The Economic Performance of BRIC Countries - Essay Example

Many See Globalization as an Opportunity for International Business, but it is clearly a Threat. Do You Agree?” Explain Your Answer With Reference tothe Economic Performance of so Called BRIC Countries. Name: Course: Tutor: Institution: Date: “Many people see globalisation as an opportunity for international business, but it is clearly a threat.” This study argues against the statement of using the hypothetical cases of the economic performance of BRIC countries. The study will first examine the international business opportunities fostered by globalisation and explore the threats it poses to the countries. Finally, the study will draw a conclusion based on these analyses. Globalisation is associated with economic growth, international business and financial market. It refers to a cross-border increase in free movement of services, products, labour and financial capital (Magazine, Inc., 2011). It is mainly driven by the flow of technology and ideas across the border. Globalisation can be examined from different perspectives such as economic, political and social perspectives. Also, globalisation is evaluated using four dimensions such as personal contract, political commitment, technological connectivity and economic arrangement (Beausang, 2012). Based on these globalisation perspectives different countries are ranked differently and score differently under various aspects. This implies that an individual country cannot score highly in all dimensions of globalisation. According to Leaders Magazine, Inc. (2011, p.68), “globalisation has a real impact, creating both opportunity and risk.” As countries’ economies expand in size and growth rate, they increase their relevance in the world economy demanding for robust political expression that matches their economic status. Despite the challenges of globalisation, many countries have benefited a great deal from engaging in trade relations with international nations. Globalisation is one the trends of the 21st century which is characterised by escalating web of connections between the developing and the developed countries of the globe steered by rapid transnational development (Chen & De Lombaerde, 2014). Technological advancements and declining transport and communication cost have intensified collaboration between international communities. Globalisation has influenced all aspects of human lives including social, political and economic aspects (European Union, 2012). The effects of globalisation on business are of more significance in this study. Various studies have established various benefits and challenges of globalisation in business. The term BRIC is an abbreviation used to refer to a group of four large developing countries that in, include Brazil, Russia, India and China. Demographic and economic potential to be included as the largest and most influential countries in the world in the 21st century are the distinguishing factors of BRIC from other developing nations (World Bank, 2015a). These four countries consist of 2.8 billion people thus making about 40% of the world population. In terms of the land area, they occupy more than 25% of world land area and accounts for about 25% of the global gross domestic product (GDP) (World Bank, 2015a). The country’s population size and demographic have direct effects on the economic potential of the country and act as a driver of economic growth and development. Globalisation is a trigger for economic growth because it promotes competition, the flow of technology, integration of culture trade and investment. The rapid growth of the non-BRIC market is evolving as hot spots for global businesses because of perception that they are more integrated internationally on technology, investment and trade (Chen & De Lombaerde, 2014). These countries including Turkey, Mexico and Indonesia have demonstrated rapid growth compared to BRIC Countries such as China in terms of GDP. Other countries such as Venezuela, Peru, some African countries, Colombia Vietnam and Malaysia are re-adjusting strategically to attract global investors (Leaders Magazine, Inc. 2011). Therefore, foreign investors are targeting strategic countries that they perceive to be offering best investment opportunities because of predicted quick economic growth. Globalisation has successfully set up its position in the international markets through the BRIC nations. The formation of BRIC led to strengthening of the countries’ political power against the influence of developed countries. Despite the differences between the BRIC members, they established strategies to overcome the Western influence (Leaders Magazine, Inc. 2011). This contributed to economic growth and increased the domestic output of the member countries. For example, between 2001 and 2013 the BRIC nations experienced a significant growth in domestic output from $3 billion to $15 respectively (Kunnanatt, 2013). The individual countries have benefitted immensely from the global market. For example, Brazil and Russia focuses on the supplies of raw materials whereas, China and India manufactures products at cheap rates and sells them in the international markets so as to earn huge revenues (Beausang, 2012). According to Beausang (2012), globalisation continues to describe the business landscape with increasing levels of international trade, labour and capital integration. Through globalisation, countries take advantage of wide market and produce goods or services that they have comparative advantage and exchange the goods which they do not produce with other countries (Hamilton and Webster, 2012). This