BRIC Country Assessment Analysis
Comparative risk, opportunity and overall business climate of the BRIC countries.
Since MNE’s lack resources to serve all countries, it is importance that management rank countries in an order that they feel that they could services the best and create the most added value to the company, the shareholders, and the stockholders. In order to do this, management must answer two importance questions; where the largest market to sell their products and services is, and where to produce their products and services at the most cost effective price. One helpful business method used is to answer these questions is scanning. Scanning is used to evaluate opportunities, risks, and alternatives on a broad level using information that is readily available to quickly forecast their company’s success or failure. Management will identify the opportunities offered by each country and performance a risk analyses to give each country a score. The below table is the country risk scores that IHS Global Insight has assigned to each of the BRIC countries. (Daniels, Radebaugh, & Sullivan, 2013, pp. 444 – 452).
|Six-Factor Country Risk – Brazil||Six-Factor Country Risk – Russia||Six-Factor Country Risk – India||Six-Factor Country Risk – China|
|12-Month Rating Trend||Stable Trend||12-Month Rating Trend||Positive Trend||12-Month Rating Trend||Negative Trend||12-Month Rating Trend||Positive Trend|
|Note: 1 = minimum risk, 5 = maximum risk. Ratings form part of enhanced Country Analysis & Forecast suite of services.|
(IHS Global Insight, 2013).
BRIC – Opportunities
When evaluating opportunities management will consider what countries will bring the largest prospects for sales expansion which is the driving force for a company to engage in global expansion. The opportunity that Brazil offers to MNE’s in the oil and gas business is that currently they supply 25% of the world production and with the discovery of large pre-salt oil reverses (deep sea oil reserves under salt beds) that are estimated to have between 30 – 80 billion of oil barrels (bbl). Although it is estimated that Russia’s oil production will remain stagnant they do hold the world’s largest natural gas reserves. Currently 80% of the identified fields are in production and it is estimated that they can continue to produce at the current rate for another 40 years. The remaining 20% of identified fields will require large capital investments in new infrastructures before they can become operational. The opportunity that India offers is the discovered deep-water oil basins and their bidding procedure to investors that allow them access to exploration & production data that allows them to select and bid on blocks which suit their risk profile. China offers the largest natural gas shale reserves but does not have the modern fracking technology to extract the gas. (Daniels et al., 2013; Ernst & Young Global Limited, n.d.; Pike, 2012; PriceWaterhouseCooper, 2006; Redden, 2012).
BRIC – Country Risks
|Political & Legal Transformation|
|– Individual Rights||Individualism||Collectivism||Individualism||Collectivism|
|– Political spectrum||Democratic Government||Democratic Government||Democratic Government||Non Democratic Government|
|– Standard of freedom||Free||Partial Free||Free||Not Free|
|– Legal system||Civil Law||Civil Law||Common Law||Mixed Law|
|– Basis of rule||Rule of Law||Rule of Law||Weak Rule of Law||Rule of Man|
(Bertelsmann Stiftung, n.d.)
To perform an analysis on the political & legal environment managers need to understand if the country supports individuals rights (individualism versus collectivism), the political spectrum (political ideologies; nondemocratic or democratic government), the standard of freedom associated with each political systems (free, partly free, not free), the legal system (common law, civil law, theocratic law, customary law, mixed), the basis of rule (rule of law or rule of man). This will help to determine the business environment within each county and the difficulties that FDI’s will face doing business in each country. It is more cost effective for MNE’s to do business in countries that are similar to their own. According to the chart above, Brazil is the closest to the U.S. business environment. This information also corresponds to the information reported in the IHS chart above with Brazil having a political risk score of 2.5 and legal risk score of 2.5, Russia having a political risk score of 3.0 and legal risk score of 2.75, India having a political risk score of 3.0 and legal risk score of 2.5, and China having a political risk score of 2.75 and legal risk score of 3.25, supporting Brazil as offering the lowest political and legal risks. (Bertelsmann Stiftung, n.d.; Daniels et al., 2013, pp. 87 – 124; IHS, 2013).
To perform an evaluation of economic risk, management will look at the following economic risk factors; income elasticity, income inequality, inflation, existence of trading blocs, resource acquisition, labor costs, infrastructure, and any government incentives that may be offered to MNE’s. According to IHS Global Insight reports (see chart summary above), the economic risk factors for Brazil is 2.5, Russia is 3.0, India is 2.75, and China is 2.75. The three most important measurements included in each country are; Gross Domestic Product (GDP), Consumer Price Index (CPI), and Exchange Rate compared to the US dollar. The GDP measures the change in the country’s price level, when growing, businesses and laborers are better off. The CPI measures that rate of inflation over time, and the exchange rate measures the country’s currency to the US dollar. Out of the four BRIC countries, Brazil offers the least economic risk. (Daniels, Radebaugh, & Sullivan, 2013, pp. 444 – 452; IHS Global Insight, 2013).
The other risks that managers will evaluate are tax, operational and security. Once these are evaluated then management can come up with an over-all country risk score using 1 as the minimum risk and 5 as the highest risk. According the above IHS Global Insight chart above they scored Brazil as having a country risk of 2.63, Russia with a 2.98, India with a 2.86, and China with a 2.87. Brazil does have the least amount of risk but all BRIC countries are in the medium risk range. (HIS Global Insight, 2013).