8/12/2019 Breaking Through the Bric Wall

1/4

Though few and far between, stories of triumph duringthe global downturn and the ensuing, tepid rebound

were generated almost exclusively from a quartet ofcountries: Brazil, Russia, India and China. Seen as agroup of countries with emerging economies andtremendous potential for the coming decades, theupstarts were originally dubbed the BRICs by Chief

of Goldman Sachs Asset Management Jim ONeill about adecade ago.

The presence of the four, save for some commodities-trading fueled stumbles by oil-rich Russia, has beenunmistakable in recent years with Chinas status as aworld champion of exporting, Brazils emerging mid -dle class and commodities resources, and Indias deep

labor reserves and technological prowess. But ONeillhas apparently grown increasingly interested in anothergroup of countries; either that or, as some have criticized, he

has found a need to simply advance the conversation

around the term/idea he coined. ONeill, of late, has toldmedia outlets such as the Financial Times that the BRICdesignation should be applied to four other upstarts:South Korea, Turkey, Mexico and Indonesia. While notall four are free of risk, few are denying the leaps forward

each has taken even through the recent downturn.

If they live up to their potential, based on the population andsize, theyll be huge economies in the future, said DavidAtkinson, manager, country risk for the Economic StudiesDepartment at Euler Hermes. These four are all reason-ably well-developed, and there is reason to believe these

countries will be players in the world economy.But the question is whether they will realizethat potentialWeve all seen how quicklythings can fall apart. Nothing is guaranteed,not even for China.

John Hardy, president of Coalition for Employ-ment through Exports, told NACM that these fourcountries in many ways could actually be consid-ered more attractive for some U.S. businesses to

deal with. Hardy noted each of the four originalBRIC countries have signicant issues that domesticindustries need to be wary of when doing business:

Brazil: Tendency to boom and bust with little historyof controlling ination well

Russia: Rife with corruption, nomiddle-class consumer base

India: Much of the population stillliving on a dollar or two a day

China: Can be hard to gauge and almostbullying in trade, currency valuation anongoing fairness issue

NACM Economic Advisor Chris Kuehl,PhD, who joked that adding the four coun-tries ruins the BRIC acronym, said all thetalk of the emergence of South Korea, Mexico, Turkey andIndonesia is simply part of the evolution of the G20.

If you dont look at the entire G20youre missing toomuch, said Kuehl. Their economic inuences areenough that you cant even relegate them to up-and-coming. Its pretty ridiculous to talk about South Koreaas anything but an industrialized state at this

point. Kuehl mused that perhaps there needs tobe a term for countries other than the BRICsor his comical BRICMIST to describe thoseeconomies in the gray area between the indus-trialized mega-powers and the third world.Granted, China already seems to be there, and someof its counterparts are well on their way.

However, as many economists noted, what eachbrings to the table can be very different. Andblindly grouping any of the eight nationstogether runs the risk of over-generalization, amistake no one should be making after mistakeslast decade.

While they have a potentially bright economicfuture as a common denominator, it is dangerousto consider them as identical, said Freddy Vanden Speigel, chief economist at BNP Parabis For -tis. Each has its own unique opportunities andrisks. Understanding the real prole of thesecountries is more important than to simply callthem the new BRICs.

Four More to the PartyBill Reinsch, president of the NationalForeign Trade Council, told NACM that allfour of the potential BRIC additions have

N

RNA

ONA

A

UR

8/12/2019 Breaking Through the Bric Wall

2/4

very attractive features to U.S. businesses heavilyinvolved in exporting: a growing middle class,increasing consumption patterns, expanding manu -facturing capabilities, etc. Each is already bringing alot to the world economic table, so to speak, andhas the population numbers that make decadesworth of expansion easier to forecast than for most

emerging economies:

South Korea. This eastern Asian country is arguably theeasiest of the new BRICs for U.S. businesses to work

with, and thats only expected to improve with the passageof a U.S.-South Korean Free Trade Agreement completed bythe Obama Administration after several delays. South Korea isalready a manufacturing center with a powerful, stable econ-omy and has overcome the fact that its population is smallerthan any of the other BRIC countries or newcomers.

