The notion of an emerging, or developing, market economy appeared 1981 in a World Bank report. This term was used since emerging countries have embarked on economic development and reform programs, and have begun to open up their markets and "emerge" onto the global scene. Therefore emerging markets are fast growing economies and benefit from the globalization of the world market. Emerging markets, especially the giants such as China, India, Russia, Mexico and Brazil are changing the face of global economics and politics. Today, roughly thirty countries are considered to be in transition to higher levels of economic development and have hence earned the title emerging markets from the International Finance Corporation (IFC) of the World Bank. Companies are increasingly looking to emerging markets as a vital source of growth, both for outsourcing and competing. But these new opportunities are also a source of danger for the industrialized world's company in case of a bad understanding of institutional variations. Because these markets are in transition and hence not stable, investing in Emerging Markets Economies (EME) adds considerable risk to a company's portfolio.
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[...] The market: Gaining access to new customers As the economy and purchase power are rising and the barriers to trade reducing, emerging economies become large untapped markets for all types of industry, as mentioned in the first part of this document. During an interview, Jacques-Olivier Legrand, Engineer at Essilor, a French CAC 40 world leader of corrective lenses producing company, told me that given their statistics of the Chinese population is suffering from myopia (short-sightedness), as well as the Japanese population. [...]
[...] Essilor's strategy on this field is to offshore their production to emerging countries like China, Thailand or Tunisia, not only for achieving lower costs, but principally in a long-term view; to integrate with the local culture in order to have a more efficient management and benefit in the better possible way of the resources. This strategy involves an acquisition policy, which implies buyout of existing laboratories without changing their managing ways. In 2006, Essilor signed two joint ventures agreements in India (GKB Rx Lens Private Ltd) and Taiwan (Polylite), both companies representing by themselves more than $10 million yearly revenue. [...]
[...] Presentation of emerging markets Characteristics of emerging markets Emerging countries present common characteristics; Intern GDP growth, opening of the market, increasing purchase power, high participation to international financial markets and increasing quality of the labor which is still cheaper than labor in industrialized countries are factors proving that these new giants will be tomorrow's world's power while they already shake up the industrialized world. Also, emerging countries are containing 80% of the world's population, which is the biggest breeding ground for labor and new market development. [...]
[...] Different types of risk will be detailed in the third part, pointing at key considerations to take into account by entering an emerging market. Relevance here is that most investment professionals agree that while it does not guarantee against a loss, diversification is the most important component to helping one reach its long-range financial goals while minimizing the risk. Therefore they have to keep in mind, however that no matter how much diversification they do; it can never reduce risk down to zero. [...]
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