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NIGER : EMERGING MARKET FOR PAKISTANI EXPORTS

Niger, despite being one of the poorest countries in the world, does offer a considerable market for Pakistani exporters, especially in the field of rice and synthetic textiles/fabrics. Our exports to Niger were worth US$ 6.4 million in the fiscal year 2003-2004. However, according to the latest figures as provided by the Ministry of Commerce of Pakistan, our exports to Niger increased to US$ 15.8 million in the fiscal year 2006-07, which shows the increasing demand for Pakistani rice and textiles/fabrics in Niger.

Niger’s trade with most of the countries, including Pakistan is however, largely indirect and erratic. Traditionally, Niger has imported from Pakistan rice, cotton fabrics and textile products, ready-made garments, raw cotton and synthetic fabrics. However, all these items are imported indirectly through European and African intermediaries via the Littoral States. Niger being land-locked, the importers here used the port cities of Benin (Cotonou), Togo (Lome) and Ghana (Tima).

Although certain geographical and procedural barriers are in the way of Pakistani exporters to get the full advantage of the emerging increasing Nigerien markets for Pakistani products, however, few Pakistani exporters are now taking efforts to establish and maintain direct trading link with their Nigerien counterparts. The establishment of such direct interaction would no doubt immensely benefit the businessmen of the two countries as against the indirect trade. Although there is no Commercial Section/Wing in the Pakistan Embassy at Niamey, however, the Mission has invariably helped and extended fullest cooperation to the Pakistani exporters willing to venture into and take advantage of the Nigerien market.

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From Pakistan to BangladeshReuters August 30, 2011

Over the past three years, manufacturers have faced numerous obstacles to smooth operations and profitability due to power shortages, security issues, and widespread corruption. - File photo

FAISALABAD: Tauseef Salamat, the owner of a Pakistani textile mill, grinned ruefully as he read a text message that reminded him to turn off the plant’s natural gas supply for three days under a government programme to ration scarce energy resources or face a penalty.

These are tough times for Pakistan’s once-thriving textiles industry. The long-running energy crisis along with security concerns in a country plagued by militancy and political violence have taken a heavy toll. Now it faces a new threat: competition from Bangladesh.

“Bangladesh also has energy problems but, unlike us, they are managing it and managing it well,” said Salamat, whose company, Tauseef Enterprises, has 3,000 employees in Pakistan. “The energy crisis has increased the cost of doing business in Pakistan.”

Indeed, Salamat has already voted with his feet. His enterprise now has more than 800 workers some 2,000 km (1,250 miles) away in what used to be the eastern wing of Pakistan.

Bangladesh is making a strong play to lure Pakistani textile businesses to relocate or expand to Dhaka, which split from West Pakistan and gained independence in 1971 after a bloody civil war and Indian intervention.

Its advantages are clear: not only does it share a common culture and history with Pakistan, it has more investor-friendly policies, cheaper skilled labour and, crucially, tax-free access to 37 countries, including the European Union, Canada and Australia.

The movement of textile business from Pakistan to Bangladesh is also evidence of an emerging trend in labour and capital movement in a globalising world: first there was a shift from the West to rapidly developing economies, now transfers are happening between frontier markets.

“There is a third wave of globalisation into frontier markets,” said Frederic Neumann, chief Asia economist at HSBC in Hong Kong. “As some emerging markets climb up the value-added ladder, frontier markets are increasingly finding a competitive niche.”

WORRYING TREND

Pakistan’s textile industry accounts for 38 percent of workers in the manufacturing sector and over half of its exports, which stood at nearly $25 billion (15.3 billion pounds) in fiscal 2010/11.

Textile exports rose 35 percent to $13.80 billion in 2010/11, but that was mainly because of high cotton prices which are expected to come off. Indeed, exports fell by about 15 percent in July, the first month of the 2011/12 fiscal year.

The country is also beset with a Taliban insurgency, gang violence and ethnic tensions, which are a drag on the economy and a deterrent for investors.

About 300 people were killed in political and ethnic violence in July alone in Karachi, the country’s commercial hub and a major base for the textile industry.

“They are trying to come to our country because investment in Pakistan is too risky,” said a Bangladesh commerce ministry official, speaking on condition of anonymity because he was not authorised to speak to journalists.

“Foreign buyers are reluctant to place orders in Pakistan due to security concerns.”

