The Hidden Risks in Emerging Market

This essay discusses the risks faced by companies entering emerging markets, focusing on India. It covers issues such as bureaucratic delays, fluctuating currencies, and labor problems.

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THE HIDDEN RISKS IN EMERGING MARKET
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1THE HIDDEN RISKS IN EMERGING MARKET
The aim of this essay is to discuss the situations of the emerging markets which were
once unnoticed by the international business organizations, have now been explored. After the
globalization a huge change in the economy of the world has been seen which has marked
unconditional growth of the once under developed nations to the economic super powers like
China. Therefore, these emerging economic powers have been changing the understanding of
business now a days. The governments of these emerging countries are attracting the
multinational companies which used to limit their focus on the developed economies only. Now
these companies are entering these emerging markets and transforming themselves to fit in these
markets to gain competitive edge (Yip and Prashantham 2019). However, there are several issues
which can pose as the risks for these companies and may not accept these in doing business in
the local market. In such cases, these companies need to enhance their acceptability though
gaining more knowledge about the expectations of these emerging new markets otherwise they
will not be able to cope up successfully.
This essay will discuss the various types of issues which the companies from other
countries face while entering the emerging market of India and how much they can cope up with
these situations.
In the recent years due to globalisation, the economy of the countries continuously
changing. The developed countries have stagnant economy and not allowing the business to
grow sharply. this is the reason why a huge number of companies are trying to fuel their growth
by investing in the emerging markets around the world. There are lots of benefits for employing
this strategy. The developing countries by and large are promising access to the untapped and
new markets, high level of consumption, rapidly growing population especially the growing
middle class as well as access to the cheap labour and materials (Yadav, Chauhan and Pathak
2015). These markets are gaining more exposure as with every passing year the issues with the
international trade are increasing in the developed countries like America, the UK and other
developed European countries. The reasons are mainly the common currencies, trade agreements
and migration issues.
After globalisation the communication system has been developed hugely and the
cooperation among the countries have enhanced their process of finding new emerging markets.
The possibilities of expansion for the companies have become immense in such markets. Along
with this, the technological advancement has been creating total transformation in the business

2THE HIDDEN RISKS IN EMERGING MARKET
scenario of the world in which the developing countries are also taking same amount of interest.
This is creating positive impact on the global business in one hand and development of economy
of these developing nations on the other.
The emerging countries always help the business to spread in the market by providing
relaxation in the taxes or any other rigid regulations which the companies face while operating in
the existing markets (Dicken 2015). The emerging markets of India, China and other Asian
countries, Brazil, Australia have shown lucrative benefits for the global business corporations
like Starbucks, McDonald’s, Nike, Microsoft, Google and most importantly the manufacturing
industries. These emerging markets have developed buying power of the customers, constantly
rising standard of living, providing inexpensive yet skilled labours and all the other elements for
doing business along with important resources (Thite et al. 2016) . The international companies
which already have experience in entering a market and doing business for a long time in the
developed countries can easily expand in these emerging markets as they have all the techniques
known to face the challenges associated with the political, economic, technological and other
external factors.
It is important to note that the emerging markets along with providing several benefits
can bring significant perils. These problems in case of the emerging markets in India can include
the bureaucratic delays, fluctuating currencies, unanticipated expenses and labour issues when a
company enters this market. These issues are capable to turn a promising new company to lose
their proposition when it is incapable to act effectively or quickly (Dicken 2015). These factors
can intensely disrupt the best plans of the companies while the inter and emerging or advanced
economy. There are in the place of these factors which directly relates to the national
government course of action in the country (Tait et al. 2016). Some uncertain course of action
towards the stabilization of the financial meltdown in the country can affect the business truly.
The practices of elections and other political events, economic crisis and changing societal
attitudes can pose to be the risks for the business in this emerging market.
In order to do a successful venture in the market of India, researching the potential risks
is important. According to the data published by The World Bank, it is the second fastest
growing market in Asia in one hand and one if the most important economy in the eastern
hemisphere. The country has more than 1 billion of population that has made it to have an
exceptionally favourable climate for the foreign business investment. The gross domestic product

