Market Entry Strategies to Emerging Markets
An emerging market is a country that is experiencing rapid economic growth, industrialization, modernization, has features of a developed market but it is not yet a developed market. Foreign companies must fulfill the needs of local consumers and meet all the requirements of the local governments so as to operate efficiently in emerging markets (Sako, 2015). For a country to be referred to as an emerging market, they have to meet certain criteria’s and qualifications. Emerging markets are characterized by attractive markets with low-cost manufacturing bases, cheap labor, and ready market, which attract foreign firms for investment. This essay analyzes the importance, advantages, disadvantages, and factors that should be considered before entering an emerging market.
Importance of emerging markets in the global marketplace.
Emerging markets have remained destinations for finished products from multinational corporations in the world. They are also important on the global marketplace for the reason that they provide low-cost locations for sourcing inputs, processing products, and delivering services. These locations have vast resources where large foreign companies can easily access raw materials that are used in the production of goods and services. Firms that are located in emerging markets have become global leaders in most sectors, ranging from baked products to smart phones, oil, gas, solar panels, telecommunication equipment, personal computers, refrigerators, airlines, and commercial ports (Khanna, Palepu and Bullock, 2010).
These markets are also significant to the global market place because they are characterized by innovation and creativeness, which is crucial in the cycle of production. These markets have innovative firms making new products and services which are cheaper than those that are produced by the firms in developed countries. Firms that are found in these countries do not imitate those firms in states that are developed, but innovate to meet the needs of both the middle class and low-income earners. Emerging markets present multinational firms with unprecedented opportunities, providing large markets for their products and low-cost locations for increasingly skilled labor. They have helped to reduce unemployment, public debt, and recession, which have continued to dominate the economic and political discourse in the western countries. Emerging markets own the majority of the world’s natural resources, ranging from fertile land to minerals, oil and other vast resources that are crucial in the production industry (Ciravegna, Fitzgerald, a Kundu, 2013). The markets are mostly found in Middle East countries have accumulated a large percentage of the world’s foreign exchange reserves and are contributing to a rising share of global trade and investment that is evident in the global market place.
Advantages of emerging markets
Foreign firms that have their headquarters in the emerging markets have an advantage over other firms in the world. The smaller size of businesses in emerging-market give this firms an added advantage and makes them to outperform others. Emerging markets also have plenty of raw materials that are vital in the production process making foreign firms that are located in emerging markets to easily access raw materials at low costs. The entry of foreign firms in the emerging markets helps to boost the financial systems of regions in which the business has been invested. Foreign banks have stable funding and lending patterns than domestic banks and thus help to boost local businesses in the emerging markets.
Disadvantages of emerging markets
Emerging markets pose challenges for firms from developed countries for many reasons, for instance, resource scarcity, unstable demand, deficiencies in terms of institutions and infrastructure, and inadequately trained workers. Firms in emerging markets pose competitive challenges to corporations from the developed economies which have immensely contributed to the world economy. Emerging markets also have some risks which are hidden and needs thorough analysis before the risks are discovered. Political instability that characterizes most the emerging markets hinders the efficient operation of multinational corporations thus increasing the cost of production. Expropriation risk exists in most of the emerging markets; the likelihood of host governments seizing foreign-owned assets is very high in such markets but strong international law and punitive measures have been used to reduce asset seizures in emerging markets to nearly zero. Competition is another advantage that is common in these countries; the entry of many international firms in the markets due to the gaps in the recent past has resulted to competition. Competition has increased the cost of production and has led to a decrease in the profits that are generated by the firms because they have to sell products at cheaper prices for them to withstand the market forces. International firms in emerging markets can crowd local firms out of markets for products, labor, and finance, causing them to lose market share or exit the industry altogether. In emerging markets, business group members are more likely to possess the capabilities necessary to compete head on with foreign investors, for instance, groups are particularly advantaged in making investments in group-wide infrastructure that stand-alone firms may find economically prohibitive. Local firms take advantage of full exploitation of cheap labor and availability of raw materials in the emerging markets to outdo foreign firms.
