The Impact of BRICS on International Business - Case Study Example

The Impact of BRICS on International Business Executive summary This report will be endeavoring to examine the impact of BRICS on the international business in terms of world economy, environments, and politics. Moreover, it will also be examining the effects of the BRICS’ emergence on the capital flows among developed nations and the emerging markets since 1990’s to date, and contribution of each member of the BRICS: Brazil, Russia, India, China, and now South Africa, is also analyzed in this report. The report also covers the importance and future of the BRICS countries and their impacts on the International Business across the globe. An analysis of the of the BRICS capital flows relative to the emerging markets’ GDP growth rates over time will also assist in establishing their future growth rates. Introduction The BRICS economies is an ellipsis that comprise of five countries namely; Brazil, Russia, India, China and finally South Africa. These economies are rapidly increasing their influencing in the global marketplace. The BRIC population are steadily increasing their living standards, demand for foreign services and goods, and disposable income. The entire markets and economies of the BRICS countries may potentially exceed the size of the six current largest economies by the year 2050, which comprise of Canada, USA, and a big part of Europe. It is now difficult to conduct business without a sound knowledge and understanding of the global impact of a handful of these emerging economies labeled as the ‘BRICS’. Interestingly, the BRICS economies used to be developing countries a half a century ago, and today they are aspiring to be fully modern economies. The BRICS economies that comprise of the largest country (Russia); contain 60% of the Amazon forest and, boasts of the record-holding champion of the FIFA Soccer World Cup (Brazil); the second largest economy (China); the world’s most populous democracy (India); and probably the world’s longest wine route and largest diamond producer (South Africa), now posses space programmes and nuclear capabilities at the moment. Besides, the list of contributions and achievements of these BRICS is very remarkable and continues to grow. The overall impact of BRICS for the global business in terms of world economy, social, environment, and politics The global economy, social, and political environment has dramatically changed in the past fifteen to twenty years due to the wake of the recent wave of globalization (Wilde, Defraigne & Defraigne, 2012). The changing influence and changing proportions of global wealth alongside the background of this wave has been the growth of the financial interdependence, and the triumph of the liberal doctrine of open global markets. By the year 2050, the GDP of BRICS economies will most likely be bigger than that of G7 as compared to now where they account for above 20% of the G7 GDP (Jain, 2006). On the economic perspective, the rise of BRICS has impacted on the global economy by subjecting it to demand for more resources, making them a center of economic activity and balance of power (Wilde, Defraigne & Defraigne, 2012). Moreover, the rise of BRICS, and especially India and China has always raised some significant questions such as: Will they disturb the global geo-politics balance? Will these nations challenge the Western concept of government? And will their development devastate the environment? Currently, China’s GDP has increased sevenfold to up to 12% of the global GDP, while that of Russia has increased to almost eightfold since the year 2000 (Beausang, 2012). The emergence of BRICS largely depended on their proper policy adoptions such as free trade with the outside world, monetary and fiscal policies and greater investment in education (Jain, 2006). Historically, nations did rose and fell. The industrial output of USA lagged behind that of Britain, Germany and France several years after the civil war. Jain (2006) further explains that the American economy then eventually expanded tremendously from the year 1870 to 1914 which saw it become the world’s leading industrial power. Thereafter the emergence of BRICS countries started putting pressure on the global business by impacting on the world’s demand on balance of power, becoming a center of gravity, and demanding for resources (Jain, 2006). Hence, the rise and growth of BRICS has always been the defining discussion of the world’s foreseeable future. The Brazil expansion for example has seen the hastened and speedy growth of the BRICS. The BRICS have resulted in the reduction of exposure to the external indebtedness, the adoption of more currency regimes, accumulation of substantial reservoirs of foreign exchange reserves, and even turning the current account deficits into surpluses (Li Xing, 2014). This has caused the global economy to shift in a rather cynical phase, subjecting the financial markets of the BRICS’ economies to diverse strains and stress that they have as well been experiencing in the past years. As explained by Beausang (2012), The BRICS economies have both distinct and similar aspects such as the diverse channels of external linkages to the rest of the world, internal financial systems and economic structures. However, despite the boom effect that had been created by the BRICS economies, it might not be capable of lasting longer. This has been attributed to the challenges experienced by the BRICS economies over the years. On the brighter side though, the combination of the BRICS is not standardized groups that are growing so fast, big developed economies. The demanding side of the BRICS equation