Understanding Emerging Markets
Which of the following situations will discourage business activities of foreign firms in an emerging market? A) allowing foreign firms to access the country's energy resources B) increasing the requirements for licenses, approvals, and paperwork C) using a strong legal framework and patent laws D) investing in a strong Internet infrastructure
B
________ in developing economies deter firms from these countries from participating in the global economy. A) Low trade volumes B) Bureaucracy and red tape C) High inward FDI D) Lack of a rich cultural heritage
B
________ is the procurement of selected value-chain activities, including production of intermediate goods or finished products, from independent suppliers. A) Purchasing power parity B) Outsourcing C) Privatization D) Nationalization
B
Which of the following best summarizes the argument in favor of microfinance? A) Microfinance ultimately leads to greater tax revenues for national governments. B) Recently, mainstream banks have begun to view microfinance as the prime driver of advanced economies. C) Microfinance allows the underprivileged to create businesses and improve their lives. D) Microfinance alleviates the pressure on MNEs to support developing economies.
C
Which of the following is a characteristic of advanced economies? A) poor quality of life B) low life expectancy C) high purchasing power D) high infant mortality rate
C
How do national governments contribute to the problems faced by developing economies? Provide examples from Africa, and explain measures taken by governments to improve conditions.
Governments in developing economies are often severely indebted. In fact, some countries in Africa, Latin America, and South Asia have debt levels that approach or exceed their annual gross domestic product. This means it would cost a year's worth of national productive output just to pay off the national debt. In Africa, much of the existing poverty is the result of government policies that discourage entrepreneurship, trade, and investment. For example, starting a new business in sub-Saharan countries in Africa can require a dozen different approvals and take two or more months to complete. In the advanced economies, by contrast, starting a new business requires only half as many approvals and two weeks to complete. Compared to earlier times, African governments are now doing a better job of managing their national economies. Policy reforms in various countries emphasize economic and political freedom. In these countries, better governance is helping drive economic success.
The absence of reliable or consistent governance from recognized government authorities ________. A) decreases risks B) increases managers' ability to forecast business conditions C) increases business costs D) increases inward FDI
C
Vytel Communications is a U.S.-based telecommunications company that is considering doing business in Argentina. Vytel managers hire a consulting firm to investigate the risks and benefits related to doing business in Argentina. The consulting firm identifies a number of challenges that might prohibit Vytel from entering Argentina. In addition, the consultants conduct surveys which indicate a demand for Vytel's products and services. 73) Which of the following would be most important for the consulting firm to evaluate when making a recommendation to Vytel about doing business in Argentina? A) Is work-life balance uniformly enjoyed by the Argentine workforce? B) Do Argentine firms frequently outsource their key operations abroad? C) Would government regulations significantly impede Vytel's ability to make profits? D) What benefits have been gained in the past by Vytel using foreign distributors?
C
An economy is categorized as advanced, developing, or emerging based on per capita income and the level of economic development.
TRUE
Bureaucracy and red tape in developing economies deter firms from these countries from participating in the global economy.
TRUE
Businesses foster economic development via modernization projects and entrepreneurial activity in emerging markets and developing economies. Such efforts are a form of corporate social responsibility.
TRUE
Certain emerging markets that have evolved from centrally planned economies to liberalized markets are called transition economies.
TRUE
Developing countries lack numerous conditions needed for successful economic development, including low trade barriers and substantial international trade and investment.
TRUE
Economists estimate real buying power by calculating GDP statistics based on purchasing power parity.
TRUE
Emerging markets are home to low-wage, high-quality labor for manufacturing and assembly operations.
TRUE
For foreign firms wanting to do business in emerging markets, family conglomerates can make valuable venture partners.
TRUE
Governments and state enterprises in emerging markets are major targets for sales of infrastructure-related products and services.
TRUE
In the early stages of market research, managers examine three important statistics to estimate market potential: per-capita income, size of the middle class, and market potential indicators.
TRUE
Many emerging market economies are dominated by family-owned rather than publicly owned businesses.
TRUE
Privatization has provided many opportunities for foreign firms to enter transition economies by purchasing former state enterprises.
