International Business in Emerging Markets - Coursework Example

International Business in Emerging Markets Name Institution International Business in Emerging Markets Introduction International markets are highly becoming competitive; therefore, countries have to develop strategies that would guarantee competitive advantage. 1981, the World Bank used the term, emerging markets, to refer to an economy with a per capita income range from low to medium. Most countries such as China, India, Brazil, and South Korea are considered to be among the emerging markets enjoying a speedy rate of economic regression and passage of various remarkable monetary reforms. Besides, the major factors defining such countries include increment in the foreign direct inflows, prosperous middle class, and increased rate of consumer spending. Typically, such countries face significantly heightened amount of economic exposure and political risks (Venkateswaran, 2012). Long downgraded to the second-tier position, the emerging markets coming are becoming critical forces and agents that guarantee the change of global industrial and financial landscape. These markets are distinguishable from the others through their demographic and economic capability to position themselves at the most influential and largest economies of the 21st century. Together, the emerging markets contribute about 2.8 billion of the global population, which translates to 40% and accounting for more than 25% of the global GDP. In the essay, the research will focus on analysis of China as the emerging market, its economic indicators, industrial structure, and theories supporting its international trade. Industrial Performance of China Globally, China’s economy performs second after the U.S. due to its nominal GDP and purchasing power parity (PPP). Furthermore, the World Bank views the country as the fastest growing internal economy globally at a rate of 10% in the previous three decades. China is the largest and the second largest exporter and importer of manufactured products respectively. Based on its per capita income, in 2011, the International Monetary Fund (IMF) conducted a study that positioned China in the 90th position. As an emerging and developing economy that mainly focuses on the export-oriented manufacturing sector, currency, the Purchasing Managers Index (PMI) dominates the economy of the country. The recent studies in China, the findings the economic figures reflect the efforts of the policy makers in reining in the property market with the devastating economic recovery of the country and achieving the mixed results (Zou & Fu, 2011). Such development makes the country enjoy the attraction and attention globally as the best place of investing especially the renewable energy products. The World Bank recent classification revealed that countries with a Gross National Income per capita of $9,266 and above qualify as the high-income countries. Consequently, the emerging markets are shooting to reach such levels, which make them big and rich. For example, despite the vast resources and ever-increasing population, China still qualifies as an emerging market. Macroeconomic Indicators Since China commenced its reforms in 1978, it has been enjoying rapid growth and moderate stability in the prices of most products. In addition, China experienced improvement in the pace of its economic and periodic expansion, enjoying efficient and decentralized administration, quality of the labor force, elasticity supply, increasing volumes of savings, and higher levels of fixed capital investments. Another factor contributing to financial and economic performance is its large flows of direct investment from the foreign investors. Over the last years, the country experienced rapid economic growth standing at 10%. Nonetheless, in the past three-quarters of 2012, the country’s economic growth experienced significant decline, which to some extent further developed China’s structural production capacity. These circumstances have made it difficult for some businesses to operate effectively. Moreover, most country’s consumers and investors have been able to anticipate strongly their pessimism. In China, the government made a commitment to ensure the achievement of a real GDP growth of not less than 8% annually with an aim of assisting to maintain the social stability. As a result, the country has been remedying its negative macroeconomic shocks associated with the slowdown in the export growth and financial crisis in Asia through the swift policy response. In the first half of 2013, China’s economy developed towards the desired direction and performed properly. However, within the second period, the country’s economic factors experienced significant growth, including consumption rates, investments, and industrial activities. In the same period, China registered a GDP of 17.28 trillion Yuan; consumer price index (CPI) registered 2.6% growth and trade surplus of USD55.3 billion representing USD40.9 billion. In China, the main indicator of its performance at international level is the stability of the currency against the standard reference currency, the U.S. dollars. The major factor attributed to such performance is the decision by the People’s Bank of China to evaluate the Yuen currency (Jayaraman, 2009). Nonetheless, the country’s downward pressure remained strong on the currency due to the capital outflows that forced the bank to intervene with an aim of protecting the economy, several downside risks have emerged in the recent years. Additionally, China has sectors with the capacity of putting a dent in its economic growth, such as strong capital outflows, heightened volatility within the stock markets, and overcapacity. Over the long run, the country’s economic status, could depend on the size of its workforce and productivity level. The integration of two factors determines the quantity of products and services supplied within the country without necessarily overstretching its economic processes. The urban workforce in China, which also produces most of the output, has been experiencing reduced growth with age groups forming these workforces shrinking as well. Hence, the