Turkey. Examples of trusted, strong relations between U.S.and Turkish businesses are numerous. The country is of sig-nicant inuence to both European Union members and

Muslim- ruled countries in the Middle East. It is a regionalpower and a gateway to both moderate and conserva-tive Middle Eastern economies, not to mention anexample of stability. Turkey also has one of the mostrespectable and well-developed legal systems in thatregion. If Egypt needs to create a balance between theMuslim Brotherhood and the moderates in the mili-tary and government, your models Turkey, said Kuehl.

Mexico. With its proximity and relationship to the

United States, it would be hard for Mexico to doanything but well during good economic times.And, like Brazil, it overcame some of its stigma ofbeing badly exposed to downturns when it survivedthe global recession relatively unscathed. Its bounce-

back from a slight slowdown, which has been ongoingdespite the exceedingly violent war between the gov -ernment and powerful drug cartels operating through-out the country, was helped along by its strong worker

base and manufacturing potential. And, remember, Mex -ico remains a decidedly pro-business government.

Indonesia. Its Southeast Asias most populouscountry and there is tremendous prot potentialthere. In a December 2009 Goldman Sachs studyon emerging economies, the rm placed the coun-

try not as a potential grower, but right in line withChina, Brazil and India already as far as living up toexpectations for growth. It also noted that Indonesiawas performing much better than those including Mex -ico and Russia. Hardy noted that Indonesia already has a

more evolved consumer class than countries like Russia.

What were seeing is a whole range of emerging economies thathave developed a momentum and a dynamism that meanstheyre going to continue to grow, and their middle class isgoing to expand, said Hardy. In terms of their businessrelationships to the United States, theres a very positive road

ahead. That said, not all four are low risks fromthe perspective of business credit.

Risk with the New BRICsThere appear to be few, if any, glaring risks ofdoing business with rms based in South Korea orTurkey. Both have proven to be stable, busi-ness-wise. And while nothing is guaranteed,the only notable hurdles to continuedadvancement in South Korea would be politi-cal unrest with North Korea or one of its ownsmall populations, and, in Turkey, regionalinstability and a penchant for shooting itself in thefoot, la Brazil, when the economy is running hot.Most economists see these as pretty minor threats.Mexico and Indonesia are different stories.

Proximity to the United States can be a double-edged sword, and the negative edge is the

shine of the world spotlight when things gowrong. Case in point is the attention gar-nered by the increasingly volatile drug warthat has pitted violent cartels against eachother and, even more boldly, against policeforces and the government. Hardy said it will taketime to gauge just how much the huge visibilityof the ongoing con ict will affect Mexico asan international trade partner and manu-facturing player. It has already taken a sig-nicant bite out of the nations importanttourism industry.

It clearly has security issues. Thats got to be dealtwith somehow, said Atkinson. It will be debilitatingon economic development if its not addressedsoon. That said, I think Mexico still has very posi -tive development prospects.

An additional problem is the perception ofbusiness culture in Mexico. While pro-busi -ness at the government level, there is a stereo-type that companies there often fail to put apremium in paying their debts in any kindof timely fashion.

Meanwhile, Indonesia faces challenges in itslong-term growth potential and its view

THESE FOUR ARE ALL

REASONABLY WELL-DEVELOPED, AND THERE IS REASON TOBELIEVE THESE COUNTRIES

WILL BE PLAYERS IN THE WORLDECONOMY. BUT THE QUESTIONIS WHETHER THEY WILLREALIZE THAT POTENTIAL.

8/12/2019 Breaking Through the Bric Wall

3/4

from a business credit standpoint for another reason: cor-ruption. Some call it the most corrupt government and

business atmosphere among the worlds emergingeconomies aside from the oft-maligned Russia.To wit, Kuehl called it the corruption capital ofthe universe, where its so prevalent that govern-

ment agencies print up rate cards as to whattheir bribes are.