TRUE
Samsung is an example of family conglomerate based in South Korea
TRUE
The lack of confidence among foreign investors with regard to Russia stems from the nation's unstable political conditions and its favoritism toward local firms.
TRUE
When sourcing relies on foreign suppliers or production bases, it is known as global sourcing or offshoring.
TRUE
Write a short essay on technology and emerging markets.
The developing economies are at a very early stage, while the emerging markets are quickly catching up to the advanced economies. Technology is the knowledge and application of tools, techniques, systems and methods of organization to serve industry, science, and the arts. Technology is vital to economic development and includes not just hardware computers, telephones, and industrial machinery; it also includes the associated software knowledge management, educational systems, worker skill levels, banking infrastructure, and so forth. In the advanced economies and emerging markets, information and communications technologies have had an enormous impact on knowledge acquisition and on worker and personal productivity. A lack of such technologies in the developing economies helps explain why they are well behind the other countries in education, economic output, and future prospects.
Which of the following refers to a distinctive trait of the type of economy discussed by Andrei's group? A) low inward FDI B) rapidly liberalizing trade barriers C) highly developed industry D) low trade volume
B
In a short essay, describe some of the risks and challenges of doing business in emerging markets. What strategies help firms enter emerging markets successfully?
: Firms that wish to do business in emerging markets face certain risks. First, emerging markets can be politically unstable. The absence of reliable or consistent governance from recognized government authorities adds to business costs, increases risks, and reduces managers' ability to forecast business conditions. Political instability is associated with corruption and weak legal frameworks that discourage inward investment and the development of a reliable business environment. Second, emerging markets tend to have a weak intellectual property rights framework. Even when they exist, laws that safeguard intellectual property rights may not be enforced, or the judicial process may be painfully slow. Third, the presence of bureaucracy, red tape, and lack of transparency present formidable challenges to doing business in emerging markets. Burdensome administrative rules and excessive requirements for licenses, approvals, and paperwork all delay business activities. Excessive bureaucracy is usually associated with lack of transparency, suggesting that legal and political systems may not be open and accountable to the public. Bribery, kickbacks, and extortion, especially in the public sector, cause difficulty for managers. Where anti-corruption laws are weak, managers may be tempted to offer bribes to ensure the success of business deals. Moreover, in advanced economies, high-quality roads, drainage systems, sewers, and electrical utilities are taken for granted. However, in emerging markets, such basic infrastructure is often lacking. To enter emerging markets successfully, firms can adopt the following strategies: 1. customize offerings to unique emerging market needs, 2. partner with family conglomerates, 3. target governments in emerging market, and 4. skillfully challenge emerging market competitors
Why is per-capita income NOT always the best indicator of an emerging market's potential? What does the concept of purchasing power parity (PPP) suggest?
: When evaluating the potential of individual markets, managers often start by examining aggregate country data, such as gross national income (GNI) or per-capita GDP, expressed in terms of a reference currency such as the U.S. dollar. However, per-capita GDP converted at market exchange rates paints an inaccurate picture of market potential because it overlooks the substantial price differences between advanced economies and emerging markets. Prices are usually lower for most products and services in emerging markets. Economists estimate real buying power by calculating GDP statistics based on purchasing power parity (PPP). The PPP concept suggests that, in the long run, exchange rates should move toward levels that would equalize the prices of an identical basket of goods and services in any two countries. Since prices vary greatly among countries, economists adjust ordinary GDP figures for differences in purchasing power. Adjusted per-capita GDP more accurately represents the amount of products consumers can buy in a given country, using their own currency and consistent with their own standard of living.
