Free «BRIC Countries» Essay
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For a long period, international economies have been classified into developed, developing and under developed, depending on the phase of economic development of a country. Economies such as UK and USA have been considered to be developed while economies such as Brazil, Russia, India and China have been considered as developing economies (Pelle, 2007). The term BRIC was coined by the Goldman Sachs in the year 2001. It is an acronym for Brazil, Russia, India and China, which are known as BRIC countries. They are, indeed, considered as the best and the strongest among the emerging market economies.
BRIC Countries in International Business and Their Growing Role
In the recent past, there have been numerous economic and credit crisis on the global economic scenario. A number of developed countries were faced with problems such as bank failure, shutting down of industries that resulted to massive unemployment. Global investors were finding difficult to invest their funds and were searching for new avenues and places for parking their funds (Pelle, 2007). Even though, BRIC countries also experienced these problems, they were essentially able to come out of the problem more quickly and efficiently in much shorter time than the developed countries.
Because of this, BRIC countries have been identified as being key players in the international, global business. At present, BRIC countries together essentially account for around 40 per cent of the world population. Approximately 25 per cent of the world geographical land is occupied by the BRIC countries (Pelle, 2007). China leads the list of the world most populated country. Besides, China also has the second highest gross domestic product after United States. India is second most populated country and the fourth in the gross domestic product rank, while Russia and Brazil are sixth and eighth in the gross domestic product ranking respectively.
By 2050, the combined economic wealth of BRIC nations will essentially be larger than the combined wealth of most advanced nations of the world. Russia and Brazil will become the leading suppliers of raw materials. In short, BRIC countries together have high potential of forming a powerful economic block that will be competing with G7 countries (Brics, 2012).
Anyone with an economic interest in the business world today can hardly fail to hear the unending rise of the BRIC countries, which have become the key players in the world economy due to their vast economies. These countries are predicted to command an increasing share of the world trade in coming years (BRICs, 2012). This is because these countries have proved to be among the most economically dynamic in the emerging markets countries, with their own drivers of growth. Therefore, they are increasingly becoming distinguished by providing a tremendous opportunity for investors.
According to the projections from the international monetary fund, Brazil has been the seventh largest economy in the world since 2011, and it will remain on that position until, at least, 2015. Brazil is the most self-sufficient country in the world. This is because it has lots of natural resources such as minerals and agricultural resources. Brazil is rated as having a 3.27 per cent of global gross domestic product, 42.79 per cent national gross domestic product, with vital industries such as textiles, chemicals, cement, lumber and shoes (BRICs, 2012).
Brazil has also been named as the fourth most favorite destination for international investment, with an increasing number of the foreign firm settings up operations in the country. The country's income tax system has a number of bands ranging from 0 to 27.5 per cent dependent on the earnings (BRICs, 2012). This tax rate is favorable for international investors with prospects of investing in the country. The corporate tax rate of 15 per cent is normally charged on any income over 240,000 Reais while, for the companies, they are usually added to their regular income.
Russia is one of the world largest countries with abundant natural resources and a population of approximately 142 million people. The country offers many opportunities for overseas investors to venture in the country (BRICs, 2012). Russia is a leading supplier of the gas to the entire European market, and it has vast minerals such as palladium, nickel, platinum, iron ore and coal which are normally distributed to the whole world market.
Russia has as economic strength of 2.38 per cent grossed domestic product globally and 59.20 per cent gross domestic product growth nationally. Its leading industries include mining, machine building, extractive industries, transportation equipment, and communication and defense industries. Russian policies that have encouraged oversea investment include tax relief, developing public–private relationship and reduced administrative barriers. Furthermore, Russia has the lowest corporate tax rate of all the G8 countries (BRICs, 2012).
India is among the world fastest growing economies. The country enjoys a stable democracy with the common law legal system and presence of a large number of English speaking highly educated workforces. The country is the second populated after China, hence has an adequate manpower required to provide labor force in the country, even though its population is expected to surpass that of China (Borodina, 2010).
