For many years, ‘first world’ corporations have thought of emerging and frontier markets as ideal places to locate labor-intensive operations. In fact, combining matured factory processes with low-cost labor has been richly rewarding, at least at the outset. By definition, however, emerging markets change … sometimes in ways that are not hospitable to foreign industry. The investing corporation would be well advised to look beyond simple labor costs and consider indicia of social and market stability that could give the ‘pool’ a solid foundation.
The bad examples: Imagine that you are a garment industry investor in Asia. In China, you would be facing severe margin pressures because the (once low) wages have just sky-rocketed. In Cambodia, you would face severe shortages of qualified labor, combined with very activist trade unions. The Bangladesh investor receives very bad publicity, due to pervasive abuse of workers and tragedies such as the fatal collapse of a crowded factory building. Finally, in Vietnam, your local production is heavily dependent on imported raw materials the prices of which have been rising, on top of the rising wages of local workers.