Advanced economies account for about ________ percent of the world population. A) 14 B) 42 C) 61 D) 5
A
Members of 50 different countries attended a workshop on economic development hosted by an international organization based in Geneva, Switzerland. Attendees of the workshop learned about techniques designed to assist countries in expanding their degree of economic development. 48) The workshop participants are divided into groups of three. For learning purposes, each group must be made up of individuals from countries with similar degree of economic development. Which of the following might be grouped together? A) Representatives from Mongolia, Iran, and Sudan B) Representatives from Germany, China, and Sudan C) Representatives from the U.S., China, and Belarus D) Representatives from Sudan, Spain, and France
A
Prof. Jacob Middleton has divided students in his international business class into three groups. Each group has been assigned the task of presenting an overview of a major country group and outlining its distinguishing characteristics. Three students have been selected as group leaders: Jordan, Elaine, and Andrei. Jordan's group will discuss advanced economies, Elaine's group will address the characteristics of developing economies, and Andrei's groups will focus on emerging markets. 45) Which of the following refers to a distinctive trait of the type of economy discussed by Jordan's group? A) minimal trade barriers B) low trade volume C) low inward FDI D) poor industrialization
A
The per-capita GDP of the United States converted at market exchange rates is ________. A) $49,055 B) $5,715 C) $11,000 D) $87,300
A
Transferring technology and know-how ________. A) promotes local innovation and enterprise B) depresses derived demand for business commodities C) encourages the development of market monopolies D) lowers the competitive advantages of firms
A
When sourcing relies on foreign suppliers or production bases, it is known as ________. A) offshoring B) protectionism C) insourcing D) subsidizing
A
Which of the following countries has weak intellectual property protection? A) China B) the United States C) Australia D) France
A
Which of the following is a benefit to a foreign firm collaborating with a family conglomerate in an emerging market? A) reduced capital requirements B) complete exemption from paying taxes C) complete protection from intellectual property rights violations D) low dependence on technology
A
Which of the following most likely supports the consulting firm's recommendation that Vytel proceed with plans to do business in Argentina? A) The political conditions in Argentina are stable. B) Government bureaucrats favor domestic firms to foreign firms. C) Potential local partners have few government contacts. D) The Argentine government lacks transparency.
A
Which of the following trends supports improving economic conditions in Africa? A) direct investment from abroad B) the growing importance of the public sector in Africa C) the gradual liquidation of the mining industry D) the rising cultural affinity toward goods manufactured in the West
A
________ are low-income countries characterized by limited industrialization and stagnant economies. A) Developing economies B) Emerging markets C) Developed economies D) Transition economies
A
How are large MNEs from advanced economies competing against new emerging market MNEs? In a short essay, describe the methods used by the incumbents to protect market share from emergent firms.
Advanced-economy firms can counter in various ways. Initially, managers must conduct research to develop an understanding of the new challengers. It is vital to analyze the advantages and strategies of the emergent firms, which often enjoy superior advantages in the industry in the target market. The next step is to acquire new capabilities that improve the firm's competitive advantages. For example, many incumbents are boosting their R&D to invent new, superior products. Others are partnering with competitors to pool resources against emerging market rivals. Incumbent firms can also match global challengers at their own game by leveraging low-cost labor and skilled workers in locations such as China, Mexico, and Eastern Europe. Many advanced economy firms partner with family conglomerates and others in emerging markets on critical value-chain activities such as R&D, manufacturing, and technical support.
