Although somewhat unknown in everyday international business language, a new term is being coined by investors everywhere: Frontier Markets. Most of us have heard of emerging markets, which are known to be very promising markets where investments carry great potential, but are not quite as stable as in developed countries. There are many articles being published about this relatively new category of market investments. But what are frontier markets? This week’s blog series will not only establish what they are, but also provide some insight into their implications on the future.
What is a frontier market?
A frontier market has been loosely defined by a few quantitative and qualitative factors. Most importantly, access to these markets is not prohibitive. As international businesspeople, governmental and political factors can often rule out expansion. Frontier markets are generally open and not prohibitive from external entrants, however they are still the hardest of the markets (frontier, emerging, or developed) to enter into. Furthermore, these markets are found to be loosening restrictions on commercial trade, while also improving overall economic stability.
How big is a frontier market?
It is generally found that countries which are classified as a frontier market are small in market capitalization (or overall value).
How is an emerging market different from a frontier market?
Frontier markets are actually a subset of emerging markets. Because they are just beginning to unlock commercial trade to the world, they are on the lower end of the emerging market scale. Risk is known to be higher in frontier markets and they are found to be much less liquid than that of emerging markets. This basically means that there is less buying and selling in a frontier market then an emerging one. globalEDGE will explore both the positive and negative aspects of frontier markets later in this blog series.
What are some examples of a frontier market?
Now that you know a little bit more about frontier markets, stay tuned for more in-depth analysis of them in context of investing in international business ventures!