Looking beyond the obvious

The BRICs remain reliable options

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For many multinational companies, Brazil, Russia, India and China (the BRICs) were the big bets of the past decade and these powerhouses will continue to be major players in the world economy.

The challenges of operating in the BRICs are increasing.

EY - BRIC countries continue to grow at a faster pace than other marketsNot only will the BRICs’ gross domestic product (GDP) grow faster than that of the other countries included in the Index, but the BRICs will also integrate further with the global economy.

Yet the challenges of operating in the BRICs are increasing, as several issues chip away at business confidence:

  • Slowing real growth
  • Rising inflation
  • Rising labor costs
  • Political instability
  • Infrastructure shortfalls
  • Bureaucratic obstacles

“Emerging markets have had a bit of a rough ride over the past 12 months, proving once again that on a cyclical basis they are vulnerable to disappointments in other parts of the world,” says Stephen King, Chief Economist at HSBC.

“China wobbled this year, but with more stimulus, its growth should come back on track. India has struggled with a lack of supply, reform and investment in the right areas. Brazil, always a very cyclical economy, slowed significantly through the course of this year, and its recovery will depend to some extent on growth in other parts of the world.”

Slower growth in the BRICS

Gavyn Davies, a macroeconomist and former head of the global economics department at Goldman Sachs, notes that over the course of 2012, GDP projections for the BRICs have dropped substantially for the first time in many years.

“The financial markets have been adjusting to slower growth in general, but slower growth particularly in the BRICs, where there have been downgrades of at least 1% to GDP in 2012."

Growing protectionism is yet another threat to the BRICs’ attractiveness. Nearly half of the respondents to our 2012 Globalization Survey say they expect declining growth, along with increased global competition, to spark more protectionism among the BRICs.

In fact, companies based in the BRICs are themselves looking beyond their home markets for opportunities to sustain growth, as our Beyond Asia series of reports reveals.

 


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