Sample Economics Paper on Emerging Markets

Capital Investment in Emerging Markets

Apple’s Current Plans for India’s Emerging Market

Apple Incorporation is one of the largest and most successful technology companies in
the world. The company's success has been related to its innovative characteristics. Like most
international companies, Apple has been keen on establishing emerging markets and taking up its
market shares to increase its profits and expand it’s business globally. One of the emerging
markets that Apple is currently focused on is India. Following the trade wars between the USA
and China, which is the main manufacturer for Apple, the company is looking to establish itself
elsewhere. China has been most favorable to Apple, following its large population, which offers
cheap and easily available labor. With the company looking for other options, India comes pretty
close, considering they have a large population as well. India’s population stands at 1.33 billion,
which is close to China’s population of 1.36billion. There is an opportunity for cheap and easily
available labor. Apple hopes to invest about 1 billion in India, which will be focusing on
contracting manufacturing partners.
Apple has been previously successful in emerging markets due to its highly focused
investment in research and development. It is important to evaluate the strategies used by Apple
to identify India as an emerging market. India has proven to be one of the fastest-growing
markets for smartphones. Market research has shown that the extremely high demand for
smartphones in India has mostly been fueled by the improved 4G infrastructure in the country
(Deodhar et al., 2006). The evaluation of soft infrastructure in a country is highly important in
determining the suitability of capital investment by a company. Emerging markets are mostly in
developing countries, and some companies ignore the impact of soft infrastructure, which is one
of the factors that make these emerging markets differ from their home markets. It is important

to understand how the infrastructure of an emerging company is before developing a capital
investment plan.
Apart from improved 4G infrastructure, India has recorded an extremely high population
of young people who are the main users of smartphones. The large and young population of tech-
savvy smartphone users has greatly influenced the demand for smartphones in the Indian market.
Apple also focused on market research, especially in regards to price competition, which is a
major element of the Indian smartphone market. The Indian smartphone market is very price-
sensitive, which proved a concern for Apple smartphones. Apple phones are renowned for their
high prices, and the company maintains it’s market share through high quality products that
demand customer loyalty. The average price for smartphones in India is $122, which is relatively
low compared to the US average price of $410.
Having established the price concern in the Indian market, Apple used the price cut
strategy to be able to fit the mid-range phone price. They also focused on selling legacy devices
such as the iPhone 5s instead of the iPhone 7, which goes for over $750. Apple was forced to cut
its cost on the iPhone 5s in India from $280 to $230. The price cut was meant to give the
company a competitive chance in the Android dominated smartphone market. Further market
research has shown that the prices of smartphones in India keep increasing by the year instead of
declining, which is a common trend in other countries. The reason for the increase in the average
prices of smartphones is due to the increasing demand for more premium and higher quality
smartphones (Mudambi et al., 2017). These findings have proven very advantageous for Apple,
which strategizes it’s legacy smartphones at a lower price. It hopes to gain a market share in the
emerging markets while at the same time hoping its customers will upgrade to it’s more
expensive premium smartphones.


Supplementary Methodology

Most companies have failed in their process of expanding into emerging markets because
they fail to do a comprehensive research into these new markets. One of the supplementary
methodologies that Apple could use in India is doing a comprehensive country portfolio analysis
as well as a political risk assessment. These evaluations will help the company be able to design
their investment plans more carefully and mitigate possible risks. In the country portfolio
analysis, Apple must include research on the regulatory systems and India’s contract enforcing
mechanisms. These systems differ greatly from those in developed countries. Hence a
comprehensive analysis will help the company design an innovative strategy for dealing with or
working around such institutional voids. Other important elements to evaluate are the GDP, the
exchange rates, per capita income growth rates, and purchasing power parities of the emerging
markets (Hannan, 2017). The information will help to establish the market capability of the
country as well as predict the possibility of the company making profits if it ventures in the
market. The political risk assessment is very crucial since the political environment has a huge
impact on a country's economy. Political entities also have the power to develop and enforce
policies that could either benefit or inhibit a company's capital investment. Apple has already
experienced the political effects of India on their company. In a bid to meet the mid-range phone
prices, Apple had suggested bringing in certified refurbished iPhone 5s, an effort that was turned
down by the Indian government (Mudambi et al., 2006). They resulted in the price cut on their
iPhone 5s. In 2005, the Indian government was also seen to prevent foreign direct investments.
The prohibition was in real estate and retailing industries. Understanding the political
environment of the emerging markets is extremely crucial for a company hoping to make a
capital investment.


