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Are traditional multinationals ready for emerging markets?

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By Aubrey Hruby

WASHINGTON, DC ― Since 2010, economic growth in low- and middle-income countries has been two to three times faster than in high-income countries. The 10 economies with the highest projected growth rates for the next four years are all in Africa or Southeast Asia.

In the coming years, emerging markets in Africa, Asia, and Latin America will also account for the lion's share of global population growth, as well as an unprecedented expansion of the middle class.

Because of their younger, increasingly prosperous populations, emerging markets will drive an explosion in consumer spending. Real (inflation-adjusted) expenditure will grow at triple the rate in developed countries, owing to the continued expansion of internet and mobile connectivity. Companies that ignore these opportunities risk missing out on decades of future returns.

Yet emerging markets pose significant structural challenges to developed-economy multinational companies. Four issues stand out: a lack of physical infrastructure; a data deficit and reliance on interpersonal networks; policy uncertainty; and informality.

While investment in transportation infrastructure is accelerating across emerging markets, significant gaps are likely to persist. Driven by population growth and urbanization, demand is outstripping supply.

In Africa, where the infrastructure-investment gap totals $68-108 billion per year, firms pay more to do business. In Nigeria, over three-quarters of firms experience electrical outages, costing them over 15 percent of annual sales, on average.

Similarly, while all companies need data for investment and operational........

© The Korea Times