The energy crisis in Pakistan is also a major hindrance.

“Work in factories is closed for three days a week due to gas load-shedding, because of which the industry is working at 30-40 percent of its capacity,” said Wasim Latif, chairman of the Pakistan Textile Exporters Association.

Bangladesh has its own power problems, facing up to 2,000 MW of shortages because of a gas supply crisis that forced a cut in power plants’ output and growing domestic demand stemming from economic growth that has averaged 6 percent in recent years.

But it is taking steps to address the energy shortage. The government is aiming to triple power generation to 15,000 MW over the next five years, with plans for as many as 89 power plants to be built on a fast-track basis.

Meanwhile, Pakistan – beset by crises on multiple fronts – is struggling to tackle its energy troubles.

The country is facing a gas shortfall of nearly 2.0 billion cubic feet per day. Total electricity demand in summer months outstrips supply by 22 percent — or about 6,000 MW — during peak hours.

According to the Asian Development Bank 2011 report released in April, energy deficits are lowering Pakistan’s real growth by at least 2 percentage points annually.

“Although power sector deficiencies (in Bangladesh) are still prominent, it is likely to ease in the coming months. On the whole, textile manufacturers of Pakistan are looking for new homes because of the domestic problems affecting their business, and Bangladesh could provide them

with a better home,” said Mustafa K. Mujeri, director general of the Bangladesh Institute of Development Studies.

Bangladesh is also offering tax holidays of up to 10 years to foreign investors, as well as duty-free import of raw materials and repatriation of capital and profits.

Classified as a least-developed country, it enjoys duty-free export facility to 27 European Union countries, and 10 other developed countries, including Japan, Canada and Australia, under bilateral agreements.

Pakistan, on the other hand, faces higher tariffs in the EU and U.S. markets, putting its exports at a disadvantage. Pakistan has for years asked for access to the U.S. market, under the slogan “Trade, not Aid.”

LOW LABOUR COST

It also has higher wages.

Bangladesh last year nearly doubled the minimum monthly wage for millions of workers in the garment industry to 3,000 taka (25 pounds), but pay is still low compared with those of competitors in China, India, Vietnam, Thailand and Cambodia.

Pakistan’s minimum wage is much higher, at a government-set 7,000 rupees (49 pounds), and some factories pay even more, says Latif from the Pakistan Textile Exporters Association.

Low labour costs have helped Bangladesh join the global supply chain for low-end textiles and clothing, manufacturing garments for international brands such as JC Penney, Wal-Mart, H&M, Kohl’s, Marks & Spencer and Carrefour.

“Obviously, the investment climate in Bangladesh is better as a result of attractive incentive packages earmarked for foreign investors, a better political climate, relative social stability, and a promise to ensure required infrastructures including electricity, said Mujeri, who is also the former chief economist of Bangladesh’s central bank.

There is no official data illustrating the business migration, but interviews with a string of Pakistani executives revealed that at least five companies already have or will soon be setting up operations in Bangladesh.

Salamat’s company opened two units in Dhaka about three years ago, and it is now in the process of setting up a third.

“Good business in Bangladesh has encouraged us to further expand our operations there. We are overbooked,” said Salamat, whose firm produces products for brands such as Adidas and Nike.

Masood Textile Mills, a large knitwear exporting company, is setting up a sewing plant in Bangladesh.

“There is no sign of any large-scale movement, but people are being pushed,” said Latif. “It is not a comfortable choice.”