3THE HIDDEN RISKS IN EMERGING MARKET
of the country has grown to 7.2% in 2018-2019 FY (Export.gov 2019). Therefore, it can be
suggested that the growth will be sustained of eight to ten percent for next five years.
According to the data published by International Monetary Fund, the outlook projection
of India towards the end of the financial year 2019 will be as followed-
Countr
y
Estimate Projections April 2018
WEO
Projections
Estimate Projections
Years 2016 2017 2018 2019 2018 2019 2017 2018 2019
India 7.1 6.7 7.3 7.5 -0.1 -0.3 7.5 7.4 7.8
Figure 1. outlook projection of India by IMF
(Source: Imf.org 2019)
However, in considering the international trade with this country, the companies must not
only focus on the rewards but the risks also. The main issues which has been deciphered while
working in the Indian market so far, are the underqualified workforce, corruption in the
government and judicial system, lack of awareness of the cultural differences and resentment
from the native nation. These risks can be categorised in five categories which may include,
product risk, market risk, financial risk, team risk and execution risk.
According to the data published by the censusindia.gov.in (2019), the country has more
than 400 million employable people among which almost half percent work in the agriculture
sector in the rural areas (see figure 2). The manufacturing and service industry constitutes the
rest half portion. More than forty percent of these workers in the service sector as well as the
industries, are below twelfth grade reading level. This clearly limits different areas of the
overseas business and proves to be one important risk for these businesses.

4THE HIDDEN RISKS IN EMERGING MARKET
43%
24%
33%
Workforce across economic sectors 2017
Agriculture
Industry
Service
Figure 2. Workforce across economic sectors 2017
(Source: Censusindia.gov.in 2019)
The foreign companies which feel attracted to expand in the lucrative market of India,
may face the political risks as the corruption in the judicial and governmental system is high.
In this country, government corruption is nothing new or unique. Therefore, the companies
aiming to enter this market and started to explore the benefits on Indian market must be aware of
the instability and corruption in the administrative levels in order to secure their business
profitability. According to the news published by the times of India, the corruption rank of India
in the respect to the other countries, is 79 in 2017, which is however makes it clear that the
transparency in the Indian government is lower than expected (News 2019). This has reduced the
attraction of the foreign companies to enter this market. In addition to this, millions of cases have
backlogged in the Indian courts which take decades to be resolved. The issues of black market or
piracy of the products may affect the fame of the companies and finding the solution of such
issues are quite difficult. The government as indulge in corruption, most of he time overlooks the
black-market activities and accept them outright.
The legal risks in doing business in India is also higher than expected. The business in
India involves changing and unpredictable regulations in the country. The recent issues with
GST though which the government of India wanted to bring a huge change in the taxation system
of the country has affected the business both native as well as foreign companies a lot. These

5THE HIDDEN RISKS IN EMERGING MARKET
problems get intensified when the discrepancy of the states and the union becomes clear. The
states have their own set of laws and they also abide by the union laws. In such case, the
companies while entering the market of the country need to understand the regulations of the
regional government so also those of the union law. These regulations pose financial risk for the
companies expanding in the emerging market of India.
The factor of resentment from the native country also affect the business. For
example, the citizens of America for decades used to feel animosity against the Indian labours
working in their countries. This is due to the fact that the business organisations outsource to
India and other developing countries for their abundance of inexpensive labours (Paul and Mas
2016). This is the reason why the companies from the UK or US may face backlash from their
own native market as they do not use the domestic sources of labour. In addition to this, the
companies may face issues due to exchange in the currency rates. For example, as the figure 3
denotes, Indian currency value is lower than pound, dollar, yen and Euro. Moreover, the rate
value keeps on changing that may pose as risk for the business.
The country has Asia’s oldest stock market as well as vigorous regulatory system for the
debt and equities. Despite all these, the country does not have proper discipline at the
government level which is leading it to face the issues of inflation may create huge problem for
the companies both local as well as foreign. In addition to this, as the country has a welfare
government working for the weaker section of the communities, there are various policies of
providing subsidies to the rural poor in the agricultural sector, subsidies for fuel and food,
disproportionate raises of the state employees and pension system have led the economy of this
country from time (Paul and Mas 2016). In addition to this, the government’s decision of
demonetization of the currencies to check the black money flow in the market of the country, has
affected the foreign companies doing business in India market hugely. These are the reasons why
the foreign companies need to watch the exchange rates risks and interest rate risks carefully in
the market of India.

6THE HIDDEN RISKS IN EMERGING MARKET
Yen Rupee Yuan Brazilan
real Mexican
Peso New
Zealand
Dollar
Singapoe
Dollar
1
10
100
1000
Value
Figure 3. Currency value in comparison to USD
(Source: created by the author)
Along with these issues, the treaties of the Indian government with the other countries
like the US, China and the commonwealth countries. In terms of export, it has good connection
with all the SAARC countries but in terms of revenue, the commonwealth countries are some of
the most important partners of India. These are the reasons why the companies may get affected
if their native nation has animosity with the government of India. In such case, the companies do
not get any type of support from the administration.
Along with the political risks, the companies may face the issues associated with the
difference in culture of the country. The national culture according to the theory of Hofstede
determines the organisational culture of the companies. Hence the organiostioanl culture of a UK
based company will face issues in matching the working style which operating in the Indian
market. As different societies have their own unique culture, India is also not exception which
determines the business etiquette (News 2019). In this regard the figure 4 reveals the national
culture of India that can help the foreign companies to indulge in the researcher and gain more
knowledge about the Indian society and its culture. This is important to note that the proper
knowledge about the culture of the host market is important in every aspect (Gay 2016). This
gives the idea about the preference of the customers present in the market, intense understanding
of the supply chain of the country and methods to understand the job satisfaction process of the
employees.

