Assignment on “Meet the BRIC” Case Study ITB 301 Section: 3 Spring 2012
Submitted to:
Salma Akter Lecturer Department of Business Administration. East West University, Dhaka.
Submitted by
Arafat Rauf 2009-2-10-345
Date of Submission: 28
th
March 2012
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Letter of Transmittal
March 28, 2012 Salma Akter, Senior lecturer East West University
Subject: Submission of Assignment on “Meet the BRIC” case study
Dear Madam,
I have prepared an Assignment on “Meet the BRIC” case study. It was an energizing experience throughout the semester and preparing this assignment further enhanced my insight about International Business. I hope that this report fulfils your requirements and your feedback is very much necessary to overcome my faults and lacking. This will help me in my entire life. It is my pleasure to carry out this assignment under your supervision. I would like to request you to accept my report for further assessment and I will be available to answer any question for clarification. Thank you for your sincere support.
Yours sincerely, Arafat Rauf 2009-2-10-345
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Table of contents Title
Page number
- BRIC
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Economic growth of BRIC
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Question 1: Map the proposed sequence of the evolution of the economy of the BRIC’s. What
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indicators might companies monitor to guide their investments and organize their local market operations? Question 2: What are the implications of the
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emergence of the BRICs for careers and companies in your country? Question 3: Do you think recency bias has led to
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overestimating the potential of the BRICs? How would you, as a manager for a company assessing these markets, try to control this bias? b ias? Question 4: How might managers interpret the
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potential for their product in a market that is, in absolute economic terms, large but, on a per capita basis, characterized by a majority of poor to very poor consumers? Question 5: In the event that the BRICs fail to
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meet projected performance, what would be some of the implications for international business? Question 6: Compare and contrast the merits of
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GNI per capita versus the idea of purchasing power parity, human development, and green economics as indicators of economic potential in Brazil, Russia, China, and India. conclusion
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reference
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“BRIC”
BRIC is a grouping acronym that refers to the countries of Brazil, of Brazil, Russia, India and China, which are all deemed to be at a similar stage of newly advanced economic development. It is typically rendered as "the BRICs" or "the BRIC countries" or "the BRIC economies" or alternatively as the "Big Four". BRICS is an international political organization of leading emerging economies, arising out of the inclusion of South of South Africa into the BRIC group in 2010. As of 2012, its five members are Brazil, Russia, India, China and South Africa. With the possible exception of Russia, the BRICS members are all developing or newly industrialized countries, but they are distinguished by their large economies and significant influence on regional and global affairs. As of 2012, the five BRICS countries represent almost half of the world's population, with a combined nominal GDP of US$13.6 trillion, and an estimated US$4 trillion in combined foreign reserves.
The term was first prominently used in a Goldman Sachs report from 2003, which speculated that by b y 2050 these four economies would be more affluent than most of the current major economic powers. Having some (a few) common features, but actually being very different (in most of the aspects), and in an absence of a unique mission, vision and development strategy, the four countries have started to be seen as an entity (given their previous Sevolution and based on forecasting studies) – not only will change the patterns of the global economy, but also able to lead it in the future (the year 2050). Together, the four original BRIC countries comprise more than 2.8 billion people or 40 percent of the world’s population, cover more than a quarter of the world’s land area over three continents, and account for more than 25 percent of global GDP.
Due to lower labor and production costs, many companies also cite BRIC as a source of foreign expansion opportunity.
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Brazil, Russia, India, China and South Sou th Africa
BRIC Federative Republic of Brazil Russian Federation Republic of India People's Republic of China
Goldman Sachs argues that the economic potential of Brazil, of Brazil, Russia, India and China is such that they could become among the four most dominant economies by the year 2050. The thesis was proposed by Jim O'Neill, global economist at Goldman Sachs. These countries encompass over 25% of the world's land coverage and 40% of the world's population and hold a combined GDP (PPP) of 18.486 trillion dollars. On almost every scale, they would be the largest entity on the global stage. These four countries are among the biggest and fastest growing emerging markets. However, it is not the intent of Goldman Sachs to argue that these four countries are a political alliance (such as the European Union) or any formal trading association, like ASEAN. Nevertheless, they have taken steps to increase their political cooperation, mainly as a way of influencing the United States position on major trade accords, or, through the implicit threat of 5
political cooperation, as a way of extracting political concessions from the United States, such as the proposed nuclear cooperation with India.
Proportion of world (countries with data) nominal GDP for the countries with the top 10 highest nominal GDP in 2010, from 1980 to 2010 with IMF projections until 2016. Countries marked with an asterisk are non-G8 countries China, Brazil and India. Grey lines show actual US dollar values.