has resulted in unprecedented economic growth across the globe since producers have a wide market for their goods while consumers have a global market from which they can obtain products and services to satisfy their needs. For example, the BRIC countries have such as China and India have concentrated on the production of labour intensive goods due to surplus labour in those countries while they technology from the Western countries. Currently, the Cheap Chinese products are sold in the international market to serve the interests of the low-income consumers (Carmody, 2012). Being a member of an international community gives individual countries an opportunity to explore avenues to strengthen business ties. The country can take advantage of its position to influence international trade policies to achieve better economic performance (World Bank, 2015b). Globalisation has offered opportunities for international communities establish peace through collaborations and regional integrations such as the case of BRIC countries. These international integrations promote cool business atmosphere across the globe resulting in better trading opportunities (European Union, 2012). Furthermore, it enables international communities to come together and commit resources to getting solutions to various issues affecting businesses. Globalisation offers developing countries opportunity to borrow policies from developed countries and apply them to their development agenda to achieve a higher level of economic growth (European Union, 2012). For example, the economy of Russia was considered as uncertain about the positive economic growth but due to the high educational policy as well as the stable macroeconomic policy, there is an increasing growth rate in Russia. Brazil has been focusing on the social sector, education and poverty reduction to follow the path of development. On the other hand, developed countries are working on strategies to improve the international market and developing products or services for the global market (European Union, 2012). For example, BRIC has been a central focus for the developed and they view these communities as a potential market for their high-technological manufactured products. Economic globalisation offers the opportunity for effective and efficient allocation of human, financial and physical resources to a larger global market. The global competition nurtures invention and advancement of goods, services and the organisations (Carmody, 2012). These market instruments contribute to international and economic development as well as improvement in standards of living. Globalisation contributes to economic growth through an increase in volumes of international trade, expansion of companies in developing countries and increase in intensities of foreign direct investments (FDI) (World Bank, 2015a). Therefore, globalisation has opened up the international market thus offering opportunity for transnational companies to make their investments in different companies. Consequently, this has expanded international trade through increased business activities between the multinational corporations and the subsidiaries business in different countries (World Bank, 2015b). Consumers can get various products and services from the international community that lead to improvement in standards of living (Leaders Magazine, Inc. 2011). Furthermore, the increased business activities generate revenue for citizens hence resulting in the overall growth of the economy. BRIC countries merged to gain stronger economic and political influence in the world. It has increased access to human and financial resources for development. For example, in 2013 the BRIC nations formed an agreement for the establishment of development bank that is aimed at mobilising resources for infrastructure development in the nations (Chen & De Lombaerde, 2014). Also, the BRIC countries have an estimated GDP of about $14.8 trillion which is expected to continue growing due to economic integration. Furthermore, this has been largely contributed by the BRIC ability to attract FDI as developed countries focus their investment programmes in BRIC nations (see Appendix 1 FDI of BRIC) (World Bank, 2015a). Globalisation has contributed to the massive movement of the workforce across the border in search of better employment opportunities (Hamilton & Webster, 2012). Also, scholars cross borders to satisfy their needs for better education and employment in various countries. This is a common phenomenon in developing countries where people are moving to cities and big towns to render their services to companies serving the global market or foreign transnational companies serving a local market. For example, in China many people move from cities to visit their families for Chinese New Year and Spring Festivals (World Bank, 2015b). Therefore, globalisation has facilitated the growth of business and development of new business opportunities because of availability of labour force. Without adequate labour force, businesses cannot thrive. The availability of competitive workforce drawn from across the globe gives businesses a greater opportunity for expansion (European Union, 2012). For example, many developed countries have established their businesses in BRIC countries particularly in China to take advantage of available cheap labour and have contributed immensely to growth and development of companies. The developed countries are focusing on growth and exploring the emerging market while the developing nations are interested in what the developed nations are doing. The multinational companies are working on new technologies