Doing business in Emerging markets

What is an emerging market?

An economy that is industrialising rapidly, growing faster than average, and transitioning toward developed-economy status.

Is there an official universal definition of an emerging market?

No. The classification depends on who defines it and the purpose of the classification.

Who classifies emerging markets?

Institutions such as the IMF, World Bank, FTSE, S&P, and groupings such as BRICS.

Who coined the term emerging markets, and when?

Antoine van Agtmael 1981

Why was the term emerging markets originally introduced?

To give the investment concept a more attractive name when raising a fund originally called the Third-World Equity Fund.

What was the original meaning of emerging markets?

Economies transitioning from low-income to middle-income status and undergoing significant economic change.

Why is the emerging-market label not neutral?

It reflects the perspective and objectives of the organisation doing the classification, particularly investors.

Can an emerging market be a large economy?

Yes. China, India, and Brazil are examples of large economies classified as emerging markets.

What characterises a developed economy?

High wealth, advanced technology, strong infrastructure, and developed economic institutions.

How many advanced economies does the study guide say the IMF classifies?

39 economies.

What five characteristics are commonly associated with emerging markets?

High volatility, dynamic growth, lower per capita income, currency fluctuations, and economic transition.

What does high volatility mean in an emerging market?

Political events, commodity prices, and global investor sentiment can cause rapid changes in asset prices and exchange rates.

Give an example of volatility in Turkey.

In 2018, inflation, foreign-currency debt, and concerns about central-bank independence contributed to economic volatility.

Give an example of volatility in Brazil.

In 2015, corruption scandals and a fiscal deficit weakened the Brazilian real.

What is dynamic growth in an emerging market?

Faster-than-average economic growth driven by industrialisation, urbanisation, and a growing workforce.

Give an example of dynamic growth in China.

China transformed from a largely agrarian society into the world's second-largest economy.

Give an example of dynamic growth in India.

India developed into a major global information technology and software-services hub.

What does lower per capita income mean?

Average income per person is lower than in developed economies, potentially leaving room for further growth.

Give examples of emerging markets with lower per capita incomes.

Vietnam and Bangladesh; Vietnam has grown rapidly, while Bangladesh benefits from garments and remittances.

Why do emerging-market currencies fluctuate?

Domestic economic conditions, political events, global financial sentiment, and foreign-exchange reserves affect exchange rates.

Give an example of currency risk in Egypt.

The 2016-2017 devaluation increased import costs, debt costs, and living costs.

How can foreign-exchange reserves reduce currency risk?

Large reserves can help a country manage exchange-rate pressure and support currency stability.

Give an example of relatively stable currency conditions in an emerging-market context.

The UAE's substantial foreign-exchange reserves help support its currency's stability.

What is a transitioning economy?

An economy changing its economic structure through diversification, technological development, and infrastructure improvements.

Give an example of a transitioning economy in Eastern Europe.

Poland transitioned from central planning after 1989 toward a market economy and integration with the European Union.

Give an example of political and economic transition in Africa.

South Africa transitioned following the end of apartheid.

What other factors matter when assessing an emerging market?

Market size and potential, demographic trends, globalisation, connectivity, and inclusive development.

Why can a young population be attractive to investors?

It may provide a growing workforce, expanding consumer demand, and long-term growth opportunities.

What does BRIC stand for, and when was the term coined?

Brazil, Russia, India, and China; Jim O'Neill of Goldman Sachs coined the term in 2001.

When did BRIC become BRICS?

South Africa was invited in 2010 and formally joined in 2011.

Which countries joined BRICS on 1 January 2024, according to the study guide?

Egypt, Ethiopia, Iran, and the UAE.

Which country joined BRICS in January 2025, according to the study guide?

Indonesia.

What is the status of Saudi Arabia's BRICS membership?

Its status has been reported inconsistently, despite being invited.

What are BRICS partner countries?

Vietnam, Thailand, Malaysia, and Nigeria.

Why does emerging-market classification matter to businesses?

It affects investment decisions, perceived risk, market access, expected returns, and how countries are compared.

What is a political system?

The framework through which a society organises authority and makes decisions.

What is the key political question for a business entering a country?

Who holds power, how is that power exercised, and what limits it?

What is a democracy?

A political system in which the people exercise power directly or through elected representatives.

What are the main features of democracy?

Political participation, individual rights, free and fair elections, and peaceful transfers of power.

Give three examples of democracies from the study guide.

The United States, Germany, and India.

What is an autocracy or authoritarian system?

A system in which one ruler or a small group holds concentrated power and political freedoms are limited.

What are common characteristics of authoritarianism?

Limited opposition, restricted civil liberties, controlled elections, weak separation of powers, and an emphasis on order and stability.

Give two examples of authoritarian systems from the study guide.

China and Russia.

What is totalitarianism?

A system in which the state or ruling party seeks control over nearly all aspects of public and private life.

What are the main features of totalitarianism?

Ideological control, extensive surveillance, informants, suppression of dissent, and control of public and private life.

What is an example of a totalitarian state?

North Korea.

What is a monarchy?

A system in which a monarch holds the position of head of state, usually through hereditary succession.

What is an absolute monarchy?

A monarchy in which the monarch has extensive governing authority without being effectively constrained by a constitution.

What is a constitutional monarchy?

A monarchy in which the monarch's powers are limited by law, usually within a constitutional and parliamentary system.

Give examples of monarchies from the study guide.

Saudi Arabia is an absolute monarchy; the UAE is a federation of seven emirates; Qatar is ruled by the Al-Thani family.

What is an oligarchy?

A system in which a small, privileged group controls substantial political, economic, or social power.

Give an example of oligarchic influence.

