The Progress of Countries in Recent Years - Case Study Example

Table of Contents Overview 2 UK Economy: A PEST Analysis 3 Political Factors 3 Economic Factors 3 Sociological Factors 4 Technological Factors 4 The Progress of BRIC Countries in Recent Years 5 Brazil 5 Russia 5 India 6 China 6 Impact of BRIC Nations on UK 7 Are Limitations of BRIC Hope for UK? 9 References 11 Appendices 16 Overview Confirming the fact that globalisation is not at all a matter of mere discussion or assumption, it has actually led to a vast change in the socio-economic environment. Especially the emergence of BRIC nations in the world economy has proved an impact on globalisation strongly. A group of fast developing countries, i.e. Brazil, Russia, India, and China, is grouped as BRIC countries, have same level of opportunities, problems, and growth. This new force counted a combined GDP of 12.14 trillion international dollars creating a threat for the dominating economies like US and European Union (Spiritus Temporis, n.d). The fact about many economists from the time of Jim O’Neil referred these economies as BRIC and as the potential largest economies that the world is going to witness in its near future of approximately 10 years has been in discussion all around the world. This statement received its first worldwide acceptance when the GDP of the world economy increased by 50%, in which the contribution of these four countries were a maximum of 14.6% in recent years (Rozhnov, 2010). Naturally, the world economy thereby needs a reorganisation of the business norms ethics to stand unaffected by this new wave. Certainly, for UK economy some might take it lightly, for its strong financial structure but to put into account any economy irrespective of the fact to be developing or developed is largely affected by domestic and other countries. This was well proved in the year 1997 when Thailand, a very small country and under-developed economy, could shuffle the entire globe just by devaluating its currency. Therefore, in this very unpredictable world of economies, if UK is taking the BRIC to be effectively strong, it probably should have certain underlying reasons (Josephs, 1999). Figure 1. (Charles Schwab & Co. Inc, 2010). UK Economy: A PEST Analysis An economy in general can be better understood by the PEST analysis as it covers both SWOT and McKinsey’s 7s model. Hence to clarify the present position of the UK economy a PEST analysis shall be appropriate. Political Factors Political factors always had an immense influence upon the economy. In regard to the context, UK’s present political reforms also had a history of random fluctuations until it gained stability in late ‘90s. The political environment seems to be well organised and planned with independent judiciary, pressure groups, and trade unions, and freedom of information legislation. One of the major events in UK politics was the tittle-tattle about the expenses of Parliament Members in May 2009, which led to the formation of Liberal Democrat in May 2010. This was followed by number of proposed changes in the agenda, e.g. power to the voters to demand a by-election, election for members in House of Lords, and demand of national bill of rights. Therefore, the picture of British Politics is in a course of change. In other words, it was quite unstable (Roger Darlington, 2010). Economic Factors Apart from the political reforms and trade restrictions, it is the economic factor of an economy to have a vital participation in the socio-economic environment of the country. UK economy just like other developed economies suffered the period of recession. After the economists around the globe confirmed the end of recession, and emergency budget for 2010 was forced to be taken. In this budget, Osborne committed to reduce the deficit amount within next five years. As well as, cutting of the corporate tax by 4% was announced in order to encourage entrepreneurs willing to start up internationally. But, an increase of 2.5% on VAT shall affect the domestic buyers simultaneously opening a gate for international traders. As put into account by economists, this kind of reform is going to be more risky than ever (Financial Times, 2010). Sociological Factors In 2009, the population of UK reached a height of 61.8 million which was estimated to grow up to a figure of 77 million by 2050, which is in fact a matter of concern. Thus with an aim to reverse population the government has placed policies in General Elections of 