Emerging Markets: Potential for Investment?

Emerging Markets: Potential for Investment?

19th October 2018

Most modern companies strive to enter established markets which tend to be stable and fully developed, with lower risks associated to entry. However, with many of these established markets reaching saturation in terms of consumer growth, emerging markets could be explored as a potential investment for firms. Emerging markets are countries which display some characteristics of a developed and established market but require improvements to be made in order to become a developed and established market. The term emerging markets was first coined in the 1980’s by economists to replace the term LDC/ LEDC (Less developed country/ Less economically developed country).

For established companies looking to develop and grow, entering emerging markets may have many mutually beneficial opportunities for both the consumers in these emerging markets and for the company. These benefits include, but are not limited to, growth and the potential for high growth, diversification, increased demand for innovative and new goods, establishing a brand presence, minimising competition and joining a growing infrastructure that the company can grow with. Entering emerging markets is not without risk however, with political instability and economic risk such as unregulated markets, high inflation or deflation and the value of currency being prevalent factors within emerging markets.

When discussion takes place with regards to emerging markets, the obvious choices of the BRICs countries (Brazil, Russia, India, China and South Africa) are often used as examples. However, as Bloomberg argue and the table below highlights, there are many more emerging economies (not limited to just this table) which shouldn’t be overlooked and could be considered for potential investment and for companies to potentially enter their markets.

Country

Population Size

GDP Percentage Growth (2013- 2017)

Percentage of Population on the Internet

Mexico

49,500,000

17.5%

41%

South Korea

44,900,000

22.9%

91%

Indonesia

42,400,000

31.3%

17%

Philippines

39,200,000

20.4%

39%

Turkey

36,600,000

21.2%

46%

Poland

25,900,000

21.2%

67%

Colombia

24,300,000

21.9%

52%

Morocco

19,900,000

27.7%

60%

Thailand

19,500,000

25.9%

29%

Peru

12,300,000

27.4%

40%

Malaysia

12,100,000

21.8%

40%

Chile

11,400,000

24.2%

65%

Czech Republic

8,200,000

21.1%

77%

Hungary

7,400,000

15.6%

75%

Zambia

2,300,000

31.3%

15%

Namibia

325,400

22.3%

15%

With the modern world becoming increasingly reliant on technology and the internet, this same trend is occurring in emerging economies. With urbanisation, comes the inevitable technology wave. This wave increases emerging economies ability to access e-commerce websites with access to the internet and mobile networks becoming more prevalent and smartphone usage being available more widely. Not only this, but with the developments within the emerging economies, the associated increase in the middle classes means that these societies now have more disposable income which can be used on luxury goods, rather than necessity goods.

According to the Economic Times (India Times), in 2017 there were 2.1 billion internet users in emerging markets with 3 billion internet users expected by 2022. Between 2000 and 2017, internet usage grew vastly. In Latin America, it grew by 2,000% and in the Middle East, the increase was 4,200%, however, the largest increase was in Africa, where internet usage grew by 7,500%. This extraordinary increase in internet users in emerging economies, echoes the e-commerce opportunity that emerging markets present to retailers.

As previously noted, smartphone ownership and usage are increasing rapidly. With this swift increase, it unlocks the ability for these consumers to shop whilst on their phones. Most consumers from emerging markets make their online purchases via their smartphones. For example, in Indonesia in 2015, 70% of all online sales were made via a smartphone.

In terms of smartphone ownership, in Turkey and Malaysia for example, smartphone ownership grew by 42% and 34% respectively between 2013 and 2016. It should also be noted that these emerging markets, with their rapid smartphone ownership increase, are also driving the growth of smartphone internet usage. Interestingly, South Korea has the highest smartphone ownership rate, at 88%. It is also intriguing that internet users in emerging markets are more likely to access social media, also presenting an opportunity for targeted marketing should the retailer choose to enter an emerging market.

Credit Suisse conducted a survey, with regards to e-commerce in emerging markets. This report suggested that the emerging economies e-commerce market could potentially amount to 3.5 trillion US dollars and has the potential to become some of the highest growth rates for e-commerce. The Economic Times (India Times) also noted that it is expected that ecommerce in emerging markets will grow from 15% to 20% of all retail sales.

At MNP, we are well positioned to embrace these emerging markets and help businesses who are looking to grow with the implementation of a multichannel solution.

Other Sources

https://www.edq.com/globalassets/infographics/internetusers4pdf.pdf

https://www.edq.com/data-quality-infographics/the-world-wide-web/

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