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The role of BRICs in the absorption of FDI – the case of China

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Part I: Importance and Prospects of BRIC Countries in FDI Flows

1.1. BRICs growth projections and sensibility of the assumptions.

In the recent years the role of emerging economies in the global economy has increased significantly. The huge market size and the cost advantage of these countries have been creating various opportunities for foreign direct investment (FDI) motivated by efficiency seeking as well as by new market exploration. Importance of these countries increases especially now, when due to the latest turmoil on financial markets, the slowdown of U.S. economy is being compensated by decreased, but still strong growth of the largest emerging countries: Brazil, Russia, India and China [O’Neill 2007].

The bulk of interest in the four largest emerging countries came with the Goldman Sachs’ projection about their future economic growth path till 2050 (Global Economic Paper No.99 “Dreaming with BRICs: The Path to 2050.”). When Goldman Sachs started to analyze the largest emerging economies (Brazil, Russia, India and China), they grouped them  under a now commonly used acronym ‘BRICs’ (Global Economic Paper No.66 “The World Needs Better Economic BRICs.”).

The projection mentioned before focused mainly on the comparison of GDP growth, income per capita and currency movements in BRICs and in G6[1]countries till 2050. The choice of developed countries was determined by the GDP value, which exceeds US$1 trillion for each country in the period of research. That excluded for example Canada from the sample. The estimations of the growth indicators were based on demographic projections (The Cohort Component Method[2]) and on a growth model, which relates GDP level with three factors: capital, labor and technical progress and formulates this relation in the Cobb-Douglas function. In the example of currency movements the estimation was carried out under assumption that in the long term only productivity differentials between countries (certain country related to the U.S.) are significant in determining real exchange rates. The projection covers the period from 2000 to 2050.

The obtained results suggest that, if BRICs develop growth supporting policies and remain sustainable economic growth, they will be together larger, in terms of GDP value, than G6 before 2039. More specifically, India’s US$ GDP could be higher than Japan’s before 2034. China, which is considered as a main engine of BRICs’ growth, could be larger than the U.S. economy just before 2041. Moreover, before 2025 the BRICs’ combined GDP could reach over a half of the G6 level. According to the projection, only the U.S. and Japan have potential to hold the position of the top largest economies. Moreover, Goldman Sachs ranked China as the top largest economy in 2050 with the US, India, Japan, Brazil, Russia, the UK, Germany, France and Italy on the following places. These conclusions imply the need of considering BRICs in the global demand growth and spending power of consumers, which could be soon released.

Figure 1. Projected US$GDP for BRICs and G6 (in 2003 billions of US dollars).

china8Source: own elaboration on the basis of R. Purushothaman, D. Wilson. “Dreaming with BRICs: the Path to 2050.” Goldman Sachs. Global Economics. Paper No:99. October 1, 2003.

Projection about the economic growth suggests that BRICs will slow down in their currently rapid growth. However, if India proceeds its development successfully, then will be able to sustain GDP growth on the level of 5%. Yet, BRICs citizens will remain poorer than the G6 only with Russia as an exception. According to the projection, the Russian economy will be able to catch up with the lowest level of income per capita in the G6. Demographic changes presented in the research, suggest steeper decline in working age population in the BRICs than in G6. The following conclusion implies a point of consideration for companies operating on the international market, since in 2025 the predicted annual spendings from BRICs might be twice higher than the one of G6 and accordingly four times higher in 2050. On the currency side, the real exchange rates are projected to appreciate up to 300% by 2050. Appreciation of the BRICs’ currencies will influence the GDP of these countries reflected in US dollars. However, the authors point out that their long term projections, which ignore the impact of economic cycles, should be interpreted as growth in the trend and equilibrium path for the currency projection.

Figure 2. Projected GDP per capita (in 2003 billions of US dollars) and GDP growth (5-year average).china9

china10

Source: own elaboration on the basin of R. Purushothaman, D. Wilson.“Dreaming with BRICs: the Path to 2050.” Goldman Sachs. Global Economics. Paper No:99. October 1, 2003.