India haseconomic strength of 2.31 per cent of the global gross domestic product and 103.52 per cent national gross domestic product growth. The major industries in the country include textiles, food processing, chemicals and transportation equipment. Indian oversea investment in the year 2011 totaled to $37.18billion, but it is not a one way traffic because, Indians firms are increasingly spreading their financial muscles abroad with strategic acquisition including such as Corus Steel and Jaguar Land Rover in United Kingdom (Borodina, 2010).
In an effort to boost foreign investment in the country, the Indian government has implemented an incentive for companies to invest in certain industries such as software technology for export oriented IT zones and also in particular economic zones for export producing industries. Furthermore, the government provides tax holidays for investors.
China, which is also member of the BRIC Countries, has the world largest population and has eclipsed Japan as the second largest economy. The countries affluent, middle class is growing and increasingly spending the earning on cars, property and consumer goods. Furthermore, China is producing more automobiles than the United States and is the world’s leading economy (Borodina, 2010). In addition, the impact of the Chinese large population consumption is predicted to be favorable for products from both Chinese industries and those industries around the world hence making a potential market in the future.
The China economic strength at the global level stands at 9.27 per cent gross domestic product and 170.86 per cent gross domestic product growth at national level. Its leading industries include ore processing, mining, machine building, automobile, textiles, armaments, apparel and petroleum among others (Borodina, 2010).
A recent trend analysis reflects the growth of BRIC economies in the last decade, which indicates that these countries have gained prominence and have become extremely powerful countries in the global trade. The foreign direct investment statistics reflect the growing investments levels attracted by these countries from foreign countries and global corporations (Jain, 2006).
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In the year 2011, the Russian foreign direct investment rose to about 66.1 per cent as compared with the previous year, reaching up to approximately $190.6billion. At the end of the same year, Russian is said to have accrued a foreign capital amounting to $347.2 billion. Direct investment accounted for the 40.1 per cent (Jain, 2006).
Brazil, which is a member of BRIC countries, posted a record of $66.7 billion that resulted from foreign direct investment. This was a 48.5 per cent rise from the previous year. In addition, the Brazil economy expanded by 3 per cent in the year 2011 (Marr, 2010). This was a sharp decline from 7.5 per cent pace in the previous year, but it was claimed to be faster than any of the world’s biggest economies. Furthermore, it was considered to be strong enough to cut down the unemployment rates to low record hence opening more opportunities for foreign investment to the country.
Brazil today is one of the mostly preferred destinations for inbound foreign direct investment. Major international companies are seeking to enter the market in order to establish new or expand the existing foreign direct investment projects. This is because of the market size of Brazil and the growing middle class population; another factor fueling this growth is the fact that the county will host the 2014 FiFa world cup and 2016 Olympic Games (Marr, 2010). According to the financial reports from UNCTAD’s Global Investment Trends Monitor, Brazil was the 10th largest beneficiary of the foreign direct investment with approximately more than $30 billion in the inbound FDI projects.
The recent trends in Brazil indicate that many multinational companies are beginning to venture in the northern part of the country, which is immensely rich in terms of resources, most populous but historically exceedingly poor (Marr, 2010). These regions provide a tremendous room for future investment expansion. For instance, an Italian car manufacturer company FIAT recently publicized its intention to invest approximately $1.78billion in an automotive manufacturing project, in the Pernambuco state and nestle region, in Brazil. In addition, a subsidiary company based on Switzerland launched a floating supermarket in order to service the riverside population of the Amazon in Brazil (Marr, 2010).
India is another country in the BRIC economic block that is gaining a remarkably fast importance in the world of business. This is because, over the last one decade, it has become an investment hub. Most global investors retained their faith on the market even during the previous harsh economic conditions. As a result, India is enjoying a high inflow and investment while most of the countries outside the BRIC economic bloc are recuperating from the economic downturn (Marr, 2010).
According to the United Nation reports, India is the most favorable destination for international investment, after United States and China, for leading global companies. The report further predicts the possibility of foreign investment to India to increase by more than 20 per cent in 2012 to 2013 (Jones 2012). Statistics from the department of industrial policy and promotion indicates that India received foreign direct investment of approximately $1.33billion in May 2012, while thee aggregate inflow for April-May 2012 to 2013 stood for $3.18billion.
