Emerging markets: The classification conundrum

04 January 2016 | Radwan Moussalli

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Radwan Moussalli

Blog Author | Tata Communications; senior vice president for Middle East, Central Asia and Africa


Emerging markets. It’s a term that keeps financial analysts, strategists and decision makers at global conglomerates up at night. It’s a term that’s often paired with the word, ‘growth’. Markets that are classified as emerging markets are referenced in detail when planning for the future and hence, in big business, there is no term that holds more reverence.

Emerging markets. It’s a term that keeps financial analysts, strategists and decision makers at global conglomerates up at night. It’s a term that’s often paired with the word, ‘growth’. Markets that are classified as emerging markets are referenced in detail when planning for the future and hence, in big business, there is no term that holds more reverence. A recent story by the Financial Times said that approximately $10.3tn is invested in emerging markets stock and bonds by various international funds.

There is no doubt that emerging markets are important to the world’s developed markets. But, if you asked yourself, ‘What constitutes an emerging market?’ you’ve stumbled onto a question that many experts are still seeking answers to. The BRIC countries - Brazil, Russia, India, China, were members of an acronym coined by Jim O’Neill, of Goldman Sachs, in 2001; countries deemed to be at a similar stage of newly advanced economic development. It was predicted that that much of the world’s economic growth would soon come from these four countries. BRIC then expanded to BRICS to include South Africa. Yet, now the criteria by which countries are classified may be in need of a rework.

If you look at the Middle East, you may be surprised to find that Qatar is classified as an emerging market. The country has a staggering GDP per capita of $60,796, higher than the GDP per capita of developed countries such as the US ($46,405.26), Canada ($38,293.28), Germany ($39,717.70) and the UK ($40,967.70). It’s quite odd that a country classified as an emerging market is far ahead of developed countries strictly in terms of its GDP per capita. This brings us back to the question: what constitutes an emerging market?

Also, perhaps a new, in-between, classification should be introduced - such as ‘maturing market’ - for countries like Egypt. It might risk losing its status as an emerging market as its political landscape is still in a state of flux.

While the term emerging markets is common, there’s no widely accepted definition of what it means. Businesses from different industries will classify markets differently, depending on their interests. In the telecommunications industry, there are different scenarios that could spur a market to be classified as an emerging market - it could be the potential to create a second home market through strategic investments; the opportunity to build stronger capabilities to enable MNCs to reach the set of emerging markets in a cost effective and reliable manner, or create a strategic partnership model in a particular country to serve both outbound and inbound businesses.

International organisations are constantly examining how they can gain an advantage in emerging markets, while reducing their risk. A telecommunications provider can enable these organisations to achieve success sooner, by eliminating complexities and delivering tangible results, as a robust communications infrastructure is the bedrock of successful businesses and economies alike. In fact, today, communications infrastructure is one of the most important aspects that businesses look at before entering an emerging market.

Tata Communications’ ‘Connected World’ whitepaper, which surveyed 1,600 businesses across 10 sectors in countries across the Middle East, APAC, Europe and North America, found that businesses in emerging markets are as likely, if not more likely, to look at other high growth markets for best practices and growth lessons. Of the overall emerging market respondents, 84% stated this to be the case, whereas 95% of the business leaders surveyed in China stated that they had looked to other emerging economies for key business learnings. Crucially, 47% of the emerging markets companies surveyed highlighted connectivity and communications infrastructure as a key concern for them. 

Not surprising given how important connectivity is today, and this brings us back to classifications. Looking at many of the countries in the Middle East, there are bandwidth hungry populations and enterprises who demand highly capable infrastructure that offers redundancy and the capacity to sustain future economic growth. With the TGN-Gulf cable system, for example, markets such as the UAE, Bahrain, Qatar, Oman and Saudi Arabia are reliably connected to the world, and hence, offer exciting opportunities for business growth.

Taking into account our dependence on technology and connectivity, it’s vital that the criteria by which markets are designated be revisited. The new criteria should be far wider and should account for infrastructure and telecommunications capabilities, as these are elements that attract businesses and thus contribute towards future growth.