to produce affordable products for customers with limited means (Leaders Magazine, Inc. 2011). For example, the Tata Motors of India that has invested in Nanotechnology to manufacture cars at a cost of $2,900 which is the cheapest car across the globe. Also, multinational companies in developing countries such as China are well positioned to take advantage of growing domestic consumption hence this may contribute significantly to the growth of those nations. Globalisation has opened up the international market for developing and developed countries. It has created an opportunity for countries to dispose of excess goods or take advantage of the available market to sell their goods (IGEAT – ULB, 2008). The total share of BRIC nations in the world exports have doubled in the recent years with China taking the largest market share. The capital goods exports have been increasing with the impact of globalisation leading to the increase in resources within the economy. It was noted that most of the growth rate in BRICS nations was due to the economic boom that took place in China with its rise in exports of cheap goods (Chen and De Lombaerde, 2014). Globalisation has enabled developing countries such as China to expand to increase their revenue from large volumes of sales. Specific countries focus on utilising their resource endowment to create goods and services for the international market. For example, the BRIC countries such as China and India have focused on the production of labour intensive goods to take advantage of the shortage of labour in the global market (Hamilton & Webster, 2012). Globalisation has resulted in the expansion of middle-class community because of better income and earned through employment and trade (See Details of BRIC middle class in Appendix 2). This class is creating a new demand for superior quality goods hence offering better international business opportunities (Beausang, 2012). This will create an opportunity for multinational companies to manufacture and supply goods and services to the middle-class community across the globe. BRIC countries have a better opportunity to meet the needs of the middle-class community because of advancing technology. Despite the various advantage of globalisation on international trade, there are some challenges the international community has to face when carrying out their businesses. These include an imbalance of poser between developed and developing countries (IGEAT – ULB, 2008). The developed countries have more political influence hence they can easily suppress the developed and developing countries. The enterprises that participate in the international trade have to consider the political, cultural, economic social and historical aspects of the other countries before signing the free trade agreement with them (IGEAT – ULB, 2008). Globalisation is causing economic volatility across the globe. According to Beausang, (2012) 2013 global gross domestic product (GDP) was predicted to range between 3% and 3.5% and gradual growth in the subsequent years. This weak growth of the global economy and stiff competition are likely to intensify protectionism among the strong world economies. Beausang (2012) states that there are increasing challenges to operate in BRIC economies and also the BRIC market is showing retarding growth. In response to the slowing growth, the BRIC and the developed countries are likely to engage protectionist measures to safeguard their economies. This trend is likely to differ from the practices lesser speedy growth market. The 2007/2008 global financial crisis originated from the United States and spread to the rest of the globe (Carmody, 2012). The developing nations were the hardest hit countries. However, developed countries demonstrated quick economic recovery while BRIC countries faced the severe threat. To overcome the problems and attain sustainable economic development, the BRIC countries have started readjusting by adopting some of the strategies of the developed countries. Various countries have adopted different economic development models. However, the model for developed nations differs from that of BRIC countries. The model for BRIC is based on plentiful mineral resources, low-cost labour and limited technological innovations (Kunnanatt, 2013). They emphasis on investments instead of consumption hence does not add any value. BRIC countries lack adequate economic structures and nations are forced to depend on limited sources of revenue. For example, the service and financial sectors of Russia are underdeveloped hence their economy mainly depends on military, energy and heavy industries (Kunnanatt, 2013). Also, India lacks comprehensive industrial system hence it has strong external dependence. China and India depend on low-cost labour resources to process and export low value-added products and outsourcing of services (IGEAT – ULB, 2008). However, in case of imposition of protection policies or decline in demand for the low-value labour intensive products or services the market for India and China will adversely affected. Similarly, Russia and Brazil depends on export revenue for mineral products. These are also dependent on demand and price in the international market. In case of price fluctuations or loss of demand these countries will be adversely affected. There is increasing inflation in the BRIC countries caused by internal and external environmental changes (IGEAT – ULB, 2008). Although Russian and Chinese currency has been gaining some strength against the US dollar Brazil and India have currencies suffered devaluation because of declining expansion of foreign