The acronym BRIC (Brazil, Russia, India and China) was originally coined in 2001, by Jim O'Neill, Chairman of Goldman Sachs Asset Management. Who would have thought that 10 years later BRICS could actually be the building blocks of a global recovery? The erstwhile superpowers seem to have now lost the plot. America, Japan, and the Euro zone are all struggling to find their space in the midst of the global debt crisis. Mounting debt and slow growth has taken its toll on economic superiority.
Private firms in the US, however, seem to have found a way to better their growth prospects. They plan to target BRIC nations and other growing markets in the next decade. Hitching a ride with these countries will help counter anemic homeland growth. According to a recent survey conducted by PricewaterhouseCoopers (PwC) 51% of private companies in the US, having a global presence, plan to enter BRICS over the next 1-2 years. 66% of the companies plan to target other nations like Indonesia, South Korea, South Africa, Poland, etc which are also growing at a sharp click.
Earlier, the motive for expanding abroad, especially in developing nations was to take advantage of cheaper costs. Outsourcing of services and production was a key reason why companies would go to foreign shores. They would take advantage of cheaper labour and inputs. But now, as cited by a whopping 80% of the PwC survey respondents, the major reason these companies are expanding overseas is to bolster their customer base. They plan to take advantage of the huge underpenetrated population in emerging markets.
Only 1/4th of the companies surveyed are looking at going overseas to reduce costs. Thus, cost arbitrage does not seem to be a factor anymore, as these companies are looking to fight slowing growth in their home market. An expansion overseas is possibly the best way to counter flagging sales in their product portfolios. However, expansion overseas does not come without challenges. Finding the right business partner is a primary concern for most companies. The Telenor and Unitech joint venture in the telecom space, for example doesn't seem to have broken much ground.
Managing different cultures, language barriers and finding local talent are also key concerns for companies setting up presence in emerging markets. Especially in India, we believe that regulatory concerns, corruption and security risks can be major hurdles. While taking a ride on an Indian elephant or a Chinese dragon sounds exotic, it does not come without risks which need to be properly managed. But, will just expanding into BRIC nations help the US to rise from the ashes like a phoenix? We do not think so. It has far deeper issues to fix domestically.