Emerging Market Firms Investing in Each Other's Home - Essay Example

Emerging Market Firms Investing in Each Other's Home Introduction Emerging markets in the world today act as the yardstick to economic development. Their effects are felt in all countries where the markets are exhibited. Countries with emerging markets tend to have trade among themselves due to various reasons. This may include taking control of the economy and having a mutual beneficial scenario among them. As a result, regions with no emerging markets are locked out with records of low economic growth rates. Maintaining circulation of finances among countries with emerging markets becomes more beneficial to the countries than these locked out from the game. These emerging markets come about as a result of increase in population and advent of technology, an attempt to pull up the economy by developing nations call for resources. These need for resource create the emerging markets. Fears of Emerging Markets Developing countries with emerging markets firms tend to invest in each other's home with the reason of being cautious about the situation of the local economy in the prescience of foreign firms from the developed world. Sauvant (2009) argues that developed nations make efforts towards attracting developing nations into signing business deals. Developing nations with emerging markets are always weary of multinational companies which may pose a risk of extinction to the local firms. More benefits may be realized when emerging markets are exploited by countries with similar situation so as to have positive development at a relatively similar pace. According to (Fayolle & Todotoy 2011)’ development of multinational enterprises will tend to follow the same procedure of having emerging markets as a preference. Most investors would prefer to make multinational deals with nations that have potential of emerging markets. Operating at relatively same level of financial ability becomes the driving force. The establishment of enterprises in other countries will follow the emergence of markets for the products which would come from either side. Prospects of emerging fields becoming the new battleground may be realized. For this reason, impact is always felt on trading partners regionally and in countries which are distantly positioned. For this reason, there has been a record of an increasing number of countries receiving a pull into the economic orbit. According to Kathleen (2005), Emerging markets and its leaders sought to create second tiers with a massive flow of investment realizations. Scramble for resources creates more pressure hence expectations are made on the first mover longer steps over the emerging heroes. Competition will be realized among emerging markets in regions such as Middle East and Africa through their government. Ken-lchi (2005) supports, what happens in the case of a growing economy is an advantage of having more powers to have influence in the policies governing economics globally. This would come with a combined support with similar emerging markets with which a country trades. An example may include the 2010 international monetary fund where china becomes the third biggest member after a voting exercise. It would have appeared different if a developed nation was granted the opportunity. This owes to the fact that emerging markets are the export targets for the developed countries. Emerging markets cooperation contributes heavily to business to business sales more so in China and India who make it a reality for Germany to be a powerful export economy by marketing their products and buying resources for production such as steel. Challenges are often associated with emerging market growth. Kathleen (2005) supports China and India's' economy in the past decades were viewed to be far from flourishing. Brazil on the other hand stood out as the country to watch. There has been a shift in economic power development which impacts on preference on where and how to carry out businesses. They make effort towards ensuring that the trade involvement with the developed nation benefits the locals and protects local businesses. This results into various restrictions which do not go well with firms from developed nations hence sending them away. Singh (2010) supports that firms that are left to survive the markets are those from similar emerging markets hence protecting each other from exploitation in an attempt to develop. This explains the reasons why most developing nations would prefer to sign business deals with China but not USA and Europe due to the presumed condition that would follow owing to the differences in economic levels. They are left doing business among themselves as emerging economies. Benefits of emerging markets investing in each other's home It encourages trust and economic control between countries who share the markets ensuring that no external intruders are let into the markets. This also protects the economy by avoiding competition and efforts from countries that made no contribution to the invention of the emerging economy. It may be necessary at this point to have a glimpse of what may be referred to as an emerging market. This refers to a situation where new product discovery or invention calls for more users hence market development. Rugman (2012) argues that technology has always emerged as the backbone of emerging markets as it develops at a rapid rate. The advent of new urban development resources which are technologically updated creates markets for the