7THE HIDDEN RISKS IN EMERGING MARKET
In case of India, the gap in the national and organizational culture is wide that the
companies from different region face enormous problems. Especially the companies having
western culture face it difficult to understand the preferences of the Indian customers in one hand
and the organizational cultures as being different completely from those of the culture of USA or
UK, conflicts among the employees in different level enhance day by day. Therefore, a risk
regarding human resource can intensely affect the growth of the company.
Power distance individualism masculinity Uncetianty
avoidance Long term
orientation Indulgence
0
10
20
30
40
50
60
70
80
90
77
48
56
40
51
26
Hofstede India
Figure 4. Hofstede culture India
(Source: created by the author)
The biggest business risks for the western companies in the emerging market of Australia
is the lack of preparation. Despite the fact that India provides huge rewards to the foreign
companies so that they can take time and understand the culture then utilise it properly. In many
cases, the companies think that they can create a quick money here that ultimately. As the human
resource plays a vital role in the execution and management of the companies, they need to take
more care of this segment if they want to expand their business in the foreign lands and maintain
the reputation (Lebedev et al. 2015). These connect the companies to get entangled in the
problems like team work and execution of the norms in the internal environment of the
organisation entered the new emerging market.
In such cases, the companies feel business couture to be frustrating as they may think that
the Indian culture will be similar to those of the Chines or other Asian countries which is not
actually. It has 23 official language and different culture in different states which make it more

8THE HIDDEN RISKS IN EMERGING MARKET
like a continent than a country. Therefore, the companies if do not have patience it cannot enter
this particular emerging market. Very few companies succeed without major setbacks in one
hand and others can experience some very serious surprises in spite of having the best
preparation.
In this regard it can be stated that the companies from the foreign lands aiming to cope up
with the cultures and scopes of the country many lose their own key talents. In this type of
competition, the talents are intense. Therefore, the team working in Indian branches if feel that
their corporate headquarters are not at all sympathetic to their unique worries and concerns,
become dissatisfied more readily (Goncalves, Alves and Arcot 2015). The teams consisting
Indian employees bounce around ideas for building products, introduce them in the market and
maintain their successful growth. This is the reason why the entrepreneurs must allow the teams
to do what is best fitted. In India, the companies need to invest people who take the
responsibility of the product and instil their sense of confidence to get the company across the
finish line.
Along with this, the risks related to the political instability, economic, legal and cultural
ones, the companies entering in the emerging market of India, need to follow some very
important facts so that they can effectively overcome any type of risks in future.
Firstly, the companies while introducing a product or itself in the market of India must
have proper preparation to discuss about the utility of the products. Based on the proper research
whether these products will be matching the needs of the customers in the market or not, the
explanation in support of the products will be easier for the entrepreneurs. In case the company
fails to point out the right opportunity in the marker in terms of product differentiation and
adaptation (Gaur and Delios 2015). However, this is a controllable risk which can be mitigated if
the product of the companies addresses the big market in the right time. It is imperative to know
the landscape, do the research and clearly articulate how the business fits within the context of
the landscape.
Finally, the knowledge of the customers’ preferences the companies will be able to point
out why, where and how the customer can buy related products. This is one of the most
important aspects for the companies while structuring the marketing strategies. The risk grows if
the companies do not identify the routes to market and possess ample understating of the time
and method of launching their products (Nair, Demirbag and Mellahi 2016). In addition to this

9THE HIDDEN RISKS IN EMERGING MARKET
the promotion method in the Indian market is completely different from that of the other
countries. As the culture determines the communication system, these can easily determine the
success of the business.
Therefore, it can be concluded that India as the most important emerging market has
grabbed the attention of companies reputed in different parts of the world. Due to the huge
market offered by India and the abundance of resources as well as inexpensive labours have
created positive impact on the business in this region. However, there are some political,
economic, legal and cultural factors which if not utilised properly, can destroy every success
factor. Based on the proper research and investigation of the market in India, the companies will
be able to gain proper knowledge about the demand based on which the companies will be laying
their strategies and work successfully.

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