Why American Companies Pursue Emerging Market Opportunities
By Michael Megarit
American companies have long been recognized for their innovation, ambition and drive towards growth. Recently this drive for expansion has caused many American firms to look outside their domestic market for new opportunities in emerging markets with rapidly developing economies, increasing consumer spending habits, and expanding middle classes – an invaluable source of growth for American firms.
One main way American companies are tapping emerging market growth potential is through mergers and acquisitions (M&A). M&A activity in emerging markets has surged dramatically over recent years, with American firms playing an outsized role. This can partly be explained by opening economies allowing foreign firms easier access to these firms; taking advantage of this environment, American firms have gained a foothold in emerging markets by purchasing established local firms that give them entry and unlock their growth potential.
American companies can acquire growth in emerging markets through partnerships and joint ventures. Many American firms are teaming up with local firms in these emerging markets in order to access their expertise, local networks, and risk/cost sharing – an approach which also makes more of their growth potential available to American firms.
American companies are investing not only in M&As and partnerships but also new ventures and startups in emerging markets, providing access to emerging technology platforms, innovative business models and talented entrepreneurs who drive growth within these markets. These investments allow American firms access to cutting edge technologies that advance growth within these emerging economies.
Emerging markets present American companies with numerous opportunities for expansion. Their rapidly increasing populations, rising consumer spending patterns and rapidly developing middle classes present unique business advantages; by expanding into these emerging markets, American firms can tap into one of the fastest-growing consumer bases worldwide.
Emerging market growth also can offer American companies opportunities to reduce costs. By outsourcing production and services to emerging markets, American firms may take advantage of lower labor costs, lower tax rates, and other cost reduction advantages which increase competitiveness while simultaneously cutting expenses – this benefit is especially advantageous in industries like manufacturing and technology where cost competitiveness plays an essential role.
Emerging markets present American companies with another opportunity for revenue diversification. By expanding into new markets, American firms can reduce their reliance on domestic markets that can be susceptible to economic and political uncertainties; diversifying can ensure long-term stability and growth of American firms.
While emerging markets provide many opportunities, American companies also face unique challenges when entering them. Chief among them is navigating complex regulatory environments. Many emerging markets feature shifting regulations which make operations ineffective; therefore, American firms need to dedicate resources towards understanding local regulations and building relationships with key local stakeholders in order to overcome them successfully.
American companies in emerging markets face another significant obstacle in managing cultural differences effectively, which may make engaging effectively with local communities and customers difficult due to different norms, values, and practices. American firms should allocate ample time and resources towards understanding local cultures as well as forging relationships with key local stakeholders so as to overcome such hurdles successfully.
American companies operating in emerging markets face fierce competition from both local and foreign firms. Competition can often be intense in these emerging markets, and American firms must be prepared to compete on price, quality and service criteria to succeed.
American companies are taking steps to gain growth in emerging markets through various combinations of mergers, acquisitions, joint ventures and investments in new ventures.