Case Study
The BRICs: Vanguard of The Revolution

The BRICs, composed of Brazil, Russia, India, and China, are the future of the world’s most powerful economies and the current most accelerated emerging economies. Together they are home to nearly 2.8 billion people, about 40 percent of the planet’s population. They currently generate about 30 percent of world’s GDP. They have come a long way from the last 30 years or so, each one overcoming their own barriers and obstacles to achieve where they are today. They are all expecting to increase their income within the next 15-30 years exponentially, allowing for the economy to flourish and incorporate new markets that were otherwise less popular or almost non-existent. For example, cars in India and China were about 2 and 9 out of 100 people, respectively. They estimate that the total number of cars in both countries could rise from 150 million today to north of a billion by 2030.
Not everything is positive however, there are skeptics who say there are problems such as the delusion that current trends will continue indefinitely and uninterrupted. That economic growth rates slow as the base of activity expands and advantages such as cheap labor or low-cost capital wane as growing demand increases marginal price pressures. That there’s always a black swan event, an unexpected, hard-to-predict impact that resets the game such as the internet, the collapse of the Soviet Union or the global financial crisis.
Despite ever-present gloom, reasonable optimism prevails. Research identifies four preconditions of consistent macro growth: sound macroeconomic policies; political institutions committed to transparency, fairness, and the rule of law; openness to trade and capital; and strong education systems. The BRICs have a lot of expectations from the world on their shoulders but one thing is for sure, even if they fall short of their potential, their success will redefine the structure of economic environments, patterns of growth, and dynamic of economic activity.

1) Estimate the likely market evolution of the BRICs over the next decade. What economic indicators might companies monitor to best guide their investments and actions?
The BRICs are on the verge of the rapid growth of their consumer markets. 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. As BRICS observed as emerging market, many investors recognize the potentially attractive return characteristics and diversification benefits of this asset class. However, most pension plans and other institutions currently allocate less than 5% of their overall portfolio to emerging market equities. In Russia there is by now momentous verification of the growth of consumerism throughout the history decade. Parallel trends are observing in China and India, where middle classes growth is very quick. Experts forecast that the most dramatic transition will take place over the next 20 to 30 years. As a result, overseas firms will desire to observe foremost financial pointers, as Purchasing Power Parity, Gross National Income and Human Development Index, in addition to developments in the cultural, political, and legal environments of those countries.
2) Identify three implications of the emergence of the BRICs for careers and companies in your country.
The emergence of the BRICs effect on our country has some advantages and disadvantages, because it may create new career opportunities, more product options, and better price and/or quality for products because of competition. Also, these economies represent an excellent opportunity to our local economy, because of the increase of their purchasing power and their big populations. We have the challenge of increasing our export supply to BRIC countries and establish commercial relationships in the long term. But on the other hand it may affect negatively the domestic firms more over it may cause some kind of monopoly as the BRICs taking the lead.
3) Do you think recency bias has led to overestimating the potential of the BRICs? How would you as a manager for a company assessing these markets, try to control this bias?
Recency bias (as stated on the textbook) “is the delusion that current trends will continue indefinitely and uninterrupted into the future”. With that said, I believe that recency bias has overestimated the potential of the BRICs because economies might change depending on the development of every country and BRICs path might be altered if something drastic occurs within their regulations or policies. As a manager I would try to control this bias due to the fact that the revenue and sales vary every so often and in order to better the future of the company in these different markets everything has to be under regulation. Any business that occurs today might affect the company’s future performance therefore it is important to keep control of this bias.
4) How might managers interpret the potential for their product in a market that is, in absolute economic terms, large but, on a per capita basis, characterized by a majority of poor consumers?
Manager selection is critical given the volatility in the asset class and wide dispersion of outcomes. In all, I believe institutional investors should consider establishing or increasing allocations to emerging market equities. Managers might interpret the potential for their product in a market. If there is innovation in the interaction with other firms and with knowledge infrastructure including universities and technological institutes so that it can clarify the specialization, and competitiveness. Growth performance can also go a long way.
5) In the event that the BRICs fail to meet its projected performance, what would be some of the implications for the international business environment?
It might create an insecure feeling for some investors because of the potential that they had seen in those economies, because these countries are driving the growth of the world economy, and that developed countries can not currently offer these growth rates. If one of the BRIC country fails to meet the projected performance, the standard of BRIC countries performance will be hamper to some extent. As every country has microeconomic and macroeconomic environment. The elements of economic environment as gross national income (GNI), per capita income, purchasing power parity, human development index will be hampered. So there can be inflation, unemployment, debt, inequality in income distribution, poverty and imbalance in payments. Again maintenance of strong political institutions that endorse transparency, fairness, and the rule of law will not also possible. On the other hand openness to trade, capital flows, FDI can’t be increased. If these economies can fulfill their potential for growth, they could become a dominant force in generating spending growth.
6) Compare and contrast the merits of GNI, Net National Product, and Your Better Life Index as indicators of economic performance in Brazil, Russia, China and India.
The Gross National Income measures the value of all production in the domestic economy together with the income that the country receives from other countries, less similar payments it has made to other countries. The Net National Product measures the depletion of natural resources and degradation of the environment that result from generating GNI. Your Better Life Index measures well-being and perceptions of living conditions. It advocates evaluating economic performance in terms of matters that people worldwide believe are important, such as housing, jobs, social relationships, health, security, work-family balance, and education, but that fall beyond the narrow scope of monetary measures. These are all indicators for performance for the BRIC countries. But each one has their own shortfalls, China for example is a high GNI country but it doesn’t make the YBLI top list as well as India.

11 imbalance in payments. Againmaintenance of strong political institutions that endorsetransparency, fairness, and the rule of law will not also possible. On the other hand openness to trade, capital flows, FDI can’t be increased.
If these economies can fulfill their potential forgrowth, they could become a dominant force in generating spending growth.