Emerging economies are those countries that are restructuring their economies along market oriented lines and offer a wealth of no. opportunities in trade, technology transfers, and foreign direct investment. the five biggest emerging markets are China, India, Indonesia, Brazil and Russia. These countries made a significant move from a developing country to an emerging market.
Emerging markets stand out due to four (4) major characteristics.
(1) They are economic powerhouses with large populations, large resource bases, and large markets and consumes. Their economic success will support development in the countries around them;
(2) They are intermediary societies which carry out domestic economic and political reforms. They adopt open door policies to replace their traditional policies that failed to produce sustainable economic growth.
(3) They are the world's biggest and fastest growing economies, contributing to a great deal of the world's volatile growth of trade. They will also become more important buyers of goods and services than developed countries.
(4) They are critical participants in the world's major political, economic, and social affairs. They are seeking a larger influence in international politics and a big portion of the worldwide economic pie.
INNOVATION:
Change which creates a new element of performance, The act of introducing something new. Innovation is related to performance and development through improvements in effectiveness, productivity, quality, competitive positioning and market share. It adds value by changing old organizational forms and practices. it's also about changes that lead to growth and differentiation. Before you deal with new products, services, technologies, and processes
Innovation has become the crucial challenge for any business. 20 yrs ago, companies saw survival and growth in terms of restructuring, lowering costs and raising the quality of their goods and services. Since then, commoditisation, privatisation and deregulation have clear the world from the advanced economies of the USA, Japan and Europe to the rapidly emerging markets of the Asia Pacific border like India and china and Latin America like brazil. Thanks to the internet, air travel and improved patenting procedures, access to the latest technology has become widespread. Today, few frms anywhere can feel secure behind their established brands, long standing customer relationships, proprietary technology, or tariff barriers. The competitive pressure on them is global and immediate.
Critically discuss, with the use of appropriate examples, why emerging economies are now becoming leaders in innovation?
The number of people living in high growth economies or in countries .With per capita incomes at OECD levels has increased fourfold over the last 30 years from 1 billion to 4 billion, according to the Growth Commission. The rapid integration into world markets by six of the largest non-OECD
Economies (Brazil, Russia, India, Indonesia, China and South Africa, together Known as the BRIICS) were an important component of globalisation during the past two decades.
( http://www.oecd.org/dataoecd/35/34/42324460.pdf )
Emerging economies are those regions of the world that are experiencing rapid informationalization under conditions of limited or partial industrialization. This framework allows us to explain how the non-industrialized nations of the world like India, china, Russia, Brazil, Indonesia, South Africa are achieving unprecedented economic growth using new energy, telecommunications and information technologies etc.
Why emerging markets?
1. Drivers of global growth
taken together, the emerging markets, including the Middle East, comprise the largest economic bloc, accounting for around 36 per cent of the global economy in terms of gross domestic product (GDP).
According to the International Monetary Fund's latest estimates, China is the single country that contributes the most to global economic growth, with Russia, Brazil and India also among the top eight contributors. Higher growth tends to lead to higher equity market returns.
The China GDP is worth 4909 billion dollars or 7.92% of the world economy, according to the World Bank. And India�s GDP rate is 2296 billion which contributes 3.95% of the world economy
2. Rapid Economic Growth:
In the coming years, growth in emerging economies is expected to outpace that of the developed world. This growth is fuelling an increase in household income in places like China and India where nearly 60 million people roughly the combined populations of Texas and California�are joining the ranks of the middle class each year.
The average income of Indians has grown by 10.5% to Rs 44,345 in 2009-10 as against Rs 40,141 in 2008-09, at the current price.
3. A high and growing number of consumers.
By 2030 more than one billion people in emerging markets are forecast to join the ever-increasing consumer middle class. Currently, personal consumption in China accounts for only 37 per cent of GDP, compared with more than 60 per cent and 70 per cent in Europe and the US respectively. There is, therefore, scope for significant further spending.
India has 635 million mobile subscriber and 648 landline telephone subscriber which has increased 64% in last 5 yrs .china 700million mobile subscriber which is doubles the population of USA
4. Huge savings
The world's savings are concentrated in emerging markets, which hold 75 per cent of the world's total foreign exchange reserves. Emerging economies are less indebted than their developed peers at the country, company and individual level.
Importantly, banks in emerging market countries have emerged from the recent credit crisis relatively safe and sound as they generally had little or no exposure to the �toxic assets' associated with the sub-prime mortgage fallout in the US. This provides strong foundations on which to build future growth.
Indians saves 35% of their earning which comes up to $200 billion last year.
5. Reduced dependence on developed economies
Emerging markets have a wealth of natural resources, including more than 90 per cent of oil and gas reserves, 70 per cent of coal reserves and 60 per cent of copper, nickel, iron ore and bauxite reserves.
�South- trade' (not involving developed economies) has proved flexible, and emerging markets are fast becoming the largest commodity consumers as the urbanisation process (linking urban and rural populations) continues apace.
6. Urbanization:
The world�s urban population is growing by more than 70 million people each year. India and China already has over 180 cities with 12 million people and is expected to have over 490 of them by 2025. This urban migration has overwhelmed existing infrastructure like roads, sewers and electrical grids. The build out of this critical infrastructure will require vast amounts of copper, steel and increase demand for all commodities.
