BUSS4 - Three Ways to Evaluate Emerging Markets

The topic of emerging markets is hugely important for BUSS4 students. The economic growth and large populations of the ‘BRIC’ nations (amongst others) has meant many businesses, including some of the tutor2u twelve: have been targeting these countries as part of their strategies for growth. Examples include Starbucks who plan to have 1,500 coffee shops in China by 2015, and Apple as their Shanghai store sells more iPhones per square foot than any other Apple store in the world.

Like many Business Studies teachers I often post ideas and articles under #BUSS4 on twitter, and emerging markets is one of the most talked about topics this year. With this in mind, it is worth thinking about the various ways in which this topic can be viewed and evaluated by students when writing essays in the examination:

1: Are Emerging Markets an Opportunity or a Threat?

The most obvious debate on this topic would be the potential benefits and problems involved with targeting emerging markets:

Opportunities
Strong Economic Growth
Rising consumer incomes and growing ‘middle-classes’
Opportunities for joint ventures with local businesses

Threats
Culture/varying customer needs
Difficult to protect ideas from competition due to inadequate laws
Infrastructure could be poor, making distribution and marketing difficult

Students can build strong evaluative arguments, using examples of successes and failures in emerging markets and then considering the factors that success might depend upon. A good compare and contrast here would be Coca Cola (who recently announced their largest areas of sales growth to be India (+20%), China (+9%) and (+4%) from Brazil); against businesses like Kellogg’s who failed to attract enough sales in India due to cultural and lifestyle differences.

2: What makes emerging markets attractive? Push and Pull factors

Another interesting evaluation point could be to consider the motives behind a strategy of targeting emerging markets. These can be grouped under headings of ‘push’ and ‘pull’ factors:

Push Factors

Reasons for wanting to grow outside of domestic country:
• Restrictive and costly legislation
• Weak UK/US/EU economies
• High levels of competitive rivalry
• High wage costs and operating costs in UK/US/EU

Pull Factors

Factors that make emerging markets attractive:
• Strong economic growth
• Large and growing populations
• Growing middle classes
• Less competitive pressure
• Cheaper wages and operating costs

Students here can evaluate the relative influence on businesses of the ‘push’ and ‘pull’ factors, and which of the factors are likely to be the most significant behind a strategy of targeting emerging markets. Nestle for example have recently announced that their sales in their main US and European markets have grown just 3.1% versus 13% growth in emerging markets.

3. Will the BRIC ‘Bubble’ Burst?

Students might also consider a number of recent reports suggesting that growth is slowing in emerging markets, which might mean the BRIC ‘goldmine’ could have limited appeal in the future. It was announced this month that China’s GDP had grown at a rate of 8.1% for the first quarter of 2012, which is the slowest pace of growth for almost three years. The Indian economy only grew by 6.9% in the financial year to 31 March 2012, also the slowest pace in three years. Students could here question if businesses are likely to be investing as much in these markets with such economic uncertainty, backed up by a recent news release on Tesco’s website:

“With the slowing economy in China, a combination of persistently high inflation and wage cost pressures are making the environment for mainstream retailers much more challenging. This background has led us to take a more cautious stance on the market, at least for the time being. We had already taken a more measured approach to substantial new capital commitments to freehold shopping centres and we have also decided to hold back on the pace of new hypermarket development this year – with plans to open 16 stores, instead of stepping up the pace of expansion as we had intended”

Emerging markets is a very topical area of the BUSS4 specification, and considering evaluation from a number of angles with a number of compare and contrast examples, should be useful for preparation for essays on this subject.