Emerging markets (aka emerging economies) are nations undergoing rapid industrialization and economic growth, becoming increasingly connected on the global stage alongside developed markets. Economists classify emerging markets based on various criteria, including GDP growth, income per capita, industrialization levels, and openness to foreign investment.
Examples of emerging economies include Brazil, China, India, and Mexico, all of which are rapidly expanding their industrial sectors and global influence.
However, the transitional nature of developing economies can make investments more precarious. Risks like political instability, unpredictable currency fluctuations, and weaker regulatory frameworks pose challenges for investors seeking opportunities.
Despite the risks, investors are drawn to emerging economies’ high reward potential, as these markets often experience fast growth and rising consumer demand. Understanding these risks helps organizations navigate the opportunities and challenges and decide whether or not to enter the market.
What is an emerging economy? Definition, characteristics, and investment risks
By definition, emerging markets refer to nations transitioning from developing to developed status. These economies experience significant economic growth and exhibit some—but not all—characteristics of developed markets. Their gradual adoption of policies and institutions similar to those in developed markets helps promote sustained economic growth and stability.
Here are some common characteristics of emerging economies:
Established financial infrastructure
To support economic activity, emerging markets develop foundational financial systems, including banks, stock exchanges, and unified currencies. These structures enable businesses to raise capital, facilitate trade, and attract foreign investment.
Rapid economic growth
Emerging economies often achieve faster GDP growth than developed markets, driven by industrialization, urbanization, and policy reforms. Governments prioritize manufacturing and trade, creating jobs and encouraging consumer spending.
Growing liquidity in debt and equity markets
Emerging economies often have increased the liquidity of their debt and equity markets, allowing businesses to secure funding more easily. This attracts foreign investment and strengthens domestic industries.
Market volatility
Although they offer high returns, emerging markets are prone to significant volatility due to political instability, currency fluctuations, and reliance on commodities. For instance, sharp drops in commodity prices can destabilize export-dependent economies.
Economic transition and expanding infrastructure
These economies are shifting away from agricultural and resource-based activities toward industrialization and manufacturing, often through deliberate government policies. They invest heavily in infrastructure projects such as roads, ports, and energy grids, which help connect remote regions to city centers.
Export-led growth
Export-led growth is a hallmark of emerging markets, as they leverage lower labor costs to produce goods for wealthier nations. This approach boosts GDP, fosters industrialization, and strengthens trade relationships.
Challenges of emerging markets
Although emerging markets offer immense opportunities for economic growth, they are not without challenges. Rapid development and increasing integration with the global economy expose them to risks.
For example, Brazil experienced a severe economic downturn during the political scandals of 2015–2016, including the impeachment of President Dilma Rousseff, which destabilized the economy and led to a deep recession. This dynamic and unpredictable environment requires careful analysis and risk mitigation from investors.
Despite these challenges, emerging markets remain drivers of economic progress and investment growth. To capitalize on emerging economies, businesses must adopt strategies that minimize exposure to financial risks. One effective strategy is to ensure cultural and linguistic relevance in local markets.
Smartling’s AI-powered human translation offers a cost-effective, high-quality solution for businesses entering emerging economies. By combining the efficiency of AI with the precision of human expertise, Smartling delivers superior translations tailored to local audiences. This approach lets companies test localized content and assess market potential without significant upfront investment, empowering them to navigate new markets with confidence.
Examples of emerging economies: Which countries qualify?
Organizations like MSCI and the World Bank use stringent criteria to categorize global equity markets into frontier, emerging, and developed markets. To be classified as an emerging market, a country must prove strong economic growth and integration into the global economy. Key factors include gross national income (GNI), market capitalizations, stock liquidity, and ease of access for foreign investors.
GDP growth and industrialization levels show progress, but the level of accessibility often becomes the deciding factor. This refers to how easily foreign investors can trade in and out of a market, the efficiency of its financial systems, and the stability of its institutional framework. For example, foreign ownership limits in certain industries can complicate investments, as seen in China, India, and Vietnam. Although these countries have made strides in economic growth, these limitations and market access challenges prevent their promotion to developed market status.
Business leaders need to know which countries are the best to expand into. Here are some of the biggest emerging economies:
India
Over the past decade, India has seen transformative economic growth, with its GDP rising from approximately $2 trillion in 2014 to $3.9 trillion in 2024. This growth has been driven by economic reforms, including liberalization, privatization, and initiatives like “Make in India,” which focus on boosting local manufacturing and foreign investment. Despite this progress, regional disparities and income inequality persist, motivating government programs aimed at poverty reduction and infrastructure development.
China
With a GDP of $18.3 trillion, China is the world’s largest emerging market. It has achieved remarkable growth over the past decade, maintaining an average annual GDP increase of 5.9%. This transformation is thanks, in part, to reforms that began in 1978. Since then, government spending, a strong manufacturing sector, and export-led growth have driven the country’s economic expansion.
However, despite this economic growth, income per capita is still relatively low compared to other developed countries. In 2023, the nationwide per capita disposable income reached approximately $5,490 USD (39,218 yuan). To address these issues, the government has pivoted toward policies promoting the growth of non-agricultural industries and investing in rural infrastructure.
If your business is seeking opportunities in emerging markets like India and China, clear communication should be at the forefront of your strategy. Language barriers and cultural differences may make it hard for your company to connect with local audiences, but Smartling’s professional translation services can help.
Smartling ensures your business can share its brand message in a way that feels natural and relatable to people across languages and cultures. Smartling’s accurate and culturally adapted translations help companies build trust and loyalty with local consumers. Whether entering a new market or expanding in an existing one, Smartling makes it easier to succeed in fast-growing economies.
Brazil
Brazil has experienced several economic fluctuations in the last 10 years. The country’s GDP was approximately $2.5 trillion in 2014, but a recession in 2015 and 2016 led to a contraction. By 2024, Brazil’s GDP rebounded to around $2.2 trillion, reflecting a gradual recovery. This volatility is primarily because Brazil’s economy depends heavily on commodity exports, making it sensitive to global price changes.
However, the outlook for Brazil’s future remains optimistic. The domestic economy grew 2.9% in 2023 and is expected to grow 3% in 2024. This growth is fueled by infrastructure development, foreign investments, and agricultural commodities like soybeans and coffee. These factors position Brazil as a significant player in the global trade landscape while offering opportunities for improved economic stability and growth.
Mexico
Mexico is another country that has shown steady economic progress in recent years. In 2014, its GDP was approximately $1.4 trillion, growing to about $1.9 trillion by 2024. This averages out to a moderate yearly growth of 1.5%. This growth has been supported by manufacturing, trade agreements like the United States-Mexico-Canada Agreement (USMCA), and a growing services sector.
However, Mexico continues to face substantial challenges. Deep income inequality, underemployment, and a large informal economy weigh heavily on its economic stability. Additionally, issues like drug-related violence, corruption, and weak infrastructure create obstacles for investors and hinder the country’s growth potential.
Unlock global expansion with Smartling
Developing nations play an ever-expanding role in global markets as they grow their economies, creating new business opportunities worldwide. However, thriving in these markets requires more than just great products; you need clear, culturally relevant communication. Effective global strategies often rely on multilingual content marketing to engage audiences of various languages.
That’s where Smartling comes in. Smartling’s AI-powered translation platform combines advanced AI tools like machine learning with expert human linguists to deliver high-quality translations that are accurate and culturally relevant. By tailoring content to each locale’s needs, Smartling ensures your brand message is heard loud and clear in international markets.
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