The plausibility of achieved results has been already tested in two ways. Firstly, the growth model was applied to the prior data from 1960 till 2000 for the set of 11 countries including the US, the UK, Germany, France, Italy, Japan, Brazil, Argentina, India, Korea and Hong Kong. For countries with more stable growth path, like France, Germany, US, UK and Italy, the estimated average growth rates were close to actual. For developing countries the projected results showed wider deviations, especially for Japan, which in the 60-ties was considered as a developing country. Secondly, the authors applied the model used by Levine and Renelt[3] to project growth indicators in BRICs. The applied methodologies differ in many aspects, notwithstanding few parallels can be pointed out: initial income per capita covers productivity growth, investment rates covers capital accumulation and the education indicators can reflect BRICs convergence in technological issues. The results obtained from both estimations are not identical, but according to R. Purushothaman and D.Wilson, are similar to the extent, which confirms the sensibility of the assumptions made in the original growth model.

Table 1. Comparison of Goldman Sachs’ projection with  Levine-Renelt Model.

30 year average real GDP growth rate

Goldman Sachs

Levine-Renelt Model

Brazil

3.7

3.3

Russia

3.9

3.5

India

5.8

5.3

China

5.6

5.8

Source: own elaboration on the basis of R. Purushothaman, D. Wilson.“Dreaming with BRICs: the Path to 2050.” Goldman Sachs. Global Economics. Paper No:99. October 1, 2003.

Although both tests of Goldman Sachs’ projections suggest the correctness of the assumptions, still remains the question of meeting these estimations by BRICs. The authors claim that generally none of these countries need a ‘miracle’ performance, but the challenge is placed in maintaining sustainable development and staying on the current track. They indicated several factors that determine sustainable growth, because demographical and low cost advantage is not sufficient to ensure stable growth in the long run. Hence, the BRICs governments should increase their activity in the following areas:

§  Macroeconomic stability – which should be an imperative for government because of the periods of instability in the past. Issue of low inflation, public finances and exchange rates should be addressed, like also growth supporting standpoint of the government.

§  Stable political institutions – which could decrease the political risk of each country and simultaneously encourage higher capital inflow.

§  Receptivity to trade and capital inflow in form of FDI.

§  High level of education – which could indirectly stimulate the economic growth and support the catch up with developed economies.

For each of the BRICs listed issues remain a condition of growth. However, individual specifications of each country will determine the development and progress in these areas. Rapid growth of BRICs evidently provides various benefits for these countries, like also for companies from developed economies, for example in form of investment opportunities. Moreover, regional benefits also should be mentioned. Three of four BRICs are situated in Asia, what may suggest the future geopolitical shift towards this region.

When Goldman Sachs grouped the four largest emerging economies under BRIC acronym and in fact created an artificial bloc, it raised questions about its validity, because of substantial differences occurring among these countries. Firstly, structural differences divide BRICs on the basis of specialization. For instance, Brazil specializes in agriculture, the Indian economy is driven by services, the Russian is based on natural resources and the Chinese on manufacturing. Furthermore, tensions inside the BRIC bloc question the possible future cooperation. Trade disputes over market access for Brazil to Russia and China remain unsolved, like also the issue of agriculture protectionism in India. Geopolitics also divides BRICs, for example on the basis of nuclear weapon possession, where only Brazil is not a nuclear power. Moreover, location distance between Brazil and the rest of BRICs, weak trade relations with Russia and India support the sceptical opinions. Close neighborhood between China, Russia and India, however, does not make it an integrating factor, if military conflicts over the border territory are considered. Furthermore, Russian economist Yevgeny Yasin from the Russian Higher School of Economics points out that “BRIC has no future. […] It will remain an informal club in form and essence.” [Financial Times 2009]

