Distinction between Developed and Emerging Markets - Coursework Example

Emerging and Developed Markets Name Instructor Course Date Introduction Over the past few decades, the world is seemingly undergoing economic segregation into two strong entities of developed and developing market. It may seem uneasy for the both entities to reach the state of equilibrium, but the fact remain that the measure of correlations between the markets is increasingly closing the gap though the equality state is yet to be achieved. Though the process of integration between the emerging and the developed markets is not complete, the emerging markets are posing threats to the developed markets. The myth has changed from the question of whether to invest in the emerging markets into the issue of how much to invest in the emerging market. In fact, the emerging countries are experiencing undisputed faster economic growth in respect to the transition market phase to a market economy. The difference between the two markets is weighed by the ability to provide investors with the opportunities to realize higher profits. While the developed market is struggling on how to adapt to the contemporary world with the technological advancement, the emerging markets experience the risk profile. Distinction between Developed and Emerging Markets The developed markets are the countries that enjoyed highly competitive industries and well-developed infrastructure[Bek10]. The countries contributed to the growth of the world economies due to the high per-capita income. However, the emerging markets had achieved substantial industrial development and modernization after the imperialism period. The emerging economies are characterized by rapid economic growth, increasingly challenging the developed markets. The markets can be compared along the line of the level of the contribution to the world economies and the registered GDP over the decades and the current trade. It is interesting to mention that the markets wide gap in the last few decades has been breached almost to the closure due to the adoption of various strategies by both the governments and the private institutions in the emerging countries. In the 1980’s, the emerging market for instance China recorded less than 1.5% of the world GDP while developed markets such as U.S and Japan accounted for 46.3% of the world. It is worth mentioning that the emerging countries faced the challenge of the market capitalization thereby making it difficult for the development of equity in the competition. However, given the drastic development of the technologies and the sense of globalization dawning to the emerging nations provided platforms for the growth of economies both locally and internationally. In addition, the emerging economies deployed changes in the strategies such the incorporation of the deregulation and privatization of the factors for production leading to viable investors venturing into the business. The disparity between the two entities in the world of world economies reduced with the emerging economies accounting for 15% GDP in 1987 yet the gap of capitalization was large with 1% of the world being capitalized. The development and growth of the emerging market can be attributed to the dynamic changes around the globe for instance the evolution lead to the emerging of countries such as Singapore, Israel and South Korea beyond emerging markets. Concept and Historical Evolution of Emerging Economies Since 1980’s the terms emerging economies and newly industrialized economies to describe the faster growing Asian and Latin American economies[Mod11]. It is from this perspective that more and more developing economies emerged because of market-oriented economy reform and policies to open up economies. Because of the changes, the terms were equated raising the challenge of distinguishing the developing and emerging market. The economies were accompanied by high level of inflation as witnessed in the emerging economies from East Asia and Latin America in 1980’s. However, after the period of inflation and economic challenges, Latin America and Asia started to open their stock market in the late 1980’s. Liberalizations of restrictions of the ownerships of the domestic stocks lifted the economic direction of many emerging economies such as Philippines, Taiwan, South Korea and Thailand in the late 1980’s. According to Henry and Kannan, Latin America growth in the stocks return from 1985-2005 increased to 14.68% percent annually[Kan10]. In this period, the most successful western economies had capitalized on the size to and the purchasing power in dominating the economic progress at the expense of the emerging nations. The emerging economies did not appear in the global economy in terms of capacity building and the global revenue. However, the glimpse of hope came into the emerging economies in 1990’s through the connection with the rest of the world. It is interesting to mention that beside the high return achieved by the emerging economies over time, trend-earning growth since 1996 in the emerging economies kept increasing 25% faster than in the developed markets. Though, there is no definite measure of the equity differential between the developed and emerging markets, the emerging economies has been greatly boosted by proper exploitation of assets, super taxes and capital control increases the growth of the emerging markets. True Potential of the Emerging over the Developed Market In the context of the potentials of the emerging market, it is relevant to reflect on the question whether the risk of the investing in the market has reduced[Ram15]. In fact, the challenges are still on by the amount of the insights outwit the traditional ways of commerce. Various factors are considered when figuring out the potentials of the market that ranges from the per-capita income to the market indicators. The economic power shift took place in the process and the developed economies shifted the economic power towards the emerging markets. There is ample evidence based on the World Bank statistics where the emerging economies combined accounted for 38% of the world GDP in 2010, an indicator of growth in the market as the rate almost doubled as compared from share in 1990[Nor16]. In the relation to the development of the purchasing power, the emerging market indices outperformed the developed market indices by a wide margin. The potential of the emerging market in comparison to the developed market measured from the market potential disclose that the two parties are gauged according to various dimensions[Sch101]. In the last decades, the emerging economies depended much on the local market while the developed economies capitalized on the local and international market. The level of the purchasing power in the emerging market increased with the urbanization and the integration of the market. This plays a key role