Friday, February 6, 2009

Emerging Markets Definition and World Market Groups

Apparently, Michael Dell and Vladimir Putin don’t agree on the definition of a developing country. In a surprising exchange at the World Economic Forum in Davos last week, Mr. Dell asked the Russian prime minister how the IT sector could help Russia make the best use of its talent and technology. Putin replied that Russia doesn’t need any help and is a technologically advanced country with strong science and math programs and a robust software industry.

Putin may see Russia as highly advanced, but technology executives like Dell, who closely monitor the country’s market potential, view it as firmly seated among the ranks of other developing countries. Russia’s per capita gross national income (GNI) rests at $14,400, similar to Argentina, Mexico and Libya, and, like other developing countries, it still suffers from neglected infrastructure, rising inflation and food costs, and a large disparity of wealth between urban and rural residents. Though the debate over emerging market definitions does not generally happen on such a big stage, it is commonly discussed by analysts and business managers, since there is no single accepted definition. For business leaders like Dell, the classification of individual countries can have a profound effect on investment decisions and business strategies. Depending on the product or service offering, target customer segment, or geographic focus, these analyses may include data on infrastructure availability, distribution of wealth, technology diffusion, education levels, business climate, and governance, to name a few.

Emerging market definitions that rely solely on broad economic indicators provide a useful high-level view of the market opportunity for technology companies (see Vital Wave Consulting’s Emerging Markets Definition and World Market Groups). However, the actual market for certain products and services is often determined by a range of non-traditional, hard-to-find data. While most technology companies are focusing heavily on Brazil, Russia, India and China (BRIC), there may be an opportunity for medium-sized enterprises (or product groups within larger corporations) to gain a competitive advantage in strategic, second-tier emerging markets which, if measured appropriately, may have comparably-sized addressable markets.

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