Conversely, Jim O’Neill the chief economist from Goldman Sachs, who launched the BRIC acronym, strongly defends his statement, by indicating integrating factors in population size, productivity potential and  GDP, which combined could enable the BRICs to outstrip G7 by 2035. O’Neill also highlights the uniqueness of BRIC’s potential among other developing countries [O’Neill 2007]. This statement was supported by the prior research (O’Neill, et al., 2005), that identified the set of developing economies called “New Eleven”[4] (N-11), whose growth potential should attract more attention. However, only Mexico and Korea seem to aspire to the “BRIC-like growth”. Once again, the importance of core long term conditions of growth was highlighted and tested by composition of Growth Environment Score (GES). This measure, introduced by O’Neill in the article “How solid are the BRICs?”[O’Neill et al., 2005], encompasses such areas as: macroeconomic stability (inflation, government deficit, external debt), macroeconomic conditions (investment rates, openness of economy), technical capabilities (penetration of PCs, phones and internet), human capital (education, life expectancy) and political conditions (political stability, rule of law, corruption). Subsequently, the sample was split into two sub groups of developed and developing countries. BRICs were placed in the top half of the ranking for 133 developing countries with leading position of China (16th), Russia on 44th place, Brazil on 58th and India on 60th. In the time of research all BRICs were growing faster than it was predicted in 2003. However, analysis of factors included in GES pointed out the necessity of further improvement in certain areas in order to maintain sustainable growth in the long term.

Table 2. Growth Environment Score for BRICs in 2005.

Growth Environment Score

Relatively good

Relatively poor

Brazil

political stability

life expectancy

technology adoption

investment rate

education level

openness to trade

government deficit

Russia

education level

government deficit

external debt

openness to trade

technology adoption

life expectancy

political stability

corruption

investment rate

inflation

India

rule of law

external debt

inflation

level of education

technology adoption

government deficit

openness to trade

China

macroeconomic stability

investment rate

openness to trade

human capital

technology adoption

corruption

Source: own elaboration on the basis of: J. O’Neill, et al. “How Solid Are the BRICs?” Goldman Sachs. Global Economic Paper No.134. December 1, 2005.

Although GES score highlighted several weaknesses of BRIC economies, the speed of convergence towards developed countries remains relatively high in comparison to the other emerging countries. Faster “catch up”, tremendous growth potential and investment opportunities call for their further involvement in the world policy making [O’Neill 2007]. That statement applies especially to China, which overshadows the other BRICs in economical, political and financial terms. Undoubtedly, the rise of the other BRICs will have substantial consequences, but none of them can be compared with those of China’s for various reasons. Firstly, China alone exceeds three combined BRICs in GDP, export and foreign exchange reserves and there are no signals of a change in this trend. Indeed, there are several factors supporting that tendency, such as relatively high savings rate (more than 50% of GDP), low income per capita and level of urbanization, combined with development based on manufacturing and export oriented country strategy. Moreover, China is the most opened BRIC’s economy with 2/3 share of merchandise trade in GDP. Comparably, in Russia this share accounts for 1/2 and accordingly 1/3 and 1/5 for India and Brazil. However, China due to existing regulations remains relatively closed for portfolio investment, if compared to the other BRICs. Nonetheless, the lack of foreign capital inflow in portfolio investments is compensated by a huge amount of FDI received every year [Jaeger 2009]. In 2008 China’s inward FDI flow accounted to USD 108 312 millions with three times bigger actual inward stock (USD 378 083 millions) [WIR 2009].

1.2. BRICs’ Foreign Direct Investments  in the Time of Crisis.

Although Brazil, Russia, India and China are grouped on the basis of their similarities in economic growth potential and population size, there are substantial differences dividing these countries, especially in the growth strategies. While China is following manufacturing-based export-oriented strategy founded on low exchange rates against the strong currencies, high savings and investment rates, Russia is performing on commodity export strategy, typical for resource rich countries. Some similarities can be found in Brazil and India. Both economies are relatively closed and rely mostly on domestic markets. However, the Indian economy is mostly focused on the services sector, while the Brazilian applies broader span of attention, concentrating itself simultaneously on commodities, services and manufacturing. [Jaeger 2009] The various growth strategies will determine the character of inward as well as outward foreign investments in these countries.

