In: Economics
Assess the impact on international trade of emerging economies like those of Europe, India, China, Brazil, Russia, and other countries of your choice. What can we expect from them in the next 20 to 50 years.
The worldwide financial power shift away from North America, Western Europe, and Japan's developed developed economies will continue over the next 35 years. In 2014, China surpassed the US to become the biggest buying energy parity (PPP2) economy. In terms of market exchange rate (MER), despite its predicted slowdown in development, China will overtake the US in 2028. In terms of PPP, India has the ability to become the world's second largest economy by 2050, although this needs a continuous structural reform programme.
Emerging economies such as Mexico and Indonesia are expected to
be bigger by 2030 (in terms of PPP) than the UK and France, while
Turkey could be bigger than Italy. In the era up to 2050, Nigeria
and Vietnam could be the fast-growing big economies.
According to our country specialists, Colombia, Poland and Malaysia
all have excellent potential for viable long-term development in
the coming decades.
At the same moment, latest experience has re-emphasized that
comparatively fast development for emerging economies is not
guaranteed, as evidenced, for instance, by latest issues in Russia
and Brazil. It requires sustained and effective investment in
infrastructure and improving political, economic, legal and social
institutions. It also requires remaining open to the free flow of
technology, ideas and talented people that are key drivers of
economic catch-up growth.
First, considering the mixture of financial bottlenecks and
institutional deficiencies, it will be hard to maintain growth
levels in the E7 era from 2000 to 2012 and other significant
emerging markets. This is supported by this report's thorough
assessment. Managers need to comprehend and have processes in place
to prevent or at least mitigate the political, legal and regulatory
hazards as they occur. They also need to comprehend the dynamics of
progressively mature, advanced and digitally savvy emerging
consumer economies.
Second, emerging markets differ widely in their institutional
strengths and weaknesses and need a nuanced assessment. There could
also be major differences in institutional strengths between
industry sectors within countries. Deep local knowledge that is
updated in real time is critical here to manage businesses
successfully in an emerging market environment. Having the right
local partners to navigate you through local political, legal and
regulatory systems is also critical . Identifying and promoting
local talent who understand local business and social cultures
better than any outsider will also be an increasing source of
comparative advantage.
Third, part of their contribution could be to attempt to enhance the local institutional structure for bigger Western firms making strategic investments in emerging economies. This could require providing local governments with suitable technical help and guidance in fields such as corporate governance, fiscal policy and protection of intellectual property rights. It could also require investing in social and economic infrastructure (such as schools, highways, railways, electricity and water networks) where these are critical to the long-term achievement of a company in a region.
In brief, while emerging markets have significant potential for development, they can also be an institutional minefield–both executives and investors need to walk cautiously. Global policies need to strike the correct equilibrium between mature, lower-risk developed economies and faster-growing but usually higher-risk emerging markets. The right balance will vary from company to company, but our strategy toolkit for growth markets can help guide the way