Classification of Economies - Purchasing power parity (PPP) is, in essence,

an economic theory that adjusts the exchange

Experts debate exactly how to define the level of rate between countries to ensure that a good is
economic development of a country—which criteria to purchased for the same price in the same
use and, therefore, which countries are truly developed. currency.
This debate crosses political, economic, and social
arguments. A nation’s GDP at purchasing power parity (PPP)
exchange rates is the sum value of all goods and
When evaluating a country, a manager is assessing the services produced in the country valued at prices
country’s income and the purchasing power of its people; prevailing in the United States. This is the measure most
the legal, regulatory, and commercial infrastructure, economists prefer when looking at per-capita welfare
including communication, transportation, and energy; and when comparing living conditions or use of
and the overall sophistication of the business resources across countries. The measure is difficult to
environment. compute, as a US dollar value has to be assigned to all
Even in developing countries, there are always wealthy goods and services in the country regardless of whether
people who want and can afford luxury items. But these these goods and services have a direct equivalent in the
consumers are just as likely to head to the developed United States (for example, the value of an ox-cart or
world to make their purchase and have little concern non-US military equipment); as a result, PPP estimates
about any duties or taxes they may have to pay when for some countries are based on a small and sometimes
bringing the items back into their home country. This is different set of goods and services. In addition, many
one reason why companies pay special attention to countries do not formally participate in the World Bank’s
understanding their global consumers as well as where PPP project to calculate these measures, so the
and how these consumers purchase goods. Global resulting GDP estimates for these countries may lack
managers also focus on understanding if a country’s precision. For many developing countries, PPP-based
target market is growing and by what rate. Countries like GDP measures are multiples of the official exchange
China and India caught the attention of global rate (OER) measure.
companies, because they had large populations that Human Development Index (HDI)
were eager for foreign goods and services but couldn’t
afford them. As more people in each country acquired - measures people’s satisfaction in three key
wealth, their buying appetites increased. The challenge areas—long and healthy life in terms of life
is how to identify which consumers in which countries expectancy; access to quality education equally;
are likely to become new customers. Managers focus on and a decent, livable standard of living in the
globally standard statistics as one set of criteria to form of income.
understand the stage of development of any country that
they’re exploring for business. “Global The HDI is a summary composite index that measures a
Economies,” Culture Quest Global Business Multimedia country’s average achievements in three basic aspects
Series (New York: Atma Global, 2010). of human development: health, knowledge, and a decent
standard of living. Health is measured by life
Statistics Used in Classifications expectancy at birth; knowledge is measured by a
combination of the adult literacy rate and the combined
Gross Domestic Product primary, secondary, and tertiary gross enrollment ratio;
- is the value of all the goods and services and standard of living by (income as measured by) GDP
produced by a country in a single year. Usually per capita (PPP US$).
quoted in US dollars, the number is an official In 1995, the UNDP introduced two new measures of
accounting of the country’s output of goods and human development that highlight the status of women
services. in each society.
GDP is often quoted on a per person basis. Per capita - Gender-related development index (GDI),
GDP is simply the GDP divided by the population of the measures achievement in the same basic
country. capabilities as the HDI does but takes note of
The per capita GDP can be misleading because actual inequality in achievement between women and
costs in each country differ. As a result, more managers men. The methodology used imposes a penalty
rely on the GDP per person adjusted for purchasing for inequality, such that the GDI falls when the
power to understand how much income local residents achievement levels of both women and men in a
have. This number helps professionals evaluate what country go down or when the disparity between
consumers in the local market can afford. their achievements increases. The greater the
gender disparity in basic capabilities, the lower a
Purchasing Power Parity country’s GDI compared with its HDI. The GDI is
 simply the HDI discounted, or adjusted In general, the developed world encompasses Canada,
downwards, for gender inequality. the United States, Western Europe, Japan, South Korea,
- Gender empowerment measure (GEM) is a Australia, and New Zealand.
measure of agency. It evaluates progress in
advancing women’s standing in political and The United States
economic forums. It examines the extent to Geographically, the United States is the fourth-largest
which women and men are able to actively country in the world—after Russia, China, and Canada.
participate in economic and political life and take It sits in the middle of North America, bordered to the
part in decision making. While the GDI focuses north by Canada and to the south by Mexico. With a
on expansion of capabilities, the GEM is history steeped in democratic and capitalist institutions,
concerned with the use of those capabilities to values and entrepreneurship, the United States has
take advantage of the opportunities of life. been the driver of the global economy since World War
In 1997, UNDP added a further measure—the human II.
poverty index (HPI). The US economy accounts for nearly 25 percent of the
Human poverty index (HPI). global gross domestic product (GDP). Recently, the
severe economic crisis and recession have led to
- is a composite index that uses indicators of the double-digit unemployment and record deficits.
most basic dimensions of deprivation: a short life Nevertheless, the United States remains a global
(longevity), a lack of basic education economic engine, with an economy that is about twice
(knowledge), and a lack of access to public and as large as that of the next single country, China. With
private resources (decent standard of living). an annual GDP of more than $14 trillion, only the entire
European Union can match the US economy in size.
There are two different HPIs—one for developing
countries (HPI-1) and another for a group of select In recessions, the government and the business
high-income OECD (Organization for Economic and community tend to respond swiftly with measures to
Development) countries (HPI-2), which better reduce costs and encourage growth. Americans often
reflects the socioeconomic differences between the speak in terms of bull and bear markets. A bull
two groups. HPI-2 also includes a fourth indicator market is one in which prices rise for a prolonged period
that measures social exclusion as represented by of time, while a bear market is one in which prices
the rate of long-term unemployment. steadily drop in a downward cycle.

