Market Command or mixed Mixed Regulatory environment Minimal regulations Highly regulated, burdensome Achieved much economic liberalisation Country risk Low Moderate to high Variable Intellectual property protection Strong Weak Moderate and improving Infrastructures Well developed Inadequate Moderate but improving Trade conditions Advanced economies Developing economies Emerging markets Industry Highly developed Poor Rapidly improving Competition Substantial Limited Moderate but increasing Trade barriers Minimal Moderate to high Rapidly liberalising Trade volumes High Low High Inward FDI High Low Moderate to high What explains the rapid growth? ● Trade and FDI liberalisation ● Export strength; labour costs lower, driving growth in manufacturing and exports ● Transfer of labour from low to high value-adding activities ○ From low cost to high-tech, end-to-end manufacturing ● Lower levels of government debt; high trade surpluses, revenue from state-owned companies ○ Investments in infrastructure, health and education ● Growing middle class and household income ○ Grooming generations of knowledge workers into high value-adding manufacturing → China producing phones from scratch What is causing the current slowdown? ● Lower infrastructure spending namely by China ● Reliance on commodity exports, prices of which have plummeted ○ E.g. Crude oil prices have lost roughly 65% of their value over the last 18 months ● Plunge in currency values ● EM debt hitting record levels - nearly 200% of GDP levels ● Political instability in a number of EMs ● Some EMs are aging fast and facing a dwindling labour force ○ China’s case, is shrinking. Beijing’s one-child policy, for example, means there’s a wave of older workers retiring with not enough younger workers to replace them. ⇒ but many better prepared (large foreign currency reserves, debt denominated in diversified currencies, revenue in different currencies The attractions of emerging economies As target markets ● Many have huge middle classes, with significant income for buying electronics, cars, health care services, and countless other products. ● Many exhibit high economic growth rates. As manufacturing bases
LISA YANG IBUS20002 Business in the Global Economy ● Firms from Japan, Australia, US and other advanced economies have invested vast sums to develop manufacturing facilities in EMs. ● Low-wage, high quality labour for manufacturing and assembly operations. ● Some EMs have large reserves of minerals and natural resources ○ Mexico and China - production platforms for car manufacturing and consumer electronics ○ Thailand - important manufacturing location for Japanese firms such as Sony and Sharp ○ Brazil - mining bauxite As sourcing destinations ● Transferring or delegating non-core operations from in-house groups to specialized contractors → outsourcing ● Helps foreign firms to become more efficient, concentrate on core competencies and obtain competitive advantages ○ MNEs have established numerous call centers in Eastern Europe, India, the Philippines, and elsewhere.
- Developed country, LISA YANG