Starting the analysis of FDI flows in BRICs, it is vital to firstly get a look on the current global flows, which have been inevitably affected by the recent economic and financial turmoil. For example, the share of developed countries in the global FDI inflows decreased by 29%, because their economies were weakened by the crisis. However, economic slowdown in developed countries did not affect FDI inflows in developing and transition economies, whose share in the world total increased to 43% in 2008, showing also prospects for keeping this trend. [WIR 2009]

The increase in FDI inflows in developing and transition economies was mainly driven by BRICs, as they showed the highest absorption of foreign capital on the regional dimension. For instance, in the South and the South-East Asia FDI inflows in 2008 increased by 17% (USD 298 billion), but the major share was kept by China, India and Republic of Korea. In the example of China, the proactive governmental policy supported FDI growth, especially in the western regions. On the other hand, foreign companies felt cost reduction pressure caused by the crisis and turned to efficiency seeking solutions, like for example relocation of production to the low cost countries like China. In India inflows to the manufacturing and service sectors boosted the overall value of absorbed FDI. However, the first quarter of 2009 brought a sharp decline in inflows to the major host economies, like also drop in the value of the M&A sales as a consequence of the global financial crisis. Economies like China or India are highly dependent on export revenues, that is why the fall of external demand recently caused the slowdown of their growth. Despite that temporary downturn, if we take into consideration trends from the past few years, China and India have been growing steadily and still remain the major locations of FDI in Asia. Moreover, China in 2008 received USD 108 billion of FDI inflow, which after the U.S. was the second largest amount on the global dimension. Respectively, India’s inflow scored for the tenth largest in the world. According to respondents of  UNCTAD World Investment Prospect Survey 2009-2011, China remains the most attractive location for FDI. India was ranked on the third place . [WIR 2009]

Figure 3. FDI inflows to the BRICs in 2006-2008 (millions of US dollars).

china4

Source: own elaboration  on the basis of : WIR 2009

In the recent year downturn trend also occurred in the global FDI outflows. As for the inflows, FDI outflow from developed economies declined by USD 303 billion in 2008. Facing the global recession, BRIC countries maintained to keep the upturn trend in their outward FDI flows. Considering China and India, the total outflow from their region increased by 7% in 2008, mostly owing to the accumulated currency reserves, resulting from trade surpluses, and  growing competitiveness of domestic companies. The Chinese outflows were supported by governmental policy, what resulted in the second largest amount of outward investment in the South and East Asia and a growth of 132% in relation to the previous year. India and China play a major role as a driver of regional growth and investments in Asia. However, the Chinese dominance remains unquestionable, as on the global scale China was considered as the thirteenth source of FDI and top three among developing and transition economies. According to the World Investment Report 2009, the Chinese FDI outflow was motivated by the access to the natural resources (i.e. oil and gas) in purpose to secure the sustainable economic growth, and likewise by the acquisition of intangible assets, such as technologies, brand names or distribution networks. [WIR 2009]

Figure 4. FDI outflows from the BRICs in 2006-2008 (millions of US dollars).

china5

Source: own elaboration  on the basis of: WIR 2009

FDI flows to China and India are highly determined by the applied development strategies. On the inflow side, in both countries service sectors like infrastructure and retail experienced a significant growth (e.g. American retail chain Wall-Mart expanded on Indian market). In 2008 increased inflows of FDI were directed to the high-tech industries located in China, but still the manufacturing sector absorbed almost the half of total inflows to this country. In India majority FDI flows were absorbed by the service sector, likewise steel industries attracted Western and Chinese companies (i.e. Minmetals, Xinxing). Recent FDI outflows from India and China were characterised as resource-seeking, with the growing dynamics of acquisitions by oil, mining and metal companies. For example, in July 2008 the Chinese company Sinosteel acquired 51% of shares in the Australian iron ore mining company – Midwest. The transaction accounted for USD 1.4 billion. [WIR 2009]

