Emerging Markets : The Main Driver For Global Economy

Kvint (2008) indicates that some statistics of reports on emerging market are contradictory, and this inconsistent situation even can be seen from IMF’s reports. For instance, some emerging countries like China and India are classified as emerging markets and are included in the category of developing countries. On the other hand, many of the sub-Saharan countries as emerging markets are definitely still undeveloped. Kvint (2008) suggests that the main and most important characteristic of all emerging market countries is that they are at some stage during the processes of economic maturation and development of free markets. An attractive environment for foreign investors and global trading has been created based on this characteristic. He suggests the main characteristics in his study:

WTO rules and regulations will help smooth out the effect of different policy shifts in various governments; mainly in dealing with the nuisance of the U.S.’s yearly criticism of their human rights record while China attempts to regain MFN status. This greater stability will attract foreign investors in China’s exports and Domestic enterprises. These investors will bring with them new capital, new management, access to global production and distribution, and most importantly new information and technology. These new investors will also help reform China’s economy. Companies will now be punished or rewarded with bankruptcy or new trade depending on their management and profitability. This will motivate companies to stream line production and become more aggressive in their sales.

Since the openness policy in1978, China has attracted a magnitude of foreign direct investment from all over the world. Rapid economic growth, large market opportunity, and endless cheap high-quality labor forces have turned China into a utopia of investment. With its evolving economy and enormous array of market opportunities for foreign investment, China’s institutional environment has played a dynamic role in its economic state (Marinov & Marinova, 2012). According to Geringer, Minor, and Mcnett (2014), institutions involves the country’s rules, regulations, and informal codes of behavior that helps administrate the country’s economic position. Institutions influence behavior in several ways whether it’s through laws or regulations, or through norms, values, customs, and ideologies (Geringer et al., 2014). Institutions also define conditions and set limits for maintaining a stable system as they control social relations to maintain conformity.

We expect emerging economies to continue to grow by more than 4 percent (contributing $16.2 trillion to global growth through 2020 at market exchange rates), while the growth rate of advanced economies is forecast to exceed 2 percent (contributing $13.5 trillion through 2020) for the first time since 2010. The United States is leading the recovery among advanced markets, and we expect the country to be a significant contributor to global growth through 2020.

The countries of Brazil, Russia, India, and China, dubbed “BRIC” by Goldman Sachs’s Jim O’Neil, have been grouped together because they are in the same stage of economic development but can’t quite be considered developed countries. Recently, these countries have experienced explosive growth in Gross Domestic Product (GDP) and overall global trading power. Since 2008, when most of the world’s developed nations were in periods of slow growth, no growth, or even contraction, these developing countries were experiencing high growth, sometimes in the double digits percentages. These countries have done this by seeking out opportunities for cooperation in trade, investments, infrastructure development and other areas.

In addition, China 's politics and economy have great differences with western countries because of the special national conditions, that the political power (or government) may have a prominent or even overwhelming strength relative to the economy (or business), which may have a decisive influence on economic development. First, the government-lead economy has caused excessive pursuit of economic development but neglect the quality of development (Zhou, Zhang & Shen, 2015). Second is the government 's control and allocation of resources and the dominant mode of development of the state-owned economy have caused a series of problems like the loss of economic benefits to a certain extent (Dollar, 1990). So the excessive concentration of political and administrative power caused by the low degree legalization and democratization in Chinese economy may have resulted in some obstacles in the economic development to enterprises, and this kind of rent-seeking which has political power to control economic resources and the right of examination and approval maybe one of the reasons caused China’s corruption and damaged the normal order of the market economy. In western countries, companies could hire a lobby group to lobby government in order to gain some benefits and a lot of countries such as the United States have the Federal Regulation of lobbying act that make constraint on lobbying (Hansen & Mitchell, 2000). But for enterprises in China, to develop good relations (“Guanxi”)

Although emerging market economies generally have less indebtedness, their inability to decouple from developed markets undermined their growth rates in 2013 and was expected to continue to do so in 2014, (Gordon, 2014). The problem for all is that

