International_Management

Globalization: Impact on the Developing Nations of BRIC Introduction Globalization is not simply a catchphrase used to describe how the world economy is evolving. Globalization affects the world's political, cultural and economic scene from Wall Street to Main Street to rural villages in the developing world. The freedom to exchange goods and services has never known so few barriers to the world (wto.com, 2011). Organizations like the World Trade Organization have worked to open up new markets for international firms and governments to conduct business globally especially in the developing countries (wto.com, 2011). Who and what are the developing nations' Developing Nations are classified as "A nation where the average income is much lower than in industrial nations, where the economy relies on a few export crops, and where farming is conducted by primitive methods. In many developing nations, rapid population growth threatens the supply of food-developing nations can also be classified as underdeveloped nations" (dictionaryreference.com, 2011). The developing nations we will focus on in this paper are China, Brazil, Russia and India- the names I listed here are countries that we see and hear about everyday in the news- some of them are due to come off this list this year but how amazing is it that a list of countries this distinguished are on the list (un.org, 2011). Understanding the positive and negative impact of globalization on developing nations can help control and direct it in manner that is beneficial to both developed and undeveloped nations. Understanding the global economy - starts with understanding the actions that have created globalization. Foreign Direct Investment is one of the key actions of globalization- as it has increased substantially over the years and is seen as one of the key drivers to globalization (American Economic Review, Aitken and Harrison, 1999). We will look at the dynamics of FDI and its effects on globalization some positive and some negative. Political and Cultural adaptation has taken by many countries in order to have a global economy for the benefit and the development their people. We will review some of these adaptations and discuss how they play into the world economy- as models and as drivers of globalization. Growth Strategies have been a catalyst in driving the growth and expansion of our global economies (wto.org, 2011). We will look at how the strategies of these four nations have had a global impact and how they have impacted the overall health of their nations. The purpose of this paper is to understand a broad overview of how globalization has impacted the developing nations of our world while interacting and competing with the developed nations. The discussions of FDI, cultural and political differences, global stratigies of some of the key developing countries will give us a broad overview as to how globalization has affected and will affect the developing countries. Global Economy FDI has been on the rise globally for many years as seen in the chart below it shows the significant volume of FDI Investment into the Top 10 recipient Countries of 2010 (unctad.Org,2011): [pic] The above chart is vey telling in that it shows China, India, Russia and Brazil, all four considered developing nations, and are the recipient of large amounts of FDI. Though the status of these nations it appears will change to industrialized nations in 2012, according to the World Bank, we cannot overlook how FDI influenced their growth into industrialized nations in the recent past. China is the most significant as it is now on second to the United Stated in FDI and second to the US in economy (unctad.Org, 2011). The growth of China exploded in the last 30 years as I will show in data and charts below- and it will show an amazing and unprecedented growth. Since China joined the WTO in 2001 it has seen a staggering increase of FDI from $19 Billion a year to $101 Billion a year- and that's in the first 10 years (www.cia.gov). China's opening up of its policies has been aimed at promoting exports, while protecting the domestic market. This was achieved through a pro economic vision which has granted tariff exemptions on imports of to foreign industries, and through a selective policy which has channeled FDI into manufacturing production targeted for exports or for import substitution. As a result, FDI has played a major part in the opening up of China's trade borders and making it one what The Economist call the "indispensable economy (wolrdbank.org, 2011). China has gone from a developing nation to almost certainly overtaking the US as the pre-dominant economy in the world in the near future- as referenced in the comments by The Economist above. China's GDP Growth Rate Per Capita is the true telling point of how it is going from a developing nation to a developed nation. China is still ranked a dismal 125th out of 227 countries comparativley on GDP Per Capita but that number is not telling the whole story (cia.gov, 2011). The below chart shows China's