If you ask ten economists what defines an emerging market, you’ll get ten slightly different answers. Low per capita income. Rapid GDP growth. Unstable institutions. Currency volatility. Weak rule of law. Transitioning economies. The list goes on.
These definitions aren’t wrong, but they’re not particularly useful if you’re trying to decide whether to enter a market, hire locally, or structure a partnership. Academic categories don’t tell you how business actually gets done, where the friction points are, or what risks you’re walking into.
The term “emerging market” has become a catchall that obscures more than it clarifies. It groups countries with wildly different operating realities under one label, as if doing business in Vietnam is the same as doing business in Nigeria, or as if Mexico and Bangladesh face the same challenges because they’re both classified as “emerging.”
If you’re making operational decisions, the classification matters far less than the underlying conditions. Here’s what actually determines how a market works and what you need to know before you operate there.
Institutional Strength Matters More Than GDP Growth
A market can have impressive GDP growth and still be operationally nightmarish if institutions are weak or captured. Strong institutions mean contracts are enforceable, regulations are predictable, and disputes can be resolved without personal connections or bribes.
Weak institutions mean the opposite. Rules exist on paper but are applied inconsistently. Enforcement depends on who you know. Legal recourse is slow, expensive, or unavailable. In these environments, informal networks often carry more weight than formal systems.
This isn’t about corruption in the abstract. It’s about whether you can operate predictably. Can you trust that a signed contract will be honored? Can you terminate an employee without triggering a drawn-out labor dispute? Can you move money across borders without arbitrary delays or unexplained holds?
I’ve worked in markets where institutional weakness made every operational decision more complex and every partnership more fragile. The GDP numbers looked great. The growth story was compelling. But the day-to-day reality of doing business required constant workarounds, personal relationships, and tolerance for uncertainty that most Western playbooks don’t account for.
Currency Stability Determines Financial Planning Horizon
Currency volatility is one of the clearest signals of how far ahead you can plan. In stable markets, you can project costs, revenues, and margins over quarters or years with reasonable confidence. In volatile markets, those projections can be obsolete within weeks.
If you’re paying staff in local currency but earning in dollars, a 20% devaluation can wipe out your margin overnight. If you’re importing supplies and the currency weakens, your costs spike. If you’re trying to repatriate profits and capital controls kick in, your cash gets trapped.
This isn’t a minor inconvenience. It shapes everything from pricing strategy to contract terms to how you structure partnerships. In markets with unstable currencies, businesses often operate in shorter cycles, hedge aggressively, or avoid long-term commitments entirely.
One client I worked with had built a solid operation in a Latin American market but hadn’t accounted for currency risk. When devaluation hit, their margins collapsed. We restructured pricing to include currency adjustment clauses and shifted more costs to local sourcing, but the lesson was clear: currency stability isn’t just a macro indicator. It’s an operational constraint.
Trust Deficits Change How You Build Credibility
In markets with weak consumer protection and high fraud rates, trust is expensive to build and easy to lose. People are skeptical of new brands, unfamiliar companies, and offers that seem too good. They’ve been burned before, and they assume you might be next.
This changes everything about how you enter. Digital ads that convert well in the US often fail in markets where people don’t trust brands they only see online. Payment friction is higher because people are cautious about entering credit card information. Customer service expectations are different because people assume you won’t follow through.
Building credibility in these markets often requires visible, tangible proof that you’re real and accountable. Physical presence helps. Local partnerships help. Transit advertising helps because it signals you’re invested enough to pay for sustained visibility. References from trusted community figures help.
In one case, a supplement brand I worked with struggled to gain traction in Mexico until we repositioned the messaging around family trust and traditional wellness rather than clinical performance. The shift wasn’t about the product. It was about understanding what signals credibility in a market where consumer skepticism is the default.
Regulatory Predictability Affects Risk Appetite
Some markets have clear, stable regulations that change slowly. Others have rules that shift without warning, enforcement that varies by region, or policies that contradict each other depending on which agency you’re dealing with.
Regulatory unpredictability doesn’t just create compliance risk. It affects how much you’re willing to invest, how quickly you scale, and whether you structure operations for long-term presence or easy exit.
In markets where regulations can change overnight, businesses often stay lean, avoid fixed assets, and maintain optionality. In markets where regulations are stable, you can build for the long term without constantly hedging against sudden policy shifts.
I’ve advised clients through scenarios where regulatory changes made previously viable businesses untenable within months. The companies that survived were the ones who had built flexibility into their operations from the start, not because they predicted the specific change, but because they understood the environment was inherently unstable.
Payment Infrastructure Determines Who You Can Sell To
One of the most underestimated factors in market viability is payment infrastructure. If your business model depends on frictionless digital payments and the market you’re entering is primarily cash-based, you have a problem.
In many emerging markets, credit card penetration is low, digital wallets are fragmented, and bank account ownership isn’t universal. People pay with cash at convenience stores, use mobile money platforms that don’t integrate with Western payment processors, or rely on informal transfer systems.
If you can’t accept the payment methods people actually use, your conversion rates will be terrible no matter how good your product is. This is why integrating systems like OXXO in Mexico or M-Pesa in East Africa isn’t optional. It’s foundational.
I helped a client entering Mexico realize that their entire checkout flow was built around assumptions that didn’t match local behavior. We integrated cash-based payment options, and conversion rates jumped immediately. The product didn’t change. The infrastructure did.
So What Actually Is an Emerging Market?
If you’re making operational decisions, stop thinking about emerging markets as a category and start thinking about specific conditions:
- How strong are institutions and how consistently are rules applied?
- How stable is the currency and how far ahead can you plan financially?
- How high are trust deficits and what does credibility require?
- How predictable are regulations and how much flexibility do you need?
- What payment methods do people actually use and can you integrate them?
These are the questions that determine whether a market is operationally viable for your business, regardless of what classification it carries in an IMF report.
Final Thoughts
The term “emerging market” is useful for macro conversations but nearly useless for operational planning. What matters isn’t the label. It’s the underlying conditions that shape how business actually gets done.
If you’re entering a new market and trying to figure out what you’re really walking into, don’t rely on broad categorizations. Look at the structural realities that will affect your ability to operate, scale, and exit on your terms.
Pholus helps founders and leadership teams assess market conditions that actually matter, decode informal systems, and structure operations for environments where standard playbooks don’t apply. If you’re evaluating a new market and need clarity on what you’re really facing, let’s talk before you commit resources.