The sectors that attracted enormous foreign direct investment during that period include pharmaceutical with US$401 million, services with US$754 million, construction with US$181million, metallurgical industries with US$314 million, power with US$ 100 million and housing and real estate with US$ 314 million (Jones, 2012). In addition, the majority of the foreign direct investment in the Indian sectors of telecommunication, infrastructure, computer hardware and software, hospitality services and information technology has been made by investors from developed countries such as United Kingdom and United State of America. The Global Jurix, which is a leading legal organization in Indian with a global reputation normally help companies and businesses organization from all over the world to make foreign direct investment in Indian business sector (Jones, 2012).
Foreign direct investment in China has increased considerably in the last one decade, reaching an approximate of $185billion in the year 2010. China, which is also a member of BRIC countries, is normally the second largest beneficiary of the foreign direct investment globally. In addition, China economy has expanded with a rate of 8.1 per cent in the first quarter of the year as compared to the previous year (Du, 2010). Even though, that was the slowest growth rate for the last three years, the international monetary fund speculate that China economic growth rate will double the pace of the world, and more than four times overpass pace of the United State economic growth.
Many multinational companies are expanding their investments oversea in order to reach the Chinese vast market. For instance, Honda motor Co. and Ford Motor Co. have already expressed their interest to expand their venture in order to meet the growing demand in China, which is the world’s biggest auto market (Du, 2010). The United State carmaker has announced an investment of approximately $600 million in order to increase the capacity at one of its passenger car factories in China. On the other hand, Japan has also announced its plan to add more models to the Chinese market, while plans of setting up a research center in the country are still underway.
BRIC nations are becoming increasingly influential in the international business because of their domination in leading industries, in the world. BRIC countries play a dominant role in the global aluminum industry in terms of production and consumption. The aluminum industry in these countries has posted a healthy growth in the recent past, and the trend is expected to continue (Du, 2010).
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The BRIC countries dominate global aluminum production with China being the largest producer and consumer of aluminum in the world. Russia was ranked as the second largest producer of aluminum after China by the end of 2010. Brazil was ranked sixth while India was seventh consecutively (Du, 2010).
Brazilian aluminum production has been projected to grow at a rate of 1.59 per cent and reach approximate 1.61 million tons by the year 2016. Russian aluminum production is predicted to grow at a rate of 3.46 per cent and reach 4.64 million tons by the year 2016. In India, aluminum production is predicted to grow at a rate of 11.89 per cent and reach 3 million tons in the year 2016. (Reynard, 2010) Chinese aluminum production is projected to grow at a rate of 4.58 per cent and reach 25 million tons by the year 2016. This means that BRIC countries influence the development of industries in many countries in the world since aluminum is a key raw material for industrialization.
At the global construction markets, BRIC countries have emerged from recession to a new period of growth. BRIC countries construction markets are particularly strong in three sectors that include water and sewer infrastructure, energy infrastructure and leisure and hospitality. Russia and Chinese markets dominate the energy infrastructure construction with over $492 billion in a combined investment plan (Reynard, 2010). China is reflected as being the largest market for the energy sector. China has invested a total of 11.1 trillion Yuan into the power generation projects in the country.
Russia has invested significantly in clean energy, which normally attracts most foreign investment. In addition, it is planning to invest an estimated $320 billion in production of renewable sources of energy (Reynard, 2010). India has invested approximately $143 billion for the construction of gas and oil pipeline, and this has offered significant opportunities for international Gas and Oil Company to invest in the region. In Brazil, clean energy investment has fueled a rapid expansion of the energy infrastructure projects.
It is vital to note that BRIC countries have changed their political system in order to embrace global capitalism. According to the Goldman Sachs reports and predictions, India and China will become the dominant global suppliers of manufactured goods and services in the world. Brazil and Russia are projected to be the world greatest suppliers of raw materials (Reynard, 2010). Of all the four BRIC countries, Brazil is the only country that has the capacity to continue all the elements of modern developing, which include manufacturing, resource supplying and services. Therefore, cooperation among BRIC countries is postulated to be the next step because together they form logical commodity suppliers to the world market (Reynard, 2010).
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