The ECONOMIC Environment
CLOSING CASE: Meet the BRICs [See Fig. 4.5.]
Over the next 50 years, changes in the relative performance, scale, and scope of the world’s economies will be dramatic. Most notably, data indicate that the combined economies of Brazil, Russia, India and China—the so-called BRICs—should surpass those of the G7 nations by 2050 [see Fig. 4.5]. In fact, of the original G7 nations, only Japan and the United States will still rank among the world’s largest economies at that time. Thus, managers need to rethink their traditional views of the economic environment as they encounter fundamental shifts in investment and spending, increasing competition for inputs in the world’s commodity markets, and the rapid growth of consumer markets in many transition economies. Other significant impacts loom as the leaders of the BRIC nations seek to collectively develop their economies and political presence through the creation of a multilateral alliance amongst themselves. No matter what the outcome, the fallout will be momentous as the world’s emerging economies come into their own.
1. Debate the relative merits of GNI per capita versus the idea of purchasing power and human development as indicators of economic potential in Brazil, Russia, China, and India. Gross national income per capita (GNI per capita) represents the market value of all final goods and services newly produced in an economy by a country’s domestically-owned firms in a given year divided by its population. Thus, GNI per capita serves as a very useful indicator of current individual wealth and consumption patterns; those countries with high populations as well as high per capita GNI are most desirable in terms of total market potential. Purchasing power parity (PPP) represents the number of units of a country’s currency required to buy the same amount of goods and services in the domestic market that one unit of income would buy in another country. PPP is estimated by calculating the value of a universal “basket of goods” that can be purchased with one unit of a country’s currency and thus serves as a useful indicator of international differences in prices that are not reflected by nominal exchange rates. The Human Development Index measures life expectancy, education (primarily the adult literacy rate), and income per person and is designed to capture long-term progress rather than short-term changes. Thus, by combining indicators of real purchasing power, education, and health, the index provides a comprehensive measure of a country’s standard of living that incorporates both economic and social variables.
2. Map the proposed sequence of the evolution of the BRIC’s economies. What indicators might companies monitor to guide their investments and organize their local market operations? The BRIC’s economies are on the verge of the rapid growth of their consumer markets. (Experience indicates that consumer demand takes off when GNI per capita reaches levels between $3,000 and $10,000 per year.) In Russia there is already significant evidence of the growth of consumerism during the past decade. There are also early signs of similar trends in China and India, where the growth of their middle classes is very rapid. It is expected that within a decade or so, each of the BRICs will show higher returns, increased demand for capital, and stronger national currencies. Thus, foreign firms will want to monitor major economic indicators such as GNI, PPP, and the Human Development Index, as well as developments in the cultural, political, and legal environments of those nations.
3. What are the implications of the emergence of the BRICs to careers and companies in your country? Responses will vary according to the level of economic development and the economic basis of a student’s home country. Those students from industrialized nations may feel challenged and express the fear of a decline in...