#147 Vulnerable Emerging Markets

Last month, Bloomberg published a “Vulnerability Ranking” for 18 emerging markets ranging from Turkey to Taiwan. The ranking assesses these markets along four criteria – Current Account Balance, External Debt, Government Effectiveness, and Inflation. To no one’s surprise, Turkey and Argentina lead the pack in their vulnerability, while countries such as Saudi Arabia, China, Thailand, South Korea, or Taiwan rank highly in their attractiveness. Based on these rankings, it would only be logical to conclude that the former countries are “stay away markets” for foreign companies considering expansion, while suggesting an automatic go decision for the latter countries. While there is some logic to this, there is something deeply wrong with such a simplistic conclusion. There’s nothing wrong with the thoroughness of Bloomberg’s ranking, but it shares two important limitations with other, similar risk rankings or indicators of which there are many: the EIU/Economist Intelligence Unit’s Country Risk Service (CRS), the Robinson Risk Index, Political Risk Services (PRS) Group’s International Country Risk Guide (ICRG), or the increasingly popular World Bank’s Ease of Doing Business Index, to name but a few.

First, no matter how comprehensive these composite indicators or rankings are, and regardless how thorough their data collection and analysis are, most of them make a rather subjective call over which factors are important and which ones are not. Often, they focus solely on economic indicators and, sometimes, also include a smaller set of factors related to government and governance. They are therefore both heavily skewed and never complete as they ignore other variables that are often very important at the organizational or individual levels such as, for instance, culture. For instance, according to the Bloomberg Vulnerability Ranking, Taiwan and Saudi Arabia do look similarly attractive, but whoever has ever done business in both countries will readily tell you that there are distinct differences that impact a company’s ability to compete. Second, the vast majority of such indices and rankings measure at the country level. They therefore suggest that these markets are equally attractive regardless of industry or product category. That would mean that a market that is highly ranked in its attractiveness by one of these indicators would be equally attractive to Apple in marketing iPhones as it would be to a manufacturer of rooftop solar equipment or beef halves. All such indicators therefore provide important orientation at the macro-level, but they should never be used in lieu of a more thorough and specific investigation into the risks and attractiveness of alternative country markets (industries, and products).

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