7. Superior profitability
High GDP growth typically translates into higher return on equity (ROE). The profitability of emerging markets companies is superior to that of companies in developed markets.
8. Similar instability; higher returns
Investment in emerging markets is often viewed as �more risky' than developed markets. Over the past ten years, however, a blended portfolio of emerging markets and developed markets exposure would have demonstrated a similar level of volatility but provided far superior returns.
9. Natural Resources Wealth:
Many of today�s most promising emerging nations sit atop some of the largest oil, metal and other valuable resource deposits in the world. Many of these nations have teamed up with private and/or foreign enterprises to bring these resources to market. Revenue generated through taxation and direct ownership allows for these governments to build infrastructure, create jobs and pursue other economic opportunities.
10. Market capitalisation
Despite their dominance in terms of world population, land mass, foreign exchange reserves and GDP growth, emerging markets have just ten per cent of world equity market capitalisation. This has been growing over the past decade, and with it equity market returns have risen. This trend is likely to gather pace over the coming years.
(http://www.whatinvestment.co.uk/making-money/alternative-investments/guides/1057232/top-10-reasons-to-invest-in-emerging-market-equities.thtml)
EXAMPLES OF INNOVATION BY EMERGING ECONOMIES
1. TATA an Indian automobile company made a car for $2500,
2. MICROMAX an Indian mobile co. Made a mobile for $10
3. RELIANCE TELCOM which offers its customer to call nationally for less than 1 pence throughout the country on any line.
4. IT companies like WIPRO, INFOSYS SATYAM etc belongs to India.
5.90 of Indian and Chinese companies comes in the list of fortune 500
6. World�s most of the companies have their manufacturing plant in India and china and most of the companies have their call centre in India
And there are 1000�s of innovation and reason behind the growth of emerging countries like india and china which cant be mention due to word limit.
Challenges faced by emerging economies such as:
1. Short term Policy Challenges
Many emerging markets and developing countries experienced two shocks early in
the crisis. First, a �sudden stop� of capital inflows driven by global deleveraging Second, a collapse in export demand as a result of the global downturn.
2. over poverty:
Poverty is a big challenge facing by emerging economies. Many of the under developed and developing economies population is in the below poverty line e.g.: India, Indonesia, china , indias 42% population is below poverty line whose income is $1.25 a day.
3. Illiteracy and unemployment:
The biggest challenge faces by such economies are illiteracy and unemployment because of over population. Countries like India, Indonesia, Vietnam, are facing this problem. only 56% of population in India is literate and there is problem of unemployment
4. Improper infrastructure:
Every countries growth is depend on infrastructure. It catches the eyes of many MNC�s of the world. Today the infrastructure of the countries like India, Indonesia, Vietnam, Thailand and brazil is very poor which has to be improved as per international standard.
5. Low standard of living:
The living standard of the people of India, china, Vietnam, Cambodia, Thailand is still below a standard level which results in lack of progress of an economy. They have to raise their standard of living.
6. Political corruption:
Thailand, Pakistan, china which faces a huge corruption problem, many of the politicians involve in such issues, every country need to be corruption free for their growth, but there are countries like India, where corruption rate is very high which has to be controlled for the growth of the country.
7. Trade barrier:
Many countries suffer from Trade barrier. Trading from one country to another like India-Pakistan, these countries have their personal problem which indirectly effect on business.
8. Lack of high technologies:
Today all the countries of the world focus on high technology which result in best business performance and progress of the country let it be in IT, SCIENCE etc. Countries like India, brazil, Thailand, are facing high end technologies like US and UK wich will result in progress of the economy.
What are the implications for international competitiveness?
� Encourage R&D spending (e.g. through tax breaks)
� Improve the skills base
� Improve the economic infrastructure
� Promote competition between firms
� Operate macro-economic policies favourable to business expansion
� Reduce interest rates to stimulate investment
� Reduce tax rates to stimulate enterprise, effort and investment
� Deregulation to promote competition
� Reduce bureaucracy
� Encourage sharing of ideas and best practice
� Reduce protectionist barriers to stimulate competition
� Encourage investment in human capital
Recommendation:
How can emerging economies become and/or maintain status as leaders in innovation?
1. Periodically introduction of new technologies and ideas.
2. Encourage education system.
3. Flexiblity in government laws and regulation for MNC�s
4. Wide use of e-commerce
5. Proper financial policies and strategy and low interest rates on business loans.
6. Create more job opportunities
7. Should give more benefits to exporters
8. Should give subsidiary to MNC�s
9. Quality of goods and services
10. Should open the trade doors for all countries.
11. Low cost goods and services
12. Flexible taxation policies for corporate and MNC�s
Conclusion:
The above report tell us about the development of emerging countries like India, china, brazil, Russia, south Africa etc. and it also gives us the brief idea on how emerging economies became the leaders in innovation and what are the reasons, causes, effect of this development on these country and other developed country like USA,EURPOPE etc. today emerging economy generating more revenue in the global economy . they are the favorites countries for most of the MNC�s to set up their brands and plants for cheap labor, man power, flexible government policies. Skilled man power. Cost effecting and huge no. of consumers. In the upcoming decades the BRICS (brazil, Russia, India, china and south Africa) will be the biggest economy of the world. Emerging economies are always coming up with new technology in IT,TELECOMMUNICATION,POWER AND ENERGY .it will make them the best economy in the world.