GDP Per Capita vs. the US- even though there are significant differences it is clear the growth China has experienced: [pic] The significance of FDI is a controversial issue- as many economists see positive development from FDI and some see negative. Some studies have highlighted the role of FDI on economic growth in developing nations and concludes that FDI from advanced economies has positive effect on economic growth in less developed host economies through the of process technological diffusion (Journal of International Economics, E. Borensztein, 1998) . Foreign investment has become an important means of financial private external finance for developing countries and also a dynamic catalyst for modern economic development. Due to the shortage of capital, developing nations actively seek to enhance foreign direct investment. Economist that favor FDI, praise the process for its economic growth by filling up the savings coffers, fills trade gap deficits , increased productivity and employment opportunities, raises the revenues for development of infrastructure, technology diffusion, provides not only capital requirements, but also managerial, technological skills and innovations in techniques, process and procedures that coincide with the industrialized world, encourages the local enterprise, increase government revenue and so on(cepii.fr,2011). FDI is often seen as an important catalyst for the economic development of poor economies and the chart below shows a significant belief that the four developing nations mentioned above are going to maintain that growth for the next ten years with each one predicted to grow (ey.com, 2011): [pic] As stated above some economist view FDI as negative- why'  It is common knowledge that there is in fact a direct link between poverty and crime. Crime is an important consequence of poverty. As stated in research conducted by Odd-Helge Fjeldstad "Crime and the fear of being hit by crime and small-scale violence are key economic and social problems in most developing countries"(repec.org, 2008). Most of the studies have concentrated on the relation between poverty and crime, economic growth and crime. But enough attention has not paid to find out the impact of FDI on crime. FDI is also seen as an influence exploiting the developing countries. Many see the negative side as FDI has helped the rich countries to exploit the precious natural resources of the developing countries like Latin America, Asia and Africa. FDI has negatively impacted the environment of the host countries like destroying vast areas of forests in Latin America and Africa. Apart from such visible negative impact, FDI has encouraged illegal economic activities like drug trade, trade in arms, crime, money laundering, corruption, tax evasion and fraudulent financial transactions (Global Journal of Finance and Managemen, 2011). All of these illegal economic activities did not start with globalization necessarily, but they have increased in their magnitude beyond comprehension because of the flow of enormous amount of FDI across the boundaries of countries in the wake of globalization process (Global Journal of Finance and Management, 2011). In summary FDI is not about foreign exchange. FDI encourages the transfer of management skills, intellectual property, and technology. It creates jobs and improves the quality of goods and services produced in the economy. Above all, it gives a boost to the export sector. FDI fosters growth and stability as can been seen in the data above and the growth of China, India, Russia and Brazil. Foreign investors are attracted to success stories; they are drawn to countries already growing, politically stable, and with a sizable purchasing power. Most of the developing and least developed countries worldwide equally participated in the process of direct investment activities and as shown below FDI has grown globally for the last few decades at very high percentages (economywatch.com, 2011): [pic] Political and Cultural Differences In our developing nations how has globalization affected them politically and culturally' In the case of Russia- they are in political turmoil. The political system of Russia currently is a Federation which has been in place since 1993(www.state.gov, 2011). The key element involving Russia’s political system is corruption- out of 178 countries scored Russia was ranked a dismal 154th compared (www.guardian.co.uk, 2011). The political scene in The Russian Federation has improved with the US over the last two years since US President Barrack Obama was elected and took office in 2009 as well as when the President of Russia Dmitriy Medvedev was elected in 2008 (state.gov,2011). With the new relationship with the US and the end many years of war with territorial states such as Chechnya- Russia has found itself entering a rather stable time politically though it has not lasted (state.gov, 2011). Recently Russia has found itself in an unstable political state once again with the middle class feeling squeezed and violence in the region is starting to