Published On: Fri, Jun 10th, 2016

The Pros and Cons of Trading in Emerging Markets

In today’s connected marketplace, small businesses are far more likely to be trading in emerging markets than they would have been a decade ago. In many ways this is a good thing, as it creates a wealth of new opportunities. Instead of sticking to tried and tested local markets, you can branch out and tap into new emerging economies, such as Colombia, Vietnam and China.

Marketing to China and other emerging markets is helping to fuel the rise of global thinking businesses. Technology has opened doors and made it possible for entrepreneurs and start-ups to think globally. Local markets are often saturated so growth potential is low, whereas emerging markets are a fertile breeding ground where there is plenty of opportunity to get in on the ground floor with your products and services.

However, moving into emerging markets is not without its trials and tribulations, so if this is on the cards for your business, here are the pros and cons you need to be aware of.

photo/ Gerd Altmann via pixabay

photo/ Gerd Altmann via pixabay

The Advantages of Trading in Emerging Markets

The advantages of being there first are that you have the chance to create a recognisable brand in the local marketplace. Vodafone was able to do this when it developed M-Pesa in Kenya. Today, the M-Pesa network is hugely successful and Vodafone has reaped the benefits.

Another benefit to branching out into emerging markets is that there is a lot of untapped capital up for grabs. This money can help your business grow, both abroad and in the domestic market.

The Disadvantages of Trading in Emerging Markets

One of the main disadvantages of branching out into emerging markets is the potential for cultural misunderstandings. Language and local traditions are a minefield for small businesses. Simple things such as mannerisms and body language can cause no end of offence in countries such as China.

Emerging markets usually do business in a very different way and you may not be familiar with the cultural differences. These problems are magnified for smaller businesses, as they have fewer resources at their disposal.

There is also a much higher possibility of becoming embroiled in legal and ethical difficulties when dealing with businesses from emerging markets. Countries such as Nigeria offer very little protection against fraudsters and corrupt officials. Smaller businesses may be forced to trade with corrupt agents and when things go wrong, as they so often do, they belatedly discover they have no protection.

Effective Risk Management Strategies

Fraud and shady business deals are more common in emerging markets. There is also the possibility of economic upheavals and political instability to contend with. Risk management is crucial, but don’t expect your current risk management strategies to carry you forward, as the risks of trading in an emerging market are very different.

The risks need to be carefully managed when you start trading in emerging markets. Local partners on the ground will prove to be an invaluable asset, but be aware that you may need to come up with creative new ways of managing the risks whilst you grow your business.

Guest Author: Carol Trehearn

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