The Rise of BRIC Countries
The growth of BRIC countries has raised concern in the world since it is a great threat to the Western companies. These companies have controlled the world’s economy for very long period. Therefore, Western companies are likely to lose to the BRIC countries. Without properly formulated policies, the risk of the West losing the control of the global market to BRIC countries is inevitable. Thus, the paper seeks to analyze some of the ways, in which the rise in BRIC countries is bound to affect the strategic thinking of the Western companies to enable them gain competitive advantage in the world.
Brazil, Russia, India, and China are collectively referred to as the BRIC countries. These countries are on an economic rise and they are expected to dominate the world by mid of the twenty first century. Increased expansion of technology is attributed to the expansion. They are big economies that are expanding at tremendous rates. The size of these countries is about 25% of the world’s landmass. Their populations combined together contribute to over 40% of the world’s total population (BCG, 2006). Thus it is in order that they grow to enable them catering for the big populations and their increased productions. The big population works to their advantage since it provides a pool of cheap labor for industries. In addition, the big population provides a ready market for their goods.
Several changes are taking place in the world’s economy and politics. The Western countries and their products have been dominating the world’s economy for a long period. However, from around 1980s a number of changes have taken place in various economic aspects. There is a prediction that the West will not wield the world’s economic power forever. It is evident that there is economic and political shifts and more so to the developing countries. The reason for this is attributed to the rise in the BRIC countries that over time have increased their production. Besides, they enjoy very wide domestic market for their products (Bonaglia, Goldstein, and Mathews, 2007). Among the BRIC countries, China is seen as the engine for their economic advancement. The Chinese economy has been rapidly expanding and to date it is one of the largest economies. These countries enjoy large volume of labor force from their big populations. It is also estimated that the labor force of BRIC countries is about 40% of the global one. This implies a greater potential for greater output and economic power.
The BRIC countries have greatly contributed to the global economic growth. Most goods consumed in the world today originate from the BRIC countries. In addition, BRICs is likely to gain control of both the world’s economic and political power. Annand Sharma, the commerce secretary of India asserted that BRIC countries aimed at creating “a new global architecture.” According to this, the International Monetary Fund’s management structure should suit the existing geographical and political events and consider the apparent reallocation of natural resources and growing effect of developing countries. These prospects are strengthening towards BRICS. This was their declaration in the fourth BRICs summit held in 2012 inNew Delhi. However, the American congress sees BRIC countries to have a damaging effect. Instead, these countries are bound to damage the economic system of the world. For example, they would damage the world by undermining the roles of the International Monetary Fund and the World Bank. This is owing to the financial ability of these countries because they are able to create their own funds equivalent to IMF. According to Goldman Sachs, the growth of the developing countries is on the increase (Bonaglia et al.,2007).
There are divergent views raised about these countries working together as a unit to control the world’s economy. O’Neill supported the fact that the countries are capable of working together as a block to control the economy of the world. Nevertheless, according to Henry Kissinger the BRIC countries asserted that the countries cannot work together as a coherent body. This would only be possible when individual nations decide to act on their own. The countries keep competing against one another and, therefore, they cannot form a strong unit whatsoever. Alan Gray says that he believed that there were no sufficient relationships between these countries. He asserted that he does not “believe the growth of these emerging economies will be a significant compensatory source of alternative stimulus.” These countries have not yet formed an economic umbrella through, which they can control the world.
Research Findings and Report
The continued growth of these BRIC countries’ economic power has caused a lot of speculations. Some people speculate that they are a trading association while others argue that they are forming a political alliance (BRICS and Beyond, 2007). Instead, these countries have increased their political cooperation, for example, the proposed cooperation in nuclear with India. This has threatened the position of the West, especially the United States as a world’s superpower. In addition, these countries have also called for the creation of a democratic and equitable world market, which is not under the control of any single country. This came after the leaders of these countries held their first summit in Yekaterinburg in 2009 (Griffiths & Wall, 2007).
