Despite the impact of the credit crisis and accompanying recession, companies in developed countries are still seeking to do business in emerging economies and vice-versa. Indeed, while international trade has existed for centuries, a globalised marketplace is only in its infancy and still offers enormous scope for cross-border growth. Nevertheless, expansion comes at a cost in this capital-constrained era and access to capital at the right price is one of the key issues in international trade today.
In this report, produced by UK Trade & Investment in co-operation with the Economist Intelligence Unit, we examine where and why companies are expanding in emerging markets and how this activity is being impacted by the credit crisis.
Some of the trends emerging from this paper include:
- The global downturn has made the assessment of risk in new ventures more complicated than ever. Companies expanding overseas face the twin challenges of overcoming finance hurdles in both their home countries and overseas.
- The emerging market economic crashes of the 1990s are still fresh in many executives’ minds. However, banking systems in Asia in particular, are considerably more robust today with debt at much lower levels. Credit is even growing in some Asian countries – in contrast with many developed economies.
- Capital markets are effectively closed to all but the largest companies with the healthiest credit ratings. Blue-chip corporations are able to raise capital in euros and dollars, but even then only at wide spreads to government bonds.
- Concerns over economic weakness have led to high levels of currency volatility in recent months. Any company transacting sizeable business overseas needs to be aware of the dangers. By the same token, some companies are benefiting from currency swings.
- Despite the increased macro-economic risks, the potential offered by emerging markets is still well recognised. Many companies are no longer content to merely outsource production to emerging economies, but are looking to establish bases and sell to increasingly wealthy local businesses and consumers.