From a business credit perspective, its abarrier, said Kuehl of dealing with some

Indonesian-based companies and ofcials.Oftentimes, its going to be a nightmare. If youknow your contact in Indonesia well, thats great. If

not, its a wing and a prayer. There has to be tremendouslygood prot potential. It takes the same due diligence as when

doing business in Russia. You know going in that thelaws and the system arent going to protect your inter-ests. He added that, as a result, building a strong busi-ness relationship with companies there takes a lot moretime and almost requires the credit grantor to become

engrained and personally involved with contacts in Indonesia.Sometimes, reputation is all you have.

Hardy, while acknowledging its history of corruption, toldNACM that Indonesia gets a worse reputation than it deserves.Hardy believes ofcials there have made strides to move awayfrom corruption and that Indonesia can be as big an economic

contender as any of the countries mentioned solong as it stays that course. Moreover, Hardy saidU.S. businesses can take quite a bit of solace fromthe availability of services through, as well as the

nancial and time commitment by, the Export-Import Bank of the United States (Ex-Im).

There have been major efforts to sit down withcommercial and business leaders and develop a

broader business relationship to assist exporterscoming in, Hardy argued. Theres certainly aninformation ow of needs and opportunities.Theres strong initiative to undertake and to build

the U.S. presence in these countries. Its preparedto invest a lot of its time, resources and reputation into

these relationships.

R is for Red Herring?As at least four nations unknowingly take their runs at

becoming BRIC members, another question has gained trac-tion: Does Russia even belong with the BRICs? After all,

many started discussing the BICs in the past couple of years, as Russia seemed to be falling off signicantly beforea strong 2010 rebound. One issue is the stark contrast in

classes: in general, the country is home to the very richand the very poor with little in between. Perhaps aneven bigger concern is the lack of diversity in its busi-ness base, which is almost entirely commodities and naturalresources driven, with the primary source of income con-nected to big oil.

The correlation between [Russian] GDP growth andoil prices is striking, said Van den Speigel. A collapse ofoil prices in 2009 had an immediate impact onRussia, but given the structural upward pres-sure on these prices, Russia is back in a verycomfortable position.

The strong nancial position buoyed by theoil and gas industries, perhaps along with wide-spread yet unproven allegations of foul play,helped land two signicant money-making andstatus-raising events over the next decade: theWinter Olympics and the FIFA World Cup (soccer). Bothwill bring a tremendous boost in tourism and consumergoods opportunities there, despite the class divide andany geopolitical issues.

Still, those successes have failed to wipe out the reputationof Russia as corrupt at nearly every level of the governmentand business community.

In general, companies prefer rule of law in countries wherethey know there is fair redress if they get into a dispute.Right now, I think there is much concern about that withrespect to Russia, said Reinsch. But also remember, that if youre in the natural resources sector, which is big in bothRussia and Indonesia, you have to go where the resource

is, regardless of the difculties. The oil in all theeasy countries has already been found!

Kuehl and Hardy also agree that, because of Rus-sias herculean natural resources standing, manyindustries simply cannot ignore them, regardlessof the level of risk. When I talk to manufacturers whodo business there, they almost always follow up bysaying they do a lot of business in the oil, gas andmining sectors. Still, there is so much corruptionand a narrow consumer base; there is almost nomiddle class. Many major retailers of the world,like Walmart, arent even there. That tells yousomething, said Kuehl.

Still, whether corruption is a daily issue andeven if it is different than every other originalor new BRIC country, Russia seems to havesecured its place among them, said Atkinson.You have to ask: What is a BRIC? he said. Ifthe concept is, as I understand it, a large popu-lation with high potential for growth and to bea global player, then you have to say that it isstill true of Russia.

Brian Shappell, staff writer, can be reached atbrians@nacm.org.

THERE HAVE BEEN MAJOREFFORTS TO SIT DOWN WITH COM-

MERCIAL AND BUSINESS LEAD-ERS AND DEVELOP A BROADERBUSINESS RELATIONSHIP TO

ASSIST EXPORTERS COMING IN.

8/12/2019 Breaking Through the Bric Wall

4/4

Copyright of Business Credit is the property of National Association of Credit Management and its content may

not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written

permission. However, users may print, download, or email articles for individual use.