Chapter 15 - Emerging markets and developing economies (EMDEs). The main goals of this chapter are to: Outline the main characteristics of emerging markets and developing economies (EMDEs); explain the role of the government sector in EMDEs, and the main government concerns and strategies; examine the importance of trade to development and the main trade strategies used by the emerging market and developing economies;...
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An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea. 15–1
Chapter 15 Doing business in Emerging Markets
and Developing Economies (EMDEs)
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Lecture plan
• Definition of Emerging Markets and
Developing Economies (EMDEs)
• Import markets in EMDEs
• Trade policy issues in EMDEs
• Export marketing aspects in EMDEs
• Considerations for investing in EMDEs
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Definition of EMDEs
• In principle, the group of the emerging
market and developing economies
(EMDEs) includes all countries that are not classified as advanced economies and
which are at a lower level of development than the advanced economies
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General features of developing
countries
• High levels of rural population
• Relatively high population growth rates
• High proportion of population living in
absolute poverty
• Not well developed banking/credit facilities
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General features of developing
countries cont.
• Relative lack of financial capital
(espec FX)
• Relatively low level of infrastructure
(roads, telecommunications, education institutions)
• Low marketing facilities
(e.g storage, distribution)
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Government sector in developing countries
• Bigger size government sector than in ICs
(lower tax base)
• However, more government regulation
than in ICs
– big concern: control over the national
economy
• More development planning than in ICs, e.g.
– Indonesia: ‘Repellita’ (5-year plans)
• Malaysia,Taiwan
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Trade and development
• Trade as engine of growth
• Import substitution vs export orientation
• Development strategies
– Stage 1: Exports of natural resources/ imports of manufactures
– Stage 2: Import substitution
– Stage 3: Export-led growth
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The import market of EMDEs in 2003 (total merchandise and services imports) by
main groupings (%); Total: US$2260b
Developing Asia 42%
C & E Europe 12%
CIS 9%
Africa 9%
Middle East 9%
Latin America 19%
Source: adapted from WTO, International Trade Statistics 2004
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Imports of EMDEs by regional
groupings by product, 2003, %
Asia
Latin America
C&E Europe
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An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea. 15–10
The share of China and Eastern Europe*
in world merchandise imports,
1948–2000
0 2 4 6 8 10 12
* Eastern Europe = Former Soviet Union and C & E Europe
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China’s share of world merchandise
imports, by product, 1990, 2000, %
0 1 2 3 4 5 6 7 8
1990 1.8 1.4 2.5 2.2 1.8 4.9
2000 2.4 2.2 5.4 4.4 2.9 7.1
Farm products Energy
Iron and steel Chemicals Machinery Textiles
%
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Trade policy issues
Tariffs
• Generally higher than in ICs.
• Lower proportion of tariffs are bound.
• Regional economic groupings (e.g AFTA, MERCOSUR) discriminate against non-
members
(See impact of AFTA’s intra-regional tariff cuts on next slide.)
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Comparison of 1999 MFN simple tariff
rates and average CEPT rates in selected AFTA countries 1999, 2003
Source: adapted from World Bank Development Indicators, 2004, table 6.6 and
ASEAN Secretariat website <www.us-asean.org/afta.htm>
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Trade policy issues
• Non-tariff measures
– South Korea : ‘Pigs is pigs!’
– Malaysia: import licences (plastics raw materials)
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Export marketing issues
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Export marketing issues cont.
in Asia and Latin America
(See Table 15.10 in textbook for data on
advertising expenditure.)
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Leading EMDEs in developing Asia in terms of trend growth in advertising expenditure, 1998– 2003
% p.a
2.1 4.0
8.8 11.0
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Australia’s position in the import
markets of transition economies
• Best position in China: A$6.5 billion in 2000–2001; 2% of China’s imports; 8th rank
• Small exports to other markets: the share of
Australian exports varies between 0.1% and 0.7% (Romania)
• Exports include primary products, but also some elaborately transformed manufactures (e.g
telecom equipment, measuring and controlling
instruments, medicinal and pharmaceutical goods
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Transition economies
• Current and former centrally planned economies in transition to a market-based economy
– former Soviet Union countries; C & E Europe;
PR China and Vietnam
• China – the world's 3rd largest economy
(PPP method)
• Government sector – still the leading sector in FSU; however, in 2001 it accounted for less than 50% in most C & E European countries
• Privatisation of state enterprises
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Trade issues in transition
economies
• Decentralisation of foreign trade
(China since 1985)
• From central plan to tariff protection
• Members of WTO: Czech Republic, Hungary,
Poland, Slovak Rep., Romania, China (November, 2001)
• 8 countries joined the EU in 2004 with 3 more to follow (Bulgaria, Romania and Croatia)
• Abolition of import licences/quotas
• Over 1992–2001, China has undertaken a
number of 8 reductions of non-tariff measures
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FDI inflows into EMDEs by main
geographic grouping, 1993–2003, US$b
Source: adapted from UNCTAD, World Investment Report, 2004
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Trends and issues in direct
investment in EMDEs
• Developing Asia – the largest beneficiary of
inward FDI among EMDEs ( US$68b in
2003) China: top destination 2001–2003.
• FDI in the service sector growing fast, but
manufacturing still takes about 55% of inward FDI.
• Political stability: key consideration for FDI
• Government controls
• Government attitude to FDI
(the ‘obsolescing bargain’)
• Joint venture – preferred form of FDI?
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Trends and issues in direct
investment in EMDEs cont
• Government controls
• Ease to do business
– best performers: Lithuania (ranked
17th), Slovakia (18th), Botswana(19th), and Thailand (20th)
• Copyright issues (e.g China)
• Transfer pricing
• Incentives
• Personnel
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Sectoral trends in FDI inward stock
• Secondary sector: US$43.5b (43.5%)
– food, beverages; motor vehicles and
other transport equipment; machinery and equipment
• Primary: US$2.4b (2.5%)