Developing economies ________. A) account for nearly two-thirds of world GDP B) are often highly developed in historical and cultural terms C) are characterized by high purchasing power D) have a high literacy rate
B
Emerging markets act as manufacturing bases for global MNEs because of ________. A) high regulations B) high availability of low-wage ,highly skilled labor C) well-developed infrastructure D) strong intellectual property laws
B
Foreign firms should seek alliances with well-qualified local companies in countries characterized by inadequate legal and political frameworks because ________. A) such alliances help eliminate business risks completely B) through such partners, foreign firms can access local market knowledge C) such alliances help foreign firms function without distributor networks D) the dominance of family conglomerates in emerging economies are fast declining
B
In an informal economy ________. A) market value of all officially recognized final goods and services produced within a country is substantially lowered B) economic transactions are not officially recorded and are therefore left out of national GDP calculations C) exchange rates are low D) the household income is substantially larger than that in a formal economy
B
Per-capita GDP converted at market exchange rates paints an inaccurate picture of the market potential of an emerging market because ________. A) it tends to over-emphasize the role of pricing in driving growth in emerging markets B) it overlooks the substantial price differences between advanced economies and emerging markets C) prices are usually higher for most products and services in emerging markets D) emerging markets do not support inward FDI
B
Privatization has provided many opportunities for foreign firms to enter transition economies by ________. A) initiating joint ventures with local businesses B) purchasing former state enterprises C) exporting products with a high mark-up price D) exporting products of inferior quality
B
The new global challengers have become formidable competitors primarily because ________. A) of instant brand recognition B) of the easy availability of low-cost labor, skilled workforces, government support, and family conglomerates C) of superior market research and customer service D) substantial government funding, high wages, and value-chain diversification
B
Which of the following countries is home to the Hyundai Group? A) India B) South Korea C) Russia D) Taiwan
B
Which of the following emerging market economies has the lowest middle-class population? A) Indonesia B) Thailand C) China D) India
B
Which of the following is a promising investment target in Africa? A) banking sector B) food processing sector C) information technology D) agriculture
B
Which of the following is an example of a developing economy? A) Australia B) Bangladesh C) France D) Brazil
B
Which of the following is characteristic of emerging markets? A) minimal trade barriers B) high trade volume C) low inward FDI D) highly developed industry
B
Which of the following is likely to be the most beneficial to Maximus if it builds a manufacturing facility in India? A) legal precedents B) low-cost labor pool C) government regulations D) solid infrastructure
B
Businesses foster economic development in emerging markets ________. A) through the mass production of cheap, low-quality goods B) by using the "cookie cutter" strategy C) through entrepreneurial activities and modernization projects D) by implementing cost-effective production methods
C
Emerging markets are important in international business and trade due to ________. A) large informal economy B) low rates of energy consumption C) high growth rate of middle class population D) low inward FDI
C
Excessive bureaucracy is usually associated with ________. A) strong legal framework B) low country risk C) lack of transparency D) low trade barriers
C
Purchasing power parity is ________. A) the total income received by all sectors of an economy within a nation B) the value of goods and services that can be purchased with one unit of a country's currency C) an adjustment for prices that reflects the amount of goods that consumers can buy in their home country, using their own currency and consistent with their own standard of living D) the exchange rate in the international currency market
C
Which of the following is an example of global sourcing? A) After the recent global recession, major banks in Palladia were funded more quickly under national ownership and control. B) Titania, a country with a major stake in automobile manufacturing, employs citizens to keep its level of quality and commitment to the automobile industry. C) Camden Ltd., a Berylia-based pharmaceutical company has opened manufacturing centers in Rhodia. D) To manage the steel industry in Cadmia, over 900 coal mines were taken under public ownership.
C
Which of the following is characteristic of family conglomerates? A) low access to capital than most other firms B) wholly owned or controlled by the government C) extensive networks in various industries D) inferior market knowledge
C
Which of the following is true of the Grameen Bank founded by Prof. Muhammad Yunus? A) It provides funding primarily to global conglomerates. B) It is a family conglomerate based in Bangladesh. C) It provides small-scale financial services to aspiring entrepreneurs in poor countries. D) It sells insurance in India for less than 20 cents
C
Which of the following refers to a distinctive trait of the type of economy discussed by Elaine's group? A) substantial competition B) minimal trade barriers C) poor industrialization D) high inward FDI
C
Which of the following should be considered by the consulting firm before recommending that Vytel should do business in Argentina? A) What other emerging markets are dominated by family conglomerates? B) What has been the historical economic effect of family conglomerates in Argentina? C) Do family conglomerates control the telecommunications industry in Argentina? D) What benefits and loans are received by family conglomerates in Argentina?