return as well as a political war leading up to the 2012 elections (coface.com, 2011). In the news today was the announcement that Vladimir Putin will once again seek the Presidency of Russia for 2012 as president from 2000 to 2008, Putin oversaw an economic boom where household incomes improved on the back of a rise in global oil prices, and his tough talking and macho image helped restore Russia's self-confidence on the world stage. But Putin, who was once a KGB officer in East Germany, is widely seen as more conservative than Medvedev and critics accuse him of riding roughshod over human rights and democracy, and expanding the power of the security forces (reuters.com, 2011). In contrast India's political system is seen as stable and follows that of English models. The one true variance with India is its cultural differences more so than it political. Political issues range from nuclear concerns with Pakistan and maintaining its democratic style leadership that brought it to the industrialized state that it has reached (cia.gov, 2011). Politically as they become closer to Washington their fears of destabilization lessens- also with the growth of its Per Capita GDP the people of India and its work force, which is more than the US population, will continue to pressure its government in maintain that stability(Indian Journal of Economics and Business,2002). In India the cultural impact has started being felt in many areas. Access to television grew from 10% in 1991 to 75% in 1999, Cable television and foreign movies became widely available for the first time and have acted as a catalyst in bulldozing the cultural boundaries (outlookinida.com, 2011). These technologies have changed perceptions and dreams of ordinary people- with GDP growth and more disposable incomes bigger dreams. Unmarried boys and girls are sharing same apartment and staying away from their parents, Scientific and technological innovations have made life quite comfortable, fast and enjoyable, old restaurants are now replaced with McDonalds and other fast foods, Chinese dishes have replaced juice corners and Parathas (outlookinida.com, 2011).One the scariest changes has been on the violence and especially that of women- One out of three women faces violence behind closed doors in India (indiatoghether.org,2010). The nation has seen this increase since the rise of FDI, GDP and overall economic growth- in a country ruled primarily by Hinduism- which does not promote or support violence against women- this is troubling (himalayanacademy.com, 2011). One of the culprits of this violence is due to more women in the workforce and working hours opposite that of the western world handling call centers and such which places them in harm's way at higher rates (indiatoghether.org, 2010). This excerpt from a troubling article regarding the situation is one that appears will challenge the very culture of India "Given the low status of women in many segments of Indian society, a high level of violence against them may not be altogether surprising. Activists argue that women face discrimination at each stage of life, resulting in everything from female feticide and the neglect of girl children to child marriage and widows. Violence against women has a lot to do with patriarchal values which are not challenged within our educational system. Once deeply engrained it is very difficult to dislodge them,” Noor Jehan Safia Niaz of Bharatiya Muslim Mahila Andolan (Indian Muslim Women’s Movement) wrote in an email. Domestic violence therefore continues in India “unabated"(globalpost.com, 2011). Brazil is safe on the cultural side as Rio de Janeiro is one of the cultural centers of the world with it globally known festivals and beautiful women. Where Brazil is troubled is its corruption. In contrast to Russia- Brazil does not have the solidity of a controlling person such as Vladimir Putin, and the politicians have been openly corrupt (articlebase.com, 2010). A 2010 study by German NGO Transparency International pointed to Brazil leading ahead of its BRIC counterparts (Russia, India and China), the recent Index of Economic Freedom stated that uncontrolled corruption amongst the political elite remains one of the main factors impeding the country´s excelled growth. Many of the Brazilian public believes that it is one of the main problems that the country faces. In Russian the corruption is in business rather than in the political scene and that is a key reason why most believe that even as Russia is ranked way lower- 154th and Brazil is ranked 54th that the two are quite the opposite(investopedia.com,2011). The Chinese face issues that are tied to those of humans- basic human rights- and that should challenge us to the core. We as a world are putting human rights below economical gain- we have allowed this to happen all in the face of globalization. The communist government of China appears to be untouchable and with the growth of that nation and the rise of their GDP as shown above I am not sure they can be challenged. Amnesty International has documented