The Developed World Another trend that has gained much media attention is
outsourcing—subcontracting work, sometimes to
Many people are quick to focus on the developing foreign companies. It’s now quite common for companies
economies and emerging markets as offering the of all sizes to pay outside firms to do their payroll,
brightest growth prospects. And indeed, this is often provide telecommunications support, and perform a
the case. However, you shouldn’t overlook the range of operational services. This has led to a growth in
developed economies; they too can offer growth small contractors, often operating out of their homes,
opportunities, depending on the specific product or who offer a variety of services, including advertising,
service. The key is to understand what developed public relations, and graphic design.
economies are and to determine their suitability for a
company’s strategy. European Union

Developed economies Today, the European Union (EU) represents the

monetary union of twenty-seven European countries.
- also known as advanced economies, are
characterized as postindustrial countries— One of the primary purposes of the EU was to create a
typically with a high per capita income, single market for business and workers accompanied by
competitive industries, transparent legal and a single currency, the euro. Internally, the EU has made
regulatory environments, and well-developed strides toward abolishing trade barriers, has adopted a
commercial infrastructure. Developed countries common currency, and is striving toward convergence of
also tend to have high human development living standards. Internationally, the EU aims to bolster
index (HDI) rankings—long life expectancies, Europe’s trade position and its political and economic
high-quality health care, equal access to power. Because of the great differences in per capita
education, and high incomes. In addition, these income among member states (i.e., from $7,000 to
countries often have democratically elected $79,000) and historic national animosities, the EU faces
governments. difficulties in devising and enforcing common policies.
The EU’s strengths also come from the formidable
strengths of some of its economic powerhouse international aid and defense programs and in regional
members. Germany is the leading economy in the industrial-development programs. By the late 1960s,
EU. Japan had the third-largest economy in the world.
However, Japan was no longer free from foreign
Spotlight on Germany influences. In one century, the country had gone from
Germany has the fifth-largest economy in the world, after being relatively isolated to being dependent on the rest
the United States, China, Japan, and India. With a of the world for its resources with an economy reliant on
heavily export-oriented economy, the country is a leading trade.
exporter of machinery, vehicles, chemicals, and In the post–World War II period, Japanese politics have
household equipment and benefits from a highly skilled not been characterized by sharp divisions between
labor force. It remains the largest and strongest liberal and conservative elements, which in turn have
economy in Europe and the second most-populous provided enormous support for big business. The Liberal
country after Russia in Europe. Democratic Party (LDP), created in 1955 as the result of
The country has a socially responsible market economy a merger of two of the country’s biggest political parties,
that encourages competition and free initiative for the has been in power for most of the postwar period. The
individual and for business. The Grundgesetz (Basic LDP, a major proponent of big business, generally
Law) guarantees private enterprise and private property supports the conservative viewpoint. The “Iron Triangle,”
but stipulates that these rights must be exercised in the as it is often called, refers to the tight relationship among
welfare and interest of the public. Germany’s economic Japanese politicians, bureaucrats, and big business
development has been shaped, in large part, by its lack leaders.
of natural resources, making it highly dependent on Japan’s post–World War II success has been the result
other countries. This may explain why the country has of a well-crafted economic policy that is closely
repeatedly sought to expand its power, particularly on its administered by the government in alliance with large
eastern flank. businesses. Prior to World War II, giant corporate
Since the end of World War II, successive governments holding companies called zaibatsu worked in
have sought to retain the basic elements of Germany’s cooperation with the government to promote specific
complex economic system (the Soziale Marktwirtschaft). industries. At one time, the four largest zaibatsu
Notably, relationships between employer and employee organizations were Mitsui, Mitsubishi, Sumitomo, and
and between private industry and government have Yasuda. Each of the four had significant holdings in the
remained stable. Over the years, the country has had fields of banking, manufacturing, mining, shipping, and
few industrial disputes. foreign marketing. Policies encouraged lifetime
employment, employer paternalism, long-term
Japan relationships with suppliers, and minimal competition.
Lifetime employment continues today, although it’s
Located off the east coast of Asia, the Japanese
coming under pressure in the ongoing recession. This
archipelago consists of four large islands—Honshu,
policy is often credited as being one of the stabilizing
Hokkaido, Kyushu, and Shikoku—and about four
forces enabling Japanese companies to become global
thousand small islands, which when combined are equal
powerhouses.
to the size of California.
The zaibatsus were dismantled after World War II, but
The American occupation of Japan following World War
some of them reemerged as modern-day keiretsu, and
II laid the foundation for today’s modern economic and
many of their policies continue to have an effect on
political society. The occupation was intended to
Japan. Keiretsu refers to the intricate web of financial
demilitarize Japan, to fully democratize the government,
and nonfinancial relationships between companies that
and to reform Japanese society and the economy. The
virtually links together in a pattern of formal and informal
Americans revised the then-existing constitution along
cross-ownership and mutual obligation. The keiretsu
the lines of the British parliamentary model. The
nature of Japanese business has made it difficult for
Japanese adopted the new constitution in 1946 as an
foreign companies to penetrate the commercial sector. In
amendment to their original 1889 constitution. On the
response to recent global economic challenges, the
whole, American reforms rebuilt Japanese industry and
government and private businesses have recognized the
were welcomed by the Japanese. The American
need to restructure and deregulate parts of the economy,
occupation ended in 1952, when Japan was declared an
particularly in the financial sector. However, they have
independent state.
been slow to take action, further aggravating a
As Japan became an industrial superpower in the 1950s weakened economy.
and 1960s, other countries in Asia and the global
It’s the world’s largest importer of numerous raw
superpowers began to expect Japan to participate in
materials including coal, copper, zinc, and lumber.
Despite a shortage of arable land, Japan has gone to telephone infrastructure was more costly and time-
great lengths to minimize its dependency on imported consuming for governments, and consumers opted for
agricultural products and foodstuffs, such as grains and the faster and relatively cheaper option of cell phones.
beef. Agriculture represents 1.6 percent of the economy.
The country’s chief crops include rice and other grains, Major Developing Economies and Regions
vegetables, and fruits. Japanese political and economic The Middle East
protectionist policies have ensured that the Japanese
remain fully self-sufficient in rice production, which is The Middle East presents an interesting challenge and
their main staple. opportunity for global businesses. Thanks in large part to
the oil-dependent economies, some of these countries
The Developing World are quite wealthy.
The developing world refers to countries that rank While the income level suggests a strong opportunity for
lower on the various classifications from Section 4.1 global businesses, the inequality of access to goods and
"Classifying World Economies". The residents of these services, along with an inadequate and uncompetitive
economies tend to have lower discretionary income to local economy, present both concerns and opportunities.
spend on nonessential goods (i.e., goods beyond food, Many of these countries are making efforts to shift from
housing, clothing, and other necessities). Many people, being an oil-dependent economy to a more service-
particularly those in developing countries, often find the based economy. Dubai, one of the seven emirates in the
classifications limiting or judgmental. The intent here is UAE, has sought to be the premier financial center for
to focus on understanding the information that a global the Middle East. The financial crisis of 2008 has
business professional will need to determine whether a temporarily hampered, but not destroyed, these
country, including a developing country, offers an ambitions.
interesting local market. Some countries may perceive
the classification as a slight; others view it as a benefit. Spotlight on the UAE

