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WIKI ANALYSIS
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This article describes a concept which could impact a variety of companies, countries or industries. To see what companies and articles reference this concept page, click here. |
The term Emerging markets is used by investment analysts to categorize countries that are in a transitional phase between developing countries that are just beginning to industrialize and countries that are fully developed. The main significance of the use of the term is that investments in emerging markets are assumed to carry greater risk and offer less safety in investment. The term is often used interchangeably with developing markets, though this is somewhat inaccurate. Examples of emerging markets include the BRIC countries (Brazil, Russia, India, and China), several Southeast Asian countries, Eastern Europe, and parts of Africa and Latin America.
Emerging markets are characterized by strong economic growth, resulting in an often marked rise in GDP and disposable income. As a result, people in emerging countries are often able to buy goods and services that they previously would not have been able to afford. This provides international companies with the opportunity to tap large, new customer bases, potentially driving significant growth for a number of companies and industries. Though disposable incomes in emerging markets are rising, many of their citizens are still relatively poor. Luxury goods such as high-end automobiles and designer clothes are sure to benefit from the increased purchasing power of emerging economies, but everyday luxuries such as cell phones and brand name food products are becoming popular much more quickly. For example, the number of wireless subscribers in India grew at a compound annual growth rate of 91% from 2000 to 2005, and Coca-Cola Company (KO) predicts that the BRIC countries will account for 41% of the company's growth by 2008.
Companies that benefit from growth in emerging markets
Auto companies
- Ford Motor Company (F), General Motors (GM), Toyota Motor (TM), Honda Motor Company (HMC), and other car companies would benefit from increased demand for automobiles. As emerging countries improve their infrastructure and their GDPs continue to rise, the demand for cars is likely to increase as well.
Food and beverage manufacturers
- Coca-Cola Company (KO), Pepsico (PEP), Kraft Foods (KFT), and other food and beverage manufacturers have seen strong growth in emerging markets in recent years. As incomes rise, packaged food becomes more accessible for a larger percentage of the population, stimulating demand for these companies' products.
Cell phones
- Vodafone AirTouch Public Limited Company (VOD) recently bought a controlling stake in the fourth-largest mobile service provider in India, Hutchison Essar. This was seen as a strategic move on Vodafone's part, as the Indian cell phone market is among the fastest-growing in the world.
- China Mobile (Hong Kong) (CHL) is the largest wireless provider in China, a rapidly growing market for cell phones and wireless service.
- Research in Motion (RIMM) recently announced that it had been granted permission to sell its popular Blackberry smart phone in China. Though it took eight years to gain approval, this partnership with China Mobile could significantly boost RIMM's subscriber growth rate.
For more information, see Mobile Phone Adoption in Developing Countries and Mobile Phone Usage in China
Raw material suppliers
- BHP Billiton (BHP), Rio Tinto (RTP) and other integrated mining companies have already benefitted from the explosive demand growth of emerging markets, especially China.
Industrial gas companies
- Praxair (PX), Air Products and Chemicals (APD), and other industrial gas companies stand to benefit as demand for their product grows; current per capita gas consumption in emerging markets is very low compared to developed countries. As consumption rises, demand for industrial gases will be stimulated.
Advertising Firms
- As growth in advertising spending slows in mature markets such as the United States and Western Europe, advertising conglomerates like Omnicom Group (OMC) and Interpublic Group of Companies (IPG) are shifting their focus to Russia, China, India and other emerging markets, where advertising spending is growing at much higher rates.
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