Essay Example on Impacts of Political and Economic Factors on Marketing in Emerging Markets Economies

August 2017 TABLE OF CONTENTS ITEM PAGE Introduction. .4 Economic Factors. 4 Political Factors. 6 Recommendations. 7 Conclusion. 8 References. 10 EXECUTIVE SUMMARY.

With the emergence of the developed nations shifting their focus towards the emerging economies a lot of international investors have had an interest in setting up ventures and marketing their products and services in them. These emerging markets characterized by fast economic growth, numerous investment opportunities, high risk, and high returns have been a hotcake even for international financing bodies like IMF and the World Bank. However, despite these positive indications there have been impeding factors that have either slowed or hindered the growth of the economies both political and economic. This report is presented to the World Trade Organization serves to highlight some of the major political and economic factors that have presented a challenge to the international investors from marketing their products and services to the emerging economies and also recommend possible practicable ways to solve them.

The countries used as reference are Brazil, Russia, India, China and South Africa. IMPACTS OF POLITICAL AND ECONOMIC FACTORS ON MARKETING IN EMERGING MARKETS ECONOMIES 1 0 INTRODUCTION. The International Monetary Fund organization defines Emerging Market Economies EMEs, as nations whose economy is progressing towards becoming advanced characterized by high growth expectations, high level of risk and possible high returns Mody 2004. They have market securities that can be termed as being immature with no long history of foreign investment and range from Per Capita incomes ranging from 350 like Kenya to 5000 like Mexico. They are countries that foreign companies and marketers in established first world countries are eager to invest in due to the promising nature of high returns. EMEs are important in the global economy. In a recent workshop held by UNCTAD in Geneva Switzerland Prates 2013, the report indicated that over two-thirds of the global economy is accounted for by the EMEs. Despite the high rates of promising growth and investments certain political and economic factors have really hampered investment in these economies. Investors seeking to set up new industries and investments have met serious challenges and adverse setbacks that have slowed their growth. Though different from country to country most of these factors are universal and some are unavoidable. In this report, I seek to explain in detail both economic and political factors hampering marketing in EMEs, as well as recommend possible practicable solutions that can be implemented.

2 0 ECONOMIC FACTORS. Firstly inflation has been a major drawback in EMEs. In a working paper published by Singapore press on inflation rates in China and India Madhukar and Nagarjuna 2011, the authors stress the fact that inflation has been a challenge in the growth on the economies of the two countries. To begin with, the value of their currency is weak and cannot compete favorably with the established countries. This tends to bring a huge balance of trade since imports become more expensive than exports. Moreover, the purchasing power of the commodities produced compared to establish markets tends to below. Lastly, the production of similar products which reduces the purchasing power of the same and they tend to be regarded as low quality and fetch low prices in the world trade markets. Secondly, the decline in commodity prices has been on the increase in these EMEs. Coupled with global trade dynamics and commodity price fluctuations many of these EMEs have experienced a sluggish economic demand for their products. This tends to cool down the hopes of high returns for the products and services that would have been offered once the international investors start marketing their products in these countries. An extract from the Economic Bulletin European Central Bank 2016 points out as follows. In some larger countries, particularly Brazil and Russia declines in key commodity prices have interacted with other shocks including political uncertainty and the fallout from geopolitical tensions leading to significant macroeconomic adjustments.

As commodity-driven revenues have shrunk and fiscal positions have deteriorated governments in commodity-exporting economies have had difficulty cushioning the downturn in activity p 5. In Brazil, for example, there has been a deterioration in potential growth due to the decline in commodity prices, which have hit the investment activity, particularly in the key export sectors. This has caused changes in potential growth and therefore the investors are hesitant to start their ventures in the country. Lastly is the changes in the global financing environment. Since the adoption of World Bank recommendations on the liberalization of economies in most third world countries in the 1980s to early 2010 the EMEs have been enjoying financial support from the developed countries for investment in their economies and markets. However, upon the start of the EU crisis on debt and credit risk, the financial sources have become limited. The tightening of external financing conditions has made countries like China and India have some sectors stall in development.

The World Trade Statistical review 2016 shows that in China after years of investment backed by credit have resulted in some sectors booming whilst others due to misallocation of resources and buildup of debt have had to gradually decrease, and hence the contribution of the WTO through increased trade integration has decreased as well. Lack of favorable means of financing of the economic sectors in the EMEs has led to slow economic growth and hence making investors doubtful about marketing their products and establishing business ventures in them.