Developing countries sometimes find that their Tucked into the southeastern edge of the Arabian
economies improve and gradually they become Peninsula, the UAE borders Oman, Qatar, and Saudi
emerging markets. Many developing economies Arabia. The UAE is a federation of seven states, called
represent old cultures and rich histories. Focusing only emirates because they are ruled by a local emir. The
on today’s political, economic, and social conditions seven emirates are Abu Dhabi (capital), Dubai, Al-
distorts the picture of what these countries have been Shāriqah (or Sharjah), Ajmān, Umm al-Qaywayn, Ras’al-
and what they might become again. This category hosts Khaymah, and Al-Fujayrah (or Fujairah). Dubai and Abu
the greatest number of countries around the world. Dhabi have received the most global attention as
commercial, financial, and cultural centers.
Developing economies typically have poor, inadequate,
or unequal access to infrastructure. The low personal The seven emirates merged in the early 1970s after
incomes result in a high degree of poverty, as measured more than a century of British control of their defense
by the human poverty index (HPI). These countries, and military affairs. Thanks to its abundant oil reserves,
unlike the developed economies, don’t have mature and the UAE has grown from an impoverished group of
competitive industries. Rather, the economies usually desert states to a wealthy regional commercial and
rely heavily on one or more key industries—often related financial center in just thirty years. Its oil reserves are
to commodities, like oil, minerals mining, or agriculture. ranked as the world’s seventh-largest and the UAE
Many of the developing countries today are in Africa, possesses one of the most-developed economies in
parts of Asia, the Middle East, parts of Latin America, West Asia.
and parts of Eastern Europe.
A key issue for the UAE is the composition of its
Developing countries can seem like an oxymoron in residents and workforce. The UAE is perhaps one of the
terms of technology. In daily life, high-tech capabilities in few countries in the world where expatriates outnumber
manufacturing coexist alongside antiquated the local citizens, or nationals. In fact, of the total
methodologies. Technology has caused an evolution of population of almost 5 million people, only 20 percent
change in just a decade or two. For example, twenty are citizens, and the workforce is composed of
years ago, a passerby looking at the metal shanties on individuals from 202 different countries. As a result, the
the sides of the streets of Mumbai, India, or Jakarta, UAE is an incredible melting pot of cultural, linguistic,
Indonesia, would see abject poverty in terms of the living and religious groups. Migrant workers come mainly from
conditions; today, that same passerby peering inside the the Indian subcontinent: India, Pakistan, Bangladesh,
small huts would see the flicker of a computer screen and Sri Lanka as well as from Indonesia, Malaysia, the
and almost all the urban dwellers—in and around the Philippines, and other Arab nations. A much smaller
shanties—sporting cell phones. Installing traditional number of skilled managers come from Europe,
Australia, and North America. While technically the mass disease and political instability. Developing
diverse population results in a higher level of religious countries need to improve their education systems and
diversity than neighboring Arab countries, the UAE is an create a strategy to begin their transition to the global
Islamic country. emerging market. Companies from developed and
emerging markets should play an important role in this
Africa process. Companies from emerging markets are
For the past fifty years, Africa has been ignored in large especially crucial, as they have a great deal of
part by most global businesses. Initial efforts that experience operating in conditions of non-developed
focused on access to minerals, commodities, and economies.
markets have given way to extensive local corruption, While developing countries comprise the largest
wars, and high political and economic risk. category, it’s important to remember that there are wide
Spotlight on Nigeria differences between the nations in this classification. If a
company wants to stay ahead of the competition, it must
Located in West Africa, Nigeria shares borders with the be able to identify those countries ripe for development.
Republic of Benin, Chad, Cameroon, and Niger. Its Early entrance into these markets helps create first-
southern coast lies on the Atlantic Ocean. Nigeria is mover advantage in terms of brand recognition, forging
Africa’s most populous country and its second largest essential relationships with the government and the
economy. private sector, and harnessing any early-stage cost
advantages. First-mover advantage refers the benefits
Since its independence from the United Kingdom in
that a company gains by entering into a market first or
1960, Nigeria has seen civil war, ethnic tensions and
introducing a new product or service before its
violence, and military rule. Although recent elections
competitors.
have been marred by violence and accusations of voter
fraud, Nigeria is technically experiencing its longest What Exactly Is an Emerging Market?
period of civilian government since its independence.
However, Nigeria remains a fractious nation, divided On September 18, 2008, the Economist argued that the
along ethnic and religious lines. term emerging market is dated.