in the growth of the market size and the market intensity considering the private consumption, gross national income per capita and the power of citizen’s expenditures. The market index over the decades has been the benchmark for the comparison between the contributions of the economies. By the beginning of 2012, the market capitalization for the emerging market amounted 12.6% and accounted for more than 30% of the world GDP[Bek10]. However, the difficulty lies on the differentiating the developed and emerging group since South Korea accounted for 2.2% of the global equity market capitalization. Role of the International Business in the Emergency of the Developing Economies The understanding of the global trend is essential in the drawing of the already dying gap of the economies between the emerging and the developed markets. International relations and interactions between the emerging markets were curtailed by political instability as well as poor economic outline in these nations[Gae12]. For instance, China struggled with the economic depreciation until the economic reforms achieved by the communist government through economic reforms in the late 1970’s[Mal10]. However, China rapidly experienced economic explosion leading to the Cines companies posing challenges to the developed economies and in turn triggered massive exportation to Europe and United States of America and other global market. However, huge population provides wide market for the economic growth, China but contrary to the huge populated in China is segmented into various portion with the large populations being below the purchasing power. Despite the developed markets, enjoying the longest period of market and favorable purchasing power the companies from China dominates in the world market[Fea13]. Companies such as Coca-Cola, General Motors, McDonald’s, Motorola and Volkswagen are successful in the international market due to the embracement of the marketing strategies. The international partnership and the globalization have been promoting the development of the emerging markets because of the ability to capitalize on the efficacy and satisfaction of the clients while considering the profitability of the companies[Kei13]. As the emerging markets share common features nations such as India and China concentrated on transforming from one phase of economic activities to the most productive one. The conservative developed nations concentrated on the traditional forms of production making the cost of production high and therefore the profitability of the resources and the exportation value remains high. However, India took the stance of changing from Agro-based economy into a manufacturing economy while China transformed from provision of cheaper exports into a consumption-driven economy. Market Opportunities and challenges in Future The active management in the field of business is paramount in the achievement of positive outcome and access to the international opportunities and the enabling environment for investors to unravel valuable sources in the risk-adjusted returns[Low11]. The expansion of the world economies has impacts on the developed and emerging markets. The developed market creates demand for the supply hence increasing the level of importation boosting the emerging economies that have integrated market. However, the growth is in turn providing opportunities to the developed market while in turn shrinking the possibilities of the emerging market to thrive. In this context, importation increase with increase on demand in turn influencing a less accommodative monetary policy and attracting higher global rates endangering the financial ability of the emerging market. It is however important to mention that the developed markets have an upper hand in the world economy growth since the developing of the emerging market depends largely on the developed market. Based on the growth changes and valuations in the global market, developed international markets are in better position than the developing markets[Wri10]. Notably, the world economy concerning the developed market and the emerging markets is generally taking different routes and though the development in the developed market may delay, the developed markets are still healthy. The developed markets are still under the control of the government while the emerging markets are privately and family owned. Emerging markets are capitalizing on the transnational strategy through mergers and acquisitions and entry into the global market for instance in Brazil, Perdiago SA merged with Sadia[Che14]. Emerging markets are growing rapidly because of the qualified labor and the availability of raw materials and resources. The technological advancement is favoring the development of the emerging market because of the simplified means of information transfer and the reduced global distance. Developed economies are turning their attention to the emerging markets for the technological services and products for instance Dell, Intel and Microsoft shifting their attention in Bangalore and India[Fab11]. However, there is growing risks on investing in emerging markets due to the political instability, weak legal systems and unreliable government for instance in nations such as China, India and Russia. Factors such as insufficient infrastructures and electrical problems in the emerging markets pose a challenge of investment as they lack 24 hours economy system. However, it is notable that firms are committed in promoting and fostering the emerging markets. With good channels of distribution, supply and marketing emerging markets are in position to outwit developed markets because of the diligence and skills in the contemporary world. Conclusion In conclusion, the most powerful emerging markets are characterized with massive natural reserves in both quantity and diversity, competitiveness is more witnessed in technological sector, industrial growth and consumer-based markets are intact[Cri14]. Tied to the opening of markets in emerging economies, financial innovations has greatly created for investors, new machine so that the investment process can achieve transfer of risk between various market participants. Though the developed economies have influenced the world economies for decades, it is evident that emerging markets are growing faster and may soon close the gap between developed and emerging markets. References Bek10: , (Bekaert, 2010), Mod11: , (Mody, 2011), Kan10: , (Kannan & Henry, 2010), Ram15: , (Ramaswamy, Koller, & Dobbs, 2015), Nor16: , (Norhayati, 2016), Sch101: , (Schmukler & Torre, 2010), Gae12: , (Gaeta, 2012), Mal10: , (Malhotra, 2010), Fea13: , (Feather, Emid, & Graham, 2013), Kei13: , (Keillor, 2013), Low11: , (Lowe & Doole, 2011), Wri10: , (Wright, Lau, Eden, & Hoskisson, 2010), Che14: , (Cheng Lu, 2014), Fab11: , (Fabozzi, 2011), Cri14: , (Cristina & Gheorghe, 2014), Read More