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The ten largest economies in the world in 2050, measured in GDP (billions of 2006 USD), according to Goldman Sachs
Economic growth of BRIC:
The BRIC are growing markets economies. They account for almost three billion people, or just under half of the total population of the world. In recent times, the BRIC have also contributed to the majority of world GDP growth. By 2020, all of the BRIC should be in the top 10 largest economies of the world. The development banks each state signed an agreement to further gradually alter loan currencies from U.S. dollars. This was intended to strengthen financial cooperation between the BRICS countries, as well as to expand the international significance of their national currencies. So, the rise of new powerhouse economies in the developing world can shift the equation of global economic order. Thus the BRIC thesis recognizes that Brazil, Russia, India and China [3] have changed their political systems to embrace global capitalism. Moreover, Brazil, Russia, India and China have long been a favorable destination of emerging market investors. This is optimistic for economic growth and huge investment may come to the BRICs in coming decades. The spur in economic growth requires a broad analysis to have a right picture of the BRICs economic growth and development.
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1. Map the proposed sequence of evolution of the economy of the BRICs. What indicators might companies monitor to guide their investments and organize their local market operations?
Answer:
The evolution of economy of BRIC is very impressive. They are in the speedy growth of their end user markets. (Experience indicates that consumer demand takes off when Gross National Income per capita reaches levels between $3,000 and $10,000 per year.) From 2000 to 2008, the BRIC countries' combined share of total world economic output rose from 16 to 22 percent. Together, the BRIC countries accounted for 30 percent of the increase in global output during the period. As BRICS observed as emerging market, many investors recognize the potentially attractive return characteristics and diversification benefits of this asset class. However, most pension plans and other institutions currently allocate less than 5% of their overall portfolio to emerging market equities. In Russia there is by now momentous verification of the growth of consumerism throughout the history decade. Parallel trends are observing in China and India, where middle classes growth is very quick. It is anticipated that within a decade, each of BRIC countries will demonstrate higher profits, amplified demand for capital, and stronger state currencies. As a result, overseas firms will desire to observe foremost financial pointers, as Purchasing Power Parity, Gross National Income and Human Development Index, in addition to developments in the cultural, political, and legal environments of those countries.
2. What are implications of the emergence of the BRICs for careers and companies in your country?
Answer:
The BRIC thesis posits that China and India will become the world's dominant suppliers of manufactured goods and services, respectively, while Brazil and Russia will become similarly 8
dominant as suppliers of raw materials. It's important to note that the Goldman Sachs thesis isn't that these countries are a political alliance (like the European Union) or a formal trading association - but they have the potential to form a powerful economic bloc. BRIC is now also used as a more generic marketing term to refer to these four emerging economies. Due to lower labor and production costs, many companies also cite BRIC as a source of foreign expansion opportunity. Developing countries like us may face challenged and higher stresses in the labor market and the declining cost competitiveness of their countries’ companies. Students from
Bangladesh may be encouraged because their states variety and compete for the investment capital and those business actions that lead to important monetary growth and the increasing international competitiveness of our countries’ firms. Nevertheless, there is sufficient scope of
comparative
advantage
in
our
country.
3. Do you think recency bias has led overestimating the potential of the BRICS? How would you as a manager for a company assessing these markets, try to control this bias?
Answer:
With the economic performance and potential of the BRICs, There may be some uncertainty. In principle, observe note the endemic problem of recency bias, which is the dubious expectation that the current trend will continue into the future. Repeatedly, companies, executives, investors, and officials extrapolating the present into the future have made mistakes. here are a number of qualitative issues that investors must consider when contemplating an allocation to emerging market equities. One of the most decisive factors is liquidity, as plan sponsors may shy away from markets with lower lower volume and smaller market caps. Many of these issues are incorporated in the classifications of MSCI Emerging Markets Index, which consider economic development, size and liquidity requirements, and market accessibility. Per MSCI, market accessibility integrates qualitative measures reflecting the investment experience of international investors in a given market, focusing on liberalization, level playing field, competitive landscape, 9
information flow, and stability. stability. In addition, emerging markets may involve a multitude of other political, social, legal and regulatory risks.
4. How might managers interpret the potential for their product in a market that is, in absolute economic terms, large but, on a per capita basis, characterized by a majority of poor to very poor consumers?
Answer:
However, we believe the best active managers may be able to identify opportunities in smaller markets, and build portfolios that are more diversified diversified than the index. As such, manager selection is critical given given the volatility in the the asset class and wide dispersion of outcomes. In all, we believe institutional investors should consider establishing or increasing allocations to emerging market equities. Managers might interpret the potential for their product in a market w. If there is innovation in the interaction with other firms and with knowledge infrastructure including universities and technological institutes .so that it can clarify the specialization, and competitiveness .Growth performance can also go a long way.