The economy of Nigeria is one of the largest in the The term “emerging markets” dates back to 1981,
world, with GDP (PPP) at $341 billion. However, on a per recalls the man who invented it, Antoine van Agtmael.
capita basis, the country ranks at a dismal 183rd in the He was trying to start a “Third-World Equity Fund” to
world, with a per capita GDP (PPP) at just $2,300. invest in developing-country shares, but his efforts to
Seventy percent of its population remains below the attract money were constantly rebuffed. “Racking my
poverty line, and the country ranks at 142nd on the brain, at last I came up with a term that sounded more
human development index (HDI) rankings for 2010. positive and invigorating: emerging markets. ‘Third world’
Despite the low quality of life rankings for the country, suggested stagnation; ‘emerging markets’ suggested
Nigeria’s population of more than 152 million make it an progress, uplift and dynamism.”
interesting long-term prospect for global businesses, The definition of an emerging market is complex and
particularly as economic conditions enable more inconsistent.
Nigerians to achieve middle-income status.
The application and interpretation of this information
How Do Developing Countries Become Emerging varies depending on who is doing the analysis—a
Markets? private sector business, the World Bank, the
Typically, the factors that result in the classification of International Monetary Fund (IMF), the World Trade
many countries as developing economies are the same Organization (WTO), the United Nations (UN), or any
ones that—once addressed and corrected—enable number of global economic, political, and trade
these countries to become emerging markets. organizations. The varying statistics, in turn, produce a
changing number of countries that “qualify” as emerging
Developing the local commercial infrastructure and markets. For many businesspeople, the definition of an
reducing trade barriers attract foreign businesses. emerging market has been simply a country that was
Educating the population equally and creating a healthy once a developing country but has achieved rapid
domestic workforce that is both skilled and relatively economic growth, modernization, and industrialization.
cheap is another incentive for global business
investment. As a leading economic and strategic thinker in the area
of emerging markets, Kvint concludes from his research
Unlike emerging markets, developing and that there are several major characteristics of
underdeveloped countries still need special attention emerging markets, which create “a comfortable and
from international aid agencies to prevent starvation, attractive environment for global business, foreign
investment and international trade. Based on my study, market sector that is outgrowing government control and
an emerging market country can be defined as a the inability of that market to function efficiently due to
society transitioning from a dictatorship to a free market- continued influence by the state on production and
oriented economy, with increasing economic freedom, prices.
gradual integration within the global marketplace, an
expanding middle class, improving standards of living In 1979, China instituted economic reforms, established
and social stability and tolerance, as well as an increase “special economic zones,” and opened its economy to
in cooperation with multilateral institutions. foreign investments and companies. This change in
attitude brought remarkable changes to the socialist
In April 2010, the chief of HSBC, the largest bank in market economy, resulting in improved living standards
Europe, forecasted a change for the next ten years in and new social attitudes. As local provinces have
which six new countries (the CIVETS: Colombia, benefited from foreign investment, particularly in the
Indonesia, Vietnam, Egypt, Turkey and South Africa) south, central economic control has weakened. Since
will replace the BRIC countries (Brazil, Russia, India 1978, industrial output has increased more than sixfold,
and China) of the last decade. in large part due to foreign manufacturers and investors
who have established operations in China (usually as
In addition, to illustrate how experts debate the next joint ventures with corporations owned or influenced by
group of emerging-market countries, the Goldman Sachs the Chinese government but also with some private-
economist who created the term BRIC in 2001 in a sector companies).
report for the investment bank has added a new
group, MITSK. A January article in the British Financial Spotlight on India
Times newspaper notes, “Jim O’Neill, who coined the
term ‘Bric’, is about to redefine further emerging India is officially called the Republic of India and is also
markets. The chairman of Goldman Sachs Asset known as Hindustan or Bharat. As the seventh-largest
Management (until end of 2010) plans to add Mexico, country in the world, India spans 1.267 million square
South Korea, Turkey and Indonesia into a new grouping miles: it’s about one-third the size of the United States.
with the Brics—Brazil, Russia, India and China—that he India shares borders in the northwest with Pakistan; in
dubs ‘growth markets. the north with China, Bhutan, and Nepal; and in the east
with Bangladesh and Myanmar (Burma). The Indian
Key Emerging Markets territory also extends to the Andaman and Nicobar
Islands in the Bay of Bengal as well as to Lakshadweep
Asia in the Arabian Sea.
Spotlight on China Prior to the mid-1980s, the country pursued a policy of
Located below Russia on the western seaboard of the socialism with the state planning and controlling many
Pacific Ocean, China is about as large as the continent sectors of the economy. Foreign investment had been
of Europe and slightly larger than the United States. It is discouraged except in the area of technology transfers.
the third-largest country in the world after Russia and Since the early 1990s, India has embarked on an
Canada. economic liberalization scheme that has proven