The economic growth of the BRIC countries is predicted to shape the world’s economy. Most developed countries see this as a threat because these countries are bound to wield a lot of economic power (Accenture, 2007). The growth in trade amongst these countries, as well as with the rest of the world mean those other countries’ products are losing market. In addition, these countries have accumulated many foreign exchange reserves. Accumulation of foreign reserves leads to improved balance of payments position, which favors economic growth and development. It is estimated that a sixth of these countries reserves is able to create a fund equivalent to the International Monetary Fund or even the World Bank. As a result, they are likely to undermine the roles of IMF and the World Bank. The public debts level of BRICs is very lower than the West and the rest of the world. These countries also survived the great economic depression of the world due to their large foreign assets. These countries have well established banking structures from where they obtain findings. For example, the top two banks in the world are Chinese banks (Sapovadia, 2010).
The macro-economic growth of these countries is likely to influence the path followed to economic growth of the world. As they gain economic power, they may also gain geopolitical power (Kowitt, 2009). The most affected will be the Western countries and companies that currently wield both political and economic powers of the world. The growth is likely to affect the form taken by globalization. It may also affect strategic outlook of development in the West. In addition, the growth in rise of BRICS influences the strategic plans of the West to enable them cope with the increasing growth and development of BRIC countries (Kowitt, 2009).
The business world is changing tremendously with the rise of the BRIC countries. As these countries gain economic power, the Western countries that controlled the world’s economy are falling (Bonaglia et. al., 2007). The BRICs have improved technology and a ready domestic market for their products thereby increasing their overall output. In addition, the rest of the world has also shifted their preference from Western goods to the goods from BRICs. This has led to expanded market for their products. The increased demand for such products has further led to the rise in Emerging Market Multinationals (EMMs). China has well-developed EMMs and enjoys its benefits more than to the rest of the world.
The rise of EMMs has led to collapse of most Western multinationals. BRIC countries and are said to have become EMMs since they have undertaken to change their economic systems in order to enjoy speedy growth of their economies. The gains realized in the growth of market have enabled these countries to gather a lot of wealth. Such wealth enables them to enjoy market power across the globe. In addition the wealth is has contributed for their rising political power in the world.
The rise of BRICs is a big threat to the Western countries. As a result, it has resulted in the inclusion of these countries in the G7. Today it is no longer G7 but instead G20. This is because the West did not want to be overtaken by these countries (Halpin, 2009). The G20 was established to control the international economic issues with specific reference to controlling the actions of the BRICs. Thus, the countries under this umbrella would participate in joint decision making to prevent errant nations from expanding their outputs and controlling the economic affairs of the world.
What response is expected from the Western companies from the rise in EMMs? Both multinational companies and small and medium enterprises must react to the growth of EMMs. The starting point is being aware of the existence of EMMs to avoid being caught unaware. Development of strategies is said to be vital to overcome this challenge. The strategies should be geared towards a well-organized production process, competition strategies, considering the current competitive they enjoy and marketing strategies to be used (Economist's, 2008).
It is anticipated that if the actions of the BRIC countries are not regulated, then they are able to create their own union aimed at controlling the world market. In fact, it reported that this is an opportunity for China to rise as a super power in both political and economic influence. Therefore, the growth in output and technology is targeting reducing the power of the West. This can be achieved through teaming up with other BRIC countries. This would pull resources together especially the raw materials that are required for manufacturing goods required in the international market.
The BRIC countries enjoy the advantage of very large domestic market compared to the rest of the world. However, the large market consists of a bigger proportion of poor people. But the countries have established a number of programs to fight poverty. In addition, their economies are well diversified which reduces the risks of specialization (How Solid are the BRICs, 2010). These countries have also adopted market liberalization policy with most countries of the world. This is against the agreement reached by G20 meeting that required authorization for trade liberalization. Therefore, free trade has been enhanced making their products popular in the world. With trade liberalization, the face of globalization is changing and the Western companies are greatly affected since they are losing to BRICs (Mathews, 2002).
