Doing Business in Emerging Markets — case in point, the BRIC (Brazil, Russia, India & China)
The BRIC grouping is not a political alliance. The nations in this group have no sworn allegiance to do business with each other, nor do they share any major cultural similarities. But the BRIC is not to be taken for granted. The term was first used to describe these four nations in a Goldman Sachs report of 2001 when the writer projected Brazil, India, China, and Russia to be uniquely positioned to grow their economies to the status of major economic powers by 2050.
This essay highlights the reasons for this growth (focusing on China) and then looks at the opportunities and challenges for the western economies trying to do business with the BRIC.
As of 2010, South Africa was included in this grouping, and the term now referred to as the BRICS.
Reasons for the economic growth in the BRIC
China and India have been most remarkable in the economic growth story of the BRIC states and boast some of the biggest numbers with regards to population size, and GDP increase in the last decade. Also, staggeringly impressive is the number of new middle-class entrants that these two nations have churned in the last ten years. As impressive as these numbers are, there seems to be a formula to the growth patterns:
1. Focus on Manufacturing and Industrialisation: Especially for China, India and many countries in the East, the gradual trend over the past few decades has been to position themselves as the manufacturing hub of the world. China in the late ’80s had a large population of a young workforce and a low cost of living. This situation presented the ideal premise for exploitation by many large companies (especially western brands) willing to make profits by the low production costs in the Chinese factories. This situation led to a boom in the Chinese economy.
2. Extremely Low Impedance to Business Setup: At the height of the industrial revolution, China became the de-facto destination for major brands to outsource production, due to the lax legislation regarding intellectual property, and patent infringement. Also, many barriers to business setup were removed to facilitate investment in the region.
3. Large Population of Young Working Class: As already stated in an earlier point, the rural population of China was growing, and many of the youth began moving into the cities in search of jobs and livelihood. These numbers were willing to work for a meager wage, to the benefit of the economy.
4. Political Adaptability: In places where extensive bureaucracy and advanced democracy would hinder the quick decision making of the government with regards to policies, China had the advantage of the one-party political system which positioned the government to make decisions in the shortest possible time and without much public objection.
Opportunities for the West to do business in BRIC
1. New Markets for Western Luxury Brands: The unusual business environment of the BRIC means that western economies can now explore the possibilities that have been created as a result of the increasingly wealthy and middle-class bracket within the BRIC nations. China in 2019 for the first time, surpassed the United States as the nation with the most millionaires. This means that there is now a new bracket of wealthy, and ultra-wealthy folk within these emerging economies for goods and services enjoyed and produced in the west. An Example of this will be the growing number of Italian, and French fashion and retail stores that have emerged in Hong Kong, Beijing and many prominent cities of Asia.
2. Investing in Local IT Partnerships: The West has dominated tech for a long time and the Silicon Valley is testament to this, but the BRIC market (especially China) is a whole new world Western Tech companies seeking to scale up can take advantage of in the form of partnerships and collaborations. An example of this local partnership is between Uber and Didi Chuxing. After many months struggling to get a foothold in the Chinese market, Uber partnered with the local competition to offer its services through the Didi Chuxing app, and this collaboration is one of the successes within China.
3. Investing in Infrastructure: Instead of simply outsourcing manufacturing, Western companies can take it a notch by investing long-term Infrastructure into the economies of the BRIC nations. One company that has taken this approach is Tesla; to reduce the cost of the Tesla vehicles sold to the Chinese customer from their factories in the US, Tesla has invested in full-blown factories in China, and thereby cutting back a third of the cost of the car to the Chinese buyer. The first cars from this new factory rolled out late 2019 -a clear win-win situation for Tesla’s business and the Chinese economy.
Challenges that the developed world may face when doing Business in BRIC
In most parts of the developed world, certain barriers to growth and business that plague emerging markets have long been surmounted and forgotten. Advancement in the political framework, education and the legal maturity of the society have ensured that some of the most common barriers to growth have been eliminated. But these issues may need to be dealt with again when seeking to do business in a BRIC country. A few of these challenges will be:
1. Bribery and Corruption: Corruption is a global plague. But it is prevalent in emerging and poor countries where the Rule of Law and the Political framework that ensure Accountability are at the infantile stage of development, are non-existent or have simply not been empowered to function properly. For most Western businesses this is the foremost shock they will encounter when they attempt to engage with an emerging economy.
2. Clash of Cultures: The culture of the local people influences greatly every aspect of their lives, even in the business environment. For example, a US company seeking to partner with a Chinese company may be taken aback by the Chinese’ approach to hierarchy, as displayed in their relationship with superiors. This ultimately influences the flow of information within a company and the rate of decision making.
3. Tariffs, Duties, and Taxes: It will come as no surprise that some of these nations will have unrealistic measures in place to ward off foreign competition from some of their coveted local industries by imposing high duties and taxes for Western businesses seeking to do business with their countries. This situation will pose a big barrier to foreign investment.
Conclusion
The statistics show that BRIC is here to stay. And if trend forecasting is anything to go by then we can be sure that as the economies of the world even up, due to the global opportunities that access to internet connectivity, education and electricity offer, more and more small and developing economies will over the next decades be making this leap into the BRIC class.
It is safe to point out here also, that, China again looks poised to outrun all the other BRIC nations into a class of its own judging from the metrics we can forecast. These new horizons present the world with possibilities that though new, are things we can all look forward to.
References
Baskim, J. S. (2016, May 9). Emerging Markets Are Innovation Crucibles [Article]. Retrieved from https://www.forbes.com/sites/jonathansalembaskin/2016/05/09/emerging-markets-are-innovation-crucibles/#d1268e458b67
Harding, R. (2017, November 23). How demographic change will drive world trade [Article]. Retrieved https://www.ft.com/content/57c516fc-a2b2-11e7-8d56-98a09be71849
Heeb, Gina (2018, May 25). The world’s working-age population is set for a slowdown — here’s what that could mean for the global economy [Article]. Retrieved from https://markets.businessinsider.com/news/stocks/world-demographic-change-what-it-could-mean-for-global-economy-2018-5-1025317988
Majaski, Christina (2019, August 22). Brazil, Russia India, and China (BRIC) [Article]. Retrieved from https://www.investopedia.com/terms/b/bric.asp
VelocityGlobal (2019, March 8). Taking Advantage of Emerging Market Opportunities [Article]. Retrieved from https://velocityglobal.com/blog/taking-advantage-of-emerging-market-opportunities/