The neighbouring region of South-East Europe and the Commonwealth of Independent States (CIS) absorbed the second largest inflow of FDI in 2008 across BRICs’ territory. Generally, inflows were centralized in three major economies: Russian Federation, Kazakhstan and Ukraine, which stand for 84% of total regional inflows. Total inflow of FDI to the region accounted to the record level of USD 114 billion, where USD 103 billion were located in CIS and USD 70 billion in Russian Federation alone. Such proportion, like in the case of China, confirms the domination of that BRIC country in the region. Most of investments in 2008 on the regional dimension were motivated by privatization of state-owned enterprises (SOEs). Despite investment in liberalized power generation industry, automotive and real estate sectors received increased inflow of FDI. Moreover, investors also directed their inflows to Russia with the purpose of accessing the growing local consumer market. But still, the bulk of inflows had the form of natural resource projects, what is typical for resource-rich countries and aligns with Russia’s growth strategy. Similarly to FDI inflows, outflows were also dominated by Russian share, if compared to the regional data. Due to the slowdown of external demand, the character of the Russian outward FDI has changed partially from typical expansion on new markets to acquiring technological innovations and know-how. The total amount of the Russian investments reached the value of USD 52 billion and after China was the second largest source of FDI outflows among developing countries. [WIR 2009]

In 2008 Brazil, similarly to the rest of BRICs performed well both in FDI inflows and outflows. In general, total inflows to Latin America and the Caribbean in 2008 grew by 13% with the highest growth in South America (29%). On that FDI landscape Brazil recorded the 30% FDI growth among Chile (33%), Colombia (17%) and Argentina (37%). Cumulated FDI inflows to these four countries accounted for 84% of total inflows to South America, yet half of the total was absorbed by Brazil and reached the level of USD 45 billion. This amount was mainly determined by cross-border M&As in the primary sector, in particular industries running the extraction of metals and minerals. More specifically, in the manufacturing sector, which attracted 35% of total FDI inflows, more than 80% of inflow was absorbed by natural-resources activities, including food and beverages, metals, metallurgy and non-metallic mineral products. Primary sector absorbed 35% of FDI inflow, because of the oil and gas greenfield investments. Recently exploration activities in Brazil remain an important issue for foreign investors, since the offshore deepwater discoveries by Brazilian state-owned company Petrobras created the possibilities of partnership. For example, in January 2009 BP Group (UK) announced investment plans in this region. On the outflow side, the growth in Latin America (22%) was boosted by a strong increase in South America (131%), especially in Brazil (189%). The total value of the Brazilian outward FDI reached USD 20 billion. Because of the diversified growth strategy, Brazilian companies continued to invest in such sectors as food, metal and steel. However, unfavourable economic conditions resulting from the fall in commodity prices, devaluation of Real and global economic slowdown, made acquiring companies more vulnerable i.e. companies like Sadia (food processing), Votorantim (industrial conglomerate) reported more than billion dollar losses. [WIR 2009]

The scale and scope of FDI flows to BRIC countries may indicate the opportunities for companies, which are now facing the decreased demand in developed economies. Initially, developing countries like China or India were perceived as a source of cheap labor force and the bulk of investment was determined by the efficiency-seeking motives. However, when the rapid economic growth in these countries increased the purchasing power of the local consumers, maybe it is vital for companies to consider a more market-seeking FDI in these locations. That also makes the issue of the business opportunities in these countries interesting for further discussion.

1.3. Investment Opportunities on the BRICs’ Market.

Since BRICs were reaching high economic growth even in the time of the global recession, local market opportunities have been perceived as a possible target by foreign companies. According to current forecasts, expected increased demand, occurring simultaneously with economic growth, in BRICs will account to almost a half of global consumption growth. Rising resilient demand, as well as a change in the pattern of consumption, follows the expected increased income per capita and appearing shift of spending power from developed to developing economies. What in fact will result in the growing middle-class in these countries. However, consumption trends are varying across BRICs, mainly due to the specification of each economy. Penetration of goods in each country combined with spending power of consumers point out the current structure of consumption and in the same way indicates the possibilities of investments. [Kelston, et al., 2009]

Figure 5. Penetration of goods in BRICs (latest available data, item per 100 people).

china6

* as a % of urban households  ** as a % of households

Source: own elaboration on the basis of: Kelston, et al. “The BRICs as Drivers of Global Consumption.” Goldman Sachs. BRICs Monthly Issue No: 09/07. August 6, 2009.

