It is a sign of problems identified with mature markets that investors are looking at opportunities in emerging markets. An increasing share of the world’s capital is now being directed to equities and other derivative products in emerging economies. In the era of globalization, the flow of financial capital is a vital parameter. Financial products and derivative products transacted via stock exchanges trans-nationally have matured as a product over the years. This means that there is now vast empirical data to draw theories upon. This has also had the effect of increasing the degree of volatility in these markets. Investment firms and individual investors look toward emerging markets despite their high volatility due to the following reasons: higher average returns, lower correlations than developed markets, and more predictable returns. Each of these characteristics has made the volatility of emerging markets an acceptable risk and a topic of ongoing research. In the Middle East, for example, the six countries in Arabian Gulf Cooperation council (AGCC) are now recognized as emerging markets. (Fayyad & Daly, 2010) Research studies conducted on data from these markets lead to interesting inferences. They weigh the pros and cons for companies dealing with mature products in entering emerging markets:
“Many small companies have niche (and sometimes mature) products for which much of the potential is in emerging markets. But these markets also have higher political risk and macroeconomic fluctuations. For example, Turkey would be an excellent market for a small company in the microelectronics industry due to Turkey’s modernization efforts in the 1990s, the establishment of a large military sector, and governmental support for high technology. Despite its small size and unstable political environment, Israel also offers significant potential for high-tech products due to its high level of technical expertise and trading relationships with the electronics industry in the United States and Europe. In developing countries such as India, China, and Brazil, due to their industrialization efforts, they often have pent-up demand for high-tech products from the industrialized world.” (Alon, 2004)
Companies like Coca-Cola, Boeing, Intel, Daewoo, Nestle, Avon, Microsoft, General Electric, Fed-Ex, etc have a vast portfolio of products. While some of them are recent inventions most of their offerings come under the mature product category. With global markets being open and allowing free flow of capital, these companies have set their goals to worldwide domination in their respective specializations. These companies, dealing mostly in mature product markets are “investing fortunes in condensed time frames to obliterate the concept of ‘geographical markets’.” (Kahn & Lanchner, 1997) As they seek a dominant presence instantly in countries virtually worldwide, they are ushering in the Age of the Global Titans. Without question, global domination is an unconventional and risky concept. The danger of spreading both financial and managerial resources thin is painfully real. And the likelihood of entering markets not understood by management is a given.” (Kahn & Lanchner, 1997) These companies also have to overcome cultural, economic, regulatory and currency barriers to their success. Hence, in the face of these challenges the odds are stacked against them delivering impressive returns to stakeholders.