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Emerging Economies for Global Businesses | Management Sample | LSE100

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Question

What makes emerging economies an attractive destination for global businesses? Discuss the risks involved in dealing with emerging economies for global businesses 

Solution

Globalisation is an opportunity for future growth of domestic businesses

There are increases in the growth of the middle classes in these markets. This means that there is an extensive demand for a variety of products like automobiles, services like transportation equipment, power transmission equipment, electronic products, etc (Court and Narasimhan, 2010). Compared to developed countries like US, the emerging economies like India, China, Brazil are presently outspending their counterparts in these developed countries as half of the world’s population is in Asia. US consumers still manage to about 25% of spending of the world compared to EMs (see below figure) (Kenneth, 2011)

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In this present era, a new trend is being followed by the companies, where they are delegating or transferring their non-core business activities to specialized experts of other countries. This process is termed as outsourcing. This is helping international businesses to operate efficiently, focus on their core capabilities and gain competitive advantages.

Risks involved in the emerging market economies

Discussing the true potential for the International business in the emerging markets there are few risks associated with these markets that can affect their viability. Most commonly, there are five risks like political instability, lack of transparency, red tape and bureaucracy, weak intellectual property rights, power of family conglomerate and qualification and partner availability (Cavusgil, Knight and Riesenber, 2009). The political instability in the EMs is mainly due to improper legal systems and corruption. The lack of consistent or reliable administration from recognized authorities of government adds to increased risks, business expenses, and diminishes the ability of the managers to conjecture business conditions (Pitterle, Haufler and Hong, 2015). For instance, Western oil firms have stopped accessing energy resources from Russia due to political conditions. Additionally, excessive bureaucracy, onerous rules, paperwork, approvals, licenses created delay in business activities. For instance, the conglomerate between American International Group (AIG) and Tata took 6years to start selling their life insurance and properties to Indians. Weak Patent laws in India are very common which discourages international firms to make investment. Unauthorized copying, counterfeiting etc are very common in Russia, China and Indonesia with the CDs, DVDs and software. Family conglomerate means business owned by families which control the maximum of the economy of these markets. For instance, the Hyundai Group of Korea holds one of the largest automobile market shares. These factors act as entry-barriers to the international business to enter the market. Lastly, the lack of qualified …..

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