C
________ are formal offers made by a buyer to purchase certain products or services. A) Quotas B) Tariffs C) Tenders D) Microloans
C
________ refer to post-industrial countries characterized by high per-capita income, highly competitive industries, and well-developed commercial infrastructure. A) Underground economies B) Emerging markets C) Advanced economies D) Transition economies
C
Demographic trends indicate that, in the coming two decades, ________. A) the spending power of middle-class households will substantially decline B) the GDP of advanced economies will decline C) the spending power of low-income households will increase tremendously D) the proportion of middle-class households in emerging markets will become much bigger, acquiring enormous spending power
D
Emerging markets are ________. A) developing economies where goods and services are directly exchanged for other goods and services B) post-industrial countries characterized by high per-capita income, highly competitive industries, and well-developed commercial infrastructure C) low-income countries characterized by limited industrialization and stagnant economies D) former developing economies that have achieved substantial industrialization, modernization, and rapid economic growth since the 1980s
D
Family conglomerates (FCs) might pose a challenge to firms trying to enter emerging markets because ________. A) FCs have no more knowledge in manufacturing and distribution than other private players B) FCs are not required to pay taxes C) the owners of FCs are often overly sympathetic to the bureaucratic state machinery D) FCs enjoy substantial competitive advantages that overwhelm late entrants
D
In emerging markets, MNEs must set prices appropriate for local conditions because ________. A) research and development is relatively cheaper in emerging markets B) of high corruption and bureaucracy C) of inadequate legal framework D) emerging market consumers cannot pay high prices
D
Maximus Motor Company is a British automobile manufacturer that builds high-end luxury cars for sale around the world. Maximus managers recognize they are missing opportunities in emerging markets, such as India, which have an increasing number of middle-class people ready to purchase affordable cars. Competitors that entered the Indian market experienced significant profits over the last two years. Maximus managers have been assigned the task of determining the best strategy for Maximus to do business in India. 81) Which of the following would be most important for Maximus managers in determining the best entry strategy for entering an emerging market such as India, characterized by the presence of family conglomerates? A) What other firms have partnered with family conglomerates? B) How often do Indians use their cars and for what purpose? C) What type of automobile should Maximus manufacture in India? D) How would Maximus benefit from partnering with a family conglomerate?
D
The purchasing power parity concept suggests that ________. A) in emerging markets, the ability to buy goods and services depends on the influx of FDI from international MNEs B) the fluctuation in exchange rates disrupts international trade because the value of goods and services is mostly inconsistent C) in the future, a unified currency should be used to create equality in the global marketplace and to eliminate disparity D) in the long run, exchange rates should move toward levels that would equalize the prices of an identical basket of goods and services in any two countries
D
Transition economies are characterized by ________. A) low inward FDI B) high trade barriers C) low energy consumption D) privatization of state-owned industries
D
Which of the following best explains the growth of family conglomerates in emerging markets? A) declining importance of entrepreneurship B) high rate of innovation C) highly competitive markets D) government protection
D
Which of the following countries has the highest per-capita GDP using PPP exchange rates in US$? A) Brazil B) China C) Turkey D) South Korea
D
Which of the following emerging market economies has the largest middle-class population? A) India B) Russia C) Brazil D) China
D
Which of the following is characteristic of emerging markets? A) low inward foreign direct investment B) minimum regulations C) major focus on services and branded products D) rapidly declining trade barriers
D
Which of the following is true about emerging market economies in international business? A) They account for nearly two-thirds of world GDP and host the world's largest MNEs. B) They have tremendous purchasing power with minimal restrictions on international trade and investment. C) These markets have evolved from manufacturing economies to service-based economies. D) Businesses in emerging markets are important targets for machinery and equipment sales.
D
Which of the following is typical of developing economies? A) low levels of bureaucracy and red tape B) low debt levels C) lack of cultural history D) poor education systems
D
Which of the following most likely supports the consulting firm's recommendation that Vytel should NOT do business in Argentina? A) Government bureaucracy in Argentina is limited and is not characterized by red tape. B) Qualified suppliers and distributors who are eager to work are readily available in Argentina. C) Import restrictions do not apply to the telecommunications industry in Argentina. D) In the past, intellectual property rights law have not been enforced in Argentina.
D
________ make up the largest group of countries and include Bangladesh, Nicaragua, and Zaire. A) Advanced economies B) Capitalist economies C) Emerging markets D) Developing economies
D
Where are emerging markets mostly found? What are the factors contributing to their rapid growth?
