Emerging Markets BA Marketing Management with Business Studies - Research Paper Example

Emerging Markets The purpose of this essay is to present the global overview of an emerging market. For the purpose of analysis, the paper takes into consideration the country Brazil. Initially the paper briefly explains the concept of emerging markets and establishes why Brazil is an emerging market. Then it moves onto discuss the characteristics and challenges faced by the emerging market of Brazil. Also it discusses in detail the ideological, social, demographic, and political factors that are faced by the country. The last part deals briefly with the steps that need to be taken by Brazil to help it become a developed country. Emerging markets Emerging markets, according to Li (2010), are countries that are basing their economical structures on the market economic systems and are progressing by offering a great deal of opportunities in trade, technology transfers and foreign direct investment. Further their currency is appreciating to some extent that is encouraging people to buy it which further adds to the foreign reserves of the countries. Five of the most famous countries that are developing as emerging markets are China, India, Indonesia, Brazil and Russia. These five countries critically transitioned from developing countries to emerging markets. Each of the five above mentioned countries is a very important market and the effect of the group of five may actually have a huge effect on the economy of the entire world. Out of the five largest emerging markets mentioned, the paper will discuss the characteristics of Brazil. The Choice of Brazil Brazil was chosen for the essay because Brazil is one of the only five countries that has developed over quite a short period of time. China, India and Russia are the three densely populated countries of the world and so it was a little easier for them to achieve an efficient allocation of resources through labour intensive strategies. For Brazil the date of independence from Portugal was quite earlier from countries like India and Indonesia but for many decades, it was to serve as a ‘periphery’ state for the countries that comprised the ‘core’ in North American countries. Huge amounts of resources, resources belonging to Brazil, were utilized for the betterment of the economy of America and Canada. This occurred for a lot of time even after the Second World War, as Nevaer (1996) relates. However things changed later and according to Kaufman (1976), countries like Brazil and Argentina became the ‘core’ while the southern Latin American countries became the peripheries. The income and wealth disparities gradually increased between the northern Latin American countries and the southern Latin American countries in the favour of Brazil. Soon, the southern Latin American countries acted like hubs of economic activity where the wealth was transferred to Brazil. The domestic economy of Brazil flourished and since coffee is grown in Brazil the most, the coffee needs of the entire world were fulfilled by the coffee farms in Brazil. The export of coffee paved a way for the Brazilian economy and now it has started exporting more and more finished goods and even to some extent services. As Workman (2009) relates, the major exports of Brazil were coal, crude oil, steel making materials and industrial engines in 2008. It shipped approximately $ 197.9 billion of exports to the entire world thereby becoming the 22nd largest exporter of the world in 2008. Also in 2008 other principal exports of Brazil included automobiles, coffee, footwear, iron, soybeans and transport equipment, as Workman (2009) relates. The most important fact was that in 2008 Brazil exported 14.6% of its exports to the US. This comprised the largest share of exports given to any country. Other countries like China imported 11.5%, Argentina imported 8.5%, Netherlands 4.9%, and Germany imported 4.5% of the exports of Brazil alone. The most important trading partner, it seems, of Brazil is the United States. It is noticeable that the trade with the US increased in the year 2008 by 18.8% from the year 2007 with the crude oil export increasing by 107.8% and the steel materials exports increasing by around 66.3%. This increase was crucial for the country because greater amount of exports meant greater amount of currency flow into Brazil. This increase also helped the country reduce its balance of payments deficit. A similar trend was seen at the end of the year 2009. It seems that Brazil is moving towards being a major country in world trade. Brazil’s GDP also increased to US$1.573 trillion in the year 2008, thereby making it the tenth richest country in the world. Furthermore, since the population of the country is approximately 198.7 million, Brazil was also the 101st richest country in the year 2008 with a GDP per capita of $ 10,200. Most of the GDP increase of the country was due to an increase in the trade of the country. The share of GDP increase by increased international trade was 23.5% as compared to 25% of the US and 60% of the Canada. Hence, Brazil is the first Latin American country that is advancing as an emerging country. Now the paper will discuss some of the characteristics and challenges faced by the economy of Brazil. Characteristics and Challenges faced According to Li (2010), Brazil’s emerging market has four different characteristics. First it is an economic powerhouse with a large population, many large resource bases and even larger market. This has a direct affect on the development of the country itself and also the countries around the main country. If Brazil’s emerging markets succeed then it may bring development in the countries near to it. It is so because the countries next to it are Argentina and Mexico that are also abundant in human population. They may use the labour intensive strategies used by Brazil itself. Also, the trade between these countries would be increased because proximity makes the transportation of goods relatively lower. Thirdly, other countries might also be motivated to learn from the example of Brazil. Brazil was never a rich country but the economic policies that it has adopted so far are a reason for its success and power. If Brazil, on the other hand, enters an economic crisis, the neighbouring countries that are so dependent on Brazil’s trade and