beneficial to the country.
For more than fifty years, China has had a centrally
planned economy in which the state controlled most of In 1991, India was on the brink of defaulting on its
the commercial activity. Under Mao Zedong’s over forty- foreign debt. The government responded with a series of
year leadership, the Chinese government kept a firm grip successful measures to initiate widespread economic
on the country’s economic activity. That grip has been reforms, including reducing export and import barriers,
loosening since the 1980s as a result of Deng Xiaoping’s dismantling some of its swollen bureaucracy, making the
reforms, which introduced some strong capitalist currency partially convertible, and eliminating the black
characteristics into China’s centrally planned economy. market for foreign currency and gold. Efforts were also
Since the early 1980s, the Chinese economy has been made to privatize or increase the efficiencies of
in transition away from central planning and toward a unprofitable state companies. Finance Minister
market-driven economy. In today’s model, market forces Manmohan Singh (who later became prime minister)
work in conjunction with state ownership and was successful in beginning to dismantle the “License
intervention. This system is commonly referred to as “a Raj,” an intricate system of government economic
socialist market economy with Chinese characteristics.” control through permits and quotas. Various policies
The government now realizes that it can’t provide all the initiated by the government provided a larger role for the
resources needed to fuel the economy by itself and that private sector and encouraged foreign investment. As a
the private sector has a major role to play in providing result, investment increased, though at much lower
investment—and jobs. Today, China’s economy is levels than in other Asian countries.
caught between two opposing forces—a burgeoning
Since the 1990s, central government intervention, spread over the western part of Russia. The border
licensing, and regulation have decreased, as have between Europe and Asia runs down the west side of the
bureaucratic inefficiencies. India boasts an established Ural Mountains, about 807 miles east of Moscow.
free-market system; a sophisticated industrial and
manufacturing base; and a huge pool of skilled, low-to- Rising to power in the 1980s, General Secretary Mikhail
moderate-cost workers, including professional Gorbachev was the first leader to end repressive political
managers. Economic gains, particularly as a result of controls and to suffer nationalist movements in the
further integration into the global economy, have constituent republics. Gorbachev set the forces in action
provided improved the standard of living for all that would overturn the Communist regime and seal his
communities. The country’s 2.1 percent annual own expulsion. He relaxed government control on the
population growth ensures that its population will media and the Russian culture, implementing a policy
surpass China’s within the next decade and remains a of glasnost, or openness and candor. Gorbachev also
significant problem for the government, as limited sought perestroika (i.e., restructuring) of the economy
resources threaten the distribution of economic reform and political system that preserved some of the more
benefits. positive elements of socialism. Gorbachev gained
international fame as the head of the Soviet bloc who
The country is rich in natural resources, such as rubber, helped put an end to the Cold War. To reach a common
timber, chromium, coal, iron, manganese, copper ore, understanding, Gorbachev met repeatedly with US
petroleum, bauxite, titanium, mica salt, limestone, and Presidents Ronald Reagan and George Bush, helping
gypsum. The country is one of the world’s leading broker arms-reduction agreements.
producers of iron ore, and coal accounts for nearly 40
percent of all mined minerals. India also has reserves of The Berlin Wall fell in 1989, and Gorbachev did nothing
natural gas and oil, but it remains a net importer of crude to stop it. Sensing weakness, republic parliaments all
oil because its domestic generation is insufficient to meet over the Soviet bloc asserted their sovereignty; a few
demand. In addition, India has deposits of precious even went so far as to assert complete independence. In
stones, including diamonds, emeralds, gold, and silver. 1991, when Gorbachev attempted to negotiate with the
Cut diamonds are one of India’s biggest exports. republics, alarmed Soviet leaders attempted a coup. The
coup failed, but Gorbachev had lost his political cache to
The growth of Indian industry, which accounts for about rival Boris Yeltsin, who succeeded Gorbachev as the
28.2 percent of its GDP and 14 percent of employment, hero of the era. This changed political, economic, and
has resulted in widespread improvements and diversity military dynamics around the world.
in the country’s manufacturing base. The major
manufacturing industries include cotton and jute textiles; The economic and political challenges the newly
iron, steel, and other basic metals; petrochemicals; independent country faced were considerable. The
electrical machinery and appliances; transport inefficiency of the Soviet government had left its stamp
equipment; chemicals; cement; fertilizers; software; on every area of the economy. Russia’s industries had to
medicines and pharmaceuticals; and food products. The update their technology, retrain their workers, and cut
power, electronics, food processing, software, back their workforces. Russians were largely unfamiliar
transportation equipment, and telecommunications with Western ways of doing business and found it
industries are developing rapidly. The financial sector, difficult to make the changes mandated by capitalism.
including banking and insurance, is well developed, Unemployment soared, and the plight of most Russians
although efforts to modernize it are underway. grew increasingly desperate.

