Enterprise Operations: Brazil, Russia, India and China Are on Their Way to Becoming the Next Economic Superpowers. Alan Marsden Considers the Implications

By Marsden, Alan | Financial Management (UK), January-February 2010 | Go to article overview
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Enterprise Operations: Brazil, Russia, India and China Are on Their Way to Becoming the Next Economic Superpowers. Alan Marsden Considers the Implications


Marsden, Alan, Financial Management (UK)


The first learning outcome of the new syllabus for paper E1 is a requirement to "explain the emergence of major economies in Asia and Latin America". This is a challenging requirement, since the causes of growth in these regions are diverse and complex. But it is an important one, because your understanding of the modern business world is incomplete without a basic grasp of this major development.

It's hard for British readers not to be aware of the huge growth in the number of imported goods made in China; the fact that many of the UK's big financial organisations have outsourced back-office operations to India; and the fact that most of Europe's gas supplies come from Russia. These three big emerging economies, together with Brazil, are known collectively as Bric which is widely seen as the most important group of nations for the future of world trade.

The dramatic change represented by the growth of emerging economies is hard to appreciate fully, because the countries involved are in the early stages of the growth cycle, but the historian William Woodruff argues that we're witnessing the "resurgence of Asia after its temporary eclipse some 500 years ago" (A Concise History of the Modern World, Abacus, 2005). Many leading academics agree that the region will become the world's dominant economic force in the next 50 years.

Given the rapid economic progress of nations such as China and India, predictions of this kind are easy to believe. In 2000-07 China's annual real GDP growth averaged 9.6 per cent while both India's and Russia's averaged 6.7 per cent. These growth rates are staggering compared with those of so-called mature industrial economies of western Europe and the US, where an average GDP growth of more than 2.5 per cent over the same period would be considered excellent.

The global recession has highlighted the differences between the growth rates of Bric and those of the mature industrial nations. The likes of China and India i are still recording GDP growth of more than five per cent while countries such as the UK and Spain remain mired in recession and other industrial economies have only just started to recover.

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It has been argued that Bric's combined economy could be worth more in dollar terms than that of the G6 (Germany, France, Italy, Japan, the UK and the US) by 2041--if the economic and political conditions are right. This proviso needs to be taken seriously, of course, because forecasting ahead three decades or so is fraught with difficulty and a change in macroeconomic conditions could dramatically affect the growth of any economy. It should also be noted that some western economists have cast doubt on the validity of some of the growth figures published for Bric. They argue that it's particularly hard to collect reliable economic data in an emerging economy, so the figures presented should be treated with caution. That said, anyone who has spent time in China or India can have little doubt about the rapid pace of growth, whatever the published data happens to be.

Despite tremendous improvements in living standards, emerging economies are characterised by the unequal distribution of wealth. This is partly a legacy of centuries of underdevelopment in which subsistence agriculture was a key source of income, but it also arises from the present phase of industrialisation and urbanisation. Millions of people have left the countryside to find better-paid work in the growing cities. As a result, a big gap in earnings has opened between those remaining in rural poverty and their richer urban counterparts. So. while the GDPs of these countries are growing in leaps and bounds, their average per capita incomes still lag a long way behind those of the mature industrial economies.

As growth continues among the heavily populated Bric countries and their per capita incomes increase, they look set to become the world's most important consumer markets, too.

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