A new power has slowly been creeping up in the world. Made up of four components, each with its own skills and resources, this superpower could well overtake the world's most developed economies in only a matter of decades. The collective is known by the acronym BRIC -Brazil, Russia, India, China and the economists believe it will be at the center of global business in the future.
The origin of the title BRIC -Brazil, Russia, India, China- and the reason behind the countries' grouping comes from Goldman Sachs chief economist Jim O'Niel who first coined the phrase in research in 2001.Goldman Sachs continues to argue that by 2050 these four economies combined could eclipse the combined richest countries - and most would agree. The term has become recognized globally as the future business , although there are questions as to whether Brazil and Russia deserve their position in the group.
Taking the four individually, China undoubtedly holds the strongest position , taking the lead in labor force, exports and imports. India has perhaps the biggest potential for growth, but needs to overcome significant challenges in terms of governance. On the weaker side Brazil's economy has been growing much less quickly in the last decade than the other BRIC countries and Russia depends heavily on oil production suffered considerably during the recession. Its economy shrank by 9% in 2009, raising further questions about its position to the group. However, the International Monetary Fund predicts that Russia could quickly return to pre-financial crisis level with the growth of 3.6% in 2010.
The rest of the world-not least the UK with its declining manufacturing base and the threat of future skills shortages-needs to sit up and take note of the BRIC countries. According to Goldman Sachs between 2000 and 2008 the group contributed almost 30% to global growth, compared to 16% in the previous decade. And since the start of recession in 2007, 45% of global growth has come from the four countries. The BRIC economies are now stiff competition in many key industry areas and more, such as finance, and engineering , look set follow. The existing richest countries have long been aware of the potential of these countries as suppliers of cheap labor and low value goods, but businesses are now looking for much more.
But while the growth and future potential of all these countries is undeniable , as well as opportunities for savvy entrepreneurs and organizations looking to expand into new markets, there are associated risks. Can, for example , the BRIC economies' infrastructure cope with such sudden growth? Are their regulations and standards sturdy enough to provide the quality goods and services that developed countries are now used to? And what about their governance structures and employment practices?
The People challenge
As every quality professionals knows, building a sustainable and successful business requires more than cheap resources and new market opportunities. The main driver of success is people and this is a concept that BRIC economies need to learn. Countries such as UK have a wealth of talent to draw upon, from skilled graduates to managers with years of experience and CEOs with a lifetime of knowledge to draw upon. While BRIC economies don't yet have this talent bank , some are becoming aware that they need to develop one.
However, the situation is improving as Andrew Gould, chairman and CEO of Schlumberger, confirmed at a recent Goldman Sachs BRIC conference. He discussed the large number of employees the company has drawn from the BRIC economies , particularly Russia and India due to acquired services in these countries. He said: "The quality of graduates that we hire can match, if not surpass, anything the West can produce"
This certainly wasn't the case a decade ago. Skilled people from BRIC economies used to seek out work in developed countries, but this trend is now changing. And as UK has introduced a new points-based system for immigration, this could create a greater impetus for keeping skills in developing economies and, conversely a bar to the UK's ability to attract talent and skills from BRIC countries.
India has the lead in terms of a skilled workforce among the BRIC nations. In the last decade the country has seen huge growth in the number of young people educated to degree level and who are increasingly staying put in the country. Although it is widely accepted that India is only just leaving the first stage of economic development, it has a hub of call center activity for decades, plus it will soon have workers with longer term industry experience bringing more specialized skills. Indeed, other countries are already approaching India for its skills in computer technology and healthcare. The Indian government also understands that improvement in education standards is a condition of continued growth and is currently hoping to attract help from foreign universities to educate its hungry-to -learn population.
But the skills story is very different for the rest of the BRIC family in Brazil,the quality of education is extremely poor. and securing a skilled workforce is a challenge. Similarly, Russia is high dependence on oil means that it needs to diversify and address its manufacturing skills base in order to become the superpower it could be. In terms of manpower, Russia is also facing the challenge of steep population decline: according to Sergei Zakharov of the Institute of Demography at Moscow's Higher School of Economics the numbers are "frightening in terms of the country's future."
Futher of workforce challenges come in the shape of people management and employee satisfaction. These concepts are relatively new to BRIC economies and often their political infrastructures don't necessarily allow for the flexibility that growing industries need. For example, a recent Chartered Institute of Personnel and Development report entitled Talent Development in the BRIC Countries states:" "Part of the problem in the Brazilian workplace is that legal, regulatory, and cultural barriers act against incentivising good performnce. Hiring and firing is complex, with labor law frozen in the 1940s model and based on large scale manufacturing." Building service industries is therefore challenging in Brazil, although some organizations are still going ahead to introduce performance management policies and appraisals.