Russian business oligarchs have exercised significant economic and political influence.

What is a theocracy?

A political system in which religious authorities or religious doctrine underpin political legitimacy and the legal system.

Give an example of a theocracy.

Iran, where the Supreme Leader holds ultimate authority.

What challenges can democracies face?

Slow decision-making, voter apathy, populism, and external manipulation.

What is the difference between liberal democracy and social democracy?

Liberal democracy prioritises individual liberties, the rule of law, and market freedom; social democracy places greater emphasis on social equality, welfare, and protections within a mixed economy.

What is the economic approach of liberal democracy?

It generally favours free markets and limited state intervention in the economy.

What is the economic approach of social democracy?

It supports a mixed economy and uses progressive taxation to fund social programmes.

How does liberal democracy generally approach welfare?

It places greater emphasis on individual responsibility, although welfare policies vary across countries.

How does social democracy approach welfare?

It supports a welfare state, including public healthcare, education, and social security.

How does social democracy approach labour rights?

It tends to support stronger labour protections and worker representation.

How can liberal democracy protect minority rights?

Through the rule of law, individual liberties, and separation of powers.

What is the key difference between authoritarianism and totalitarianism?

Authoritarianism restricts political freedoms; totalitarianism attempts to control almost every aspect of public and private life.

Why are authoritarianism and totalitarianism not interchangeable terms?

An authoritarian state may tolerate some private or social autonomy, whereas a totalitarian state seeks much more comprehensive control.

What does the phrase in an autocracy, the quality of decisions equals the quality of the person in charge mean?

Decision-making depends heavily on one leader's competence, judgement, and priorities because institutional checks may be weak.

What is communism?

An ideology aiming for a classless society and collective ownership of productive resources, abolishing private ownership in its ideal form.

What is socialism?

An economic and political philosophy aiming to reduce class inequality through greater social or public ownership, while allowing varying combinations of public and private ownership.

What is the main difference between communism and socialism?

Communism aims at a classless society with collective ownership; socialism encompasses a broader range of systems that can combine public and private ownership.

Why have some communist states developed into one-party systems?

Ruling communist parties have often centralised political authority and restricted opposition in the name of their ideology and control of the state.

What did Gilens and Page study in 2014?

They analysed 1,779 policy issues to investigate how economic elites, interest groups, and average citizens influenced US policy.

What did Gilens and Page conclude about US policymaking?

Economic elites and business groups had substantial independent influence, while average citizens had little or no independent influence in their analysis.

What is a criticism of the Gilens and Page study?

Critics such as Bashir argue that its methods may understate the influence of ordinary citizens.

What factors are relevant to the debate over whether the US is an oligarchy?

Wealth concentration, lobbying, campaign finance, business influence, and whether ordinary citizens are adequately represented.

How can a country's political system affect businesses?

It influences regulation, property rights, policy predictability, corruption exposure, market access, and the ability to challenge government decisions.

What is corruption?

The abuse of entrusted power for private or group gain.

Where does the word corruption originate?

From the Latin corrumpere or corruptus, meaning broken or destroyed.

What is bribery?

Giving money, gifts, or favours to influence a public official or someone with power in a private organisation.

Give a business example of bribery.

A company pays an official an illegal payment to obtain a licence or win a contract.

What is fraud?

Deliberate deception used to obtain a benefit or avoid payments owed to a government or private organisation.

Give an example of fraud.

A company falsifies its accounts or tax declarations to avoid paying money owed.

What is embezzlement?

The theft or misuse of money or property entrusted to someone by a government or organisation.

Give an example of embezzlement.

A public official diverts government funds intended for a hospital into a personal account.

What is nepotism?

Favouring family members or friends in jobs, contracts, or services rather than making decisions fairly.

Give an example of nepotism.

A public official awards a government contract to a relative's company without a fair selection process.

What is the Corruption Perceptions Index (CPI)?

Transparency International's index measuring perceived public-sector corruption on a scale from 0 to 100.

How is the CPI calculated?

It combines information from at least three of 13 expert and business surveys or assessments and scales the results from 0 to 100.

What does the CPI measure, and what does it not measure directly?

It measures perceptions of public-sector corruption, not the actual number of bribes, proven crimes, or court cases.

What were the headline CPI 2025 statistics in the study guide?

182 countries ranked; a global average of 42; more than two-thirds scored below 50.

According to the study guide, how did CPI scores change since 2012?

31 countries improved significantly, 50 declined, and 100 remained broadly unchanged.

What were the CPI 2025 regional averages in the study guide?

European Union: 62; Asia Pacific: 45; Americas: 42; Middle East and North Africa: 39; Eastern Europe and Central Asia: 34; African Union: 32.

Which country scored 89 in the CPI 2025 examples?

Denmark.

Which Asian country scored 84 in the CPI 2025 examples?

Singapore.

What were the CPI 2025 example scores for China and India?

China: 43; India: 39.

Why can a country with a high CPI score still enable international corruption?

It may host laundered money or provide financial, legal, and property services used to conceal illicit wealth originating abroad.

What is one limitation of the CPI over time?

It may lag behind real events by a year or more because it relies on assessments and perceptions.

How can social inequality contribute to corruption?

Unequal access to opportunities and entrenched social hierarchies can create incentives to use bribes or personal connections to obtain services and opportunities.

What are the political costs of corruption?

It undermines freedom, accountability, and the rule of law.

What are the social costs of corruption?

It weakens public trust, participation, and confidence in government.

What are the economic costs of corruption?

It reduces opportunities to build wealth, distorts competition, and diverts resources from productive activity.

What are the environmental costs of corruption?

It can enable environmental damage and undermine the prospect of a healthy, sustainable future.