Should You Follow the “BRIC” Road? | Plante Moran Global Services
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Should You Follow the “BRIC” Road?

Here’s why it’s important to learn about the challenges and opportunities inherent in doing business in Brazil, Russia, India, and China

When China entered the World Trade Organization (WTO) in 2002, many organizations couldn’t get there quickly enough, hoping to capitalize on the perceived opportunities associated with doing business in such a low-cost region. Six years later, China is still going strong, but it’s got company: Brazil, Russia, and India.

Known collectively as the “BRIC” countries, Brazil, Russia, India, and China account for more than 40 percent of the world’s population. All are growing in economic strength, and all have a burgeoning middle class and increased purchasing power at a time when the United States and Europe seem to have reached plateaus. Because these countries will continue to garner significant attention, it’s important for businesses contemplating global activity to be aware of the challenges and opportunities associated with each.

B Is for Brazil

Brazil is Latin America’s largest economy. According to economists, it will remain in this enviable position well into the future. Brazil may yield opportunities for automotive manufacturers, as it recently had a record year for the number of vehicles produced.

However, Brazil is a closed market in terms of imports; foreign companies that want to import to Brazil often face prohibitively high import duties. Brazil’s currency is also not fully convertible, and all foreign currency transactions are strictly controlled by Brazil’s Central Bank. Finally, Brazil is an emerging country; unfortunately, it’s been an emerging country for nearly 50 years! While there have been other periods where it captured significant attention and investment, those investments haven’t historically paid off. Bottom line: there are opportunities in Brazil, but organizations should proceed with caution.

R Is for Russia

Thanks to the ever-increasing price of commodities (including oil), Russia has become very wealthy due to significant resources. It’s on the way back to reclaiming its former position as an international super power. Because of its new wealth, there’s a lot of capital in Russia from middle- and upper-class private investment, and it offers organizations low costs in terms of labor and logistics due to physical proximity to the European Market.

However, Russia is not a transparent place to do business. Relationships and government contacts are key, as it’s very difficult go into Russia and develop a viable business on your own. That said, many OEMs are making substantial investments in increasing car production in Russia, so automotive manufacturers in particular should strive to become more informed about Russia and the investments being made there.

I Is for India

India is enjoying high single- to low double-digit GDP growth each year. There’s still a heavy emphasis on the service economy, but the government has recognized that it needs to focus more on manufacturing. To that end, the Indian government is encouraging cross-investment between Indian and Chinese businesses, combining India’s technical skills with China’s manufacturing prowess. We’ve witnessed a number of these ventures successfully negotiated and consummated.

However, India’s internal infrastructure is very weak. There’s a significant lack of traversable roads, and the government is slowly working to address the problem. India will be a large market for the foreseeable future — but not a manufacturing titan until the logistics of freight are improved significantly.

C Is for China

There continue to be significant opportunities in China. As the U.S. Dollar has weakened against most major currencies, China has held tight to the favorable exchange rate between many foreign currencies and the RMB. In addition to cross-investments with Indian countries, China is making similar agreements with Russia, resulting in a sort of “super market” composed of the three countries.

However, China is extremely controlling of its currency and cash flow. While this is true of all BRIC countries, China takes it to an extreme; currency can only be exchanged at China’s Central Bank and under approved circumstances. In addition, China will eventually fall in line with other countries concerning the weakness of the Dollar, making it more costly to do business in China than it is today.

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