This knowledge enables international firms to make strategic decisions regarding which regions, and in which areas, to focus their efforts. Tapping into fast-growing markets, either by filling underserved gaps in the local market or by providing a more competitive or novel offering, offers a wealth of potential rewards.
As a group, emerging markets have outperformed developed economies in recent decades and will continue to do so in the next 30 years. According to Economist Intelligence Unit (EIU) forecasts, by 2050, 28 economies will have annual GDP in excess of US$2trn, and of these only ten will be developed economies. This trend will mainly be driven by emerging economies in Asia, which are set to grow by 2-3% per year in 2021-50; by contrast, the pace of growth is forecast to average just 0.5-1% in the US, the UK, France and Germany.
In 2050, China, India and Indonesia are respectively set to be the world's largest, third- and seventh-largest economies. Alongside Mexico and Brazil, Vietnam and Bangladesh will also feature in the top 20 by market size. Favourable demographics, rising levels of urbanisation and efforts to improve the operating climate for foreign businesses will all be features of these markets. There will still be challenges for foreign corporations in many of these markets, but these countries’ market size and opportunities will mean that companies are likely to put up with the inconvenience of difficult operating conditions in exchange for the huge potential rewards that come with a large domestic market. Developments in the following sectors will drive much of this momentum:
- Frontier technologies will become ever more critical to economic growth. The rolling-out of high-speed mobile internet, artificial intelligence, big-data analytics, cloud technology, blockchain, biotechnology and the Internet of Things will lead to fundamental changes in systems of production and service provision. Developed markets have so far led the way on this front, but emerging markets will make more substantive improvements in the coming decades.
- Many fast-growing emerging markets will focus on shifting from basic to advanced manufacturing—seeking to move up the value chain in order to shift from low-wage re-assembly work to the production of more complex (and profitable) goods. The adoption and integration of new technology will facilitate this process. Smart electronics, electric vehicles, medical devices and biotechnology will be a particular focus for companies. This process will go hand in hand with the “servicification” of manufacturing (products that require greater input of services such as design, engineering or communications).
- A rapid expansion in the healthcare sector will also drive overall growth in emerging markets. As large emerging markets develop more advanced manufacturing capacities, they will be well-positioned to expand the production of medical devices. Telehealth, diagnostics, and cell and gene therapies will also grow strongly.
- The digital finance sector in large, fast-growing emerging markets will change dramatically in the next three decades. Non-banking services providers (such as e-commerce platforms, payment players, messaging services, chain stores, post offices and telecommunications providers) will become increasingly active in financial services. There will be a relentless decline in the use of cash as a mode of payment and the infrastructure to handle it. The insurance sub-sector will grow rapidly as populations age, house and car ownership rises, and climate change increases the need for policies that cover natural disasters.
- A number of trends in niche sub-sectors will have important ramifications on long-term growth across all emerging markets. Challenges related to climate change will become ever-more pressing in the next three decades, and governments that are particularly proactive in terms of taking action to address these challenges will see higher longer-term economic growth. Education is also a key area: authorities that are successful in re-thinking what to teach, how to teach it and how to re-skill or train the labour force will be well-placed to grow their economies.