is growth demand is dominated by China among the BRICS while Brazil and China plays the major role of the supply side. However, these BRICS economies will not have much to fall back on in case of a cynical adjustment in the global economy mainly on private consumption (Li Xing, 2014). And due to the fact that the BRICS economy’s population accounts to almost half of the world population, their extrapolation mathematics places them at a powerful position in reshaping the world in case they success in their development strategies. The contributions of for each member for the BRICS China, which commands for approximately 59% of the BRICS GDP combined according to IMF’s Purchasing Power Parity (PPP) metrics, has experienced tough challenges such as the external pressures that threatened its export potentials and the internal problems of cooling off the overheated investment sector (Huisken, 2011). The gradual slowdown of the USA and Chinese economies also presented very significant implications on the two commodity intensive economies in the BRICS’ aggregate, i.e., Brazil and Russia. The consumer demand arrested heretofore open-ended Chinese export growth due to the threat of the USA led protectionist backlash alongside the post-housing bubble U.S. declaration consumer demands (Beausang, 2012). The world has therefore resorted to view China as a permanent hyper-growth story. According to The World Bank, the non-agricultural commodities in Russia are approximately 40% of its GDP, while energy presents about 80% of its MSCI-based equity market capitalization (Vijayakumar & Sridharan, 2010). Among the BRICS, Russia came second on export share by 31% after China which was 34% by the year 2005. It was estimated that China accounted for more than 50% of global demand’s total growth on industrial materials and energy of the last decades, while approximately 86% of Russia’s total exports are commodities (Jones, 2012). India on the other hand has an abundant protection of internal demand making it the best positioned BRICS economy to endure the vicissitude of the global business cycle. Its goods export accounts for about 20% which is a small share of its economy making it better placed than other BRICS by avoiding external pressures from China and the USA (Wan, 2010). Nevertheless, India is still not yet off the hook among the BRICS economies. The country’s issues are more inclined in politics rather than economic, making it more of a structural issue than a cynical one. Hence, India’s interest rates and currency vulnerability cannot be minimized in the event emerging –market investors embark on a long-overdue shift to risk aversion. South Africa has also contributed to the BRICS economy by playing several roles such as infrastructure development and job creation in the region. It has also promoted global foreign policies as one of its numerous roles in the BRICS countries (Jain, 2006). Among the pillars anchored in the BRICS by South Africa comprise of partnering with the major players of the South on critical issues of global governance reforms, related infrastructure programmes and regional integration promotion, and also promote its national interest (Jones, 2012). South Africa also accounts for a third of the Sub-Saharan Africa’s (SSA) GDP making the country with the largest economy in the region. The country also has a myriad of natural resources such as diamonds, gold, and platinum, among established corporate footprints, good infrastructure, functioning regulatory frameworks, stable micro and macro financial climates, culture of innovation, advance banking systems, and easy access to finance for business. Brazil’s intentions are to unite the South and Central America towards the free Americas markets alongside playing a critical role as a political ally of the world affairs (Huisken, 2011). Brazil has been coordinating with the United States several times in a bid to participate in the global politics issues especially those hat concerns Latin America (Huisken, 2011). How it is important for each country in the International Business and BRICS (strengths, and weaknesses for each country)? Importance The entire BRICs have their importance to the world economy. Researchers such as Kobayashi-Hillary (2008), states that China and India have enormous human resources. When combined, the population of both China and India accounts to more than 3 billion that makes more that 40% of the world’s total population. The two countries though yield a mere 6% of the global GDP (Gammeltoft, 2008). However, the two countries are experiencing a rapid industrialization and urbanization that when combined with their vast human resources will probably make them outperform the current global economy leaders such as the USA (Sarkar, 2009) Strengths: China for example is a great competitor of the advanced economies both in the East Asia and the West economies such as Europe and the US in terms of technologically sophisticated goods. The inflation reduction in the rich economies has been made possible by China because of its export of cheep consumer goods and other machinery products making it a driving force of the world economy as a whole. Additionally, Russia and Brazil are two large economies with a vast wealth of natural resources (Chkili & Nguyen, 2014), and are most likely to gain superior geopolitical influence in the Eurasian and American regions by diversifying their own economies based on the global commodities boom and providing the world’s biggest commodities consumers. This also makes it possible for theses BRICS economies to enforce their positions in the world short of energy and commodities (Becker, 2014). South Africa also played