In 2016, emerging markets accounted for 35% of the global GDP and are rapidly growing. Learn more about the rise of emerging markets and why well-thought strategies are important for company growth.
- In 2016, Netflix announced that it was expanding to 130 additional countries, most of them in the emerging markets. Not to be outdone, shortly thereafter, Amazon announced that its Amazon Video service would also become available in over 240 countries around the globe. Or, look at Uber. What is the largest and fastest growing market for Uber after the US? India.
No wonder that on a visit to India in 2016 Uber's CEO Travis Kalanick, half-jokingly noted that he was willing to become an Indian citizen if that's what it would take for Uber to sustain and strengthen its leadership in the Indian market. Emerging markets matter, because, as they continue growing at two to three times the pace of the global economy, they are becoming an ever-larger chunk of the world economy.
As recently as 2000, emerging markets made up only 20% of the world's GDP. By 2016, their share had grown to over 38%. During the next 10 to 15 years, it's almost a certainty that emerging markets will cross the 50% mark and account for a bigger share of the world's GDP than the developed markets.
China is already the world's second-largest economy. By 2030, perhaps sooner, India will have moved from its current position as the world's seventh largest to become the third largest, ahead of Japan and Germany. This is precisely why the leaders of Uber, Netflix, and Amazon consider China, India, and other emerging markets as mission-critical to their companies' future growth.
A number of factors account for why emerging-market economies are growing at a much faster pace than developed-market economies; chief among them are demography, urbanization, infrastructure, and productivity. Consider demography first. The population of the developed economies is older and growing at a snail's pace, if at all, the exact opposite of the case with emerging markets, barring China and Russia.
The average American is 38 years old. The average Brazilian, 31. The average Indian, 27. And the average African, only 19. A younger and faster-growing population equals a growing pool of workers to produce goods and services as well as a growing pool of consumers to buy them. It also means a smaller pool of retirees, and thus, lower healthcare costs, lower Social-Security costs, and in turn, lower tax rates.
Look at urbanization. Bulk of the population in emerging markets still lives in rural villages. 52%, to be exact. With each passing year, rural is giving way to urban. As people move to urban areas, or as villages morph into towns and cities, people have access to better education, better healthcare, better technology, better connectivity, and better jobs.
They also need better housing, more appliances, and better transportation. All of these developments fuel economic growth. Take infrastructure. Developed economies already have most of the railroads, the highways, the airports, and the powerplants that they're likely to need. Of course, this infrastructure must be maintained and periodically upgraded.
In contrast, however, with the exception of China, almost every emerging market in the world is woefully short of needed infrastructure. As these economies pour billions of dollars into infrastructure investment, the economies benefit from the resulting faster growth. Finally, look at growth and productivity. Given their higher level of technological advancement, developed economies have already plucked the low-hanging fruit in terms of finding ways to make each hour of each person more productive.
In contrast, even if they continue to rely on borrowed technology and best practices, emerging markets are likely to enjoy higher growth rates in labor productivity for at least the next 20 years. In sum, emerging markets matter because they are no longer small and continue to grow at two to three times the pace of the developed markets.
By 2025, the combined GDP of emerging markets could well be as large as, perhaps even larger than, that of the developed markets. So, if being present in large and high-growth markets is important for you, you have no choice but to make emerging markets a core part of your strategy. Are you ready?
Which emerging markets should you enter? How do you enter the targeted market? Do you partner with another company, or go it alone? How should you deal with the regulatory constraints that you might face? Anil and Haiyan address these questions, and more. They also outline some of the issues that arise once you have entered an emerging market, such as how to win out over local competitors, market to the bottom of the pyramid, and deal with the speed of fast-changing market dynamics.
- How emerging markets differ from developed markets
- Designing entry strategies
- Identifying the right beachhead
- Competing and succeeding within the market
- Cultivating and leveraging the local ecosystem
- Dealing with rapid changes in market dynamics
- Leveraging China and India as global platforms
- Building the leadership for emerging markets