The highest penetration of goods occurs on the Russian market, which together with the Brazilian is considered as the most mature. The structure of consumption in India and China is expected to shift towards the more high-value-added products, when the effects of surge economic growth will influence also the rural population. That will imply also changes in the import composition, which till now has changed only in Russia. For example, share of cars in total import of Russia has increased from 6% to 15% since 1990, with simultaneous drop of agricultural products from 12% to 6%. [Kelston, et al., 2009]

Facing the decreasing demand from developed countries, companies are seeking for the ‘windows of opportunities’ in developing markets to balance their operating portfolios. Ratings worked out by A. T. Kearney indicate the most attractive makers for such investments like retail, service sector or FDI confidence index. All of them are based on the surveys among executives and analyses of factors determining market attractiveness. India and China scored in the top three places on average in each of the ratings. Brazil and Russia are also scored relatively high. [A. T. Kearney 2009]

For retailers A. T. Kearney developed Global Retail Development Index (GRDI)[5], which analyzes the most attractive markets among 30 developing countries on retail specific basis. [A. T. Kearney 2009a]

Table 3. The top ten most attractive retail markets according to GRDI index in 2009.

2009

rank

Country

Region

Country

risk

(25%)

Market

attractiveness

(25%)

Market

saturation

(25%)

Time

pressure

(25%)

GRDI

score

Change

in rank

from 2008

1

India Asia

54

34

86

97

68

+1

2

Russia Eastern Europe

31

58

51

100

60

+1

3

China Asia

62

42

47

74

56

+1

4

UAE MENA

89

66

50

21

56

+16

5

Saudi Arabia MENA

70

46

68

39

56

+2

6

Vietnam Asia

34

16

74

97

55

-5

7

Chile Latin America

77

58

51

33

55

+1

8

Brazil Latin America

52

60

68

31

53

+1

9

Slovenia Eastern Europe

100

64

12

33

52

+14

10

Malaysia Asia

65

47

48

45

51

+3

0=high risk

100=low risk

0=low

attractiveness

100=high

attractiveness

0=saturated

100=not saturated

0=no time

pressure

100=urgency

to enter

Source: own elaboration on the basis of: A. T. Kearney (2009a).“Windows of Hope for Global Retailers. The 2009 A.T. Kearney Global Retail Development Index™.”

All of the BRIC countries stay in the top ten most attractive markets for retail with India on the leading position, where the government provided a stimulus package to soften the effects of global economic downturn. Indian market is especially attractive for well-established global brands, because growing educated middle class shows demand for that kind of products. Moreover, rural regions of India account to 40% of the UDS 280 billion retail market and still leave space for further development, because of the growing number of households with earnings exceeding $2000 per year. This level is considered as the starting point for buying branded products.

Russian market was rated as second. A fragmented market, which gives opportunities for future development (main five retailers manage only 7% of total sales), remains the biggest advantage of Russia. Furthermore, low valuation of domestic firms encourages M&A transactions. However, foreign companies, which want to enter the Russian market, need to be aware of the necessary adaptation to local conditions i.e. logistical problems, bureaucracy and corruption. It is advisable to establish relations with the government and to prepare in advance suitable strategies, which will include country related risks.

In China, where governmental stimulus package was introduced to keep the economy on track and increase domestic consumption, export and real estate remained the engines of the Chinese growth. However, now there are visible efforts to cut export dependence. China records relatively high savings rate, what now is used to boost lending to mitigate the risk of deteriorated sales growth. Domestic consumption still remains below global average (62% of GDP) and accounts to 50% of GDP. But still stimulating actions from the government side and growing retail sales[6] compose promising prospects for future development.

