1. 218 PART 2 ComparativeEnvironmentalFrameworks
Meet the BRICs
he openingcase for this chapterhighlighted accelerating
the successof emerging
economies.s2 focus of attention now squarely the vanguardof emerging
The is on
economies, so-called
the BRlcs:Brazil, Russia, India,
and china.The BRlc countries.
although much larger scaleand scopethanotheremerging
in markets, symbolically
repre-
sent trendsthat are developing throughout world. Many presumethat wherethe BRICs
the
go, others follow. we lookat the emergence the BRlCs, discuss implications
will As of we the
for the economic environment wellas individual
as company activity.
Then, close,we,llsee
to
what threatsto the BRICsmightmakethem crumble.
At currenttrends and with reasonable projections, over the next few decades Brazll,
Russia, lndia'and Chinawillbecome larger,
a morepowerful forcein the worldeconomy. By
2050,the BRICs eclipse
will mostof the current richestcountries the world,will eniom-
of
passover40 percent the world'spopulation, holda combinedppp-adjusted
of and GDp of
nearly$15 trillion. Consequently, rankings national
the of economies changedramatj-
will
cally(seeFigure 4.8).
In termsof specifics, Chinaand Indiawill be the dominant globalsuppliers manufac-
of
tured goods and services, respectively,whileBraziland Russiawill becomethe principal
suppliers raw materials.
of Collectively, almosteveryscale,they will becomethe largest
on
entityon the globalstage.
The unfolding influence the BRICsas enginesof new growth and spendingpower
of
leads some to arguethat these transitions may happeneven sooner,especiallygiven the
FIGURE4.8 The LargestEconomies theWorld:2050
in
Current proiections see the national economic order of the world changingdramatically over the
next few tenerations.
By midcentury China will likelyclaim the top rank,followedby the United Statesand lndia.
Sonrce;
DominicWilsonand RoopaPurushothamary "GlobalEconomicsPaperNo.99: Dreamingwith BRICS: path to 2050,,
The
(ColdmanSachs,2005), ww.gs.com (accessed
at OctoberlS,2OOZ).
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2. CHAPTER 4 The Economic Environrnents Facins Businesses
agingworking populationsand fallingproductivity rates in richernations.Expertsforecast
that the most dramatictransition take placeoverthe next20 to 30 years.
will
By 2016, China'seconomywill be largerthan those of Japan,the UnitedKingdom,
Germany, France,ltaly,and Canada, with an eyeto passing UnitedStatesas the world's
the
largesteconomysoon thereafter. India'seconomywill passJapan'sby 2030,makingit the
thirdlargestin the world.Of the premiereconomicpowersof the twentieth century only the
UnitedStatesand Japanwill be amongthe largest in
economies 2050.
This trend has also shapedrelationships between parties. Indiaand China, world's
the
two most populouscountries, agreedto form a strategic partnership end a borderdispute
to
and boost trade in a deal markinga major shift in relations betweenthe Asiangiants.The
agreement, signed by the premiersof both countries, easesdecadesof mutualdistrust
between nations a result a war in 1962."lndiaand Chinacan together
the as of reshape the
world order,"lndian prime ministerManmohan Singh proclaimed a ceremony his
at for
Chinese counterpart, Premier WenJiabao,at India's presidential palace.
Similarly, bilateral Sino-Russian tradewas $33 billion 2006,up from$20billion 2005,
in in
and it is expected reach$70 billion 2010.Chinais Russia's
to by fourth-largest trading part-
ner;Russiais China'seighth.Theyare the leading members the Shanghai
of Cooperation
Council,one of the most influential economiccentersin the world. Indications show a
of
strengthening ties betweenthesenations,ln manypeople'seyes,Russia, rollingback by
democracy and reviving imperialist
its past, is morepolitically alignedwith the one-party
stateof China.
As of early2008, no text was made publicof any formalagreement which all four to
BRICnationsare signatories. Still,changewas afoot.BRICleaders knewthat a multilat-
eral alliancewould amplifytheir political,legal,economic,and strategicinfluence.
Spearheading these effortswas President Putinof Russiawith his goal to build "a new
worldeconomicarchitecture" that would reflectthe risingpowerof emerging economies
andthe declineof the old heavyweights the UnitedStates,
of Japan,and manyEuropean
countries.