widespread human rights violations in China. An estimated 500,000 people are currently being held in detention without charge or trial, and millions are unable to access the legal system to seek redress for their grievances. Harassment, surveillance, house arrest, and imprisonment of human rights defenders are on the rise, and censorship of the Internet and other media has grown. Persecution of minority groups, including Tibetans, Uighurs and Mongolians, and of Falun Gong practitioners and Christians who practice their religion outside state-sanctioned churches continues (amnestyusa.org, 2011). While the recent reinstatement of Supreme People's Court review of death penalty cases may result in lower numbers of executions, China remains the leading executioner in the world (amnestyusa.org, 2011). Culturally and politically we have a very diverse group of countries above. These four countries are expected to be economic powerhouse for years to come- but if they do not develop the rest of their nations as they have their economic- they will find their acceptance will be short lived- and in the case of China and India we must hope that is the case- as global powers we challenge these nations on their rights for women and their rights for all of their citizens. Going Global Strategies What is BRIC' The BRIC is a thought that China and India will become the world's dominant suppliers of manufactured goods and services, respectively, while Brazil and Russia will become similarly dominant as suppliers of raw materials (businessweek.com, 2011). Goldman Sachs coined this phrase in a report from 2003 - these countries are not a political alliance or a formal trading association (businessweek.com, 2011). The BRIC 4 has challenged the strength of the capitalist giants in recent years and have proven themselves to be worthy adversaries. Their economies are outperforming most if not all G20 countries and analysts have realized and admitted that the industrial and world dominance of current world powers are in the process of moving towards the BRIC Economies very swiftly. So what is the strategy of the BRIC 4' Individually they all have there inherent problems as listed above and as far as economist go the outlook is good for three of the four and the one country not predicted to do well now is Russia- the chart below depicts this: [pic] Of the four BRIC nations this chart show Russia lagging behind significantly- and that is in direct correlation to Vladimir Putin's certain return to the presidency and his cold shoulder concerning trade and his openness to organizations such as the WTO and free trade agreements (guardian.co.uk, 2011). The strategies of three out of four economies will continue to play as they have much of the past 10 years. In a worldwide poll of 1,201 CEOs in the 4th Quarter of 2010, China was named by 39 percent of them as the No 1 growth engine, followed by the 21 percent for the United States, 19 percent for Brazil and 18 percent for India, according to PwC's 14th Annual Global CEO Survey(chinadaily.com,2011). Again the only country not in this report from BRIC is Russia- one has to wondering if Russia's strategy with Vladimir Putin is one that will stiffen its future growth as the other three BRIC nations surge. The International Monetary Fund (IMF) forecasted global growth at 4.2 percent for 2011, for developed countries, which make up 52 percent of the world economy, they are growing at only half that pace- in contrast, emerging markets are booming, with Indonesia, India and China all forecast to grow faster than 6 percent(imf.org,2011). Suggestions and Recommendations Brazil desperately needs fix its corruption amongst its highest ranking political officials. They will not be able to sustain the investment if outsiders are not safe and their investments are at a great risk because of political corruption. Kidnapping is an epidemic in Brazil that threatens to derail the growth of the nation, in a comment from Grafite, a Brazilian Football player, "Sadly in Brazil, everything that's bad becomes a fashion. Brazilians are like that. First it was kidnapping businessmen, then their wives and children and now they see an easy target in footballers"(bbc.co.uk, 2011). In another comment from the same article one of the kidnappers stated "my justification is the lack of opportunities in Brazil"- and with the amount of growth the country has seen and is predicted to see how is that possible' It brings to light an under lying issue that Brazil has ahead of it- transforming millions of poverty stricken citizens that have resorted to violence and theft to survive- into working class citizens with opportunities. Russia faces as it appears today twelve years of Vladimir Putin as president once again. For Russia to emerge from this debt crisis Vladimir Putin must embrace free trade and join the WTO. Russia must diversify its exports so that it is not solely reliant on energy and the windfall of energies pricing. Russia must reform its middle class or face what Egypt and Libya have- revolts. Russia’s middle