Pakistan 'No 1' among emerging markets peersBy: Erum Zadi | October 13, 2009 | 0 CommentsKARACHI - Pakistan stands at number one position for providing highest equity returns and dividends to local and foreign companies on their reported earnings and profitability within emerging markets of Asia, Europe, Middle East, Africa and Latin America, The Nation deduced from IMF report on Monday.This report further indicates that Pakistan equity market has been put on the sustainable path of growth and stability since the beginning of the first quarter of calendar year, 2009. IMF statistical output on emerging markets dividend-yield ratios revealed that despite witnessing slowdown in FDI and other investment inflows particularly portfolio investment, the domestic financial market is performing well in terms of offering better profits and dividends.The divided-yield ratio in Pakistan is still stayed at 9.1 per cent since January 2009, which is most attractive and highly profitable for the local and foreign blue chip companies, operating in oil & gas exploration, petroleum refining, fertilizer and financial sectors of economy as compared to its emerging and regional markets peers.IMF Global Financial Satiability Report said Czech Republic and Egypt are runners up with providing 7.4 per cent and 6.3 per cent rate of return on equities respectively. Meanwhile, report found out that the solvency and adequacy of the banking system is somehow remaining intact. As per the financial soundness indicators compiled by report, Pakistans scheduled banks non-performing loans (NPLs) to total loans grew by 11.5 per cent by end-March 2009, which is number 4 amongst its emerging markets financial business counterparts of the Middle east and Central Asian regions. Earlier, report said the immediate outlook for the financial system has improved markedly since the April 2009. Financial markets have rebounded, emerging market risks have eased, banks have raised capital, and wholesale funding markets have reopened. Even so, credit channels are still impaired and the economic recovery is likely to be slow. A key question addressed is whether the financial system can provide sufficient credit to sustain an economic recovery. Recently, bank balance sheets have benefited from capital-raising efforts and positive earnings. Nonetheless, there are still serious concerns that credit deterioration will continue to put pressure on banks balance sheets. Report analysis suggests that US banks are more than halfway through the loss cycle to 2010, whereas in Europe loss recognition is less advanced, reflecting differences in the economic cycle.While stronger bank earnings are supporting capital levels, they are not expected to fully offset write-downs over the next 18 months. Moreover, steady-state earnings are likely to be lower in the post-crisis environment. Stronger action to address impaired assets will help bolster bank earning capability and support lending. The tightening of bank regulation under way is expected to reduce net revenues and require more costly self-insurance through higher levels of capital and

liquidity.Tail risks in emerging markets have declined as a result of strong policy measures-including increased IMF resources. Financial stresses have eased substantially in emerging Europe, but vulnerabilities remain high. Western European banks appear able to absorb deteriorating credit conditions in emerging Europe, but may lack sufficient capital to support a recovery in the region.Asia and Latin America have benefited most from the stabilization of core markets and a recovery in portfolio inflows. Although international flows into emerging market debt have recovered, they have been skewed toward higher quality borrowers, leaving many corporate facing substantial rollover risks, particularly in emerging Europe. Financial policies should continue to foster an orderly adjustment of bank, corporate, and household balance sheets. Extending agreements to maintain or even increase sustainable cross-border bank funding channels would also help.

Strategic CSR and Competitive Advantage for PakistanCSR is good for business if taken as a strategic approach to running a company or institution. Thus CSR goes further, much further, than a purely philanthropic handout.

Corporate Social Responsibility is concerned with treating the key stakeholders of a company or institution ethically or in a responsible manner. ‘Ethically or responsible’ means treating key stakeholders in a manner deemed acceptable according to international norms. Social includes economic and environmental responsibility. Stake-holders exist both within a firm and outside.

IntroductionCSR has begun to make an impact in Pakistan as can be seen by recent publications such as the beautifully produced 2009 publication ‘CSR Pakistan: Evolution, Rise and Impact on Socio Economic Development’ by Yawar Mian of Capital Business1.

Strategic CSR, that is, a systems approach to doing well by doing good has barely been used, to date, in Pakistan. Alert readers will also notice that my above definition extends the notion of ‘corporate’ to anybody, that is, any group of people working together in a common effort. Consequently, the tools and methodology of CSR can be applied, almost without change, to public institutions, NGOs, social enterprises and even more abstract concepts such as resolving conflict situations through CSR.

Readers may well wonder what CSR has to contribute after we have seen a heady mix of greed, overconfidence and the use of poor business models that led to the global financial collapse of the past two years. Banks and other financial institutions are once again in the news for paying huge bonuses on the backs of taxpayers’ bail outs. And one can wonder whether the merry go round of greed, overconfidence and flawed strategies is about to spin again thereby continuing the notion that major financial institutions act irresponsibly and not in the public interest.

Strategic CSR and Competitive AdvantageAfter this ambitious start you may be wondering how my above assertions on CSR can help? In fact, as we define CSR today, CSR is a strategic systems approach that examines and influences the behaviour of a company while preserving its competitive advantage. Let me deconstruct that sentence.