investment and capital flight. Globalisation can lead to external conflicts and subsequent challenges to the business performance. For example, the issue involving East China Sea Diaoyu Island and the dispute concerning South China Sea have caused the internal pressure in the country (Carmody, 2012). Similarly, the recent Malaysian plane crash in Ukraine and Crimea issue put resulted to constrained relationship between Russia and the Western Community. These external conflicts have the effects of slowing economic growth in the affected nations. Also, internally the BRIC countries have not enjoyed a cordial relationship per se because of lack of political transparency (Kunnanatt, 2013). The issue of polarisation, terrorism and corruption have strained political stability market buoyancy and economic growth. The BRIC countries have experienced a significant decline in economic performance in the recent years. There is fear that the declining economic growth is likely to continue and result in adverse effects on those countries. Initially, international investors had predicted a potential or economic growth in developing nations and the BRIC nations (Leaders Magazine, Inc. 2011). They invested heavily in those countries and the wave created fear that the Western countries may collapse. However, the current situation demonstrates the reverse since the investors have expressed much confidence in the Western market including the US. Consequently, those investors have withdrawn their investments from the BRIC market and have started investing in the Western market (Hamilton & Webster, 2012). Considering most of the BRIC countries and the developing nations depends heavily on imports the decline in foreign currency has caused a drastic fall in the value of BRIC nations’ currencies. The move has adverse economic effects of slowing down the economic growth. Therefore, globalisation can be a threat to a country with inadequate investment opportunities such as the BRIC nations (Leaders Magazine, Inc. 2011). The increase in investment opportunities in a particular region or country, it may result in adverse effects on other countries such as currency devaluation. Therefore, as many people believe globalisation offers international business opportunities and cannot be perceived as a threat. Though it presents some challenges globally, its benefits outweigh these challenges. In conclusion, globalisation provides an opportunity for international business and this is the perception of most people. Globalisation has been facilitated by the spread of technology and information as well ease of movement of people and products across the borders. Through globalisation, new companies have emerged and the existing one expanded significantly. It has created employment opportunities and increased the income of the people hence improving their living standards. However, as living standards improves more people join the middle-class community there are an emerging need for new products and services to satisfy the needs of this category of people. This is the characteristic of the BRIC countries that have been ranked in the middle-income earners as a result of business growth hence growth in income of the people. Furthermore, globalisation has improved international relations through the formation of business alliances. International communities are working together to find solutions to various business challenges and, as a result, there are better business ideas and international peace fostering the growth of the businesses. However, there are some challenges such in an imbalance of power with the developed countries taking advantage of developing nations. Also, there are political instability, financial crisis and other external factors that affect international businesses adversely. Though globalisation has some threats to international businesses, the opportunities outweigh these challenges. List of References Beausang, F., 2012, Globalization and the BRICs: Why the BRICs Will Not Rule the World For Long, Great Britain; Palgrave Macmillan. Pp. 152-232. Carmody, P., 2012. Another BRIC in the Wallandquest; South Africas Developmental Impact and Contradictory Rise in Africa and Beyond: European Journal of Development Research, 24(2), Pp. 223-241. Chen, L. and De Lombaerde, P., 2014. Testing the Relationships between Globalisation, Regionalisation and the Regional Hubness of the BRIC: Journal of Policy Modeling, 36, Pp. S111-S131. European Union, 2012, Directorate-General for External Policies: The Role of BRICS in the Developing World. P.6-36. Retrieved on 8th June 2015 from. Available at: [Accessed 27 May 2015]. Hamilton, L. and Webster, P., 2012. The International Business Environment. 2nd eds. Oxford: Oxford University Press. IGEAT – ULB, 2008, “The impact of globalisation and Increased Trade Liberalisation on European Regions:” Study for DG Regio Final Report [Online] Available at [Accessed 27 May 2015]. Kunnanatt, J. T., 2013. Globalisation and Developing Countries: A Global Participation Model. Economics, Management, and Financial Markets, (4), pp. 42-58. Leaders Magazine, Inc. 2011, The Real Impact of Globalisation: Earnest & Young Global Growth Forum 2011, Vol. 34(3). [Online] Available at [Accessed 27 May 2015]. World Bank, 2015a. Foreign direct investment, net outflows (% of GDP). [Online] Available at [Accessed 7th June 2015]. World Bank, 2015b. Exports of goods and services (% of GDP). [Online] Available at [Accessed 7th June 2015]. Appendices Appendix 1 Figure 1: Foreign direct investment, net outflows (% of GDP) (Source: World Bank, 2015a). Appendix 2 Source: European Union, 2012. Read More