Emerging Markets’ Uneven Recovery Creating New Strategic Openings – Multinationals in the Midst of the Downturn

In an interview with Voice of America television, Dr. Alexander Mirtchev, an economic policy expert and president of Krull Corporation, shed light on the strategic options that multi-national companies have in some rapidly emerging markets during the economic crisis and beyond. Dr. Mirtchev points out that the recovery packages in development by the G7 economies have a direct impact on developing economies, such as China, Brazil, and Russia, as well as on the smaller emerging markets, and the respective measures they are undertaking. “It is now understood that there is no truth to the view that emerging markets are ‘decoupled’ from the global economy — they are facing the same systemic pressures as the rest of the world, and their reaction — which varies from country to country and from industry to industry — is putting paid to the notion that these markets can be bundled and packaged together as ‘the same class of asset’.”


Emerging Markets’ Uneven Recovery Creating New Strategic Openings – Multinationals in the Midst of the Downturn

In an interview with Voice of America television, Dr. Alexander Mirtchev, an economic policy expert and president of Krull Corporation, shed light on the strategic options that multi-national companies have in some rapidly emerging markets during the economic crisis and beyond.

Dr. Mirtchev points out that the recovery packages in development by the G7 economies have a direct impact on developing economies, such as China, Brazil, and Russia, as well as on the smaller emerging markets, and the respective measures they are undertaking. “It is now understood that there is no truth to the view that emerging markets are ‘decoupled’ from the global economy — they are facing the same systemic pressures as the rest of the world, and their reaction — which varies from country to country and from industry to industry — is putting paid to the notion that these markets can be bundled and packaged together as ‘the same class of asset.'”

The measures they undertake to deal with the financial crisis and economic downturn reflect the varying sets of tools and specific aims of emerging markets, with a predictably local slant. He considers that the trend of wide-spread state intervention in the emerging markets would probably fall short of its intended aim, but at the same time is an unavoidable reaction with stabilizing implications, at least in the short term.

“The economic crisis prompted what can be described as across-the-board government intervention in the emerging markets with specific implications about the export economies. This was, at best, an indifferent choice made out of a number of poor choices that were facing governments worldwide, taking into account the severe economic downturn, the public feeling of dissatisfaction with free market capitalism, sometimes combined with region-specific social and political pressures. It should also be considered that the crisis is reinforcing the set of notions associated with the so-called ‘state capitalism’ (in the modern lingo — the perception of a coherent ‘Chinese Model’), on one hand. On the other hand, rapidly developing economies and emerging markets are developing a tendency to reconsider in practice the prevailing for the last years rhetoric and practice of the capitalist model, demonstrated by massive government intervention that could be here to stay.”

However, Mirtchev indicated that “we could not avoid the judgment of the markets regarding the fate of future economic growth, but would need to provide the framework for improving market confidence in order to positively affect the livelihood and welfare of people. It is likely that the involvement of the state in the market works best when it aims to achieve specific targets, relies on a clear cost-benefit analysis, and when it sets out in advance an appropriate exit strategy and timetable.”

Nonetheless, all of the emerging markets need to be made part of the global solution to the crisis, in order for it to have success, because if “left outside the tent” they could become part of the problem and could stand in the way of the rebalancing of the world economy and global recovery. This means that the new evolving global economic and financial system requires that developed economies take into account not only the unique circumstances, but rather the new role of the rapidly developing economy leaders, as well as the smaller emerging markets.

“The developed economies need to engage pro-actively such markets in their plans, in order to avoid retrenchment and isolationist policies that are bad for competitiveness. Left alone on the margins when dealing with the economic storm, certain smaller emerging markets, for example, those in Latin America, Central and Southeast Asia, may have to seek temporary solutions and shelter between powerful neighbors, which could contribute to the fragmentation of the global market. The U.S. Administration should work with its G8 and G20 partners to provide a platform for such a constructive dialog, taking into account the realities of these regions.”

In the current economic downturn, multinational corporations are faced with serious choices on how to allocate their diminished resources. “The opportunities for generating economic upside for the multinationals would likely include specific and targeted industries within emerging markets which will become a source of growth for the multinationals.” According to Dr. Mirtchev, “Multinationals have the capability to take advantage of the inward focus of the developed economies. Significant segments of the rapidly developing economies such as China, Russia, and Brazil, as well as emerging markets such as the countries of Central Asia, for example, will maintain economic potential — even proportionately reduced in the global downturn, they still have a lot of room for growth.”

On the other hand, the crisis has exposed a number of vulnerabilities in the international markets that will probably play a determining role in the development options that multinationals would have to choose from. On this basis, his view is that “multinationals should not only stay the course with the developing economies and emerging markets, but even extend their footprint in those markets, in order to position themselves better for the global economic recovery. And these markets may represent the crucial difference between strategic success and failure after the prolonged tough economic times.”

To view the interview, click here.

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