CSR means treating the main stakeholders of a company in a responsible manner; Corporate means any group of people that work together in a company or organization,

whether for profit or non-profit; Social means the social system and includes finance, economy, environment and social issues; Responsibility is about taking issues that affect the corporate body seriously and about acting

within – and even beyond – societal norms; Strategic means having a strategy that takes an idea into a working model; A systems approach means including all aspects of the system in the decision making process; Competitive advantage is the implementation of a value-creating strategy not simultaneously

being implemented by any current or potential competitors.

Strategic CSR – A Bit of HistoryTake Michael Porter and Mark Kramer’s (P-K) influential Harvard Business Review Article of December 2006. There they argued that ‘while CSR depends on being a good corporate citizen and addressing every social harm the business creates, strategic CSR is far more selective’. The interdependence between business and society takes two forms in P-K’s framework: “inside-out linkages” where company operations impact society, and “outside-in linkages” where external societal forces impact companies. They believe that although companies are called on to address hundreds of social issues, ‘only a few represent opportunities to make a real difference to society or to confer a competitive advantage’. I would rather use the word ‘and’ rather than ‘or’ but readers may feel I am splitting hairs at this point. P-K give three areas where they think competitive advantage may lie in strategic CSR:

First, identify points of intersection between your company and society. For instance, does the company provide safe working conditions and reasonable wages? Models for this can be found in the work of SA8000 or the Fair Labour Association (FLA).

Second, select specific social issues to address social needs in ways that create shared value – a meaningful benefit for society that also adds to your company’s bottom line. For instance, in addressing the AIDS pandemic in Africa, a mining company such as Anglo American would not only improve the standard of living on that continent; it would also improve the productivity of the African labour force on which its success depends.

Third, mount a small number of initiatives that generate large and distinctive benefits for society and your company. Example: The Ecomagination initiative General Electric launched in early 2005 benefits society through environmentally beneficial products (such as compact fluorescent light bulbs) while benefiting the company’s bottom line. The initiative boosted revenue on such products from $6.2 billion in 2004, before the initiative began, to $10.1 billion in 2005, over halfway to the goal of $20 billion by 2010.

Strategic CSR transforms “value chain social impacts” into activities that benefit society while simultaneously reinforcing corporate strategy and also advancing strategic philanthropy that leverages areas of competitiveness. The P-K framework, argues William Baue, draws its strength from applying corporate strategic thinking to both leverage positive social and environmental benefits and mitigate negative social and environmental impacts in ways that enhance competitive advantage. An obvious example of this, P-K stated, was Toyota’s development of the hybrid electric/gasoline car Prius. As environmental concerns increased, Toyota stole a march on major competitors such as General Motors and Ford by creating a series of innovative car models that have both produced competitive advantage and environmental benefits. Hybrid engines emit as little as 10 percent of the harmful pollutants conventional vehicles produce while consuming only half as much gas. Prius thus gave Toyota a lead so substantial that Ford and other car companies started to license their technology.

However, the well-known recent failures of Toyota in quality control, led to massive recalls and closed assembly lines. A Financial Times journalist noted that he ‘had driven a Prius straight into his garage door, not realising it was ready to go!’

The answer from Mr. Toyoda, CEO of Toyota: “I would like to point out that Toyota’s priority has traditionally been the following: First, safety; second, quality; third, volume. These priorities became confused, and we were not able to stop, think, and make improvements as much as we were able to before, and our basic stance to listen to customers’ voices to make better products has weakened somewhat. We pursued growth over the speed at which we were able to develop our people and our organization, and we should be sincerely mindful of that.” In other words, in today’s world, ignoring intangible assets (the bedrock of CSR) carries real costs for business.

Enough of TheoryWhat happens when these ideas are transformed into a strategic framework to enhance the competitive advantage of a company while preserving the values of CSR?

In 2008, MHC International Ltd worked out such a strategy for an oil company which we shall call Arrow Petroleum (AP). The following steps were identified.

1. Â Report on where the key overall CSR trends are heading, including any legal requirements.2. Provide benchmark examples of CSR, and assess CSR trends. To draw upon other oil companies

such as Premier Oil Consolidated who have won awards for their CSR approach.3. Analyze AP’s record in the light of GRI reporting guidelines and act accordingly.4. Identify AP’s existing CSR activities and projects to date with a view to identifying competitive

advantage. Use MHCi’s rapid impact sustainable assessment model (RISAM), and judge their sustainability.

