International Management the BRIC Countries Essay
- Length: 10 pages
- Sources: 10
- Subject: Economics
- Type: Essay
- Paper: #68441697
Excerpt from Essay :
This is attractive because Russia has long been industrialized, so its managers and workers are capable of functioning in that environment. There are many natural resources that firms can take advantage of as well. Additionally, Russia is a gateway to other markets with which it has close trade ties, throughout the former Soviet Union.
India is the second most-populous country in the world with 1.2 billion and may eventually overtake China in that regard. This alone makes it enticing. Certainly, its per capita GDP does not, as most Indians are dirt poor. What makes India attractive is the country's high level of economic growth. India has the world's 5th-largest GPD and it grew at 10.4% last year (CIA World Factbook, 2011), accelerating an already hot pace. This economic improvement has lifted millions of Indians out of poverty in a very short period of time. In under ten years, the number of middle class households had more than tripled. There are now over 200 million Indians living in middle-class households.
Despite these successes and the much-publicizing offshoring of call centers, India attracts relatively little foreign direct investment, sitting at 23rd in the world, between Poland and Saudi Arabia. While the country is in the World Trade Organization, it still has a high level of government involvement in business, a holdover from the days of near-Communist Indian governments. This heavy involvement, combined with rampant corruption, presents unique challenges to firms in the Indian market. Transparency International rated India's corruption perceptions index at 3.3. While not the worst in the BRICs (Russia at 2.2 is worst), it still ranks lower than either Brazil or China and far below Western markets.
Competition in India is also characterized by a high level of government involvement. Many firms form joint ventures with local companies in order to help navigate the political system, reduce political risk and assist with India's complex distribution networks. At the retail level, however, while things are competitive once a local partner has been established there are many channels that can be used to distribute. This is especially true in the country's cities, where most of the middle class and upper class Indians live.
India has, in recent years, attracted service industries, because its population is relatively highly educated and English-speaking, yet works for a low wage relative to workers in the U.S., Canada or Britain. The IT services industry in India has grown to become a $60 billion industry (Wharton, 2011).
For the foreign manager, India is a difficult country in which to operate because of the vastly different culture, the high levels of corruption and the heavy government involvement in business. However, the middle class is growing rapidly, and the country is well positioned to become a dominant player in the global services industry. As such, India remains a compelling proposition if a local partner can be found to navigate the complex Indian political environment.
China is the world's most populous country and its second-largest market (CIA World Factbook, 2011). It has also become the world's manufacturing center. It has the 9th-highest rate of foreign direct investment, the 2nd-most exports, the 3rd-most imports and the economy is growing at over 9% annually. It is this growth rate that makes China such an attractive market for international business, and the country's low cost of manufacturing makes it attractive for outsourcing of production.
As with the other BRIC countries, China still has high trade barriers despite recently joining the WTO. As a communist country, the government is heavily involved in most aspects of Chinese business. Foreign firms must either find a local partner or outsource to Chinese firms entirely. The cultural barriers between China and the West are high, and difficult to overcome because there are so few capable Chinese managers -- they often must be imported from Taiwan or Hong Kong.
Competition is fierce in China, as there are local companies saturating every industry. In addition, the lack of intellectual property rights makes China a difficult proposition for companies that rely on brand strength for competitive advantage. The Chinese consumer responds to different triggers as well -- there is a high learning curve and those Western firms that have been successful have generally utilized local partners to overcome the learning curve.
China is an excellent place to manufacture for a number of reasons. The first is that the country has a low cost of manufacturing, although it is beginning to rise after several years of robust growth. Rising labor costs actually threaten the growth that China has experienced, at a point before the entire country has become wealthy (Business Week, 2006).
Perhaps more so than in any other BRIC country, managers in China must face the challenge of building domestic markets as a hedge against foreign exchange rate risk. The yuan's soft peg to the dollar is not sustainable over the long-run, so holding currency in the yuan until it appreciates it a good business move. With the other BRIC nations, operating hedges are not as valuable either because their currencies are at more sustainable levels or because the currency is just too risky to hold (rupee). In addition, capital controls mean that foreign firms must keep their money in China, and this again highlights that foreign exchange rate risk management is one of the most important tasks for managers dealing with the BRIC countries.
The BRIC countries are all different, but for international managers it is important not to just understand the differences but the similarities as well. On the negative side, all the BRIC countries are corrupt and all still have high levels of government involvement in the economy. Local partners are usually needed to enter these markets because otherwise the learning curve is too steep. Managers should already have extensive experience in their country of expertise.
Yet, the BRIC countries have tremendous potential as well, since all are large, wealthy markets with untapped potential. International managers simply need to know how to unlock that potential without experiencing any pitfalls. They need to understand the local political environment and have a strategy for dealing with bribery and other forms of corruption.
In addition, managers operating in the BRIC countries need to keep pace with the changes in the markets, as these countries are all experiencing rapid changes as they modernize their economies, improve distribution, reduce trade barriers and allow more new entrants into each business. That said, there is tremendous potential in each of the BRIC countries, and any manager that is skillful and experienced enough in dealing with the country should be able to help his or her country in taking advantage of the opportunities these countries represent.
Overall, it is likely that the predictions of greatness for the BRIC countries will hold. While each holds risks, these risks can be managed with skillful management, leading to success in the long run for firms that want to operate in these robust growth countries.
Business Week. (2006). How rising wages are changing the game in China. Business Week. Retrieved December 7, 2011 from http://www.businessweek.com/magazine/content/06_13/b3977049.htm
CIA World Factbook. (2011). Various pages. Retrieved December 7, 2011 from https://www.cia.gov/library/publications/the-world-factbook/geos/br.html
GlobalSherpa.org (2011). BRIC countries -- Background, latest news, statistics and original articles. GlobalSherpa.org. Retrieved December 7, 2011 from http://www.globalsherpa.org/bric-countries-brics
Joffe-Walt, C. (2010). How fake money saved Brazil. NPR. Retrieved December 7, 2011 from http://www.npr.org/blogs/money/2010/10/04/130329523/how-fake-money-saved-brazil
Prasad, B. (2011). Russia set to enter WTO: Approval expected. International Business Times. Retrieved December 7, 2011 from http://www.ibtimes.com/articles/262816/20111207/russia-set-enter-wto.htm
St. Petersburg Times. (2010). Russia low on globalization report. St. Petersburg Times. Retrieved December 7, 2011 from http://www.sptimes.ru/index.php?action_id=2&story_id=30732
UNCTAD. (2011). World investment report. United Nations. Retrieved December 7, 2011 from http://www.unctad.org/Templates/Page.asp?intItemID=1465
Wharton. (2011). India's IT services: Shaping up for the next big push. Knowledge @ Wharton. Retrieved December 7, 2011 from http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4573