Inflation Effects on Capital Investment

Inflation in emerging markets can affect the return on investment of a company.
Developing countries such as India are prone and at risk of inflations, both persistent and
sporadic. Inflation poses a great risk to investors, especially because it would mean reduced ROI.
Investors are all focused on opportunities that have a huge return on investment. Companies can
perform accurate inflation risk assessment by evaluating the currency crisis and the government
debt in the county (Madalinci, 2017). These are the two major factors that contribute to inflation
in developing countries such as India. Fluctuating currency prices can be caused by domestic
inflation, and government debts determine the strength or weakness of the currency. The
knowledge of inflation risks is very crucial in developing management decisions. Having
established that a country is prone to high inflation’s a company can mitigate the risk through
foreign investments. The company could identify a foreign currency that has stability in regard to
inflation and one that has real interest rates. Having established the appropriate foreign currency,
the company must then hold short-term bonds that secure their investment even in inflation of
emerging markets.

Contrasting Modifications

There are different strategies to be applied in North America and in India regarding
increasing a companies capacity. Apple has a greater capacity to expand in North America due to
several reasons, including the lack of institutional voids and great infrastructure. The legal and
regulatory systems in North America are more defined and more favorable; hence they support
the expansion of Apple. The only challenge for Apple would be the fact that labor would be
more expensive. Apple, in the recent past, has invested greatly in expanding and creating jobs in
America, which was propelled by Trump’s tax cuts on domestic goods. Creating more favorable

business conditions in North America is a major factor for expansion. Contrasting this with
India, the company does not need to have tax cuts because production cost is quite low. With
cheap and easily available labor, the expansion strategy will only require government approval,
proper workforce selection, and investment in the required infrastructure. When making
expansion decisions, companies have to evaluate in which country they achieve the lowest total
production cost. The information will influence their choice based on the country that will offer
great profit capability.

Sensitivity Analysis

A sensitivity analysis is done on a project for the emerging markets to determine the
different ways in which results could be affected by probable values. The analysis is crucial in
determining where the weaknesses of the project lie and establishing the different ways results
could be altered by certain variables (Borgonovo & Plischke, 2016). The analysis also allows a
company to know which areas they should invest more in to balance the changes in results when
certain likely variables are applied. There are several ways in which a company could gain a
competitive advantage using sensitivity analysis. With this analysis, a company is able to
develop effective risk management plans. The company understands all the likely factors that
could affect its project and cause negative impacts. They are, therefore, able to develop
innovative and effective ways of preventing and handling these effects when they occur. It
ensures that their operations run smoothly nonetheless, while other companies struggle. Another
advantage is that the company will be able to grow and develop its weaknesses to improve
business functions and gain a greater advantage over its competitors. Sensitivity analysis is
essential in emerging markets, especially because these countries have different variables from
those in developed countries that could greatly affect the company.

In conclusion, we realize that venturing in emerging markets is a process that companies
should not take lightly. They must invest a lot in research as well as in the development of things
such as infrastructure. While doing their market research, they must evaluate many factors of the
countries economy, including inflation risks, GDP, market share, and existing institutional voids.
The country analysis must also evaluate the political environment, and it’s effects on the
company. It is important to use political analysis to predict the future political environment to
determine the chances of future growth. Investing in emerging markets, therefore, requires keen
evaluations and development of innovative country sensitive ways of handling different factors
that may affect the company. The whole process must not be taken lightly, and companies must
not apply previous investment plans applied in developed countries.


Borgonovo, E., & Plischke, E. (2016). Sensitivity analysis: a review of recent advances.
European Journal of Operational Research, 248(3), 869-887.
Deodhar, S. Y., Landes, M., & Krissoff, B. (2006). Prospects for India’s emerging apple market.
Prospects, 1(1), 1-38.
Hannan, S. A. (2017). The drivers of capital flows in emerging markets post-global financial
crisis. Journal of International Commerce, Economics and Policy, 8(02), 1750009.
Mandalinci, Z. (2017). Forecasting inflation in emerging markets: An evaluation of alternative
models. International Journal of Forecasting, 33(4), 1082-1104.
Mudambi, R., Saranga, H., & Schotter, A. (2017). Mastering the make-in-India challenge. MIT
Sloan Management Review, 58(4), 59-66.