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How Good a Bet Was It to Enter an Emerging Market?

This year Western firms' giant bet on the emerging world will come under more scrutiny. Most multinationals are profitable in emerging markets. American firms, for example, made a 12 percent return on equity in 2012, roughly in line with their global average. But having grown fast, profits are now falling in dollar terms.

There has been a long bout of share-price underperformance as investors have lost their euphoria. An index run by Stoxx, a data firm, of Western firms with high emerging-market exposures has lagged the broader S&P 500 index by about 40 percent over three years. And the recovery in the rich world will mean there will be more competition for resources within firms.

All this will bring strategic questions into sharp relief. Divisional chiefs from Brazil or Asia will no longer get a blank cheque from their boards. Although the average company has prospered, there have been disasters; plenty of firms and some whole industries need a rethink. The emerging-market rush may end up like a giant version of the first internet boom 15 years ago. The broad thrust was right but some big mistakes were made.

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