India’s technology firms have gained global recognition. In this climate of desperation, Yeltsin’s government
One of the best known is Infosys. Founded in 1981 by instituted a so-called shock therapy program intended
seven Indian entrepreneurs, Infosys today is a to galvanize the economy by reducing barriers to free
NASDAQ-listed global consulting and information trade. These policies, while well intentioned, produced
technology services company—with $5.4 billion in sweeping inflation that almost completely devalued
revenues. Russian currency. Western newspapers were plastered
with images of Russians waiting in long lines, carrying
Europe bags of devalued bills. In an attempt to address the
crisis, the government introduced a privatization
Spotlight on Russia program, which resulted in rampant cronyism and theft
Russia is the largest country in the world, stretching of state property.
across two continents and eleven time zones. Eleven As quality of life took a precipitous drop for the majority
seas and two oceans wash the banks of this 6.6 million of the Russian population, the gap between the rich and
square mile territory. The south and southeast of the poor broadened dramatically. But crime lords weren’t the
country are covered with mountains, and the central part only ones profiting from the gap, the privatization of
is a plain, furrowed with rivers. Around 7,000 lakes
government assets enabled a few well-placed individuals Initially a refueling station for Dutch sailors traveling to
to turn those assets into their private property. the East, South Africa gradually developed an
The nouveau riche, as this class of Russians was agricultural sector, based on fruit, wine, and livestock
called, tended to be ostentatious, and the construction of production, along the coast of the Cape of Good Hope.
elaborate mansions at a time when ordinary Russians All of this changed dramatically with the discovery of
were suffering, outraged the citizens’ sense of justice. minerals in the late nineteenth century. Subsequently,
the country emerged as the leading manufacturing and
Since 1991, Russia has struggled to establish a market industrial economy on the African continent.
economy. The country “has undergone significant
changes since the collapse of the Soviet Union, moving Surging prices for gold and the high demand for base
from a globally-isolated, centrally-planned economy to a metals and other mineral products propelled the
more market-based and globally-integrated economy. country’s economy after World War II. South Africa was
fortunate to have this strong economic base when
Russian industry is primarily split between globally international sanctions were applied in the 1970s and
competitive commodity producers—in 2009 Russia was 1980s.
the world’s largest exporter of natural gas, the second
largest exporter of oil, and the third largest exporter of Nonetheless, import substitution and sanction busting
steel and primary aluminum—and other less competitive were necessary for economic survival, and the country
heavy industries that remain dependent on the Russian as a whole became increasingly isolated. A handful of
domestic market. This reliance on commodity exports massive corporations controlled most of the country’s
makes Russia vulnerable to boom and bust cycles that wealth and provided the majority of goods and services.
follow the highly volatile swings in global commodity The national government controlled those sectors of the
prices. The government since 2007 has embarked on an economy seen as critical to the national interest of the
ambitious program to reduce this dependency and build apartheid state, including transportation,
up the country’s high-technology sectors but with few telecommunications, and the media.
results so far. A revival of Russian agriculture in recent
years has led to Russia shifting from being a net South Africa practiced legal racial segregation, under
grain importer to a net grain exporter. Russia has a the apartheid system. In the 1970s, worldwide
highly industrialized and agrarian economy. Almost ten disapproval of apartheid led to economic sanctions
million people are engaged in the agriculture industry. against South Africa. An international oil embargo was
Along with its vast spaces, Russia has always been imposed in 1974, and the country was suspended from
known for its amazing resources. The country produces participating in the United Nations. “Disinvestment (or
30 percent of the world’s nonferrous, rare, and noble divestment) from South Africa was first advocated in the
metals; 17 percent of the world’s crude oil; 30 percent of 1960s, in protest of South Africa’s system of Apartheid,
natural gas; and it holds 40 percent of the world’s known but was not implemented on a significant scale until the
natural gas deposits. Today, agriculture accounts for 4.7 mid-1980s. The disinvestment campaign…is credited as
percent of the economy, industry represents 34.8 pressuring the South African Government to embark on
percent, and services total 60.5 percent (based on a negotiations ultimately leading to the dismantling of the
2009 estimate). apartheid system.