products. Preference always goes to developing countries that would also need a different product hence multinational trade. China and the US are some of the examples that can be used to demonstrate an emerging and developed economy investing in each others region. Following the financial crisis in the year 2008, there have been changes in the world economic trends. According to Sauvant (2009), emerging economies exhibited higher development rates as compared to the developed world. This pointed out that emerging economies are the future engine the economic growth worldwide. Beginning with china as an emerging economy, it recorded a slower growth rate in the year 2012 as compared to the previous two years this is attributed to reduced export to Europe as a result of debt crisis during the euro era as well as destocking of firms due to shrinking demand and falling prices downturn of housing and automobile markets is also a reason behind the decrease. Kathleen (2005) supports China as an emerging economy took a measure on the economic crisis. Rising oil and food prices together with non performing bank loans have also been an issue for china as an emerging economy in terms of inflation hence limiting possibilities of relaxing monetary policies father. China still has room for maneuvering with microeconomic policy so as to stimulat4e the economy. As a result of decrease in demand for commodities, prices also go down. In emerging economies, it has been found out that the public debt ratio is about 30% while for developed economies such as the united states is about 100%. Fiscal policy can still be expanded in china so as to stimulate the economy. According to Rugman (2012), China has a big population giving it an advantage in terms of markets a result; it is capable of adjusting its income distribution which means that the potential to be tapped in emerging economies are great. Peng (2008) argues there has been a recorded increase in cross border trade among emerging economies thereby bringing increased growth rate within the emerging economies which may result into future impendence to economic development. The United States preferred china’s as an investment target as china also makes exports to the US. Any slowdown in the Chinese economy may lead to a hurting between the bilateral trades among the two countries. China and the US invest in each others home due to the economic differences and concordance of requirements on either side. China has been on the stable end lately as the US faces an economic crisis, this created a need for more mutual trade between the two countries. Foreign direct entry in the markets became abit6 different as compared to market entry in other emerging economies. The support for this is the angle of perception of emerging markets as the crucial point o driving the economy owing to the fact that developing countries are growing in number. The leaders of the emerging markets are also seeking to disrupt the global competitive landscape. According to Singh (2010), as emerging markets gain strength, developed markets tend to divert into the sector making it a bit tricky for the emerging economies. This ensures leadership in the emerging markets which constitutes a faster economic growth. This look attractive for the existing strong hold economy who takes advantage of the emerging markets in dominating the economy. They would not let in any developing country into the same circle as long as the emerging markets exist. Developing counters lack multinational companies which should be the drivers of the economy as those in the developed countries encourage more hosting hence development realized on both sides. Lack of information for countries which are still developing keep them at bay rather than stretching an arm economy wise. Peng (2008) argues that the resulting case is a notable difference between the developed countries with emerging markets and those that are underdeveloped. Liquidity of commodities is an issue in both cases which makes it appropriate for either side to make considerations on what markets to exploit and in which regions to direct efforts. Differences in entry strategy for emerging and developed economies when they take part in FDI FDI come in different ways such as inflow and outflow. For example, outflow FDI to the US from china may take advantage of foreign labor or resource inflow. Kathleen (2005) maintains this could provide capital as well as earn wage to the country. China has limited foreign direct investment to the US due to the limited western deal making or due to the reason that America may be having a xenophobic feeling about Chinese investments in the country. Both private and stat4e owned companies enter the markets from china to the US. However, pressure by the US government has lead to the fail of some deals with china resulting from worried law markers. According to (Singh 2010) entry in the markets in china includes making an identification of markets in the region, this maybe involve considering the population distribution and economic setups in different regions. An event that may follow is making a choice of location. The governmental policies on the investment yet to be made may be done prior. A market research would be necessary followed by hiring of staff as well as due diligence. An important action would also be developing of intellectual property right before concluding thoughts. Market entry strategy for firms from developed nations may be restricted by the condition created by the emerging markets. The