Factors to consider entering into an emerging market
Multinational corporations and companies, which intend to invest in business ventures in emerging markets, need to put into consideration several factors such as the business environment of the countries. Dynamics in emerging markets demands that local firms alter their investment strategies to match their new competitive realities so as to survive in the emerging markets (Cavusgil, Knight, and Riesenberger 2016). Availability of raw materials, this is the first thing that multinationals corporations should put into consideration before venturing in an emerging material. Different raw materials are needed for the production of different products, raw materials are essential in the production process and thus they should be easily accessed. Companies that have intentions of venturing into an emerging market should look at the different types of raw materials that are needed for the production of their intended product do determine the viability of the business.
Good business environment, a good business environment provides ready market for goods and services that are produce by multinational corporations and aids in the faster disposal of goods thus the need to produce others.
Availability of factors of production, for instance, Land, labor, raw materials and capital should also be put into consideration before venturing into an emerging market, labor is crucial because human resource is needed for successful production. Capital and land are also needed for the successful establishment of the business even before its operations.
Emerging markets in the Middle East
Oil has changed the Middle East from a crossroads of trade between Europe and Asia into a market that offers some opportunities for growth. The oil industry has made many emerging markets in the Middle East region to attract investments from multi corporations from developed countries. Raw that are needed for productions, for instance, labor are plenty in most Middle East countries making them to be among the world emerging markets. The Middle East label market has grown well over the past few years with many multinational corporations entering the region.. The Middle East experience s one of the highest birth rates in the world and therefore, the food sector is growing at a faster rate. The region has all the factors that are needed for production and thus attracts many multinational corporations which want to make large profits over a short period of time.
The social cultural, the legal, political and technological environment in the Middle East countries has made it to become among the biggest emerging markets in the world. The cultural environments in the Middle East have acted to boost the growth of the markets because firms have capitalized on the lifestyles and culture of people who are found in Middle East states to establish large business. Legal environment, laws and policies that have been formulated by governments in the Middle East encourage foreign investments and thus foreign firms have been attracted to the place. The influx of foreign firms to the Middle East due to the laws that encourage foreign investment has made the countries to be among the big emerging markets in the whole world. The political environment of the place has also encouraged foreign investment by large firms as result of the political stability that has been realized unlike in the past. Most countries in the Middle East have been faced by political instability for the past few decades but the situation changed in the recent past where some of the countries have embraced peace and have put up structures to maintain political stability.
Technological environment, the first growing technological environment of Middle East countries is going to attract many foreign firms to invest in the region. Many Middle East countries are becoming a prime market of interest for foreign firms because of the advancing technology that has helped to spur job growth and new opportunities in the emerging industries. Currently, entrepreneurs in Middle East countries have a far and instantaneous reach to markets than their predecessors due to internet connectivity that has allowed for the rapid growth of E-commerce in the region (Jamali and Lanteri, 2015). The companies will capitalize on the region’s growing internet and mobile phone usage. The region is going to become the next big emerging market in the world because of the vast resources that are found in the area. The availability of all the necessities that are required in the cycle of production makes the continent to attract large multinational corporations. Emerging markets in the Middle East region will become more important in the near future as a consequence of high growth rates combined with large populations in the region. A global freight forwarder company is viable in the Middle East because of the vast resources in the area and the availability of all the necessities that are needed for the establishment and effective operation of the company.
Environmental market characteristics are important factors of firms looking to internationalize, as they pose many significant threats and opportunities on business activity. The emerging global marketplace of diverse consumers requires firms to promote diverse employees to ensure efficient operation thus success (Cavusgil, Ghauri and 2012). There are many factors of production that must be considered, for instance, land, capital, raw materials, and labor among others before entering an emerging market. The Middle East region is going to become one of the big emerging markets in the near future due to the resources that are found in the area that have started to attract foreign companies.
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Cavusgil, S. T., Knight, G. A., & Riesenberger, J. R. (2016). International business: The new realities.
Ciravegna, L., Fitzgerald, R., & Kundu, S. (2013). Operating in emerging markets: A guide to management and strategy in the new international economy. FT Press.
Jamali, D., & Lanteri, A. (2015). Social Entrepreneurship in the Middle East: Volume 2. Basingstoke: Palgrave Macmillan.
Khanna, T., Palepu, K. G., & Bullock, R. J. (2010). Winning in emerging markets: A road map for strategy and execution.
Sako, M. (2015). Competing in Emerging Markets. Communications of the ACM, 58(4), 27-29.