class is estimated to encompass 7-20 percent of the population-they are also estimated to account for 30-60% of all consumers spending in Moscow. With kind of spending power the government and economist must listen to them- and as of now they are fed up. Majorities of the middle class- according to most polls- is in their early thirties, are married or living with a partner, have few children, often a pet, rent an apartment which they already have or plan to remodel soon, and have a family summer home (sras.org, 2011). They most often do not own a car, but the number who does is growing and nearly all think about buying one. They value financial independence, hard work, and hope to “get ahead'(sras.org, 2011). This does not sound very different from the American Dream- and in reality it's not- and in both countries the middle classes are frustrated- the respective governments must help- for as in Russia, they are much more volatile than here in the US. India has challenges that range from cultural, over population, epidemic plagues, and infrastructure. These challenges can be met if they are committed to the growth. They face a similar problem as Brazil- turning millions of poverty stricken citizens into productive working class citizens. India is seen as having one of the most skilled work forces in the world (merinews.com, 2011). Keeping that workforce trained will be a key element and a must for India. China and India often are compared in the same breath by western executives weighing sites for expansion or outsourcing, but the reality of the situation is that in terms of infrastructure, China is decades ahead of India – an important consideration for industries reliant on strong power, water, transport or information infrastructure (business-in-asia.com, 2007). In India as in China and Brazil as the massive population moves from very poor to somewhat poor will result in titanic shifts in demand for commodities essential to businesses, swamping the electrical grid and threatening the critical supply of freshwater.  Business's that makes high-tech gadgets or bathroom slippers will need to consider infrastructure. There is no easy way to tackle the issues ahead for India (business-in-asia.com, 2007). China face issues that rely heavily on the government as stated above. The suggestion for China is to cease persecution and adapt to an acceptable human rights policy. No one is asking China to stop communism, no one is asking them to be become the US, and all anyone is suggesting is stop abusing the basic rights of humans. The fallout from sanctions against China would be detrimental to the global economy- as stated above in The Economist that China is the lone indispensable economy (economist.com, 2011). How can the world look at China as true superpower if it continues the blatant and obvious abuse to a portion of its citizens' Everything in this paper is truly amazing about China but I cannot suggest anything other than fix its human rights stance- there is no need for it and it serves the country no purpose. Summary We have reviewed the BRIC nations in many areas and have shown how Globalization has impacted them. We have reviewed the political unrest in Russia as well as discussed its slowed economic growth due to this unrest. We have looked at the issues facing Brazil and the explosion of FDI into their economy and the problems they face in dealing with the growth. India's future growth looks bright if they can sustain their infrastructure, population growth and cultural diversity. China has been dissected down with a look at its participation in the WTO and how it is poised to be the number one global economy. Through the research done here we have explored and detailed the effects of globalization on these developing nations. Each one of the nations would to have a report or study dedicated to it to fully understand the impact- here we have touched on some key developments and changes to these nations through globalization. Globalization is a force that is sweeping the world- as trade barriers fall and free trade reigns- we will not know the world tomorrow as it is today. Through the research of this paper on the BRIC nations I came across the next set of nations that will one day fill the pages of someone's final paper- MAVINS- in a great article by the Business Insider "Meet the MAVINS" they list Mexico, Australia, Vietnam, Indonesia, Nigeria, and South Africa as nations that will replace the BRIC as far as growth and development (businessinsider.com, 2011). The changes of globalization will be phenomenal to watch and experience on a professional and personal level. References Aggarwal, M. R. (2005). EFFECT OF GLOBALIZATION ON INDIA’S ECONOMIC GROWTH. Indian Journal of Economics and Business , LXXXIV(332), 45-67. Aitken, B., & Harrison, A. (1999). Do domestic firms benefit from foreign investment. American Economic Review, 89(3), 605-618. BBC. (n.d.). BBC NEWS | Programmes | This World | Brazil's evolving kidnap culture. BBC News - Home. 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