What’s the Big Deal About Emerging Markets?
“I notice you’ve done a lot of interviews with readers in emerging markets and other developing countries, but what’s so special about them?
I get the basics from what you’ve written, but why are they important? What’s the big deal about emerging markets?“
You raise a good point: there have been lots of interviews about different groups and regions, but never any mention of why specifically they are important.
So, why do emerging markets get so much attention?
Should you change your recruiting strategy or your mythical career path to take advantage of them?
And will they take over the world within the next 50 years?
The Usual Argument
Some news host / newspaper columnist / blogger shows GDP growth rate projections 50 years into the future and says that such-and-such market will surpass the developed world by a certain date because:
- The country is just becoming industrialized and has tons of room to grow.
- The middle class is relatively new and growing rapidly.
- The financial markets are not developed yet, so development there alone will spur growth.
- If it’s already growing at 10%, clearly it will continue growing at 10% for 50 years, right?
For investment banking, the argument is that more and more deal activity will shift to emerging economies because more companies will be created and more wealth will be generated there.
As companies grow, they need to go public, raise capital, and buy other companies – so investment bankers will spend more and more time on these developing regions and earn more of their fees from there.
As that happens, talent will shift away from developed countries and flock to the “New World” where there’s room for superstars to come in and dominate.
Why I’m Skeptical
Most GDP growth rate graphs go up and to the right… and then even further up and to the right.
It’s like the projections that you create as an investment banker for overly optimistic management teams: interesting to look at, but difficult to take seriously.
No matter how spectacular your economy is, it won’t grow at 8% or 10% or any other aggressive number into eternity.
And remember that far-in-the-future (or even near-in-the-future) projections have a history of being wrong, whether you’re looking at the Soviet Union in 1960, Japan in 1985, or Time Magazine and Jeff Bezos in 1999.
Banking & Capital Markets
Just because a market is growing more quickly doesn’t mean that there will be more or “better” deal activity – or that your experience there will better.
You will almost never gain the technical or modeling skills you would in major financial centers because deal structures are simpler and the companies are less mature.
It’s like the difference between bulge brackets and boutiques: you get a more random and unstructured experience at the smaller firm, or in the less developed market.
Deal activity will definitely increase in emerging markets, but it’s not as if more developed places will disappear overnight: they’ll continue to exist, but will make up a smaller percentage of overall activity.
So Should You Care Personally, Even Though I’m Skeptical?
Probably not – unless you’re from the country you’re interested in or you get the opportunity to move there as a result of working at your current bank.
There are a bunch of problems with assuming you can walk into a new country, get hired, and become the star banker in that region – especially if you have no full-time experience.
Problem #1: Why Should We Hire You?
Remember your old friends supply and demand from economics: do you offer banks something that they cannot already get with the local population?
You don’t have much of a chance of getting into some regions unless you have a serious asset: high-level political connections, a powerful family, or industry experience and C-level executive connections.
And at the Analyst and Associate levels you’re not likely to have those.
Even if supply cannot meet demand in the labor market, banks might still be reluctant to hire you just because it’s more trouble than hiring locals instead.
That may change once you have some experience to point to you, but if you are just graduating and you don’t have anything that matches what they’re looking for, you may want to reconsider that 1-way ticket to Dubai.
Problem #2: Visa / Immigration Issues
This is huge in countries where it’s difficult to get companies to sponsor foreigners (see: China) – and even in some developed markets with borderline-insane immigration policies based on paranoia and political propaganda rather than facts (see: the US).
It goes back to the “What’s in it for me?” question above: unless you bring something unique to the table or have the exact experience they’re looking for, you’re at a disadvantage next to the local student and professional population.
Problem #3: Language / Cultural Issues
Even putting aside all the reasons why you probably won’t learn another language well enough to use it for business, you’ll also run into cultural differences that go beyond simple communication problems.
No one can define what “lack of cultural fit” means, but everyone knows it when they see it: something is just “off” and as a result you never mesh with others.
Maybe it’s the way you start conversations, the way you carry yourself, or how you address others – but all of those tiny details add up to other people saying, “Wait, why are you here again?”
So if you’re just randomly interested in another region but don’t have any background or connections there, don’t spend too much time thinking about it.
When should you think about it more seriously?
1. Being From the Region
If you’re from a developing country and you studied abroad in the US/UK/other Western countries and have experience there, you’re in a much better position to leverage your background.
You won’t have any immigration/language/cultural issues, and banks in emerging markets like people who have had experience in major financial centers, know the technical side very well, and also fit in with their home country.
Plus, having connections there and being able to network more effectively than an outsider will make a huge difference.
2. Transferring Within Your Bank
If you’re not from an emerging market, this is the best way to take advantage of them: wait until you’re working and have established a reputation with senior bankers, and then push for a transfer once you’ve been there at least a year.
It works better if your bank is expanding and they’re looking for people to move, but even without that you can pull it off.
You’re probably wondering what specifically you should say to do this, but there’s no magical script: you work with senior bankers on projects, get to know them, and then around the time bonuses are being awarded, casually bring up your interest in another region.
See what their reaction is, and if it’s not an outright rejection keep asking about it and find out what you need to do to make it happen.
If You Have the Opportunity, Should You Go?
If you work in one of these regions, you get:
- (Potentially) improved hours
- More responsibility / client interaction
- Fewer networking opportunities
- Less technical knowledge / modeling work
- More limited exit opportunities
So it’s a trade-off: do you care more about working for KKR or Blackstone in New York, or more about having a better life and more contact with executives?
It’s more difficult to move from an emerging market to a developed one than to do the reverse – so starting out in a major financial center and then moving elsewhere is often a better bet.
…But depending on your background it might still be a good idea to start out in another region.
Let’s say that you have a solid background academically – a well-known but not top school, good but not perfect grades – and that you have decent internships, but nothing that makes bankers say, “Wow!” You’ve done some networking but you haven’t exactly called hundreds of alumni.
Your chances would improve greatly if you went back home and focused on your own market rather than the hyper-competitive US / UK ones.
Yes, you may not have as many options afterward but that is still way better than sitting around and not doing anything related to finance just because you don’t look as good as others on paper.
Time to Move?
If you’re interested in other regions just in passing, read all about them here but don’t go beyond that unless you have a specific way to get in.
But if you have a legitimate connection or your bank is expanding and you want to specialize, get better hours, or gain more responsibility, then maybe emerging markets should be a big deal to you.
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