5. Identify, according to the stakeholder model of CSR, key activities that AP could do, while bearing in mind (and identifying, at least qualitatively) the costs and benefits of additional CSR activities. Identify and interview key stakeholders as a pre-cursor to future, fully-fledged stakeholder dialogues. Note that Premier Oil, for instance, has as its stakeholders Owners and investors, Management, Employees, Customers, Suppliers, Government, Joint Venture Partners, Local Community. Also note that the process of stakeholder dialogue is more important for company performance than simply reporting on it.

6. Interview only a selection of stakeholders in each category but attach importance to investors, suppliers and employees in the first instance. At this stage a fully-fledged stakeholder dialogue will not be carried out but will be something for the future.

7. Make use of the industry standard Key Performance Indicators (KPIs for social, economic and environmental issues), as suggested by Global Reporting Initiative, and highlight which ones are most appropriate for AP.

8. Provide data for as many KPIs as possible in the short-term and determine methodologies for calculating those currently missing over the long-term.

9. Work out key next steps and alternatives toward establishing a fully-fledged CSR strategy for AP over a period of three years into the future.

Concluding RemarksIn the past decade, CSR has seen much development. At one end of the spectrum it is used to emphasize corporate philanthropy only, and then we often hear of ‘CSR projects’. This notion can be found in some developed countries such as the USA but is mainly found in emerging markets across the world such as Pakistan and is intended to increase the sustainability of such projects. At the other end of the spectrum among many large corporations there is a much broader, system wide view of CSR where the concept is at the core of a company’s business strategy.

Moreover, the loss of reputation of Toyota and the collapse of firms such as Enron, Lehman Brothers, and (now largely in public hands) General Motors who all suffered from poor stra-tegic models shows that new business strategy models are essential. And, as argued here, a key message is that CSR is beco-ming a, if not, the, core of business activity. It is fast becoming acknowledged that a strategic stakeholder model of engagement with the business environment means that the potential for avoiding disasters and increasing success and innovation can be increased. CSR is obviously not a panacea for all ills but more and more companies are seeing that it can enhance their competitive advantage.

Foreign ETF Advantages and Disadvantages

The Pros and Cons of International ETFs

By Mark Kennedy, About.com Guide

See More About:

foreign etf emerging market etf international bond etf foreign currency etf market etf

While the US has a multitude of ETFs to add to your investment portfolio, there is a plethora of foreign country and region ETFs as well. However, before you invest in a foreign ETF, you should be aware of the risks and benefits.1. Advantage: Foreign ExposureIf you feel there are some foreign regions that are potential growth areas or emerging markets, a country ETF may be the perfect asset to increase your international exposure.

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2. Disadvantage: TaxesETFs are known for their tax advantages. However, every country has different tax laws, so there may be particular foreign ETFs that are not a good fit for your etf trading strategy if they have a negative effect on your tax return. Make sure you research all tax laws of the region for your ETF before you make the investment.

3. Advantage: DiversificationIf your portfolio is heavy on domestic investments, some foreign exposure may help balance your overall stratagem. Adding a country or region ETF to your portfolio can expand your investment horizon.

4. Disadvantage: Currency RatesWhile adding a foreign ETF may be a boon to your portfolio, you have to factor in the currency rates of your ETF region. If currency rates are skewed, a country ETF may not be the best match for your portfolio.

5. Advantage: Risk ManagementIf your portfolio or business has exposure to a certain region, investing in a foreign ETF may be a good way to reduce that risk and protect yourself against negative developments in certain countries.

6. Disadvantage: FlexibilityWhile the US has a lot of different ETF products to add to your portfolio, the selection may be sparse for other countries. Many regions don’t have a lot of ETFs, and they aren’t always to most liquid investments. Trading activity for foreign ETFs can be limited and in turn limit your investment strategy.

While foreign ETFs can help minimize risk, gain international exposure, and diversify your portfolio, you have to weigh the disadvantages of region ETFs before you get started and make your final decision to include them in your portfolio.

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Emerging Markets: India & Pakistan.Essay by krrf, University, Bachelor's, A+, September 2005

download word file, 6 pages ( 10 KB ) 5

Downloaded 117 timesKeywords heritage, occupation, aims, economic development, civilization 0Like 0

Two emerging and conflicting countries in the world today are India and Pakistan. It would seem that these two countries that were originally one would have much in common. In fact, the differences are quite clear. From an economic standpoint to the conflict in Kashmir, India and Pakistan are two contrasting countries forged of the same steel. This paper aims to compare and contrast India and Pakistan. Both countries current level of development will be analyzed. The major factors that have helped or hindered economic development in both countries will be discussed. Finally, the level and impact of regional integration on development will be examined.