At a recent G8 summit,a forum for leadingmarketeconomies, Putincondemned
existingglobal organizations archaic and undemocratic.
as "The world is chang-
ing beforeour very eyes,"he said. "Countries that seemedhopelessly backward only
yesterdayare becoming the world's fastest-growing economiestoday." Emerging
economies, by the BRlCs,no longerwantedsimplyto be part of the world'soutdated
led
architecture-instead, they wanted to go forwardinto a bravenew world largelyunen-
cumbered the past.
by
Thediffusionof commodities, work,technology, companies
and outwardfromthe United
Kingdomand fellow rich countrieshas changedthe gameof globalization. Furthermore,
improving sophistication information
of technology enablesreorganizing production across
borders,thereby openingup new productionfrontiers previously for nontradable services.
Thesteadily shrinking roleof the prominent economies the twentieth
of century trigger
will
fundamental shiftsin firmstrategy, consumption, investments.
and
Regarding firm strategy, companiesfrom richercountries scrambling reorient
are to
theiroperations the BRlCs.For many,thereseems be a tentative
to to consensus just
that
beingthere,no matterthe shapeor form of investment, morecrucialthan the product
is
the companyactually offers.Othersarefurther alongin theirreorientation, somemotivated
by the opportunity, many motivatedby the realization "companies
that that don't take a
vigorous approachto Chinaand Indiawill face threatsto their very existence coming in
years."
For example, GM is goinggreatguns in Chinaeventhoughit is struggling the United in
States.ln 2005, its sales rose 35.2 percentto a record665,390vehiclesand by 2007,
it was the biggestcarmaker China.Hyundai, secondlargest
in the sellingbrandof car in
Russia,is in talks to build a manufacturing plant outsideof St. Petersburg. Similarly,
Wal-Mart BhartiEnterprises,leading
and a Indian phone
cell plan
operator, to openhundreds
of Wal-Mar1 superstores across Indiaby 2010.

3. 270 PART 2 CornnarativeEuvironurentalFrameworks
Other tales amplifythe strategicsignificance the BRlCs. Cisco Systems has
of
decidedthat 20 percentof its top talentshouldbe in Indiawithinfive years.ln 2OO7,
it movedone of its highest-ranking to
executives Bangalore with the title of chief global-
izationofficer.More dramatically, IBM is slowly making India the company'scenter of
gravity.From a local labor force of 9,000 in 2003, IBM now employs73,000 in lndia-
meaning that almostone in five IBM workersnow is in lndia.HavinginvestedUS$2 billion
in its Indianoperation from 2003 through2006, IBM announced would investan addi-
it
tional$6 billion 2008.Symbolizing growingprimacyof its Indianoperations IBM's
by the is
historic decision hold its annualInvestors
to Day in 20O7 the groundsof the Bangalore
on
Palace; this eventhad neverbeforebeen held outsideof the UnitedStates. But this
change made perfectsense given that "lndia is at the epicenterof the flat world,"
explained Michael Cannon-Brookes, president business
J. vice for development India
in
and China lBM.at
ln termsof consumption, BRICsare on the vergeof rapidgroMh in consumerprod-
the
ucts.Economic analyses advisecompanies start capitalizing this comingwave of con-
to on
sumption giventhat consumer demandtakes off when GNI per capitaincomeis between
$3,000 and $10,000.
The first economy hit those levelswas Russia.
to China,India,and Brazilare steadily
headingthere.Chinaand lndia,in particular, haverapidlygrowingmiddleclasseswhose
demandaspirations changing are quickly.Analystspredictthe middleclass will expand
from 50 millionto 583 millionpeopleby 2025. More immediately, between2005 and
2015,over 800 millionpeoplein the BRICswill cross the annualincomethresholdof
$3,000.At this point peoplemove from consuming necessities consuminghigher-
to
pricedbrandedgoods.
By 2025,approximately millionpeoplein theseeconomies haveannualincomes
200 will
For
above$15,000. example, thereareonly2 carsfor every100peoplein China,as opposed
to 50 cars per 100 Americans. 2040,China'scar ownership likelyrise to 29 cars per
By will
100 people.The total numberof cars in Chinaand Indiacombinedcould rise from around
30 milliontoday to 750 millionby 2040, more than all the cars on the world's roads today.
Eventhen, however, ownershipcar rates in those two countries will be half those in the
UnitedStatestoday.
the
Notwithstanding spectacular economicperformance and potentialof the BRlCs,
there is some skepticism. principle,
In observers note the endemicproblemof "recency
bias," which is the dubiousexpectation that the currenttrend will continueinto the future.
Repeatedly, companies, executives, investors, extrapolating presentinto the
and officials the
futurehavemademistakes.
