Widespread industrial development and a rapidly growing global middle class have made the world’s emerging markets a focus area for both capital investment and consumer sales entities.
However, recent economic and political difficulties faced by Russia, Brazil, Turkey, and other countries, are casting doubts into the minds of those worried about entering these markets.
These emerging markets can still be profitable when pursued with healthy wisdom, awareness, and cultural empathy, says Cleveland Brown, CEO of merchant services provider Payscout.
According to Brown, the long-term potential of emerging markets is very compelling and should not be overlooked by merchants wishing to expand abroad. Regarded as one of the single greatest investment trends of the past half-century, Brown says the rise of global consumerism shows no signs of stopping. Relative peace — the so-called democracy dividend — and the embrace of capitalism as a means of lifting people out of poverty, have empowered hundreds of millions of consumers to achieve more prosperous lives.
The International Monetary Fund reports emerging markets now account for 86% of the world’s population, and in the last decade alone, the wealth in these markets has increased five-fold. Brandes Investment Partners projects the rate of growth in emerging market economies (6%) should at least double that of the developed world (2.4%) through 2014.
“The uprise of consumer interest in emerging markets has no sign of waning,” Brown, “This means a visionary merchant can establish solid brand equity long before one of these markets reaches saturation.”
Certainly, a number of emerging markets are struggling with very real problems, including allegations of corruption in Brazil, border wars and the collapse of oil prices in Russia, and operational issues within Turkey’s central bank.
However, the problems are not universal; while Brazil and Russia suffered last year, stocks and bonds soared in India under a new reform-minded government. Indonesia, Taiwan and the Philippines also attracted investor interest due to successful economic policies. Concerns rising over an increase in emerging market indebtedness, prompted by capital-hungry companies which have pursued high-yield investment bonds. Chinese short-term debt has exploded from $101 billion in 2008 to $850 billion today, Brazil’s increase went from $47 billion to $112 billion, and Turkey’s debt rose from $56 billion to $95 billion.
Despite these high level economic concerns, investor confidence in emerging markets remains strong. Global asset management firm AllianceBernstein pointed to many reasons investors should take a position in emerging equities.
For example, the strong U.S. dollar and low oil prices are expected to increase profitability. Weakness in several key emerging currencies, including the Brazilian real, the South African rand, and the Turkish lira, also make many emerging companies look more competitive.
AllianceBernstein spokesperson Morgan Harting recently wrote of other compelling world economics, “And China is the world’s largest net importer of oil and other liquid fuels, so cheaper oil will be a godsend to its burdened economy. Many other developing countries, including India and South Korea, are also net oil importers and will benefit from lower energy costs as well.”
Meanwhile, the explosion of economically empowered consumers shows no sign of slowing. Ernst & Young expects India’s middle class, currently around 50 million people, to grow to 200 million by 2020, and China’s to reach 500 million. Similar rates of growth are expected for Brazil, Mexico, and other emerging markets.
Rapid increases in prosperity also elicit an equally rapid rise in consumer Internet access and social media use, cultivating greater merchant opportunities. India, for example, which as recently as 2010 had only eight million Facebook users, has become Facebook’s second-largest market, now exceeding 115 million users, according to Statista.
Brown said economic challenges can be a common facet in emerging markets, but this shouldn’t mean they are inherently a bad bet.