RUSAL is one of Russia’s largest privately held South Africa has emerged as a free-market economy
companies. Headquartered in Moscow, RUSAL is the with an active private sector. The country strives to
world’s largest aluminum company and accounts for develop a prosperous and balanced regional economy
almost 11 percent of the world’s primary aluminum that can compete in global markets. As an emerging-
output and 13 percent of the world’s alumina production. market country, South Africa relies heavily on industrial
The company has aggressively used a strategy of global imports and capital. Specialty minerals and metals,
mergers and acquisition to grow its operations, which machinery, transport equipment, and chemicals are
now cover nineteen countries and five continents. important import sectors.

Africa South Africa has one of the highest union-membership

rates in the world—a total of 3.2 million workers, or 25
Spotlight on South Africa percent of the employed workforce. Although the labor
movement has a reputation for militancy, strikes are
South Africa makes up the southern portion of the virtually unheard of since the job market has become so
continent of Africa, from the Atlantic Ocean in the west to tight, and labor relations have generally improved.
the Indian Ocean in the east. With a total land area of
750,000 miles, including the Prince Edward Islands, the Latin America
country is the twenty-seventh largest in the world, or
approximately the same size as France, Spain, and Spotlight on Brazil
Portugal combined.
With nearly 3.4 million square miles in area, Brazil is Central Bank stopped defending the real and let the
about the size of the continental United States and the currency float freely.
fifth-largest country in the world. It covers nearly half of
the South American continent, and, with the exception of Since 2003, Brazil has steadily improved
Chile and Ecuador, it shares a border with every country macroeconomic stability, building up foreign reserves,
in South America. reducing its debt profile by shifting its debt burden
toward real-denominated and domestically held
Brazil remains Latin America’s largest market, the instruments, adhering to an inflation target, and
world’s fifth-most-populous country, and the world’s committing to fiscal responsibility. Brazil has also
tenth-largest economy in GDP terms. Government experienced the global “recession, as global demand for
policies for disinflation and income support programs for Brazil’s commodity-based exports dwindled and external
the poorest families have contributed to a significant credit dried up. However, Brazil was one of the first
reduction in poverty rates and income inequality in emerging markets to begin a recovery.”
recent years. However, poverty remains a stubborn
challenge for Brazil. Researching the Local Market