There are also difficulties in China according to CIPD report, with only 4% of the workforce composed of skilled technicians ,managers and salespeople, whereas the country needs almost 20% to possess these skills. And although China has a huge pool of labor on which to draw, employees are frequently found working in bad conditions with poor pay in a very controlling environment. The number of suicides in iPhone factories has been in the news recently, alongside riots in China over poor labor conditions and these are just two examples. Productivity is therefore nowhere near as high as it could be and neither is product quality. The country has also been attracting undesirable attention from around the world in terms of ethical supply chains.
Doing business
People aside, BRIC countries have many other quality challenges. The last decade of extreme growth has caused businesses worldwide to flock abroad to seek out investment opportunities and low-cost manufacturing. But while the BRIC nations provide opportunities , caution is wise.
On the positive side , the automotive sector in the BRIC countries is a good example of the global manufacturing industry's changing fortunes. During the recession the car industry has suffered significantly , particularly in countries such as UK and US, and is yet to recover. In marked contrast, according to a report by the Boston Consulting Group, in 2009 Brazil's automotive market grew by 11% , India's by 13% and China by a giant 42% . Russia is perhaps the BRIC exception, although its car market is expected to grow by 15% through 2014.
There is evidence, however, that traditional models and methods of production are not suitable for all of the BRIC economies. Different customer requirements from each country can drive up the cost of production. According to the Boston Consulting Group, in contrast to Western markets, Brazilians refer hatchbacks, Indians want low-cost mini cars and the Chinese luxury models. Sourcing parts is therefore not as cheap as might be assumed and it is only in Brazil that global car makers save on manufacturing . Add to the higher quality assurance costs that the more developed markets require of suppliers and an automotive manufacturer would probably pay more for car made in BRIC countries.
This brings us to outsourcing and the supply chain. We have already mentioned China's poorly paid workforce, the possibility of substandard goods, and the risk of becoming entangled in unethical supply chain and these problems face the other three countries too, with outsourcing and procurement presenting extra challenges. Another significant barrier to trade for BRIC is the problem of international standards.
To take international standards first , the problem here lies with different countries' expectations. While ISO standards are indeed international , some BRIC countries-alongside others the world over -still maintain their own standards and organizations are often required to conform to several for different customers.This is a particular problem in Russia , a country that is extremely reluctant to accept international standards in preference to its own, particularly in the oil and gas sector. But unless it does decide to accept such standards, it could hugely limit its scope for international trade.
There are many other regulatory quality challenges for the BRIC economies, such as intellectual property management and information security, but energy management is very topical. As any economy grows, so does its energy consumption and so far the BRICs have a poor record of sustainability awareness. Collectively their emissions are set to beat that of the rich nations by 2030 and last year China overtook the US as the world's largest energy consumer. India is not far behind and little has been done so far to reduce emissions in either country. However, despite reports that its environment is still deteriorating. China has announced that it is hoping to enter an era of environmental enforcement and perhaps fellow BRIC nations will follow its lead.
Beyond BRIC
Despite the quality challenges , there is no doubt that the BRIC economies are on the up, but they might not be alone for long. There are a number of key players to watch, with South Korea, Mexico and Vietnam among the fastest growing economies.
South Korea has urban population levels that rival those of G8 countries and it has an exteremely high level of employment. Coupled with this is its own central bank's estimate that exports will by 11.9% this year , with capital investment up by 13.4% . As well as its giant corporation such as Samsung and Hyundai. south Korea has strong ties with China , meaning that as long as China grows, South Korea benefits.
At the same time Mexico has been enjoying similar strong growth. According to the International Business Report , it now has the edge on Brazil in opportunities for investment and development. The country's economy has been extremely stable for the last few years and has scored highly in terms of ease of doing business and economic freedom. Mexico is also a member of the North American Free Trade Agreement and , being liked to the US just as South Korea is linked to China, is in strong position.
Perhaps a more surprising candidate is Vietnam . But Vietnam GDP is second only to China in Asia , it joined the World Trade Organization in 2006 and has started up a free-trade negotiations with the European Union . Globally , more supply chains are shifting from China to Vietnam, as it is often now the cheaper option. The country has attracted significant foreign investment and many global organizations are starting production in the country. With 60% of the population under the age of 30 and a strong education ethos, Vietnam certainly looks set to be a major competitor in the future.
But this potential ne "BRIC" economies face similar challenges to the current four. Growing industry means increasing emissions and although these countries enjoy a fairly urban population , there is still significant inequality and high numbers of very unskilled workers across each country. As with any developing economy, much of what is involved in doing business is also still unknown., which presents significant risks both for those doing business in those countries or looking to outsource. if you are considering for opportunities abroad, take the time to plan, consider the risks and really understand the culture or you might just find yourself coming up against the BRIC wall.
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| Thank you NTU for the Awards |
Excellent over view of BRICS and other Developing Economies.
TumugonBurahinDr.A.Jagadeesh Nellore(AP),India
E-mail: anumakonda.jagadeesh@gmail.com