Economic Power Shift from the Triad Region - Assignment Example

Economic Power Shift from the Triad Region 1. Introduction The expansion of globalization in markets worldwide has led firms to seek for policies in order to increase their competitiveness. On the other hand, the conditions in the international market are not standardized. Traditionally, the global market has been depended on the political and economic activities of the Western countries. This means that the political and economic decisions adopted by Western countries were used as the basis for relevant initiatives worldwide. However, through the decades the superiority of the Western countries in the context of the global market has been reduced. Today, the control of the countries of the Triad region – a framework representing mainly the economies of Western countries – on the international commerce has been reduced. The reason is that the economies of other countries worldwide have been developed; this phenomenon is more intense in regard to the economies of the so-called BRIC countries (i.e. Brazil, Russia, India and China). These economies have been developed at such level that they have become more powerful compared to the economies of the countries of the Triad region – a term used for describing the developed countries worldwide. Current paper focuses on the examination of the economic power shift from the Triad region to the BRIC countries especially in regard to the effects of this shift on the structure and the efficiency of UK business environment. It is concluded that the effects of this shift on the US business environment are not necessarily negative – at least for now. In the long term, appropriate measures should be taken ensuring that the lack of balance between the economic power of the countries of the Triad region and the BRIC countries will not lead to severe turbulences within the markets of the weakest party – i.e. the countries of the Triad region. 2. Economic power shift from the Triad region to the BRIC countries 2.1 Triad region and BRIC countries – description The term ‘Triad region’ is used for describing the markets of certain developed countries; the following countries are included in the Triad region: USA, Canada, Japan and the countries of the Western Europe (Rajagopal, 2007, p.44). All these countries are developed countries in terms of the level of their industrialization. The economic and the political power of the countries of the Triad region is significant: in accordance with Rajagopal (2007) the countries of the Triad region represent approximately’ the 14% of the world population and the 70% of the world gross product’ (Rajagopal, 2007, p.44). Another indicator of the level of development of the countries of the Triad region is the buying power of their citizens: this power ‘is about 10 times higher for citizens in the Triad region compared to the BRIC countries’ (Rajagopal, 2007, p.44). In accordance with Dent (1997) the power of the countries of the Triad region in the context of the international market is usually based on the following facts: a) the increased buying power of these countries’ citizens, b) the high level of their technological developed – compared to the other countries internationally and c) the increase of ‘the capital intensive manufacturing’ (Dent, 1997, p.247). On the other hand, BRIC countries are: Brazil, Russia, India and China. All these countries have a common characteristic: their markets are emerging, i.e. they have been industrialized recently; however, their economy performs higher compared to the economies of the developed countries. For this reason, the BRIC countries are considered as having the control of the global economy, which was governed by the countries of the Triad region. This change in the economic power of the BRIC countries compared to the countries of the Triad region has been made known as economic power shift and it is analytically explained below. 2.2 Economic power shift – characteristics Traditionally, the markets of the developed countries were considered as controlling the global economy. Through the years, the increase of the economic power of the emerging markets led to a change in the global economic framework: emerging markets achieved a higher growth compared to the developed countries – known also as countries of the Triad region. The result has been the economic power shift; developed countries were not any more the governors of the global market. Rather, the emerging countries managed to take the control of the international economy. The above phenomenon can be described as an economic power shift and can result to a series of turbulences for the markets involved – referring mostly to the markets the economies of which lost their power – more or less – in the context of the global market. On the other hand, economic power shift does not always indicate a permanent condition. It just indicates the transition to a different status – which can last either for a short or a long period. When referring to the international market, the economic power shift is depended on the global political and economic trends and the performance of each country in the global marketplace. 3. Effects of the increased economic power of BRIC countries on the UK business environment The expansion of business activities worldwide has been considered as a solution for the increase of organizational competitiveness. For European businesses, the expansion in emerging markets is often decided because such initiative usually results to the decrease of operational costs – either in the short or the long term. Dunning et al. (2008) examined the expansion trends of European firms and found that European multinational enterprises are likely to have a high percentage of their activities outside Europe – the relevant percentage has been estimated to 37% (Dunning et al., 2008, p.5). Most of the European firms that showed a trend for expansion outside Europe – especially in emerging markets – have been ‘the UK, Switzerland and Netherlands firms’ (Dunning et al., 2008, p.5). The above fact proves that the development of markets worldwide has affected the plans of European firms; British firms are also expected to have positively affected by the development of foreign markets. British market is part of the global market. The interaction between the British market and the international market is kept at high levels under the influence of globalization – a trend that has led firms in all markets worldwide to seek for continuous expansion in order to beat their rivals. On the other hand, British firms have always shown an interest for expanding internationally – Melchert et al. (2005, p.14) refers to the case of Pax Britannica - in the 19th century - as an example of such trend. In the context of an economic power shift between the British market and another market (as in the case of BRIC countries which increased their economic