Brazil’s economic history has progressed in cycles, each The following are key steps to follow when researching a
focused on a single export item. Soon after the arrival of new market:
the first Europeans, wood was the hot commodity. In the 1. Develop a relationship with your home country’s
sixteenth and seventeenth centuries, the scramble was embassy and commercial service office in the
for sugar. Eighteenth-century traders lusted for gems, target country. Many governments realize that
gold, and silver; and finally, in the nineteenth and large companies have multiple options and that
twentieth centuries, coffee was king. Rubber had its day the companies most likely to need their services
as well. Also of economic importance during these and insight are smaller or midsize. Some offices
cycles were cattle and agriculture, though they mainly charge modest fees for researching lists of
served the domestic market. potential partners or distributors. Whether you
Industry came to Brazil in the mid-1800s. The need this list or not, the added insight from an
depression of 1929 threw a wrench in development, but experienced country expert can be quite useful.
the setback was only temporary; during subsequent These commercial service officers will be able to
decades, expansion was steady. Growth was especially tell you about the track records of other
healthy between the 1960s and the oil crisis of 1979. It companies within a specific industry or with
wasn’t until the 1980s, when interest rates busted the specific distributors. Even learning about the
charts, that the economy began its descent. The flow of lack of other companies entering the market may
foreign and domestic capital slowed to a trickle, be helpful, as you may identify the reasons for
devaluations played havoc with the national currency, their lack of success or interest.
and foreign companies initiated debilitating cutbacks or 2. Contact the target country’s commercial office
left the country altogether. Severely handicapped in its within its embassy or consulate in your home
ability to invest, Brazil plunged into a period of runaway country. If the country doesn’t have a trade
inflation and negative growth rates. To this day, the office, contact the respective diplomatic offices.
1980s are referred to as “the lost decade.” Even tourist offices can provide you with general
In the 1990s, the government honed in on three information. Most country offices are eager to
economic goals: (1) trade reform, (2) stabilizing the promote their local economies, even on a small
economy, and (3) building the country’s relationship with scale. If you’re considering sourcing from the
the global financial community. In 1994, Minister of country, they’re usually even more eager to
Finance Fernando Henrique Cardoso (often called FHC), provide you with resources and lists of potential
launched the Real Plan, which inspired the name for companies as partners or manufacturers.
Brazil’s currency (i.e., the real). The plan, with its 3. Contact the chamber of commerce for that
emphasis on the need for a strong currency, high interest country in your home country. These are
rates, strict limits on government spending, and an different from the commercial office noted in the
opening up of the economy, touched off a boom in Brazil. first point, as they tend to be funded by private-
Foreign capital began pouring in. Brazil’s economic sector companies. Many smaller or still-
wizards outwitted the forces that wracked Mexico in the emerging countries may not have a chamber of
mid-1990s as well as Southeast Asia in 1997 and 1998. commerce office yet. You may also want to
Their main premise was a strong (i.e., increasingly contact your home nation’s chamber of
overvalued) real and spiraling interest rates. However, commerce in the foreign country of interest. For
this premise lost validity in January 1999, when the example, in the United States, there are two
types of chambers: American Chambers of
 Commerce (located in numerous countries) and be obtained
binational chambers of commerce offices at http://www.ita.doc.gov or http://www.usatrade.
(located in the United States). com. Government trade offices also provide an
export program guide that lists resources
The primary difference between the two types of available
chambers is their location. Both organizations seek to at http://www.ita.doc.gov/exportamerica/AskThe
facilitate business interactions between the United TIC/03_02qa.html.
States and the respective country, often collaborating on
specific projects as well as lobbying governments for 5. Find out if your home state or city has a “sister”
protection of US business interests. The American state/city relationship with specific countries and
Chambers of Commerce Abroad (AmChams) are if promotional opportunities are available.
affiliated with the US Chamber of Commerce and tend to
focus on American business interests in the target 6. If possible, conduct a fact-finding trip to your
country. “American Chambers of Commerce Abroad,” US country of interest. Participate in any delegation
Chamber of Commerce, A list of overseas AmChams or trade mission that the US Department of
can be obtained by contacting the United States Commerce, your local chamber of commerce
Chamber of Commerce in Washington, DC office, or other trade organizations sponsor.
“International,” Always review the agenda and list of meetings
carefully. Make sure not only that they fit the
The binational chambers of commerce located in the needs of your industry and company but also
United States promote both US business interests and that the people are decision makers and not just
other countries’ interests in the United States. It’s political figureheads.
important to note that these are not the International
Chamber of Commerce or its World Chambers 7. Attend trade shows in the country or region of
Federation division, whose mission is to create a interest. Trade shows have become particularly
business and legal environment that encourages global popular for smaller companies, as many
trade. Instead the binational chambers of commerce are organizers offer smaller booth options with lower
focused on bilateral issues. For example, the American fees or allow companies to share both spaces
Indonesian Chamber of Commerce is located in New and costs. In many cases, country trade offices
York. also facilitate trade trips to a target country or
trade show. The delegation often shares
These binational chambers tend to be run by executive exhibition space to minimize cost. Most of these
directors who really know the countries well, have shows are organized by the specific industries;
excellent networks of US and domestic companies, and schedules are available online and through the
can supply needed information or facilitate business country’s trade or diplomatic offices.
introductions. Offices run by people who have been in-
country for a lengthy period of time will more likely be 8. Be creative. Find common connections with
knowledgeable and full of useful information. Both companies in the country. Also seek connections
AmChams and binational organizations tend to be with individuals who have experience doing
dominated by large, well-established companies, but business in the country or with the specific
they can be very useful in research and information company with which you are dealing (e.g., a
gathering as well as in obtaining introductions to company or individual that you interact with that
possible partners. Again, the strength of any of these also does business in your target country). Talk
organizations usually rests with the executive director. to natives from the country that live in your home
nation. Even if there is no direct business
Chambers of commerce are also great places to get in application for the information you glean from
touch with others who are experienced in dealing with a such sources, you will be able to gather a great
country, either as advisors, consultants, or hires. Utilize deal of cultural and social information that you
the expatriate community located within that country, as may be able to put to good use.
well as those who have recently returned to your home
country, as sources for valuable information about the 9. Approach vendors and clients. If you are hoping
country and its business climate and practices. to win local business through government
contracts, you may want to approach larger
4. Contact the US Department of Commerce’s vendors that are more likely to obtain the
International Trade Administration office in your overseas contracts. Many of them have blanket
state and in Washington, DC, or the respective government contracts and look to subcontract
trade office in your home country, and speak for specific goods and services. Further, they
with the desk officer for the country of interest. In often have a requirement to utilize small
the United States, general trade information can
 businesses, particularly those that are owned by
women or minorities.

The entire government-contracting industry is very time-

consuming and will require resources up front to
cultivate the necessary relationships and process the
required paperwork. Unless you’re sure that your
product or service is required or have established buying
relationships, it’s not the best first sales prospect given
the lengthy sales cycle. Many service companies start to
work in new markets through project contracts for
specific tasks and time periods. It can take longer to
build a sustainable business in a country, but the
projects allow you to learn about the country and its
business practices as well as identify local partners.
Most young companies initially choose to partner with a
local service firm rather than try to establish their own
office.

Recognize that some embassies, offices, and individual

officers are better able to assist you in your efforts. For
example, junior-ranking career people who have spent
more time in the local country are often more insightful
and knowledgeable than senior and politically appointed
officers with less in-country experience. Over time and
through research and references, you will learn which
officers and professionals have the most experience and
knowledge. As a safety measure, double-check all
information with at least two independent sources. Also,
be aware that the embassies in your home country may
differ in their degree of responsiveness to foreign
interest. Don’t automatically assume that the embassies
or trade representatives of the larger or more
economically advanced countries are more efficient or
helpful.