demographic features play significant roles in determining the investment indicators. On the other hand, less spending on the goods and services might result in the underemployment as most of the investors experience losses due to the unsustainable level of production process. Globally, there have been debates on the theoretical and empirical circles involving the methods used within the host country to respond to the inward FDI. The findings the IMF show that China’s FDI flows have statistical importance and positive influence on the country (Prasad & Ghauri, 2004). Besides, China has been victorious in accumulating the inward FDI. As an attraction from its investment opportunities, sheer size, and ever-growing domestic market, China received approximately 20% of its FDI from the developing countries over the ten years and over $100 billion in 2008. With regard to the country’s GDP and investment, FDI add approximately 2.5% of the GDP. FDI policies are keen on liberalization processes. Before the market institutions, the country focused on opening foreign investment in the selected coastal areas with much emphasis on attracting export-oriented manufacturing FDI. International Trade and Associated Theories China has used international trade to bring new equipment and technologies with an aim of meeting its domestic inadequacies. However, the government has resorted to maintaining an even balance of trade to enable the country to pay for its imported products rather than buying on credits. With the current population standing at 1.2 billion and the fastest growing economy in the world, most countries refer to China as the market of all markets. As a result, it has been able to draw investments from around the globe at such a magnitude that makes it the second largest recipient of foreign capital after the U.S. The total volume of products exported by China is USD232 billion, which include its principal commodities like machinery and equipment, footwear, sporting goods, mineral fuels, toys, and textiles and clothing. Of all the products generated from the country, the U.S. imports about 21%, Hong Kong 18%, and Japan 17% (Jayaraman, 2009). China’s increment in exporting products is the main factor behind its rapid economic growth. In 2013, China surpassed the U.S. to emerge the largest trading country globally, which marks the milestone of the country. The country’s yearly trade value of the goods exceeded the $4 trillion mark for the first time after increments in the country’s export from 7.9% to 2.21 trillion. In the 1970s, Dunning coined the eclectic theory of international production and trade off which combines different theories such as international trade theory, the location theory, and internalization theory. Besides, the theory tends to explain the FDI decisions (Pacek & Thorniley, 2007). The eclectic theory requires international companies to enjoy advantages associated with ownership and internalization while the host countries should enjoy the geographical advantages. The location factors, according to Dunning are the market forces like size and potential, trade barriers, cost factors, and investment climate. Two location factors summarize the location of China. One is the resource conditions, which include natural resources, huge pool of labor, and proximity to the market conditions. With the ever-increasing population, China enjoys a huge pool of human resources required to cushion the development of its emerging market. Other important factors for China’s economic growth include the favorable environmental conditions, political, economic, legal, and infrastructural development (Singh, 2010). These factors play a significant role in the decision-making process of the FDI. Raymond Vernon tried to explain the patterns of trade patterns through the Product Life-Cycle Theory. China’s demand is on the rise. According to the theory, an increment in the demand of China’s products in a foreign market would lead to production of similar goods in the native countries to counter such deficits. However, the Mercantilist theory stresses on the importance of exporting manufactured products. Upon exportation, the country receives payment using the currency based on the gold standards. According to the theory put forward by Ricardo, the Ricardian Comparative Advantage, for trade to occur between any two countries, they do not have to have necessarily absolute advantage in the commodities that they produce, but rather have a comparative advantage. China specializes in the manufacturing sector with high technological products spread all over the world international markets. Focusing on the manufacturing industry would ensure efficient and reliable growth of the emerging market. Conclusion An emerging market is any country, putting the efforts of changing and improving its economy with an aim of increasing its performance to compete effectively with the global advanced countries. According to the World Bank, any country with a Gross National Income per capita of $9,266 and beyond qualifies as high-income state which most emerging markets as China intends to achieve. Emerging markets are neither small nor poor. For example, with the biggest population and a wide array of resources, China performs properly. Moreover, China made several efforts in making its economy strong, opening up to the international investors, and becoming more competitive in the global market. References Jayaraman, K. (2009). Doing Business in China: A Risk Analysis. Journal of Emerging Knowledge on Emerging Markets, 1 (1), 151-162. Pacek, N., & Thorniley, D. (2007). Emerging markets: Lessons for business success and the outlook for different markets. London: Profile Books in association with the Economist. Prasad, S. B., & Ghauri, P. N. (2004). Global firms and emerging markets in an age of anxiety. Westport, CT: Praeger. Singh, S. (2010). Handbook of business practices and growth in emerging markets. Hackensack, NJ: World Scientific. Venkateswaran, N. (2012). International business management. New Delhi: New Age International. Zou, S., & Fu, H. (2011). International marketing: Emerging markets. Bingley: Emerald. Read More