other threat that they face is the fast development rate recorded by other countries such as China. According to Sauvant (2009), China has also developed close relations with other developing countries with emerging markets making it win trust of the countries. This calls for need of a market entry plan and strategy other than the direct investments since it has already been made bumpy. An attempt to make entry into foreign emerging markets directly may be doomed to failure due to regulations set by these countries and the mutual agreement that exists among emerging economies. While for emerging economies such as china, market entry strategy for direct investments internationally takes no alternative due to fewer restrictions. According to Peng (2008), foreign direct investment strategies involve various theories which may not be applicable in this case. For instance, the theory of absolute advantage would not be enjoyed as precaution would be taken by the country with emerging markets not to render other producers incompetent. Developed countries will not have an opportunity to enjoy this advantage which regards the components of a unit product. All other factors of production will be regulated in the name of protecting local firms thereby making it impossible for developed countries to make foreign direct trade. Unlike developed countries, emerging economies will have the advantage of trust on business levels from the emerging economies enabling easier foreign direct investment. Another strategic theory of foreign direct entry which would not work for developed economies unlike developing economies is the theory of competitive advantage. Regulations made by countries with emerging economies will not allow firms developed nations to access the markets. Other developing nations will make efforts to ensure that all the required products are availed in a convenient way. It is argued that China, for instance, would be a good example in offering alternatives which would have otherwise been sought for from developed nations (Rugman 2012). This ability of providing alternatives by developing nation’s blocks developed nations from accessing the markets. However, a change of strategy by providing extremely high quality to targeted markets may do for developing nations rather than using foreign direct entry procedure. Fayolle and Todoto (2011) maintains that multinational enterprises may enjoy advantages such as efficient management, economies of scale, application of advanced technologies, financial abilities and production of differentiated products. This unlike for local firms in emerging markets will provide an excellent service and production but at the expense of the emerging market and other developing nations. Sauvant (2009) argues that, as a result, strategies applied by developed nations in making foreign direct entry may not be viable; regarding the fact that nations with emerging markets are cautious of these powers and possibility of rendering their own firms extinct. The fact that economic recession hit developed countries implies that developing markets are becoming more competitive and making efforts towards economic development. Singh (2010) argues that this is an indicator of minimized trade between developing and developed economy. Change of market entry strategy by these nations must be evident if at all there has to be improvements. Middle emerging economies continue roaring, restrictions will be realized on credits so as to save money to expand the economy thereby curbing the issue. Deals on finding a leeway into emerging markets may soon be realized only if foreign direct entry strategies are not applied as would be done by emerging economies themselves. As fortune rises for developing economies, what is indicated is a stronger growth which may only be compromised by well established economies or firms which may interfere with local firms through competitive advantage? Ken-lchi (2005) emphasizes that after rising that this is the fear of nations with emerging markets, developed nations are compelled to apply other mechanisms of exploiting the markets so as to realize survival of their firms while developing nations make progress along foreign direct entry. Conclusion From the above analysis, it becomes apparent that firms within nations with emerging economy; must be protected from foreign firms from developed nations which have competitive advantage as realized in the above mentioned examples. These callas for trade among nations with emerging markets by regulating market entry by other firms. For this to change, firms from developed nations must adopt different mechanisms for market penetration. Lack of such change would see unto it that firms in developing nations develop economically and enhance world-class competence. References Singh, S, 2010, Business Practices and Growth in Emerging Markets, World Scientific, Singapore. Fayolle, A & Todotoy, K 2011, European Entrepreneurship in the Globalizing Economy, Edward Elgar Publishing, Kimberley. Kathleen, S 2005, Investing Online For Dummies, John Wiley & Sons, New Jersey. Ken-lchi, A 2005, Japanese Multinationals in Europe: A Comparison of the Automobile and Pharmaceutical Industries. Edward Elgar Publishing, Kimberley. Sauvant, K 2009, Investing in the United States: Is the US Ready for FDI from China, Edward Elgar Publishing, and Kimberley. Peng, M 2008, Global Business, Cengage Learning, London. Rugman, A 2012, Multinational Enterprises from Emerging Markets, Bloomington, IN Indiana. Read More