economy may also have to suffer. So Brazil has the power of bringing down the countries next to it. The second characteristic is that Brazil is a transitional society. As Li (2010) discusses, Brazil is a country that adopts open door economic policies. In the past, Brazil adopted state-led economic policies that despite of making the economy better, deteriorated it. As a result, transitional policies like the open door policies were introduced. An open door policy means that a country leaves the trade ‘open’ to everyone. This further implies that the local industry and even the foreigners are free to enter and exit the trade markets. Since they do not have to pay huge amounts of money to enter the emerging market of Brazil, the local and the foreign producers are encouraged to communicate with each other. The open door policy is also seen to be as a morale booster because it means that the both the local and the foreign employees are motivated and consider themselves a major part of the economy according to Jain (2006). The third characteristic of the Brazilian economy is that it is one of the five most increasingly growing economies. Brazil is responsible for most of the ‘explosive trade growth in the entire world.’ As a result, the Brazilian economy is likely to double its share in the world by the year 2020. Also, the number of buyers and sellers is likely to increase more in the country than the industrialised countries. This is so because of the high demand of the country in accordance with the high population. Also, the increased migration is responsible for the fast growing economy. Both skilled and unskilled labour from different parts of the world is attracted to the emerging market in Brazil. Since the 1990s, Brazil has been experiencing migration from both South Korea and Latin American countries. According to a 2000 survey, the south and Central American people constituted 46.5% of the migrants in Brazil. Mostly these people dominate the migration market because of the greater opportunities and better wages present in Brazil. Also according to Ammaral (2005), 56.3% of the foreign population in Brazil came from the developed countries in Europe. This means that the migration markets are such in Brazil that people even from developed countries like that of Europe are encouraged to apply. Fourthly, Brazil is also one of the critical players in world politics, social and economic affairs. The increased amount of trade of Brazil is earning it greater power in world politics. In Li’s (2010) words, Brazil is seeking a larger voice in international politics and a bigger slice of the economic pie day by day. Although Brazil is developing as an emerging market, there are certain challenges faced by the Brazilian economy. The first and the foremost is the confusion in the role of the government. In an effort to create a market based economy and to ensure that the economy of Brazil is sustainably developed, the emerging market of Brazil faces a grave problem with respect to the allocation of power between the command and the market economic systems. A market economy and especially the open door policies of Brazil lead it to it being an economy with the least government intervention required so as to increase the communication between trading partners across the globe. At the same time, the government is required to ensure that the rights of a certain part of the population are not violated. This is because the motive in the market economic systems is generally self interest, even if it comes at the cost of other individuals. Hence, in Brazil, there is usually a debate over the defining of the role of the government in the economic field. Another major problem faced by Brazil is its enormous corruption. According to Jain (2006), the overall progress of Brazil has been because of the acceleration in the need for the developed countries to consume more and more quantities of goods and services. To meet that need, the developed countries usually invested in countries like Brazil where there was an abundant amount of cheap labour. In doing so, the developed countries neglected the need for a transparent system of the allocation of resources. As a consequence, corruption and red tapism became very common in Brazil. According to the Transparency International CPI index, the perceived corruption in Brazil was 3.9 while the corruption index was 4.62. Both these indexes are very high which means that the Brazilian economy is suffering from enormous corruption. Other factors Brazilian economic policies are greatly dependent on other factors. The first one is the political factors. A few decades ago, because of the political failure of the country, the state led economic policies became redundant and useless. Brazil at that time experienced both political and economic instability. With no trust on the government, the local and the foreign producers were nit very keen to invest in the market of Brazil. However, things changed when the country adopted open door policies. Instead of having an economic system where the government had the right to intervene all the time, the country shifted to a political system whereby the government role was reduced. Also, in the past the financing was done through lenders like the IMF and the World Bank. Often world politics dominated the decisions of the lenders and as a result, Brazil suffered from great debts. However, the market oriented approach adopted later led to the financing being done by private investors through equity investment. The change in the approach not only affected the economy but also the ideal values of the masses of Brazil. Today, in Brazil, the idealist values of restorative democracy and market values dominate the notions of ideological rivalry that was quite popular in the Cold War period. The concept of restorative democracy has paved the way for recognition of Brazil on the part of various countries in the world. Brazil is considered one of the most non hostile countries of the world; the result is that many countries want to trade with it. The political policy of Brazil is defined mostly by its economic policy and the consequence is that it has a good image among countries worldwide. Although the part of Brazil in international politics is very new, it is careful in the political decisions it takes. It seems that Brazil is quite neutral in