The attractiveness of Brazilian market is led by a strong economic condition of the country and the largest population in Latin America. Similarly to India and China governmental support helped to offset the impacts of the crisis by introduction of specific fiscal instruments i.e. sales-tax breaks. However, decreased demand in several sectors occurred because of a high dependence on consumer credit. But even though, foreign retailers in 2009 were still expanding across Brazilian market, including companies like Wall-Mart and Carrefour. What is more, Brazil is considered as the most attractive market for apparel products among developing countries. 60% of population in Brazil is under 39 and show a huge demand for these kinds of products. Owing to availability of consumer credit, Brazil during the past few years recorded large clothing sales and attracted some of luxury retailers like e.g. Marc Jacobs, Hermes, and Gucci. Even now, in spite of freezing credit market, global brands retailers are expected to enter Brazilian market in upcoming years. [A. T. Kearney 2009a]

A. T. Kearney conducted also a similar rating for offshoring – Global Services Location Index (GSLI). Like in the case of the retail sector, Asian countries dominated the rating. It is important to mention that India provides the majority of offshore services and together with the Philippines holds the half of business process outsourcing market (BPO). Moreover, the top three countries: India, China and Malaysia remain the leaders since 2004 (first rating), mostly due to skilled and available labor force, favorable business environment and cost leadership. Owing to intensive and constant development of the sector, India can provide any of offshoring services, but it started with modest amount of task for IT companies from the U.S. That is how Indian companies, like Infosys or Wipro, got the possibility to grow and expand worldwide. [A. T. Kearney 2009b]

Table 4. The most attractive services locations in 2009 according to GSLI index.

Rank

Country

Financial

attractiveness

People skills

And availability

Business

environment

Score

1

India

3.13

2.48

1.30

6.91

2

China

2.59

2.33

1.37

6.29

3

Malaysia

2.76

1.24

1.97

5.98

4

Thailand

3.05

1.30

1.41

5.77

5

Indonesia

3.23

1.47

0.99

5.69

12

Brazil

2.18

1.83

1.37

5.39

33

Russia

2.39

1.45

1.08

4.92

Source: own elaboration on the basis of: A. T. Kearney (2009b).“The Shifting Geography of Offshoring. The 2009 A. T. Kearney Global Services Location Index™.”

China might be seen as a next potential offshoring leader, because of its large, well-educated population and labor cost advantage. However, factors like lack of language capabilities, intellectual property rights and manufacturing-based economic strategy restrain China from becoming global offshoring center. Sharp increase in cost, caused by appreciation of domestic currency against dollar and concerns about political environment, decreased attractiveness of the Russian market. Promotion of the offshore opportunities in Brazil is heavily supported by the domestic software organization Brasscom. However, service and export taxes are keeping down the growth of offshore industry. [A. T. Kearney 2009b]

Decrease demand in advanced economies and cost advantage of such countries like India and China create investment opportunities, but still  potential investors should take into consideration constrains of doing business in these countries. In general, business environment in BRICs differ from the Western one in such areas as for example starting a business, dealing with customers and employees or trading across borders. According to current research run by the World Bank (World Bank 2009), BRICs are scored relatively low in the ease of doing business. Among 183 analyzed countries China gained the highest (89th) score among BRICs, but still in comparison to other economies it is relatively low and should be included in the strategy of potential investors.

Figure 6. Ease of doing business 2010 – global rank by World Bank.

china7

Source: World Bank (2009). “Doing Business in 2010. India”


[1] G6 includes  U.S., Japan, UK, Germany, France and Italy.

[2] The Cohort Component Method is based on observing each cohort of population at the same age throughout its  lifetime with taking into account mortality, fertility and migration rates [Purushothaman and Wilson, 2003].

[3] In that approach the average GDP growth in the horizon of the next thirty years is explained by initial income per capita, population growth, investment rates and secondary school enrolment [Levine and Renelt, 1992].