 3 0 POLITICAL FACTORS. The first notable factor that scares potential international investors is political instability. Changes in regimes associated with harsh unfavorable political ideologies and laws have been a great impediment in these EMEs. Corruption in Brazil and South Africa has caused many international investors to stay aloof of the countries. Xenophobic tendencies that were witnessed in South Africa in late 2016 and early 2017 scared many international investors. Speaking in an interview with Aljazeera the South Africa President condemned the acts of violence and attacks on foreigners saying that they were scaring valuable investors in the country who were vital for economic growth Aljazeera 2017.

Secondly, conflicts in bilateral relations have strained trade relationships between the EMEs and the developed nations. For instance, the recent trade sanctions that were placed on Russia by USA. Congress Zengerle and Rampton 2017 will mean that fewer foreign investments will be done in Russia. Thus marketing of USA products in Russia becomes strained. The same has been experienced through the trade sanctions that Ukraine imposed on Russia have led to infrastructure bottlenecks and poor business climate causing trade between the two countries to be strained, as well Conforming to geopolitical policies laws and standards is another impediment, as well In most countries within the EU the standards set for the imported goods are very high. For instance, meeting the standards on agricultural produce exports by countries like Brazil and South Africa to the European Countries has been quite a challenge. In addition to agricultural produce other products like machines and motor vehicle imports, are taxed heavily, thus straining the proceeds got to be less. The emergence of the Brexit issue has also caused British international marketers and investors to back off some countries which are high risk and invest in the low-risk ones. As a result, most of the EMEs have been left out by potential investors due to the inability to conform and exceed the high standards policies and laws set by geopolitical bodies such as the EU and NATO.

4 0 RECOMMENDATIONS. To begin with, there is a need to flex the conditions that have been set by the World Bank IMF and the European Central Bank on financial support to the EMEs. Most of these countries have had their various sectors thrive under loans and external financing. Though the EU debt crisis has led to tightening of financial support this should not be an impediment to hinder support towards the same. The developed countries should set up policies that will favor the fast growth and development of the EMEs. Instead of merely competing with them with their hard currencies they should embrace their new market products and services and even establish new industries, as either franchises or new branches in the EMEs. Instead of perceiving them as high risk and setting up high standards which they should conform EMEs should be viewed as countries in the Takeoff phase of economic development and become hot spots of economic development. According to the WTO statistics 2016 the EMEs have the highest rates of economic growth This is even favored by the fact that costs of production are low and cheap labor is readily available.

5 0 CONCLUSION. Conclusively EMEs are important to the World Trade Three-quarters of the world economy depends on them. The above economic factors of inflation decline in commodity prices and tightening of global financial sources are just but a few of the whole economic array of factors hindering the growth of EMEs. The political factors of political instability conflicts in bilateral relations and the setting of high standards by geopolitical zone are factors that can be addressed and solved. In a website article from the Marketing Science Institute Sivakumar and Nakata 1995, the authors mention the following. Although many emerging market conditions appear to inhibit rather than enhance first-mover advantages companies need to account for the endogenous internal qualities that may uniquely qualify some firms not only to embrace the risks and costs associated with being first in these markets but also succeed via their ingenuity tenacity and resources. Such firms will be able to enter markets ahead of the pack overcome negative conditions and thrive reaping many benefits for a long period of time p 1. The above is true and achievable. It is my hope that the World Trade Organization will favor and encourage the same. 6 0 References European Central Bank 2016. The slowdown in emerging market economies and its implications for the global economy p 5. Brussels European Central Bank Madhukar S Nagarjuna D 2011. Inflation and Growth Rates in India and China A Perspective of Transition Economies International Conference On Economics And Finance Research 4 1 3 Mody A 2004 What is an Emerging Market IMF Working Papers 177 04 3 Prates D 2013 Capital inflows experience in EMEs in general Brazil and South Korea specifically p 9. Geneva UNCTAD Retrieved from http www bu edu Pardee files 2013 08 UNCTAD GEGI Prates 2013 Experiences in EME_Brazil_South Korea pdf Sivakumar K Nakata C 1995 Factors in Emerging Markets and Their Impact on First Mover Advantages Marketing Science Institute Retrieved 4 August 2017 from http www msi org reports factors in emerging markets and their impact on first-mover advantages. The World Trade Organization 2017 WORLD TRADE STATISTICAL REVIEW 2016 pp 33 34. Geneva World Trade Organization. What s behind attacks on foreigners in South Africa 2017 Aljazeera com Retrieved 4 August 2017 from http www Aljazeera com programs insidestory 2017 02 attacks foreigners south Africa 170225190133994 html Zengerle P Rampton R 2017. Trump signs Russia sanctions bill Moscow calls it trade war REUTERS Retrieved 4 August 2017 from https www Reuters com article us usa trump Russia idUSKBN1AI1Y4.

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