It’s hard to make it through a report on any facet of the global economy without some mention of the BRICS economies – Brazil, Russia, India, China and South Africa. It’s for good reason.
At the most recent G20 summit, country leaders praised the BRICS for their roles in the anti-crisis measures during the global financial meltdown and the reforms they helped create.
The group had an average GDP growth rate of 4.11 per cent between 2011 and 2013, compared to the 1.37 per cent average expansion of developed nations. Plus, Russia, India, Brazil and China are already among the 10 largest economies in the world.
For many businesses, the hype surrounding these bustling economies may appear as an invitation for international expansion. If populations, GDP, employment and a boatload of other economic measurements are all on the upswing, why wouldn’t you make the move?
Because a barrage of seemingly endless and glorious economic data is no guarantee of a successful international expansion. If businesses buy into this hype without doing the proper research, they risk running into an impregnable wall in the way of success.
Heed the warnings of the GCI
It doesn’t take much to realise BRICS economies’ growth rates are not correlative with their rankings in the Global Competitiveness Index (GCI). The first country to appear on the list is China – the world’s second largest economy – which held its position at 29th.
Although China held the same ranking as last year, it lost ground in several index areas. The report showed its weaknesses included corruption, security issues, poor accountability and worsening ethical standards among businesses.
What’s most concerning is that China – even with these marks – was the BRICS leader by a longshot. South Africa came in much lower on the list at 53rd, while Brazil, India and Russia took 56th, 60th and 64th, respectively.
Let’s look at Brazil for a minute. The country made headlines last year when it outstripped the UK as the sixth largest economy in the world, and over the past few years has attracted innumerable companies all looking to take advantage of its growing natural resources, agriculture, manufacturing and export environments.
But what good is economic expansion if it goes hand in hand with the growth of serious business concerns? The GCI showed Brazilian companies are experiencing tighter access to financing, deteriorating macroeconomic indicators, higher corruption and public distrust in political figures – hardly a forgiving environment for fledgling businesses.
Just more BRICS in the wall
Australian businesses considering international expansion shouldn’t avoid the BRICS entirely, though.
Rather, they should be considered as a viable expansion destination in and amongst every other opportunity. Just because they’ve earned a nickname doesn’t mean they should be viewed as a better market than, say, Singapore, which is the 37th largest economy but ranks second in competitiveness.
“There’s a lot of hype around the BRICS economies and going there for business, but for most Australian companies that are domestically focused, I don’t think it’s a great idea to jump into these countries,” said John Varvarigos of Naked Business Consulting.
“There are other priority countries where you can get quicker wins than in developing markets. Rather than getting caught up in the hype, SMEs should take a structured approach in going overseas.”
So the next time you read a report about the BRICS’ march toward global economic dominion, keep your excitement in check. Successful international expansion requires due diligence and business strategic planning, not just the high hopes of riding a wave that could crest at anytime.