power over the Triad region countries), globalization can act positively preventing the increase of difference between the British market and another market (more powerful market). British firms can enter the foreign market (in this case the market of the BRIC countries and achieve a high rate of growth; in this way the losses of the British firms can be limited (Rugman, 2005[a], p.230). In the above context, the increase of the economic power of the BRIC countries towards their rivals in the Triad region could lead to the restructuring of the global marketplace: firms based on the countries of the Triad region would enter the markets of the BRIC countries – they would even relocate. This trend could lead to the change in the level of industrialization of countries internationally. In the case of Britain, the above trend would cause the following problem: the relocation of British firms would lead to the decrease of job positions in Britain. From this point of view, the expansion of a British firm in the market of a BRIC country would benefit only the firm, as a legal entity. The employees and the public in general could be adversely affected – the reduction of job positions would lead to the reduction of consumer spending and the following decrease of the organizational profitability. Another implication of the entrance of British firms in the markets of the BRIC countries would be the following one: a cultural and social conflict could be developed – either in the short or the long term; these conflicts could cause delays in the achievement of the organizational aims (Rugman et al., 2006, p.571). Because of the risks involved in such initiatives British firms may not easily decide to enter the market of a BRIC country. The above fact further supports the view that the increase of the economic power of the BRIC countries may lead to the increase of globalization but this trend is not necessarily expressed as relocation of the firms of the Triad countries – including Britain – towards the markets of the BRIC countries. Another approach in regard to the explanation of the effects of the economic power shift from the countries of the Triad region to the BRIC countries is given by Mol (2003); the above researcher supports that globalization as an economic activity characterizes the developed markets; it cannot operates within less developed markets (Mol, 2003, p.115). However, in emerging markets signs of globalization can be identified. From this point of view, the increase of the economic power of the BRIC countries could not affect the globalization potentials or trends of British firms – as the British market is already developed and, thus, it promotes globalization. The evaluation of the role of the increased economic power of the BRIC countries on the global expansion of the British firm – referring especially to the entrance of these firms in the markets of the BRIC countries – depends on the view on which the relevant assumption will be based. Towards a similar direction, Rugman et al. (2006) note that the increase of the economic power of BRIC countries cannot highly affect the markets of the countries of the TRIAD region – including Britain. The reason is that the countries of the TRIAD region share a series of common characteristics, a fact that offers them a relevant independency from the other markets worldwide. These characteristics can be described as follows: a) all the countries of the TRIAD region have powerful economies – this power is not purely economic, it also includes political elements, having the sense that these countries have the political power to influence the development and the status of the global economy, b) the rate of growth of the economies of these countries is slow, c) operational costs of firms established in these markets are high; however, the buying power of citizens in these countries is much higher compared to the citizens of the BRIC countries (Rugman et al., 2006, p.571), d) the technological infrastructure of the markets in the Triad region is high – a fact supporting any attempt for global expansion (Johnson et al., 2007, p.391); however, through technology the physical relocation of a business is not necessary. Business activities can be also developed online, which is a way for reaching the markets of BRIC countries without transferring the firm’s assets there. Again, the development of online activities of firms of the Triad region is not depended on the economic performance of the BRIC countries. Under these terms, firms in the countries of the Triad region – including the British firms - are not necessarily expected to relocate or to expand in the markets of the BRIC countries. Such decision is depended on a series of factors – including each firm’s potentials to respond to the risks of such decision. On the other hand, there are certain issues that need to be taken into consideration: a) BRIC countries have achieved a high economic growth mostly because of their low-cost labour supply – a fact that leads to the significant decrease of the operational costs for firms in all industrial sectors (Wilton, 2010, p.97); this means, that British firm are likely to be attracted – any time – to the markets of the BRIC countries, b) markets of BRIC countries are offered for alternative forms of entrepreneurial activities; British firm do not have necessarily to relocate or to partially transfer their activities in the markets of the BRIC countries; they would choose a form of investment of lower risk – like the foreign direct investment which is extensively preferred by the Japanese firms (Haak et al., 2004, p.95), c) multinational firms of the BRIC countries may face certain infrastructure failures but they can always use their political power in order to support their position in the global market; this fact would lead to a lack of equality in regard to the competition in the international market (Sawant, 2010, p.93). Under these terms, British firms would face difficulties in competing the multinational firms of BRIC countries, which would have a political advantage towards their British rivals. 4. Conclusion The increase of the economic power of the BRIC countries has led firms of the countries of the Triad region to alternate their existing policies and practices. However, the relevant changes have not been radical – a fact also clear for the British market. In Britain, firms have been affected by the economic growth of the BRIC countries but this affection has many different aspects and levels. It is in the discretion of the managers of each firm to decide whether the markets of the BRIC countries would be a potential solution for organizational growth. In any case, this growth cannot be guaranteed; for this reason, alternative forms of expansion in the markets of the BRIC countries could be used, such as the foreign direct investment as explained above. 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