BRIC Economies and Its Implications in Organizations - Essay Example

? BRIC Economies and Its Implications in Organizations Introduction BRIC is basically an acronym that clubs four countries Brazil, Russia, India and China. This acronym was introduced by O’Neill (2001) in a paper named "Building Better Global Economic BRICs" (OECD Insights, 2013). The term referring to these four countries is also known as “Big Four”. BRIC is in popularity nowadays as it shows transformation of economic power from G 7 countries to the developing countries. It is believed that BRIC countries will overtake the developed G 7 countries by 2027 (Molano, 2009). Countries like Turkey, Indonesia, Mexico and Nigeria who are known as the N 11 nations are also the contenders to the BRICs (NCBI, 2013). In 2010 South Africa was also included in this group and the acronym is now known as BRICS. It has captured major attention of political leaders, scientists and also the economists (California State Assembly, 2010). The BRICS nations are growing rapidly with a systematic growth embracing the global capitalism (Global, n.d). They are predicted to be the forefront of the world’s most progresses economies. China is now considered to be the second largest economy in the world in terms of Purchasing Power Parity (PPP). Although the per capita income of people living in developed countries is more than that of the BRIC countries but still there is considerable rise in the income of the middle income group people in such countries. Since the government of such nations is actively incorporating growth stabilizing policies, it is believed that India and China will soon emerge as the leading supplier of manufactured services and goods while Russia and Brazil may be the major suppliers of raw inputs (Academia, 2013). (Source: California State University, 2010) In the above graph the dark green bars denote the income of the BRIC countries and the light green bars indicates the income of the G 6 countries in terms of GDP. The income level of all the countries in the world will increase with a growth of the world economy. Till 2020 it is observed that the income of BRIC nations is less than half compared to that of the G6. The estimation from 2020 afterwards shows that the BRIC economies surpass half the income of that of the G 6 countries. Finally by 2040 the income of BRIC countries will be more than that of the G 6 nations (CIA, 2013). The Five BRICS Brazil being independent in 1822 is now considered to be the most populous country in South America. It is perusing both industrial as well as agricultural growth and is now well known for its growing development within its boundaries. Brazil has become a strong economy in recent years exploiting its large natural resources and substantial labor force to work. There are still some problems like high inequality of income and hence a very excessive amount of corruption still now persists in this country. Brazil is expanding its world markets in sectors like agriculture, mining, service as well as manufacturing etc. The nation has also achieved a macroeconomic stability and has been successful to raise its foreign exchange reserves. Although Brazil has grown rapidly in 2007 to 2008 and has become a global creditor but still the recent economic recession has hit Brazil. Recession has touched Brazilian economy in two quarters. But it soon recovered its economic growth and has now gained the confidence of investors. In 2010 the GDP of Brazil experienced 7.5% growth, which is considered to be the highest in the last 25 years. The high level of income inequality in Brazil has declined in the last 14 years. The high interest rate of the country has involved in large amount of capital inflows and hence appreciated the economy. This has however disturbed the domestic manufacturing and compelled the government to intervene in the matters related to foreign exchange markets and has also lead to rise in taxes of the capital inflows from foreign countries. India is also considered as a member of BRIC, it terms of nominal GDP it is the ninth largest country in the world and its purchasing power parity is third largest in the world when compared with other economies. Its period of independence is from (1947-1991) and it has a mixed economy. Its GDP approximately accounts to $752 billion. Economic liberalization had begun in India from 1991 onwards; it is integrating itself with the global market at a steady pace. The government of India is actively planning policies that aim to reduce its poverty, fiscal deficit and strengthen its infrastructure. India has achieved appreciable growth in sectors like IT, telecommunication, pharmaceutical and biotic. India also comprises strong scientific and technological skills. This nation is considered to be the 19th largest exporter and its import capacity is 10th largest in the world economy. Recently the growth of Indian economy has slowed to around 5% in the year 2012-2013(USEMBASSY, n.d). The reforms of 1991 could not help in the liberalization of FDI (Foreign Direct Investment) in India but the Foreign Investment Promotion Board has been established with the authority to accept FDI proposals. The major imports of Indian economy are gold and petroleum (Srinivasan, 2001). The state’s finance minister is actively implementing steps to reduce unproductive gold imports in the country. The share of major GDP of India comes from the agricultural sector. Then after agriculture the second sector contributing to GDP is service or tertiary sector. The industrial sector of the nation is still not well equipped as because from the post reform period the country is facing severe land acquisition problems (USTR, n.d.). The economy in China is not a very free economy (EIA, 2013). The legal system or the legislative system is influenced by the political pressures in the economy to a large extent (Heritage, 2013a). There is widespread corruption in the country. Considering the growth of the economy it is found that the growth of China is pulled more by the domestic consumption than the extent of investment in the country (World Bank, 2013). Chinese economy has now overtaken the Euro area and it is believed that by 2016 it will turn out to be the largest world economy (OECD, 2013). It is observed that the interest rates on the loans charged by Chinese financial lenders like the banks are very high and in the recent regime thus investments has almost frozen up (NPR, 2013). The economy of China is growing at a robust rate. The country has experienced 10% growth in GDP during the last few years as estimated in 2011(Morrison, 2012). It is one of the leading trading powers in the world (China imports are comprised of mainly agricultural products (USITC, 2011; Liu and Cheng, 2011). The economy of Russia is also a fast growing economy but it is not a free economy. The major exports of Russia are oil