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It’s no wonder that privately held and midsize businesses in the United States, Europe, and elsewhere are looking abroad to grow — emerging markets are leading the world’s growth, presenting significant opportunities for investors. In fact, the growth gap between emerging and fast-growing markets (EFGMs) and the world’s mature markets has never been wider. The countries outside North America, Western Europe, and Japan account for about only half of global GDP, but since 2007 have accounted for over $2 trillion worth of growth — far more than the $200 billion of the mature economies, according to Economist Intelligence Unit (EIU) figures.
At the same time, the risks of doing business in EFGMs are declining. Across a range of business risks — from inadequate infrastructure to hard-to-interpret laws and difficult-to-navigate bureaucracies — there are fewer uncertainties associated with doing business in most of those markets. The EIU’s Business Environment Index, which has tracked a detailed set of operational risks across 59 countries since 2002, shows sharp drops in risks pertaining to economic volatility, political instability, infrastructure (from ports and roads to broadband connections), and banking systems.
This paper, which draws from interviews and a survey of executives in privately held businesses in North America and Western Europe, explores how private companies are turning to emerging and fast-growing markets that, in the recession year of 2009, contributed to only half of the world’s GDP but accounted for all of its growth.
None of the executives interviewed for this research regret their decision to move into the EFGMs. All say that the more experience abroad they gain, the more the perceived risk of doing business there diminishes for them. And while their near-term impetus for investing away from home might be immediate growth via market penetration in countries with a rapidly expanding middle class, the executives we spoke with also expect to reap the longer term benefit of greater global competitiveness, with more opportunities to outsource and to develop a lower cost base as the world’s economic center of gravity moves to the south and east.