Introduction Emerging Markets
Most of the Developing countries are known as the emerging markets. They are driving the global economy. Investing in emerging markets is a wise decision as the growth can be witnessed and also have better return on investment for future. It is anticipated that Emerging economies will mature two to three times more rapidly than developed nation like the US, as predicted by International Monetary Fund estimates. Corporate profits incline to grow faster when economic growth is higher. Likewise, US companies have done well in the last 12 months is because of their growth in non-US markets. Emerging markets also prove beneficial to investors as they create diversification as they act differently than developed markets. Emerging Markets Index of Morgan Stanley's consists of Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey (Forbes).
Russia is one of the booming emerging markets in the East. However, Russia is not always an investor favorite as it is a booming market in global oil and gas demand. Russia has tons of both. It is the world's prominent natural gas producer and exporter and has the 8th largest oil reserves in the world. Russia is considered as a bargain for equity, but that is mostly due to country risk. (Forbes)
During the recession in 2008, world markets in developed countries crashed but the emerging markets saved the global economy, mainly Brazil, India and China. The global credit crisis was one of the longest, deepest, and most painful in history. Wall Street icons like Lehman Bros, toppled and required government bailouts. This shocked the global economy and resulted in deep economic recession and even a deeper crisis of confidence. The crisis revealed a new world order in terms of economic and market dynamics. Emerging markets economies came as a rescue being a powerful, essential, and permanent contributors to global economic growth and sustainability. (Forbes)
US customers account for 25% of the world's spending, but that number is shrinking. Brazil, Russia, India and China now outspend their counterparts in the US. The drift will transform the global economy in next couple of decades, Asia is one of the major contributor as it is home to nearly half of the world's population. (Forbes)
One of the Russian search engine Yandex listed on the New York Stock Exchange is one of the hottest tech IPOs of the year, raising $1.3 billion in the offering. Its listing proved that interest in Russia goes beyond the oil and gas sector. Yandex was ranked ahead of Ebay.com and Microsoft's search engine Bing. “Russia just doesn’t sit on fields of oil and gas, but also on fields of mathematicians and scientists,” says John T. Connor, fund manager of the Third Millennium Russia fund. (Forbes)
Turkey was one of the many countries who experienced hyperinflation and currency collapse, Turkey’s middle class have tended to hold at least part of their savings in hard currency. But unlike in Russia, Turkish investor’s inclination to save in dollars proved helpful to companies and the central bank. Many Turks, rather than just accumulating dollars, have evolved into savvy players of exchange rate swings and often use sharp falls to sell their dollars and buy back the local currency. (Sujata Rao). The emerging economy in Turkey may consider joining the Shanghai Cooperation Organization, which includes countries such as China and Russia, instead. "The economic powers of the world are shifting from west to east, and Turkey is one of these growth economies," remarked the prime minister. Turkey's manufacturing sector, such as the automotive industry, goods including refrigerators and washing machines, and glass makers, is one of the strong competing markets in Global economy (Frank Holmes)
Question 1: What must an Emerging Market country do to create a business environment comparable to that of a developed country? Discuss the nature and differences in political economy between emerging markets and developed countries.
For an emerging market country to create a business environment comparable to that of a developed country it must reduce its barriers for trade and investment to integrate better. Market liberalization, increased political stability, and economic and legal reforms can lead to a more productive business environment for an emerging market country. The level of technology, with well-built communications and computing are a must in today’s world for a prolific business environment. Developing strong relationships with other countries between both developed countries and emerging market countries is a must. Emerging market countries usually have a business system that is considered more relationship based. When business structures are based on long term relations, then that can create an entry barrier for multinationals. If the government has heavy involvement in the market operations, then that is a big difference between the developed country and an emerging market country. The structure of the distribution channels needs to be strong for an emerging market country to become like a developed country. A developed country is one that has a high level of industrial development, bases its economy on technology and manufacturing instead of agriculture. The factors of production such as human and natural resources are fully utilized resulting in an increase in production and consumption which leads to a high level of per capita income. (Cavusgil) The political system consists of political parties, interest groups, trade unions, and legislative authorities. Political systems can lean towards collectivism or individualism, and also vary in the degree of democracy versus totalitarianism. It is possible to have democratic societies that emphasize a mix of collectivism and individualism and it is also possible to have totalitarian societies that are not collectivist. Collectivist cultures emphasize groups and communities, with each individual as part of a group. Individualism stresses the interests of the individual over the group and that the wellbeing of society can be increased if individuals are allowed to act out of their own economic interests. Political systems that are influenced by individualism lean towards free market economies and democracy. Democratic systems, governments will consist of representatives elected by the people, while in totalitarian systems a person or a party will have absolute control over people without opposition. In countries where individual goals are given dominance over collective goals, we are more likely to find free market economic systems. In countries where collective goals are given preeminence, the state may have taken control over many enterprises, while markets in such countries are likely to be restricted rather than free. There are three broad types of economic systems: the market economy, the command economy, and the mixed economy. A market economy is an economy in which all productive activities are privately owned, as opposed to being owned by the state. Production is determined by the interaction of supply and demand and signaled to producers through the price system. A command economy is an economy in which the goods and services that a country produces, the quantity in which they are produced, and the prices at which they are sold are all planned by the government. A mixed economy is an economy in which certain sectors of the economy are left to private ownership and free market mechanisms while other sectors have significant state ownership and government planning. (Cavusgil)
Question 2: Is it feasible the Emerging Markets will succeed in closing this gap? (Turkey vs. Russia vs. USA)
To answer the question “Is it feasible the Emerging Markets will succeed in closing this gap?” First we have to take a look at some indexes of each country. According to Freedom House Index, Russia is a not free country, is shows a score of six points for political rights and a score of five points in civil liberties rating. Corruption in the government and in the business’ is so common that it is accepted as a way to do business and transparency is rare. There’s no freedom of expression or beliefs, and the most known kind is for a repression of minority groups. The government decides things without the knowledge of the population, even though they claim it to be a democracy. In an economic way, Russia is known for its oil and gas production as a global leader. The declining oil prices have made it difficult to attract foreign investment due to 2008 and 2009 recession, since then the GDP has suffered a considerable slowdown. There are restrictions of freedom for movement and residence. High taxes imposed by the government and the precarious system of property rights have caused hardship on property owners and on new companies entering in the Russian market by a multinational enterprise. Accordingly to the Heritage Foundation graphics, Russia is in the 159th position for investment freedom, and in the 135th for property freedom which means it’s not easy to open a new business in Russia. It’s even harder if we examine the total freedom of corruption index. Also, the literacy is at 99.7%.