[4] N-11 encompasses Bangladesh, Egypt, Indonesia, Iran, Korea, Mexico, Nigeria, Pakistan, Philippines, Turkey and Vietnam.

[5] GRDI includes country and business risk (25%), market attractiveness (25%, i.e. retail sales per capita, urban population), market saturation (25%, i.e. number of international retailers), time pressure (25%).

[6] Retail sales grew by 15,2% only during the two first months of 2009 and reached the level of $300 billion.

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The role of BRICs in the absorption of FDI – the case of China Reviewed by on 2 marca 2011 .

Part I: Importance and Prospects of BRIC Countries in FDI Flows 1.1. BRICs growth projections and sensibility of the assumptions. In the recent years the role of emerging economies in the global economy has increased significantly. The huge market size and the cost advantage of these countries have been creating various opportunities for foreign direct

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KOMENTARZE: 1

  • Ciekawe opracowanie dotyczace BRICs. Szkoda troche, ze sporo danych historycznych zatrzymuje sie na latach 2008/2009, bo nie widac calkiem wplywu kryzysu finansowego na ekonomie BRIC’kow (na przyklad rekordowych odplywow kapitalowych w roku 2010 z Rosji oraz zjazdu PKB w Rosji przez caly 2009 i Brazylii przez polowe 2009). Kilka odswiezen i obserwacji z mojej strony:
    1) Do BRIC’kow oficjalnie zostalo zaproszone RPA pod koniec 2010 (przez Chiny zreszta). Jest to na tyle istotne, ze Chiny takze tam maja spore interesy w sektorze wydobywczym, mozna wiec zalozyc, ze dopoki Chiny beda notowaly wzrost GDP to podobnie bedzie i z RPA.
    2) 65% GDP Brazylii jest generowane przez uslugi, zatem nie do konca prezyzyjne jest stwierdzenie, ze specjalizuja sie w rolnictwie (tylko niecale 6% to rolnictwo), dla porownania Indie w uslugach generuja 56% i 16% w rolnictwie.
    Zeby bylo ciekawiej to Chiny z calej grupy chyba sa najblizej samowystarczalnosci zywnosciowej (vide obecne pompowanie cen zywnosci).
    3) Goldman tworzac grupe N-11 (Next Eleven), troche przesadzil umieszczajac tam Koree Pld., jako ze kraj ten zaliczny jest do gospodarek wysokorozwinietych, a nie emerging.
    Umieszczenie w N-11 opieralo sie na zalozeniu przez Goldmana unifikacji Korei Pld. z Pln. w przyszlosci i podobny efekt ekonomiczny do zjednoczonych Niemiec.
    Niemniej jednak, Korea ma przed soba calkiem ciekawe perspektywy.
    4) Ciekawa w analizie jest rozbieznosc pomiedzy stosunkowo niskim wzrostem PKB w Rosji (w porownaniu z reszta BRIC), zestawionym z szybkim wzrostem PKB per capita w Rosji. Czy nie wynika to z kryzysu demograficznego w Rosji, czyli mniejszej liczby glow, przy rosnacych populacjach w pozostalych krajach BRIC? Innymi slowy jak zrownowazony jest taki wzrost i czy Rosja nie przeksztalaca sie tylko w dostawce surowcow?
    5) Wymienila Pani roznice pomiedzy krajami, ale troche brakuje mi o powiazaniach. Na przyklad o sporych inwestycjach Chin w Brazylii (i Argentynie), kupowaniu surowcow w Rosji czy RPA. Albo tez na Indyjskich powiazaniach z Chinami i Rosja. Mozliwy jest przeciez scenariusz, ze tak naprawde z calego bloku BRIC, to „Chindie” ciagna woz, a Rosja i Brazylia (i nie tylko) korzysta z tego (co widac wedlug mnie po perspektywach wzrostu z rysuku 1), jak rowniez danych z kryzysowego 2009 roku.

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