“Think Rich, Grow Rich” is growing into an effervescence vitriol of “Think Emerging Markets, Grow Rich” for many companies. At least at this point in time, the statements seem to be right. MNCs such as Walmart, Amazon, Microsoft, Google and a plethora of them have been venturing into the “realm of emerging markets (EM)”. So, why are these companies venturing into these nations? And, what makes these gain brownie points over the rest?
These are the countries whose growth has been largely stable, thanks to the financial easing and complementing economic policies. The countries such as China, India, South Africa, Brazil, Russia (BRICS) and Nigeria are touted to be the few countries to step on a constant growing trajectory. So, the fuelling prospects are due to the raise in Education qualifications, administration ease, FDI norms and cultural acceptance. Of course to enhance the top line is the prime motto of the Cos. These aforementioned countries have been constantly growing from the past decade at an average of 5%. The growth has stagnated in the West and so in the Far East. Thus, the large honchos are looking for opportunities elsewhere.
The shift in the mindset of emerging markets amongst other economic indicators enable these companies to establish the footprint in the emerging markets. One of the statistics also reveals that roughly 38-40% of global GDP is contributed by the emerging markets. The companies have also understood the need for “Glocalization” and have tailor made resources for the same. The “Love story” started in the early 2000s when the Companies realized that as the global stability would enhance. The market size that lies vacant for them to latch onto. So till what extent should these countries continue to venture into the EMs?
The answer is difficult to predict. The customer specifications in developing and developed markets are heading towards “convergence”. The drivers here are cost and bottom line. Many Companies in China are now focusing to reduce their “solitudinal” export growth by encouraging domestic consumption. The overtly reliance on emerging markets is not really expected from these companies. The customer satisfaction in developed countries is one aspect that these Cos should consider as the market is stagnant in most developed countries. Customer once lost is difficult to gain. Whereas in an emerging markets, the scenario is a different ball game altogether. The customer acquisition and retention are required for long term growth.
Thus, is it really advisable for Cos to invest a 100 Crore or a billion dollar Capex and expect positive cash flows after 15 or 20 years?
This is where the “Cassandra Complex” (Ruchir Sharma: Breakout Nations) and Catch-22 situation would be of some use. The infusion of technology into emerging markets is rapid and the agile style is making the decision processes void in less than 5 to 7 years. Thus, the fundamental question is, shouldn’t Companies re-think “long term” as 7-10 years instead of trying to predict GDP and other economic policies with their financial statements as well. Some of the Companies are poised and braced for takeovers, M&A, amongst all odds. Stability of the country is measured with a certain leeway as it is. No one knows what the scenario might be like 10 years down the line. The prediction comes with certain T&Cs! So, should countries continue the same investing pattern in EMs in the future?
The answer is, yes. Technology, demography and politics are going to be the key drivers of economics in the next few decades till the growth plateaus out. The BRICS are no wonder more stable than many countries, but these magnates should focus on their markets through innovation for obtaining technology & cost arbitrage and garnering control in both the spaces of developed markets and EMs. The growth of EMs are also expected to hit a roof amidst the next two decades or so. So, over-reliance with long term orientation by focusing on EMs is not really a smart move. Of Course India and China are exceptions due to their large population and consumption. All in all, Emerging markets of today need not be the emergent markets of tomorrow. These markets are viable for next few years, hence the love story would prevail for at least a decade!
Originally Written by Adithya N