a role by increasing its relationship with China economically. It is a first world infrastructure and with the largest economy in Africa. The country has an interference with the labor market and broad state ownership. Its major sectors are agriculture, manufacturing, mining, and a critical service sector in financial services that makes it significant among the BRICS economy (Jones, 2012). Weaknesses: As much as there are positive elements brought about by the BRICS economies, each of the BRICS nations also bores some problems that might deter their growth on the side. For instance, India’s major problem is corruption. This was revealed by a major watchdog group known as the Transparency International that raked India on the Corruption Perception Index (Wilde, Defraigne & Defraigne, 2012). The weaker economic growth of India has been attributed to the fact that its government switched to and industrial policy that stressed on state regulation of the private sector and accorded commanding heights to the public sector. This brought about an impediment to progress because it brought about an efficient bureaucratic system known as the ‘permit raj’ (Marino, 2013). China on other hand has more capital pouring in so quickly that a backward banking system and combination of speculative frenzy might eventually burst the bubble. Brazil also needs economic discipline to keep her finances intact, and if that does not happen, it may experience the same problem that led to the collapse of Argentina some years back. Brazil’s has also been finding it difficult to realize its full potential due to weaknesses in displaying its displaying its social, political and economic capabilities. Moreover, Russia had a questionable commitment to capitalism after the crackdown on the Yukos oil giant (Sarkar, 2009). Furthermore, despite of South Africa being a significant financial and political member of the BRICS, it also has its share misgivings. Its weaknesses are attributed to its size, brain drain, low capital and savings rate (Francis, & Narnia, 2014). South Africa has previously suffered from industrial strikes and power shortages. The country also has inefficient government bureaucracy, restrictive labor regulations and inadequate educated workforce. Hiscock (2014) appends that the South African government finds it difficult in meeting the black majority’s needs due to increased corruption activities. The future of BRICS (vision, mission, strategy, members etc) The BRICS economies are considered to be the fastest developing major world economies since they provide and advantageous position for the states and posses quite a large chunk of significant resources for the global economy. The common features of the BRICS is that they all endeavor for a free and more equitable global leadership agreement on global leadership under which among other countries, they will definitely play crucial roles since hey are fast developing nations with influence and promising economies (Francis, & Narnia, 2014). According to Becker (2014), in the summit of leaders of BRICS countries convened in the year 2011 in Sanya, 2012 in India, 2009 and 2010 in Brasilia, and another one that was held in 2008 in Ekaterinburg, Russia; the BRICS countries were basically laying ground for a ‘political club’ or formation of converting their growing economic power into greater political influence. Africa problems also received increased global attention with the inclusion of South Africa in the BRICS. The new economic policy for South Africa is also founded on the experience of the countries that were capable of maintaining GDP growth above per cent per year for two decades, such as China, Brazil, Taiwan, Singapore, Hong Kong, South Korea, and Indonesia among other countries (Roach, 2009). The BRICS uses a growth-focused strategy and their vision for future growth intends to use their massive wealth of resources and political bargain in achieving critical expansion in economic corporations and bilateral trade particularly to expand their mutual investment and launch massive multilateral development projects. Russia for example has proposed the organization of corporation in the aviation industry, energy machine building, the production and use of mineral resources, mining and processing sectors, machine-tool building, radio-electronics building among other sectors (Chkili & Nguyen, 2014: Ranger, & Surminskin, 2013). Their mission intends to focus on finding new prospects for launching multilateral investment projects and reforming international financial and monetary system that will strive to prioritize a long-term priority for corporation within the BRICS economies. Conclusions Questions are raised about the rise of the BRICS economies to the world economic leaders such as the UAS and Europe. The US remained the single world superpower after the fall of the former Soviet Union. There will be a necessity for the United States to share economic power with Brazil, Russia, India, and China, and especially China and India due to the transformation of the BRICS into the economic powerhouses. As much as it will not be as easy as it may seem, the US might not have a choice but oblige. India and China combined makes up about half of the global GDP, and it is estimated that China might exceed the US as the world’s largest economy in the future. Hence, for the US to flourish, it will have to adopt new strategies by sharing leadership and power with the BRICS. These strategies should focus on supporting and encouraging innovations that will enable the entrance of new services and products for the world markets by the Americans. 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