Turkey is a partially free country accordingly to the Freedom House Index, presenting a score of three points for political rights and a score of four points in civil liberty ratings. Corruption is one of the most frequent problems in the governmental and political area, such as the transparency’s weakness. Despite the fact that the freedom of expressions and beliefs is guaranteed in the constitution, it is still restricted in practice. Property rights are properly respected, but Muslim have problems owning property. Business owners that contradict government wishes are suffering from serious pressure in their property rights. Due to the government crackdown in protests in 2013, the political pressure over the private companies has increased. In the economic sector, Turkey is an increasing open market that is being driven by the industry and service sectors and has recently suffered a privation mass that is expanding production and profits. Accordingly to the Heritage Foundation graphics, Turkey is in the 46th position for investment freedom, and in the 53rd position for property freedom. The freedom of corruption index is 44%. Turkey’s literacy rate is at 94.1%.
The United States are a free country according to the Freedom House Index, presenting a score of one point for political rights and a score of one point in civil liberty ratings. American government is totally intolerant with corruption acts, and when it is discovered the fines are too high. There are freedoms of expression and beliefs, and the press, religions, and minority groups are protected by law. Property rights are strictly protected by law, people have personal autonomy and the entrepreneurship is stimulated by the government. Analyzing through the ideas United States has a historical of government actions transparency. The country has the most powerful economy, where firms enjoy flexibilities and a large amount of high technology. Accordingly to the Heritage Foundation graphics, Unites States are in the 45th position for investment freedom, and in the 20th position for property freedom. The freedom of corruption index is 72%. The US literacy rate is at 99%.
After a proper analysis through the countries data, we can conclude that nowadays is not possible for these two emerging markets - Russia and Turkey - to succeed in closing this gap. Firstly because of the high levels of corruption, both countries might have difficulties starting new businesses and increase the company’s costs and risks. We know that sometimes the higher the risk, higher the return, but we also have to analyze the actual political situation in these countries. Russia is going through a lot of disagreements with Ukraine and the Europe Union, which may cause a sanctions and embargoes from many countries. Turkey has recently recover from violent riots in 2013 against the government, where many people were injured, the government blamed it on Jewish diasporas, and this crisis is not potential now, but remains unsolved. Both countries have to improve investment and property freedom to attract foreign investment and new companies, maybe multinationals enterprises that can join the market as joint ventures or by franchising, licensing, and investment in production. Also for attract foreign investment the property rights must receive more attention and should be protected by law, otherwise the foreign companies cannot trust in the operations in this market and will try to avoid it.
Question 3: What are the likely factors that will hinder the improvement of the business environment in the Emerging Markets? As an Emerging Market, low labor costs and abundant natural resources are the general characteristics. So how to keep and use those advantages to enhance competitiveness is the first thing Emerging Market countries need to do to be considered. In long-term sustainable development, those countries need to use accessed production technology to improve revenue and increase spending power.
Russia, as an Emerging Market country, has already completed transitioning from an agricultural economy to an industrial economy, which achieved industrialization and modernization, compared with developing countries. So the Emerging Market country becomes an important engine of global economic growth, and it also has large commodity suppliers and sales markets. Especially to the USA, the import of cheap goods is important not only to meet its consumption needs, but also to inhibit the inflation.
When it is compared with the USA, there are some issues: unsound economic system, huge liquidity, and cultural differences. All those can be integrated for one word: uncertainty. There are so many uncertain things since it is a new market with less information. So the top priority of the company, which wants to invest in Russia, is to gather as much information in this area as they can. No matter what kind information is used, either as government policy, related products, or residents’ habits, but all those things will help investors make better decisions.
In our opinion, since one of strengths of an Emerging Market country is low impact of global economy. The more Russia becomes involved in globalization, the more issues that will influence local and transnational companies. So this dilemma cannot be ignored for the investors. Since the uncertainty is not only contributed to success, it can also cause failure. “Don’t lose money” is rule number one of any business.
Summary
After a proper analysis through the countries data, we can conclude that nowadays it is not possible for these two emerging markets - Russia and Turkey - to succeed in closing this gap. Firstly because of the high level of corruption the both countries that might turn difficult start new business and increase the companies’ costs and risks. We know that sometimes higher the risk, higher the return, but we also have to analyze the actual political situation in these countries. Russia is going through a lot of disagreements with Ukraine and the Europe Union, which may cause a sanctions and embargoes from many countries.

Works Cited
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