2010. Certainly, it is growing faster than it should (McDougall, 2010). On the contrary, the GDP rose to 0.8% in the third quarter of 2010, increasing by 1.2% from 2009. This was because of the contribution by business, finance and government services, whereas, the output of agricultural, construction and supply of electricity, water and gas decreased by the third quarter compared to the second quarter of the year 2010 (Direct Gov, 2010). Therefore, the UK sociological factors also seem to make the economic environment unsteady. As per the available data, it can be fairly suggested that the UK government should encourage the growing sectors and simultaneously help the back drawn sectors which include agriculture, fishing, and construction rather significant to the growth of UK economy. Technological Factors Regarding the question of technological growth, the UK Prime Minister has led down the proposal to issue new changes in immigration law and intellectual property law with an aim to set UK as the most attractive zone for technology. While survey reports state that presently many national companies based on technology have proved to be rather unproductive in the near past. As a result, the UK government is getting much more interested in the international market by attracting foreign companies with strong reputation, e.g. Google, Intel, Cisco and many others (Rooney, 2010). The experience of last economic recession has directed the assumptions of economists to expect the economic growth of UK to be much slower than ever. But, by the mid of the year some signs of growth have been into account. This provides that the economy is not that bad as thought of. As per the data, it shows a moderate growth in the technology sector with the outsourcing sector growing by 2.4% from 2009 and shall keep up till the end of 2010, and software sector which also maintained a strong existence in the market during 2009 and 2010. Although the technology sector is growing in a moderate scale and is expected to keep the pace, it cannot be recommended as dependable (Intellect, 2010). The Progress of BRIC Countries in Recent Years As such with the given data of moderate and rather unstable growth in UK economy, the BRIC nations are recorded to be a group of fast growing economies, indeed faster than expected, especially when the economy has lost its speed somewhere in the recession. In contrast to, under-developed and developing economies were comparatively unaffected by the slowdown. Brazil According to Brazil Government Officials, the growth of the economy is stated to be fairly sustainable. Clearing the fact by a growth of 7% in 2010 forecast, it registered its name among the other faster growing nations. Furthermore, the economy has been recorded to have the world’s highest interest rates. The economy is also expected to end up the inflation by the end of 2010 (Lopez, 2010). While another survey concluded that the GDP was annualised at 8.5%, higher than the forecast assuring the piece of information about its role in world economy after 15 years, to be one of the strongest economies of the world (Brasilia, 2010). Russia Russia has always been known as an important fuel market in the world economy. Presently, it counts to be one of the fast economies grouped with India, China, and Brazil. According to the IMF, it has been claimed for Russia to have a growth recorded by 4.25% higher than forecast of 4%, as well as decreasing inflation by 6% again lower than the expected 7% until mid of 2010 (RTT News, 2010). Facing a high depression during the recession period, basically due to its oil centric economy, Russia had to witness a drop by 8% of its previous growth. But following the surge in the oil market the economy is likely to grow in a faster speed than before, despite its vulnerable nature (Fedec, 2010). India In this context, the growth of Indian economy to have reached to a height of 7.2% in 2009-2010, is also said to be another rapid developing economy. A fast and quite influence driven growth is being recorded in the automobile, construction, trade, and manufacturing sectors, which overall leads to a stable growth of the economy. As such the survey report of Indian economy shows a clear state of stability and further development (India Brand Equity Foundation, 2010). China To state about China, it also had a downfall in the economy during recession, but recorded a growth rate of 9.2% in the third quarter of the year. With a rapidly growing manufacturing units