The rise of the BRIC countries has changed the course of globalization. Globalization has both negative and positive impact on an economy. Economically, a greater percentage of its benefits go to average persons. As countries seek to globalize their operations, it may cause loss of jobs to the people of lower income strata. In extreme cases, it may result into unemployment (Martens, 2006). This is because the improved production methods that is capital intensive. On the other hand, globalization may cause overreliance on imports thus reducing production in the importing countries. Thus, in order to ensure full employment of labor force in a country, then the countries should encourage local production. The Western companies strive to enhance quality production to ensure fair competition of the globally produced goods (Global Economics Paper No. 99).
Most Western countries are involved in trade with the BRIC countries. BRIC countries enjoy a comparative advantage in the production of various goods. In addition, the pool of labour force of their populations provides cheap labor. This translates to lower production costs, which further lead to lower prices for goods and services. Some Western countries import goods from BRICs with the intention of exporting them again. In effect, the Western countries suffer imported inflation. At the same time, overreliance on imports may cause shortage in case of non-importation (Mortished, 2008).
Therefore, the Western countries companies are suffering from high costs of production. They also suffer lack of adequate demand for their products due to the high prices charged. The importations of goods also negatively affect the foreign exchange reserves of these countries and may cause disequilibrium in the balance of payments position (Pesek, 2005). As a result, the Western countries are encouraging the production and consumption of locally produced goods instead of the imported ones. This is aimed at reversing the situation to ensure that these countries do no lose to the BRICs, which have been under them for decades. Strategic actions are being taken to reduce the increasing demand and preference for goods from BRICs.
The target of BRIC countries is to overtake the Western companies in economic development and output. While this looks very lucrative, it is important to note that the BRICs have political and ideological differences. This hinders their ability to form an economic union to the advantage of Western companies. BRIC companies aim only at achieving economic goals instead of pursuing commercial growth (Nicolas, 2011). Each country is pursuing its own goals. At the same time, each BRIC country is fighting to do out the other. Thus, creating a gap for the Western companies, acts as a unit to increase their total output. The strength of Western companies lies on their ability to strategize as a unit. Therefore, the companies are pursuing development that is aimed at achieving competitive advantage over the rest of the world. It is believed that when firms combine efforts, they may increase their market share. In addition, the technological advancement is possible.
The rising sizes of BRIC companies pose another great challenge to the Western countries. Most of their companies have grown to multinational standards. For example, the largest banks in the world are Chinese ones. The Western countries are compelled to react through construction and promotion of banking sector in order to avoid losing. The best alternative left is to form amalgamation in the sector (Nicolas & Vincent, 2011).
There are both internal and external factors that have propelled the BRIC countries to go multilateral and seek international attention. Corporations on their own have realized this need and this has provided an intrinsic impetus for them. In addition, the number of domestic corporations given the big market has created stiff competition from within. Thus, market and profitability are limited. To ensure that the companies survive in the future in terms of profits and market these countries have opted for globalization. The Western companies that have since lost to BRICs previously dominated the markets where they are expanding. Many interventions are necessary by the Western companies to survive this competitive market. The West must think of producing superior goods and at the same time enter into amalgamations to control output, prices and technology to remain the leader of the international market (Nicolas, 2011).
BRIC countries have restricted their trading transactions with the rest of the world. Acquiring sustained access mostly require the support of government agencies. It is normally possible to meet business people from BRICs in conferences and meetings that are organized by the government. Trade regulations have remained very strict despite the efforts to liberalize trade. A lot of procedures are involved when importing goods directly from BRICs. This calls for an establishment of multilateral trade agreements. However, some of the BRIC countries do not advocate for such agreements.
In conclusion, the rise in BRIC countries is a threat to the Western companies. BRIC countries enjoy economies of scale in production. Economies of scale arise from the cheap labor from the big populations and the availability of raw materials for the industries. Financial economies have also been enhanced. This is translated to lower average cost of production. The increasing production and domination of the world market with goods from BRIC countries deprive the Western companies their markets.
The Western companies have been greatly been affected. It is projected that the BRIC countries will overtake them. This has been a great concern for the West causing them to employ strategic measures that can help revert this. This is because the rise in BRIC countries is expected to change the trend in globalization, development and the strategic planning to help them cope with the possible long-term effect.