Emerging markets are found in East and South Asia, Eastern Europe, Southern Africa, Latin America, and the Middle East. Perhaps their most distinguishing characteristic is rapidly improving living standards and a growing middle class with rising economic aspirations. As a result, they have become very attractive destinations for exports, FDI, and global sourcing. Emerging markets possess numerous advantages that have fostered their rise. The presence of low-cost labor, knowledge workers, government support, low-cost capital, and powerful, highly networked conglomerates have helped make these countries formidable challengers in the global marketplace.
Write a short essay on emerging markets as target markets for international business.
Emerging markets have become important target markets for a wide variety of products and services. The largest emerging markets have doubled their share of world imports in the last few years. The growing middle class in emerging markets implies rising demand for various consumer products, such as electronics and automobiles, and services such as health care. Roughly one-quarter of Mexico's 112 million people enjoy affluence equivalent to that of the middle class in the advanced economies. In some product categories, demand is growing fastest in emerging markets. For example, the fastest-growing markets for power tool companies such as Black & Decker and Robert Bosch are in Asia, Latin America, Africa, and the Middle East. Intel generated a large and growing proportion of their revenues from sales to such countries.
Adjusted per-capita GDP does not represent the amount of products consumers can buy in a given country.
FALSE
Africa's GDP has improved substantially since the 1960s.
FALSE
Businesses in emerging markets are far less important targets for machinery and equipment sales compared to those in advanced economies.
FALSE
China is an example of an advanced economy.
FALSE
China, Indonesia, and Russia are examples of advanced economies with strong intellectual property protection.
FALSE
Counterfeiting is fairly uncommon in China, Indonesia, and Russia.
FALSE
Demographic trends indicate that, in the coming two decades, the proportion of middle-class households in emerging markets will become much smaller.
FALSE
Developing economies are countries that have achieved substantial industrialization, modernization, and rapid economic growth since the 1980s.
FALSE
In emerging markets, the size and growth rate of conglomerates serve as signals of a dynamic market economy.
FALSE
MNEs must set high prices in emerging markets because emerging market consumers have high spending power.
FALSE
Microfinance provides large-scale financial services mainly to global conglomerates.
FALSE
New global challengers are large, highly diversified companies in advanced economies that are privately owned.
FALSE
Outsourcing enables foreign firms to increase efficiency by limiting corruption in the emerging markets.
FALSE
Per-capita GDP converted at market exchange rates paints an accurate picture of market potential.
FALSE
The "cookie-cutter" strategies that MNEs developed decades ago are considered most suitable for achieving success in emerging markets.
FALSE
In a short essay, explain why family conglomerates dominate emerging markets. What are the benefits to foreign firms who collaborate with FCs in order to do business in emerging markets?
Many emerging market economies are dominated by family-owned rather than publicly-owned businesses. A family conglomerate (FC) is a large, privately-owned company that is highly diversified. Their businesses range from manufacturing to banking to construction. A typical FC may hold the largest market share in each of several industries in its home country. The origin and growth of FCs are partly attributable to their special relationships with the government, which often protects FCs by providing subsidies, loans, tax incentives, and market entry barriers to competitors. FCs provide huge tax revenues and facilitate national economic development, which explains why governments are so eager to support them. For foreign firms that want to do business in emerging markets, FCs can make valuable venture partners. By collaborating with an FC, the foreign firm can: (1.) reduce the risks, time, and capital requirements of entering target markets; (2.) develop helpful relationships with governments and other key, local players; (3.) target market opportunities more rapidly and effectively; (4.) overcome infrastructure-related hurdles; and (5.) leverage FC's resources and local contacts.
Briefly explain how has microfinancing helped individuals to rise out of poverty in many developing nations.
Microfinance provides small-scale financial services, such as "microcredit" and "microloans," that assist entrepreneurs to start businesses in poor countries. By taking small loans, frequently less than $100, small-scale entrepreneurs accumulate sufficient capital to launch successful businesses. This realization led economics professor Muhammad Yunus to found the Grameen Bank. Since then, millions of Grameen borrowers in South Asia have emerged from acute poverty. Aspiring entrepreneurs use the small loans to buy everything from cows that produce milk to sell in markets, to mobile phones that villagers can rent to make calls. Today, thousands of microfinance institutions provide loans to millions of poor people in developing economies worldwide.