The subcontinent of India is one steeped in heritage and tradition. Civilization has existed in this area for the last 5,000 years (World fact book: India, 2005). Until only 50 years ago, both India and Pakistan were one country. After the fall of the British Empire and subsequent end of occupation in India in 1947, the two countries became separate entities (World fact book: India, 2005). The major divider between the countries was and is religion. The CIA website describes that India is made up of a majority of Hindu (80%), while Pakistan is made up of a majority of Muslim (97%) (World fact book: India, 2005). This difference in religion has created regional

tensions, most notably the Kashmir conflict. Both countries have skirmished over this contested area; there have been in fact three wars over the last 50 years (World fact book: India, 2005). Not only does a divide of religious and territorial tension separate the countries, the two countries are virtually night and day when it comes to development.

India is the larger of the two countries, with a staggering population of 1 billion (World fact book: India, 2005). This large population helps...

Pakistan Petroleum Ltd (PPL) plans to issue dollar bonds08 October, 2010

KARACHI: In pursuit of funds to finance its aggressive expansion plans, country’s second biggest Oil& Gas explorer, Pakistan Petroleum Ltd (PPL) is considering various financing options including the issuance of dollar bonds, sources familiar with the matter said on Wednesday.

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KARACHI: In pursuit of funds to finance its aggressive expansion plans, country’s second biggest Oil& Gas explorer, Pakistan Petroleum Ltd (PPL) is considering various financing options including the issuance of dollar bonds, sources familiar with the matter said on Wednesday.

When the plan goes through, PPL would be the third Pakistani company in the last decade, to have tapped international markets for debt. Earlier issuances included those by Pace Pakistan and Mobilink.

”Once cash rich, it is interesting to watch that a local E&P company is aggressively pursuing growth plans amid political and economic uncertainty”, says Farhan Mahmood at Topline Securities. He said that discussion with management and industry contacts gave the impression that the size of the bond could be between US$200 and $400m (Rs17.2bn-Rs34bn).

Analysts reckoned that PPL was possibly planning to seize the opportunity of current investment rush for bonds. He said that international investors were in quest for emerging market bonds on account of their attractive yields, at a time when yield in developed countries was close to zero.

According to EPFR, a data provider that monitors fund flows in debt markets, foreign investors have, so far this year, already put US$22.4 billion into emerging market bond funds, which reveal a big leap from a tiny US$3.7 billion invested last year.

The Indian giants Reliance Industries and ICICI Bank were understood to be contemplating to raise US$1bn each through dollar bonds, to take advantage of the booming fixed income market. PPL was also said to be musing debt raise through the local market.

But it was believed that due to the rising demand for emerging market bonds, the company could fetch a better price for dollar bonds. With most of its revenue linked to US dollar, the core business would provide a partial hedge against any weakness in local currency.

The Pakistan 2016 and 2017 sovereign dollar bonds were currently yielding close to 8.5 per cent, which emboldened market men to forecast ease of raising financing for this state-owned unleveraged company at rates between 8.5-9.5 per cent. The optimism was grounded in rising demand for bonds in the international market.

Analysts reckoned that the company’s penchant for raising such a huge financing was the risk of circular debt. “Since E&P companies are badly affected by this inter corporate debt, it make sense to tap finances at attractive prices”, said the analyst.

PPL has overdue receivables of Rs17billion (approx $200m), which pose danger of rising further, so as to dry out liquidity for meeting future drilling targets.

PPL is also known to be a potential contestant for British Petroleum (BP) assets, when offered for sale, which, analysts thought, could be yet another reason for it to find funds.

End.

Emerging Market Economies - in plain EnglishBrazil at a Glance! » Emerging Market Economies – in plain EnglishAn emerging market economy can be understood as an economy in a stage of transition—one moving away from the rationale of closed isolationism and embracing an open market. Traditionally, emerging market economies are those which move rapidly from being closed off from the world to those with drastically reformed economic development programs. Examples of such economies are varied and include countries such as the former Soviet Union, Brazil, India, China, the Czech Republic, South Africa, Pakistan, and Vietnam. [See BRIC]

Emerging market economies can be characterized by a number of things, including an increase in investment activity. The addition of foreign currency into an emerging economy is integral to the continued growth and development of such an economy.

