Welcome to class of Introduction to Emerging Markets by Dr. Satyendra Singh University of Winnipeg Canada.

Welcome to class of

Introduction to Emerging Markets

byDr. Satyendra Singh

University of WinnipegCanada

Why Emerging Markets Now?

• No fighting!• More confidence in governance/people/system• Economic reform/free market policies

– Tariff/quota ↓, FDI ↑, investors as partners, deregulated industry, privatization of state-owned firms

• Sense of market development in EMs– Two market segments (Urban and rural)– First mover advantage/educate customers

• Change in culture– Social mobility ↑ demand for expensive products– Buy now, pay later

Whys is EM important?

• Because• Advances in technology,• Increase in world travel, and• Trend toward globalization

– Means, more market

Characteristics of EM

• GNI per capita per year < $10,000• High birth rate• Low education• Undeveloped infra structure• Several languages/dialects• Close family ties• Less women in workforce• Cultural issues• Unstable government

Definitions of EM

• ING and Morgan Stanley (EM and developed)– Per capita income < $10000– Unstable and irresponsible macroeconomic policies– Insufficient shares on the stock exchange

• WTO (developed and developing)– Self selection criteria– Out of 149, 50 are designated as least developed

• UN and World Bank (EM and developed)– Based on score on Human Development Index

• Life expectancy• Adult literacy rate and educational attainment• GDP (better than GNI; it excludes foreign remittances)

Common Traits of Big EM

• Physically large• Significant populations• Represent markets for a wide range of products• Strong rate/potential of/for growth• Undertaken programs of economic reform• Major political importance within their regions• Regional economic drivers• Engender neighbouring markets as they grow

Research shows that • If Per capita income/ year > $5000

– people become more brand conscious– forgo many local brands to seek out foreign

brands they recognize• At $10,000

– they join those with higher incomes elsewhere who are exposed to the same global information sources. They join the “$10,000 Club” of consumers with homogeneous demands who share a common knowledge of products and brands.

• Then, they become global consumers

EM: Eastern Europe• Czech Republic and Poland

– Quick to implement free market policies

• Hungary and Romania– Slow bureaucrats from communists days

• Yugoslavia– Ethnic and religious divisions – Albania, Bosnia

• Czech, Hungary, Slovak, Poland OECD– I.e., accept the obligation to modernize the economies

• Baltic statesEstonia, Latvia, LithuaniaWTO/EU– Quick to move away from soviet-style economies– Drop Rubal, tariff-free, free-market economy

EM: Asia• 4 tigers/dragons HK, S Korea, Taiwan, S’pore

– From assembly line to electronics, machines, ship building

• Japan is lagging behind– S Korea links with China, USSR, and influences the region

• China dual economy socialism/capitalism– By 2015, GNP of China = USA – China now in WTO should follow the WTO rules– Human rights, legal system, corruptions, protectionism

• India– free-market economy, > 51% share, no import restrictions– 400m MIG/HIG, 800m LIG consumers

Canada’s Relations with the EMs• Canada has good relations with

– South America, NAFTA, Africa

• Canada’s role in E. Europe is limited

• Canada is interested in ASEAN– 4 tigers + Indonesia, Malaysia, Philippines, Thailand

• Canada is a member of APEC– Apprehensive in pursuing substantial business due to risks

International Agencies…

• Organization For Economic Cooperation and Development (OECD)– Group of developed countries dedicated to

promoting economic expansion in its member-nations

• Organization of Petroleum Exporting Countries (OPEC) – Cartel of 11 petroleum exporting countries

• Middle East (6): Iran, Iraq, Kuwait, Qatar, Saudi Arabia and UAE

• Africa(3):Algeria, Libya• Other (2): Indonesia and Venezuela

Other non OPEC oil exporting countries: UK, Russia, Mexico, Norway

International Agencies• WTO Principles

– Trade will be without discrimination– Trade should be freer, with trade barriers negotiated

downward– Trade should be predictable– Trade should be more competitive– Trade should be more beneficial for less developed

countries, encouraging development and economic reform– protects copyrights, trademarks, trade secrets, and other

intellectual property matters– Disagreement on agricultural policies

• India, Brazil…