5. In the event that one BRIC country, if not all, fails to meet its projected performance, what would be some of the implications for the economic environment of international business?
Answer:
Macro stability, institutions, openness, education is the indicator of economic growth. If one of the BRIC country fails to meet the projected performance, the standard of BRIC countries performance will be hamper to some extent. As every country have microeconomic and macroeconomic environment. The elements of economic environment as gross national income (GNI), per capita income, purchasing power parity, human development index will be hampered. So there can be inflation, unemployment, debt, inequality in income distribution, poverty and 10
imbalance in payments. Again maintenance of strong political institutions that endorse transparency, fairness, and the rule of law will not also possible. On the other hand openness to trade, capital flows, FDI can’t be increased. If these economies can fulfill their potential for
growth, they could become a dominant force in generating spending growth.
6 Compare and contrast the merits of GNI per capita versus the idea of purchasing power .
parity, human development, and green economics as an indicator of economic potential in Brazil, Russia, China and India.
Answer:
The GNI consists of the personal consumption expenditures, the gross private investment, the government consumption expenditures, the net income from assets abroad (net income receipts), and the gross exports of goods and services, after deducting two components: the gross imports of goods and services, and the indirect business taxes. The GNI is similar to the gross national product (GNP), except that in measuring the GNP one does not deduct the indirect business taxes. In economics, purchasing power parity (PPP) asks how much money would be needed to purchase the same goods and services in two countries, and uses that to calculate an implicit foreign exchange rate. Using that PPP rate, an amount of money thus has the same purchasing power in different countries. Among other uses, PPP rates facilitate international comparisons of income, as market exchange rates are often volatile, are affected by political and financial factors that do not lead to immediate changes in income and tend to systematically understate the standard of living in poor countries, The Human Development Index (HDI) is a comparative measure of life expectancy, literacy, education, and standards of living for countries worldwide. It is a standard means of measuring well-being, especially child welfare. It refers refers life expectancy, education education (primarily the adult literacy rate), and income per person and is designed to capture long-term progress rather than short-term changes. Thus, by combining indicators of real purchasing power, education, and
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health, the index offers a comprehensive measure of a country’s standard of living that incorporates both economic and social variables.
A green economy is one that results in improved human well-being and social equity, while significantly reducing environmental risks and ecological scarcities.
Conclusion:
All five countries also called for an early conclusion to deadlocked talks an anti-terror law under UN auspices that would curtail funding for illegal groups that partake in violence against countries and deny their supporters access to funds, arms, and safe havens. A joint statement read: "We reiterate our strong condemnation of terrorism in all its forms and manifestations and stress that there can be no justification, whatsoever, for any acts of terrorism. In this context, we urge early conclusion of negotiations in the UN General Assembly of the Comprehensive Convention on International Terrorism and its adoption by all member states." The heads of government at the summit said that the UN's role was central in coordinating international action against what they labeled terrorism within the framework of the UN Charter and in accordance with principles and norms. The key assumption underlying is that the BRICs maintain policies and develop institutions that are supportive of growth. Each of the BRICs faces significant challenges in keeping development on track. Country GINI Index national income or
Percentage
Poorest
population
poverty line
quintile's
of below
national
share in Brazil
0.591
2.4
17.4
China
0.447
4.7
4.6
India
0.325
8.9
28.6
Russia
0.456
8.2
30.9
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Reference: 1. http://en.wikipedia.org/wiki/BRIC#History 2. Radebaugh, Lee H. "Chapter 4." Internation Business, Environment and Operation. By Jhon D. Daniels. 180-225. Print. 3. http://www.google.com/search?q=BRIC+logo&hl=en&client=firefox-
a&hs=g3D&rls=org.mozilla:enUS:official&prmd=imvns&tbm=isch&tbo=u&source=univ&sa=X&ei=ndFxT9X4DojVr QeM9NzlDQ&ved=0CDEQsAQ&biw=1280&bih=641 4. http://www.globalsherpa.org/bric-countries-brics 5. O’Neill, J., Wilson, D., Daly, K., Stupnytska, A., Ahmed, S., Kelston, A., Carlson, S. (2010), Looking into the Second Half , in Global Economics Weekly, GS Global Economics, Commodities and Strategy Research, Issue No: 10/29, July 28 6. http://en.wikipedia.org/wiki/BRIC
7. http://en.wikipedia.org/wiki/File:Historical http://en.wikipedia.org/wiki/File:Historical_top_10_nominal_GDP_ _top_10_nominal_GDP_proportion.svg proportion.svg 8. http://www.investopedia.com/terms/b/bric.asp#axzz1qZmfJZXh 9. http://en.wikipedia.org/wiki/BRICS
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