and gas (Heritage, 2013b). But it seems that the long term economic development will be fragile without proper and organized system of legislation. There are many sectors of te economy that are owned by the government, it is found that these state owned sectors often dominate the financial sectors (Cooper, 2009). The average growth of GDP of Russia is approximately 10% in the recent years. From 2010 onwards South Africa is also included in the acronym of BRIC and now this is termed as the BRICS. South Africa is a nation with middle income and is now considered as an emerging economy. It is rich in natural resources. But there are some problems that arise in the economy even now like there is large scale of unemployment in South Africa with about nearly 25% workforce being unemployed. Poverty and inequality in income still persist in the economy. $592 Billion is the estimated GDP (in terms of Purchasing Power Parity) in South Africa in 2012 (Carmody, 2013). Implications of Organizations in the BRICS The five BRICS has a massive role to play in the world economy in the last few years, it’s continuously incrementing (SAFPI, 2013). The BRICS comprise of 40% population in the globe and constitute to a large share of the total GDP in the world. Even in this era of global financial crisis these economies have shown substantial growth. Figure 1 – GDP of BRIC (Source: Author’s Creation) The above bar diagram shows the GDP of China and India is growing with a substantial pace in the last three years and hence these economies have become good fields to attract foreign companies (FOCAC, 2012). This is the reason for which many companies all across the world are getting interested to invest in the BRIC economies. These economies have enormous stocks of labor force and natural resources. The countries also have a large section of affluent middle class people that makes a good consumer market. The state authorities of these nations also encourage a substantial amount of investment in research and development. Multinational organizations operating in BRICS The BRICs with their programs help the international companies to invest and work in these economies by providing them with proper insights, knowhow and key facts. These programs comprises of both macro and micro level details about these economies. It has now become essential for companies to understand the BRIC economies even better. These programs help the companies by giving them an insight into the sectors and markets that have greatest opportunities for them. They help the organizations to know how to make partnerships at the local level and achieve benefits from them. The companies are given idea about the ways in which they can compete with the ‘emerging giants’ or the domestic organizations like Tata in India etc. The programs help the firms to understand the role of government in these nations. These companies are also given ideas about the role of public sectors units in these nations. The companies with such details can value opportunities and build strategies in their business operating in these firms. The companies built networks with public as well as with private sectors that benefits them to a large extent. They often expand their investment opportunities by combining their investment schemes in all four BRIC economies. Companies like Apple, Contingent, Dell, Intel, Gempact etc are multinational firms who are operating their business with good profit in the five BRICS. Then home base MNC’S are also enjoying the fruits of high growth and progress in the BRICS. They are benefited by the government subsidy policies. Rather the expanded domestic as well as the foreign market helps these companies to increase their profit and expand their branches all across the world. Lukoil in Russia, Embraer in Brazil, Huawei and Haierfrom China are examples of companies that have now become emerging giants in the world economy. Indigenous Organizations Operating in BRICS Indigenous firms are the firms that operate within the domestic territory of a country. It is very obvious that the domestic companies operating in the BRICS have a better knowledge than that of the companies operating from outside. The domestic companies are well aware about the rapid changes that take place in the BRICS both in terms of consumption and production (BDB, n.d.; Thornton, 2012). The domestic companies of china are expanding with the growth of the nation according to the survey made by the Standard Chartered shows that the companies has increased their wages almost by 10% in the last year. The growth of Brazil is slower compared to that of the market but the government is taking measures to soon boost up the economy. Companies like Acesita, Agrale Automakers and parts are companies operating in the core sectors. The state has taken up correct measures to widen the scale of operations in such companies. The major advantage that the Indian companies have over the companies in China is its government. The stock market of India is aligned with that of United Kingdom. Conclusion Although observed BRIC economies as modern and recent; still they are struggling due to the inefficiencies in catering to the third world countries in recent times. Although due to the recent recession the progress of these economies has slowed down but still the BRICS have sustainable growth (Reisen, n.d). The political legitimacy of these economies is not sustained well because of the growing pressures in the rising growth rate. The level of corruption in these nations is high (Sauver, 2013). The property rights of these nations are not well defines. The market for labor is highly fragmented. Rather political dilemmas arise due to the fact that all the economies have a dual economic system. On one side there exists a rural poor population and on the hand it has an informal urban sector (HSBC, 2012). It is believed that by 2050 the BRICS will become the major economies in the world and hence investors can always park their Greenfield investments in such these countries (Shabodien, 2013). Since China is one of the fastest growing economies in the world investors who want to invest in diversified portfolio must always invest in China for a horizon of long time. Thus organizations should realize that consistently increasing profit can no longer be achieved by investing only in the developed economies. They should study about the economic details of the BRICS and make new investments in these economies to achieve a sustainable growth in future. Reference List Academia, 2013. Observations in Banking in BRIC Countries. [online] Available at: [Accessed 17 June 2013]. BDB, No date. Company with a Mission. [online] Available at: [Accessed 17 June 2013]. California State Assembly, 2010. Emerging Foreign Economies. [online] Available at: [Accessed 17 June 2013]. Carmody, P. 2013. 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