Foreign investment is of benefit to both the emerging economies and to investors. For the emerging economy, foreign investment signifies an international interest in the natural resources and increased productivity of the market in question. For the investor, the interest of foreign businesses and governments notes the increasing stability of the market in question and a potentially beneficial investment opportunity.

Although the injection of foreign currency into emerging economies results in the developing stability of that market, there is a degree of risk inherent in emerging market economies. As such, you should seriously consider whether you are willing to take on the added risk of such an investment.

There is always the possibility that an emerging market could relapse into a state of conflict brought on by regional, political, or religious interests. However, many of the disadvantages of the increased risk inherent in such an investment are outweighed by the varied advantages that are available to you.

Investment in emerging economies has become a favorite of corporations looking to avoid the increasingly stringent IRS regulations. As such, you would be privy to the tax advantages that go hand in hand with a foreign investment. Such advantages include generous tax rates that are designed to entice you as an investor, while providing the market in question with foreign capital with which it can further develop its economy.

As you consider whether investing in emerging economies is the right direction for your portfolio, it would be wise to consider some of the more successful emerging markets in the world. Of the countries mentioned above in the first paragraph, Brazil, Vietnam, China, India, and Pakistan each have a unique characteristic.

As these markets are in a sense more developed than many others, they have increasingly sophisticated infrastructure to accommodate the facilities needed for foreign investment. As such, you should look particularly closely at markets such as these as they do not require huge expenditures of capital to merely enter the market.

As a whole, emerging economies present a uniquely challenging investment opportunity that presents both moderate risk and the chance for financial success. You should seriously consider the risks inherent in such an investment and decide whether it is the direction you would like your portfolio to take.

For the right individual or organization, well educated and versed in both the risks and rewards of such an investment, an emerging market economy might be a good choice to consider as part of a sound portfolio diversification strategy.

Gale Encyclopedia of Small Business:

Emerging MarketsTop Home > Library > Business & Finance > Small Business Encyclopedia

Emerging markets are those countries or geographic regions in which a previously untapped potential for U.S. exports or investment might be anticipated. Nations typically characterized under this banner are often developing countries, but they may also be economically formidable countries with markets that are increasingly open to exports. "The BEMs [big emerging markets] share certain characteristics," wrote Mark Tran in Working Woman. "They have large territories and populations, and they are undertaking extraordinary development projects that call for new infrastructure, such as power-generating plants and telecommunications systems. And, of course, with development comes increased demand for consumer goods, like computers and washing machines. These countries have pursued economic policies leading to faster growth and expanding trade and investment with the rest of the world. They aspire to be technological leaders. Their economic growth would have enormous spillover into their respective regions, and they all have political clout." In the mid-1990s, the International Trade Administration cited ten emerging markets as particularly important to U.S. companies with overseas ambitions: Argentina, Mexico, Brazil, Turkey, Poland, South Africa, India, South Korea, the Association of South East Asian Nations (ASEAN), and the Chinese Economic Area (China, Hong Kong, and Taiwan).

International trade analysts note, however, that the above-mentioned areas are by no means the only developing markets on the planet. Other nations commonly mentioned as key emerging markets for various U.S. exporting sectors include Chile, Vietnam, Malaysia, Thailand, the Czech Republic, Hungary, Uruguay, and Paraguay. In addition, Russia—though riddled with political instability, worrisome trends toward totalitarian government control, economic confusion, a weak technological infrastructure, and a lack of business expertise—is regarded as a potentially lucrative market.

In previous eras, international business activity in the ITA's BEMs and other promising areas was primarily the province of large companies with millions of dollars in investment resources and, often, a multinational presence in Europe and other economically powerful areas. In the 1990s, however, small-and mid-sized businesses staked out a sizable piece of the emerging market action for themselves. "Fortune 500 companies are no longer the only ones doing business beyond our borders," said the U.S. Secretary of Commerce in 1997. "Small-and medium-sized firms—manufacturing, telecom, high-tech, and information systems, among others—are positioning themselves to become global economic players. We will help them do that by assisting them in reaching promising new markets."