and better policies to make the growth sustainable, China is also emerging as a competitor to the world market. Even the technology sector is in a stable growth. In addition, the government is targeting to increase the Industrial output to be increased by 11% by the next year (BBC News, 2010). Figure 2. (Dhar, 2009). Impact of BRIC Nations on UK From the above study of BRIC economies and UK economy, the scenario becomes clearer that UK is actually heading second in the competition. For instance, the construction sector of UK is recorded to suffer a fall while on the contrary, in the same fiscal India had recorded a growth in construction. Even the GDP of these nations are growing so rapidly, that the UK is struggling with its slowdown. Moreover, the internal issues which tend to the reformation of industrial trade laws, and the growing population with insufficient land, the economy is set for a steep decline. To include, the reforms focus on attracting foreign companies and technologists with reduced taxes, while increasing VAT for national traders. This is in fact heartbreaking for national business sector. With a slow GDP growth and opened gate for foreign companies, the market scenario is no doubt going to become more vulnerable for the national businesses. While, on the other hand, it shall become easy for BRIC countries to push into the wide market rewarded by UK government. Therefore, the matter is turning to be alarming for the business sector in UK. The phase was initially started from the period of 2007, when the economy was ignoring the opportunities rendered in the global market. According to a business report, one of the reasons why today BRIC is so feared by the UK economy is that when other economies were taking the advantages which these economies had rewarded, the UK economy simply ignored those. And subsequently, after the recession, the situation took a serious outlook for UK business environment (Grant Thornton News, 2007). Figure 3. (Blog on Pakistan, 2005). Are Limitations of BRIC Hope for UK? These economies (BRIC nations) have a record of swift rise indeed. But they are also not without the aspect of limitations. To mention, Brazil counts for abundant and variety of natural resources with its highly diversified economy, but has a weak social infrastructure (investment, road, energy, etc.) and public lending. Russia on the context has a wealth of natural resources and skilled labour, lacking in investment rate and industrial structure to contrast its growth. India, possess a strong and growing private sector companies in outsourcing, IT, and textiles sectors, while the fiscal revenues tend to be a big problem to the economy. Last but not the least; China enjoys high industrial diversification and competitiveness, but it has a very weak internal structure struggling with environmental issues, increasing inequality, to say a few (Hult, 2009). Relatively, if compared to the strengths and weaknesses of UK economy, proper norms, rules and regulations can indeed rescue UK from sinking so low in the world economy by 2050 as per the assumptions of economists. If considered in overall perception, the group (BRIC) has many drawbacks. Such as, they all do not intend to grow at a same speed that may give a minimum rest to the thought that these economies shall jump over the UK economy; for instance the growth of Brazil is 40% higher than its usual historic average, while China was recorded to be below 40% of its regular average (Investing, 2010). Figure 4. (Investing, 2010). Conclusively, UK can come up to the assumption that because of these drawbacks BRIC might not be a serious matter, but to put into account it should also be mentioned that investors from all around the globe are flowing towards the emerging economies. The new reforms shall help UK on these terms, but again the internal business market may get affected by such reforms (Prestridge, 2010). References BBC News., 2010. China Targeting 8% Growth in 2010. Business. [Online] Available at: http://news.bbc.co.uk/2/hi/8424239.stm [Accessed November 03, 2010]. Blog on Pakistan, 2005. Economy: Next 11 (N11) and the Largest Economies by 2025 and 2050. Economy. [Online] Available at: http://blogonpakistan.wordpress.com/2008/09/21/economy-next-11-n11-and-the-largest-economies-by-2025-and-2050/ [Accessed November 03, 2010]. Brasilia, 2010. Brazil 1Q 2010 GDP Shows Strongest Economic Growth and Investment in 15 Years. PR Newswire Association LLC. [Online] Available at: http://www.prnewswire.com/news-releases/brazil-1q-2010-gdp-shows-strongest-economic-growth-and-investment-in-15-years-95881899.html [Accessed November 03, 2010]. Charles Schwab & Co. Inc., 2010. Schwab Market Perspective: So Now What? Advisor Analyst. [Online] Available at: http://advisoranalyst.com/glablog/tag/earnings-season/ [Accessed November 03, 2010]. Dhar, S., 2009. The First Summit of the Fastest Growing Developing Economies (BRIC) - An Economic Critique. Sanhati. [Online] Available at: http://sanhati.com/excerpted/1657/ [Accessed November 03, 2010]. Direct Gov., 2010. GDP Growth. UK Output Increases By 0.8 Per Cent. [Online] Available at: http://www.statistics.gov.uk/cci/nugget.asp?id=192 [Accessed November 03, 2010]. Duncan, H., 2010. UK Looks ‘Second Division’ Against BRIC Premiership. This is London. [Online] Available at: http://www.thisislondon.co.uk/markets/article-23855498-uk-looks-second-division-against-bric-premiership.do [Accessed November 03, 2010]. Fedec, A., 2010. Russia's Economy Remains Vulnerable. Trading Economics. [Online] Available at: http://www.tradingeconomics.com/Economics/GDP-Growth.aspx?Symbol=RUB [Accessed November 03, 2010]. Financial Times, 2010. UK Budget. FT. [Online] Available at: http://www.ft.com/cms/s/3/ca98dbe8-7dd8-11df-b357-00144feabdc0.html [Accessed November 03, 2010]. Grant Thornton News, 2007. UK businesses write own death warrant by ignoring opportunities from world's fastest growing economies. Press Room. [Online] Available at: http://www.grant-thornton.co.uk/press_room/uk_businesses_write_own_death.aspx [Accessed November 03, 2010]. Hult, T., 2009. The Bric Countries. Global Edge. [Online] Available at: http://globaledge.msu.edu/newsandviews/businessreviews/gbr%203-4.pdf [Accessed November 03, 2010]. India Brand Equity Foundation, 2010. Economic Survey 2009-10. Trade and Economy. [Online] Available at: http://www.ibef.org/economy/economicsurvey2010.aspx [Accessed November 03, 2010]. Intellect, 2010. The State of the UK Technology Sector. President’s Report 2010. [Online] Available at: http://www.intellectuk.org/component/option,com_docman/task,doc_download/gid,4221/Itemid,102/ [Accessed November 03, 2010]. Investing, 2010. The Cheapest BRIC Market. Market valuations tell an interesting story about emerging markets. [Online] Available at: http://www.fool.co.uk/news/investing/2010/10/13/the-cheapest-bric-market.aspx [Accessed November 03, 2010]. Jerome a Paris, 2006. European Tribune. Story. [Online] Available at: http://www.eurotrib.com/story/2006/4/26/122221/205 [Accessed November 03, 2010]. Josephs, H., 1999. UK Business Environment. The Teaching Business & Economics. [Online] Available at: http://findarticles.com/p/articles/mi_qa3889/is_199904/ai_n8851557/?tag=content;col1 [Accessed November 03, 2010]. Lopez, L., 2010. UPDATE 1-Brazil Economic Growth Sustainable – Official. Brazilian Economy Is Not Overheating - Finance Minister. [Online] Available at: http://www.reuters.com/article/idUSN2215003420100622 [Accessed November 03, 2010]. McDougall, R., 2010. Too Many People: The UK’s Population Problem. Optimum Population. [Online] Available at: http://www.optimumpopulation.org/opt.toomany.uk.pdf [Accessed November 03, 2010]. Prestridge, J., 2010. Investors turning to Brics economies. This is Money. [Online] Available at: http://www.thisismoney.co.uk/investing/article.html?in_article_id=511984&in_page_id=166 [Accessed November 03, 2010]. Rooney, B., 2010. U.K. To Create Silicon Valley in East London. The Wall Street Journal Europe. [Online] Available at: http://blogs.wsj.com/tech-europe/2010/11/04/uk-seeks-to-be-global-tech-leader/ [Accessed November 03, 2010]. RTT News, 2010. IMF Raises Russia's 2010 Growth Outlook. Economy and the Numbers. [Online] Available at: http://www.rttnews.com/Content/AllEconomicNews.aspx?Id=1335537 [Accessed November 03, 2010]. Roger Darlington., 2010. A Short Guide to the British Political System. British Political System. [Online] Available at: http://www.rogerdarlington.me.uk/Britishpoliticalsystem.html [Accessed November 03, 2010]. Rozhnov. K., 2010. BRIC Countries Try To Shift Global Balance Of Power. BBC News. [Online] Available at: http://news.bbc.co.uk/2/hi/8620178.stm [Accessed November 03, 2010]. Spiritus Temporis., No. Date. BRIC. History. [Online] Available at: http://www.spiritus-temporis.com/bric/history.html [Accessed November 03, 2010]. Appendices Figure 1. Pg. 4 Figure 2. Pg. 7 Figure 3. 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