world politics as it does not take any stringent decisions against any particular country. However, Brazil is tilted a little towards the United States. This is because; Brazil shares almost 25% of its trade with the US. Going against the United States would mean a collapse of the economy for the country and so it sort of allies with the US. But according to Jain (2006), the policies adopted by the Brazilian governments have not undermined the importance of any other country in any strict manner. Better relations with the US ensures that the allies of the United States give a lot of importance to Brazil by investing huge amounts of in FDI. The International Marketing Mix Since Brazil is not a country that is self sufficient, it has to export goods and services to the entire world. The volume of exports of Brazil has been discussed in depth before. Now it is important to discuss the international marketing mix adopted by the Brazilian exporters. It seems, according to Lenger et al. (2009), that the marketing mix of the exporters of the Brazil is dominated by psyche distance. Psyche distance refers to a situation where the managers of a particular product or services change its quality and packaging etc because they feel that another country’s culture is quite different from the country they belong to. According to Lenger et al. (2009) Brazilian exports reached to 43billion dollars in the first semester of the year 2004. This was almost 32% higher than the figure that was present for the previous year. The study shows that in order to internationalise their businesses, the managers of the Brazilian export companies adopt a policy whereby they use the concept of psyche distance. Psyche distance may apply to product adaptation, price adaptation, promotion adaptation and distribution adaptation. The hypotheses models in the study prove that the standardisation and the adaptation of a country’s markets are directly related to the perception of the manager in terms of the distance between the foreign and domestic environments. The study further shows that the bigger the difference between the country of origin and the target country, the greater the product has to go through the process of adaptation. For instance, Brazilian managers may not be very keen on spending resources on the product specialisation if it has to sell to poor countries like Peru. But if it has to sell to the US, Brazilian managers adopt specialized packaging and labelling etc. Price discrimination is also common in Brazilian international trade. Since Brazil has trade partners from both the developed and the developing worlds, the same price is not charged for a single unit of product. According to Jain (2006), the price of a product sold to the US or to most of Europe is greater than the price that is determined for the Latin American countries. This is due to two reasons. First, Brazilian managers know that if they charge a higher price for countries like the US, it would not affect them that much and they would still be willing to pay. But for the developing countries that already have scarce financial reserves, there would be a huge opportunity cost attached to their decision of buying once the price is increased. Secondly, exports lead to an accumulation of foreign reserves. Emerging markets like Brazil are keener to accumulate the currencies of Europe and America rather than the depreciating currencies of developing countries. Promotion themes and budgets are also different for different countries in the context of Brazil. For bigger economies, Brazil usually makes use of different advertising campaigns and promotional sale tools in order to increase its exports. The same is not true for the developing countries. A reason may be because it does not really face a lot of competition in developing countries. The same goes for the distribution of the goods and services that Brazil exports. The channels of distribution, the level of control over the channels, the transportation policies and the distribution budget are usually tilted towards the developed countries. Other factors that dominate the international marketing mix are also the reduced costs of production because of the availability of skilled and unskilled workers, the presence of mineral resources and the well developed infrastructure that reduces transportation costs. All these add to the lessening of the cost of production, thereby leading to a lesser average cost and a greater competitiveness in the global market. Conclusion Brazil is an emerging market that has a great amount of potential. The international marketing mix, the economic and the political reforms of the country are well sought out for Brazil. The result is that the economy of Brazil is growing enormously. However there are problems associated with the open door policies adopted by the Brazilian market forces. First is the undefined role of the government, the second is the increased corruption and the third is the increase in the FDI. FDI is beneficial for a country’s economy but that is so in the short run. In the long run, the country that invests enjoys the advantage of the remittances that are earned from the residents of the other country. This means that in the long run, the countries that invest in Brazil will gain more and Brazil will suffer, it is true that Brazil should enhance economic development through open economic policies but it should also constrict the role of the FDI to some extent. References Amaral, E. (2005). Shaping Brazil: The Role of International Migration. US. University of Texas. Jain, S. (2006).Emerging Economies and the Transformation of International Buisness: Brazil, Russia, India And China (New Horizons in International Business). UK. Edward Elgar Publishing.   Kaufman, E. (1976).The superpowers and their spheres of influence: The United States and the Soviet Union in Eastern Europe and Latin America. US. Croom Helm.  Lengler, J. Sousa, C. Callegaro, C. and Aguzzoli, R. (2009). Psychic distance and marketing strategy of export companies in Brazil. Mexico. ITESM. Li, C. (2010). What are emerging markets? China. University of Iowa. Nevaer, L. (1996). New Business Opportunities in Latin America: Trade and Investment After the Mexican Meltdown. US. Praegar.  Workman, D. (2009). Brazils Top Imports & Exports 2008. Available from (Accessed 30 August 2010) Read More