Therearealsoseveral practical threats.Despitehigh-octane economicgrowth,the BRICs
face futuresof widespread povedyand distortedincomedistributions. 2025, the income
By
per capitain today'srichercountries exceed$95,000 more than a billionpeople.
will for
In contrast, onlyabout24 million peopleout of the nearly billion
3 folksin the BRICeconomies
will hit that threshold.
Longterm,incomeper capitain the UnitedStatesis projected reach$80,000by 2050
to
whileChina likely justover$31,000,
will be Brazilabout$26,600, lndialust $17,400.
and With
the possible exception Russia,
of hundreds millionsof peoplein the BRICswill be far
of
pooreron average in
than individuals Germany, France, Japan,ltaly,Canada,and the United
States.Consequently, the first time in historythe largesteconomiesin the world will no
for
longerbe the richestwhenmeasured GNI per capita.
by
Inevitably, manyask if the BRICscould turn into bricks in their march to miracle
economies. Unquestionably, governments each countryhave developedeconomically
in
sensible policies, opened tradeand domestic markets, and begunbuildinginstitutions that
supportfree markets. Stiil,there is more than a passingchancethat conditionsin one
economy, not all,willfallout of syncfor the simplefact thatthe transition
if from command-
controlled economies freermarkets
to restson a difficult of accomplishments.
set Basicall)

4. CHAPTER 4 The Economic Environments FacingBusinesses z7l
conditions
four instrumental must occur,moreor lessconcurrently, a marketeconomy
for
to grow consistently:
1. Soundmacroeconomic policies a solidmacroeconomic
and background, seenin low
as
prudent
inflation, publicfinances, supportive
and governmentpolicy
2. Strongpoliticalinstitutions endorse
that fairness, the ruleof law
transparency, and
to
3, Openness trade,capitalflows,and foreigndirectinvestment
4. Highlevels education boththe primary
of at and secondarylevels
The failureto achieve thesestandards jeopardizes currenteconomic performance and
long-term growthpotential.
In addition, political uncertainties socialassumptions eachcountry
and in limittheireco-
nomicpotential. Brazil's economicpotential has been anticipated decades,
for but it has
struggled achieveexpectations
to due to problemsin incomeequality, productivity, and
education. Likewise, population
the countof Russia declining, the country's
is and uncertain
government, environmental degradation, and crumblinginfrastructure confoundgrowth
pro,jections. India, addition otherpressing
in to economic and politicalchallenges, many
has
poor people.China's particularinterpretation the rule of law,rightsof citizens,
of environ-
mental sustainability, principles democracy
and of posesproblems. Too,China facesa clos-
ingwindowof opportunity; 2O2Oby Chinawill havethe largest number bothold and very
of
old peopleon earth.
Finally,so-called greenconstraints shadowthe brightfuturesof all.Theemergence the of
BRICs will challenge well-being
the and sustainability the globalenvironment.
of Global
warming, diminishing materials, escalating
raw and pollution
suggest thereis a finitelimitto
how much the BRICscan developbeforeexceeding capacityof the globaleconomyto
the
supplythem and of the environment supportthem. Moreworrisome the Worldwatch
to is
Institutereportthat if Chinaand India, say nothing
to aboutRussia and Brazil, wereto con-
sume resources and producepollutionat the currentU.S. per capitalevel,it would require
two planetEafths justto sustain theirtwo economies.
In summary, the emergence the BRICssuggeststhat the next generation eco-
of of
nomicdevelopment the globaleconomy be a fascinating bumpyride.No matter
of will yet
what,coming anywhere closeto reaching their apparent potential redefine struc-
will the
ture of economicenvironments, patternsof growth,and dynamicsof economicactivity
worldwide. r
QUESTIONS
1. Map the proposed sequence of evolution of the economy of the BRlCs. What indicators might
companies monitor to guide their investments and organizetheir local market operations?
2. What are the implicationsof the emergence of the BRICs for careers and companies in your
country?
3. Do you thinkrecencybiashas led to overestimating potential the BRICs?
the of How wouldyou,
as a manager a companyassessing
for thesemarkets, to control
try this bias?
How might managers interpret potential theirproductin a marketthat is, in absolute
the for eco-
nomic terms,largebut, on a per capitabasis,characterized a majorityof poor to very poor
by
consumers?
5. In the eventthat one BRICcountry, not all,failsto meetits projected
if performance,what would
be some of the implications the economic
for environment international
of business?
6. Compareand contrastthe meritsof GNI per capitaversusthe ideaof purchasing powerparity,
humandevelopment, green
and economics indicators economic
as of potential Brazil,
in Russia,
China, and India.
I