We have spent a semester studying the effects of globalization on the world and business from currency exchange to trade policy. Through our discussions and readings, we have learned that globalization is a boon to business as much as it is a curse. In business, strategic alliance agreements help companies further develop process, foster market expansion and surpass competitiors. Although they both exist within the context of society, government and business are two separate entities which share a few features. Governments at even the most basic level exist to protect their citizens interests and to ensure that their needs are being met. While, business can protect the interests of a group or country, their primary reason for existence is to turn profits to satiate their shareholders and validate those who work daily to provide the good/service. However, in order to provide adequately for their citizenry, governments are compelled to think and act a bit more like businesses to ensure that their citizens remain content. India and China are two examples of countries which at least in some areas of federal policy are thinking like businesses and as such has formed, Chindia, what would be called a strategic alliance in business. In 2006, bilateral trade between the two countries reached almost 20 billion dollars and revenue has only increased in recent years (Economist). At first glance it seems that India and China are nearly equally matched;

Government policy – Potential firms rely on favorable government policies for their entry to the market

Additionally, global growth in capitalist systems has placed greater emphasis on governments playing the role of regulators in the globalisation process, through means of overseeing law and maintaining political control within markets (Almadani, 2014). Stemming on from this, “guarded globalisation” is a phenomenon resulting from globalisation whereby governments have undertaken an increasingly cautious approach towards foreign investment (Bremmer, 2014). The role of the Chinese government in the case of Pfizer is an example to fall under this, due to the exertion of laws that were put in place, restricting access to the market which was occupied by domestic competitors possessing government support (Bremmer, 2014). As a result, governments appear to be playing a more central role in protecting national interests when participating in global business.

Evans and Richardson (2007), contend that globalized economic environment is complex and changes from time to time and this places a heavy responsibility on multinationals and other business enterprises. They are forced to adapt in order to deal with these factors for the benefit of their organizations. A company cannot ignore political issues when assessing the business environment in which it operates because it affects government policies such as licensing, regulation and taxation, which have a direct consequence on the activities of a business enterprise (Evans, & Richardson, 2007).

The companies mainly focuses of their innovation, strategic management and organizational structure to expand their business in international level.According to the United Nations Conference on Trade and Development (UNCTAD, 2013), the outward foreign direct investment (OFDI) by firms from these economies accounted for 30.6% of the global (OFDI) flows, which was $1.39 trillion in 2012.The above statement is a crystal clear proof that emerging economies like China, Brazil, Russia and India are working towards the restructuring of their international business. MNC’s from emerging economies, although diverse, have displayed some common characteristics that differ from their counterparts from developed countries (Xueli Huang, 2015).Emerging economies lack so many aspects like the know-how of that particular industry, the technology required by these business enterprise, but in spite of all the lack of primary resources they have cherished because the home government of emerging economies plays a vital role in helping to get the resources for them to expand the business.

Developing countries is a term that has been used loosely and can be formally defined as any country with limited economic resources and a very poor standard of living. Since the 1960’s, international trade has changed quite a bit and has come to influence global economic concepts. The role of government intervention has taken a turn in less developed countries and is moving toward the partial transfer of control and ownership, adding value domestically, bringing more host nationals into the equation to enhance the buy-in to domestic benefits. “Markets need sure and stable government laws and policies in order to properly price assets (Miller, Terry, 2009).” It can be said that an increase in regulation could lead to a decrease in financial and credit markets and a reduction of available credit to individuals and business with an increase cost. Any policies that squash the flow of goods and services internationally have a most negative

In recent years,there has been a growing concern about the emerging markets,and it is kind of new economic markets in developing countries which likes mature markets but does not meet a criterion of it,and emerging markets is a relevant concept when it comes to the developed countries.While a variety of definitions of the term of emerging markets have been suggested,this essay will use the definition suggested by Arnold and Quelch(1998)who saw it as countries that satisfy two standards,first is a rapid pace of economics increasing,and second is government policies supporting economic liberalisation and the adoption of a free-market system.

THE POLITICAL ENVIRONMENT: The critical concern Political environment has a very important impact on every business operation no matter what its size, its area of operation. Whether the company is domestic, national, international, large or small political factors of the country it is located in will have an impact on it. And the most crucial & unavoidable realities of international business are that both host and home governments are integral partners. Reflected in its policies and attitudes toward business are a governments idea of how best to promote the national interest, considering its own resources and political philosophy. A government control's and restricts a company's