Essay on "International Management the BRIC Countries"

Essay 10 pages (2810 words) Sources: 10 Style: Harvard

[EXCERPT] . . . .

International Management

The BRIC countries are the largest of the fast-growing emerging economies in the world. They are Brazil, Russia, India and China. For international managers, these countries represent some of the best potential for growth in the world today. A study by Goldman Sachs highlighted that China and India would be the world's first and third largest economies respectively by 2050, and that Brazil and Russia would be fifth and sixth respectively (GlobalSherpa.org, 2011). This report highlighted for international managers the need to enter these markets and build share in them. Success in the long run depends on being able to succeed in markets like this.

However, they are each very different countries. Doing business in any one of these countries represents significant challenges for international managers and doing business is all for is even more challenging, because they are so different from one another. Brazil is the largest country in South America by both population and area. That country has a resource-based economy that emphasizes exports, and a social democratic government that blends economic growth with a high level of wealth distribution. Russia is a large industrialized nation that is still in the process of modernizing its economy after the fall of the Soviet Union. Russia's current economic growth derives from its vast stores of oil and especially natural gas. India is the world's largest democracy, with a middle class the size of the United States. China is the world's largest country by population (third by area) and has a very fast-growing economy based on manufacturing exports.

This paper discusses the challenges of managing international organizations in these countries. The challenges include market challenges, competitive challenges and political challenges. Each will be discussed for each country in order to better understand the different challenges that managers face in these countries, in the context of international business.

Brazil

In the 1990s, Brazil embarked under an ambitious economic reform program. The country privatized much of the country's government-run industry and pegged its currency to the dollar to curb inflation (Joffe-Walt, 2010). The peg ended in a currency crisis, being unsustainable, and Brazil ended up with the new socialist government. The new regime continued with most of the economic modernization policies, except the privatizations and it maintains only a loose peg on the currency, which now floats mostly freely. These two governments have orchestrated a turnaround that has made Brazil one of the major growth stories of the past twenty years.

Today, Brazil has the 9th-hightest GDP in the world at $2.172 trillion, and the GDP grew at a rate of 7.5% in 2010 (CIA World Factbook, 2011). The economy has seen greater wealth distribution, and this has helped Brazil's economy as well, since there is a higher degree of consumer spending in the domestic market. The country still relies on exports, however. These come in the form of both raw materials and in the form of manufacturing, the country having built a manufacturing industry in the 1950s and 60s. Brazil has joined the WTO and Mercosur as well, opening up the country's markets to foreign investment. Brazil is the world's 14th largest destination for foreign direct investment, accounting for $368 billion per year.

Politically, while there is always going to be concern among investors about a nominally socialist government in power in the South American nation, Brazil is open for business. A signatory to the WTO and a member of Mercosur, the regional trade bloc, Brazil is committed to reducing tariffs and non-trade barriers in most of its industries. The socialist regime has held to this, and as a result the country has attracted significant foreign investment.

Brazil is a compelling market right now. The country has suffered historically from a very high degree of wealth disparity, which in turn fueled absurd levels of crime in major cities. In the past few years, the country has seen its GINI index decline sharply, indicating that the massive wealth disparity is being reduced. This means millions of Brazilians are entering the ranks of the middle class. With high wealth disparity, GDP gains may not mean much for market size gains, given that the same segment of the population will retain the wealth. With greater wealth distribution, however, the country will see a sharp increase in the number of middle class consumers -- those who will buy the products that international firms are selling.

Brazil's export orientation and large stock of raw materials means that the country is a good base for a production as well. The more business-friendly approach of the government means greater opportunity to use Brazil to reach other South American markets, such that much of the continent is accessible without trade barriers for most firms. The country has a large workforce from which to draw as well. There are concerns that industrial ventures will face relatively high tax rates in order to help finance the government's social programs, but this disadvantage may be outweighed by the opportunity.

From a competitive perspective, Brazil is not a heavily-saturated market yet. Many companies opt not to focus on South America as a major market, something that opens up Brazil for firms that do see value in operating in that part of the world. There are fewer state-run companies on which to compete as well, after the massive privatization moves.

Overall, for the manager Brazil represents a moderate challenge but a significant opportunity. There are economically progressive cities like Curitiba, major metro areas like Rio and Sao Paulo, and the country has a wealth of natural resources on which to draw. The biggest risk in Brazil is the country's historic lack of political stability. The Lula regime has been transferred successful to the next generation of socialist politicians, granting the country some stability, but overall the country's history of poor management raises the specter that its current run of success is something that may not be sustained. In that respect, it might be the riskiest of the BRIC countries. But with political stability, Brazil is likely to fulfill Goldman's vision as the fifth-largest economy in the world.

Russia is a challenging environment in which to operate for Western firms. Historically a superpower as the U.S.S.R., Russia is unused to Western business and political models, and has not translated to globalization very well (St. Petersburg Times, 2010). That said, the country is already industrialized and has enormous natural resource wealth. Russia has the largest proved reserves of natural gas and the 8th-largest proved reserves of oil. Russia has attracted $297 billion in foreign direct investment, ranking it 18th in the world, between Singapore and Austria (CIA World Factbook, 2011). This points to hesitation among the international business community to enter the Russian market.

The political environment remains the biggest challenge for international managers in Russia. Contributing to the country's low globalization score is trade policy (St. Petersburg Times, 2010). Russia is the only one of the BRICs not in the World Trade Organization, and therefore not particularly committed to liberalizing its trade regime, although it is just now at time of writing set to join in mid-December 2011 (Prasad, 2011). At present, however, the country still suffers from heavy state intervention in markets, making it a difficult operating environment for foreign firms.

The market, however, is promising. Although the smallest of the BRIC countries by population at 138 million, Russia is the wealthiest, with a per capita income of $15,900. Its consumers are clustered into cities, most of which are in the Moscow-St. Petersburg corridor and along the Volga River. This makes Russia a relatively easy market to reach. The country also has the best transportation infrastructure. The biggest concern is that unlike most developing nations, Russia has a declining population. Thus, even if its economy gets a short-term boost from resource exploitation, Russia's long-term future is in question if it does not see a population boom.

The competitive situation in Russia is characterized by state involvement. Many firms, particularly in the lucrative resource sectors are either owned or run by the government. This means that access to the Russia market is difficult in this sector. Consumer products are easier to sell. The challenging political and cultural environment means that few foreign firms have entered the Russian market, and that some of the ones that have entered eventually left.

For the international manager, Russia is an interesting prospect. The country's accession into the World Trade Organization should open the country up to more foreign investment, negating one of its biggest disadvantages. Yet, if China can join the WTO without unwinding its state-controlled industries, so too can Russia. The consumer products market remains enticing for foreign firms, because most Russians are already middle class, especially in Moscow and St. Petersburg. Outside of the cities, the people have less money but the markets are more difficult to reach as well, so firms can concentrate on the major metro areas of the country easily and profitably.

Lastly, many firms have taken to producing in Russia for the… READ MORE

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