Factors in Bem Designation

Countries and regions that come to be known as promising, largely untapped markets often reach that status only after making changes in their internal political and economic structure. Indeed, liberalization of trade regulations between an emerging nation and America, which is an important factor in any analysis of emerging markets, typically only occur in reaction to fundamental political changes within that market. For example, U.S. interest in Vietnam as a market jumped significantly after that nation and the United States formally opened relations in 1995.

Political factors from abroad have also helped some nations emerge as U.S. export and investment destinations. Turkey's active role as an alternative Moslem economic system to such fundamentalist Islamic models of Iran has been vital in helping it establish itself as a major regional player in the Islamic states of the former Soviet Union, such as Kazakhstan and Turkmenistan. The mutual lifting of restrictions in trade simultaneously from both the United States and from another nation could also earmark that nation as an emerging market for U.S. goods. Certainly, the passage of the North American Free Trade Agreement (NAFTA) marked a significant change in Mexico's status as a trading partner of the United States. Some countries or regions, meanwhile, come to be regarded as promising markets by dint of internal economic reforms.

The list of top emerging markets is an everchanging one, subject to economic, political, military, and environmental influences. Some nations lose their footing, scaring away investors and exporters because of political instability, unfair trade practices, economic uncertainty, or other factors. Some emerging markets do so well, however, that they eventually graduate to "established market" status.

Business Challenges in Emerging Markets

The potential rewards of making a successful entry into an emerging market are considerable, and analysts contend that many U.S. companies—large and small—have the capacity to dramatically strengthen businesses that devise effective strategies. But business consultants and trade observers acknowledge that establishing a presence in an emerging market is a process that typically has its share of trials and tribulations. Small business owners considering an entrance into one of these markets—whether that entrance takes the form of opening an office or trying to sell a product—should weigh several factors before making the move.

First, companies thinking about doing business in emerging markets should recognize that such efforts are almost certainly doomed to fail if the firm's affairs are a mess back home. "There is a myth passed from entrepreneur to entrepreneur," stated Jane Applegate in Strategies for Small Business Success. "If your business isn't doing so well at home, think globally. That's where all the money is, and millions of consumers are hungry for American goods. The problem is, it's a myth. If your business is faltering domestically, you won't have the time, money, or resources to crack the global market."

Even if the firm's domestic business is a sound one that provides a good foundation for international expansion, emerging markets present certain problems. "Relationships take longer to develop, and businesses in these countries rarely commit to your terms unless they're certain they can meet them," wrote Charlotte Mulhern in Entrepreneur. "They also may be unable to respond to sudden increases in product demand, due to frequent lapses in electrical power or unreliable transportation. And of course, fax and phone lines are often nonfunctional." Some countries are also bedeviled with high crime rates, political instability, and other unattractive features.

But Applegate noted several steps that small business owners can take to increase their odds of success in emerging market ventures:

Conduct comprehensive research to learn everything possible about the country that you are considering.

Find smart, ethical business partners in the country. Commit adequate time and resources to establishing a presence in the country. Take advantage of the many information resources that exist for small businesses seeking

to expand into emerging markets, from the U.S. Chamber of Commerce to various private and nonprofit export information services.

Utilize state economic development agencies in forging international business relationships.

Small business owners that follow the above guidelines will be well-equipped to make their mark in emerging markets, provided, of course, that their products or services are desired by the targeted populace. But as one small business owner who successfully expanded into a number of new markets told Working Woman, "There is so much demand for virtually everything, everywhere's an opportunity. The world is moving much closer together, and if you want to do business today, you had better become an international person even if you're fixing skateboards on the street corner."

Further Reading:

Applegate, Jane. Strategies for Small Business Success. Plume, 1995.

Baird, Inga S., Marjorie A. Lyles, and J.B. Orris. "The Choice of International Strategies by Small Businesses." Journal of Small Business Management. January 1994.

Guse, Brian, and Patricia Jehle. "Ag Link: Small Businesses' Connection to Emerging Markets." Ag Exporter. February 2001.

Mulhern, Charlotte. "The Road Less Traveled: Don't Disregard the Potential of Developing Nations." Entrepreneur. February 1998.

Tran, Mark. "The World is Your Market." Working Woman. December-January 1998.

"The World Will Beat a Path to Your Door." Inc. May 15,1996.

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