World economies. With huge populations, increasing prosperity, and improving longevity (albeit at differing rates), these markets are very attractive to those companies suffering from the stagnation of mature markets, patent expirations, and increased regulatory hurdles.
Dr. Sudhir Sachdev,
Department of Management and Commerce,
Faculty of Management and Humanities,
Manav Rachna University