Building with BRICs
As bank robber and aphorism icon Willie Sutton might have said, “I’m doing business in the BRIC countries because that’s where the money is.” But would he be entirely correct?
The acronym stands for Brazil, Russia, India, and China. For the last decade, these countries have been at the heart of growth strategies for many multinational companies and are still high on analysts’ lists for the next decade. They are also a focus of U.S. government export promotion. No wonder. For starters, BRICs contain 40 percent of the world’s population.
For many big companies, as well as less heralded smaller U.S. firms, the strategy has paid off handsomely—that is, until 2009 when the BRICs as a bloc took a tumble. Following years of seemingly automatic growth, U.S. exports to the BRICs fell 9 percent to $117 billion from a high of $129 billion in 2008.
The exception was China, which registered a small decline of 0.3 percent. Of course, trade everywhere was clobbered in 2009, and the drop therefore had nothing to do with any exceptional conditions in the BRICs. The good news is that growth is back on track in 2010 with U.S. exports surging for the first six months. All countries except Russia, which purchased 43 percent fewer U.S. goods by value in 2009, appear set to consume more U.S. products than in any previous year.
Russia's struggles
For its part, Russia has suffered myriad woes including a weak currency, falling prices for its natural resources, tight credit markets, a poor wheat harvest, corruption, natural disasters, and red tape swaddling many aspects of its trade regulatory system. Russian President Medvedev recently fumed at the multiple forms needed to clear Russian customs and the added costs to business of the uniquely Russian practice of inspecting more than 40 percent of inbound shipments (the worldwide average is less than 5 percent). Medvedev ordered bureaucrats to speed things up. As a result of these problems, U.S. exports are unlikely to recover to pre-2009 levels and may actually decline for a second consecutive year.
How then should U.S. small- and medium-sized companies and the export facilitators that serve them think about the BRICs? The obvious way is to consider them individually, as all are different with different development prospects, challenges, business cultures, and trade policies. All will continue to spend large sums on infrastructure; add consumers to their middle classes; buy more automobiles; expand ecommerce; and increase wages that allow their citizens to travel abroad: all things that should make U.S. exporters’ hearts beat faster.
Just look at automobiles and the sales prospects for freshly competitive U.S. firms and their legions of suppliers.
In response to the world economic crisis, Brazil cut its still lofty import tariffs and taxes resulting in an increase of U.S. imports and investment. In China, GM operations there sold 1.83 million vehicles—the most of any producer, Chinese or foreign. Chrysler sold 19, 233 American-made vehicles to China in 2009, the largest sale to any non-U.S. market.
When U.S. and European countries took China before the WTO alleging excessive tariffs on imported auto parts, China lost on appeal and immediately cut the tariffs in line with WTO commitments. In India, GM will invest $1 billion and sell 110,000 vehicles in 2010. Ford enjoyed a tripling of sales there after the release of its new model the Ford Figo.
NEI meets BRIC
U.S. exporters and investors of all shapes and sizes, manufacturers, wholesalers, and service providers, will continue to benefit from the U.S. government’s focus on the BRICs, especially through President Obama’s National Export Initiative (NEI), which seeks to double U.S. exports and support more domestic employment. Part of this effort re-imagines our embassies and consulates in these countries as a kind of ‘super sales emporia’ where diplomats help facilitate sales of U.S. goods and services as an all-of-the-time focus. Officials in Washington have wheeled out an impressive list of bilaterals or “bilats” with BRIC counterparts, where participants will work towards improved market access, matching needs with alternative energy technologies (where the U.S. has an advantage) and protecting intellectual property (where U.S. companies have a huge stake). This aspect of commercial diplomacy should pay dividends down the road.
BRICs have GEMS
One such program under the NEI is called Growth in Emerging Metropolitan Sectors (GEMS) that was unveiled recently by Commerce Under Secretary Francisco Sánchez.
“Before us is the prospect of creating a new world through much needed infrastructure, while introducing new technologies simultaneously,” said Sánchez in recent remarks to the U.S.–India Business Council in Washington, D.C.
GEMS embraces the notion that export driven growth in the U.S. will result from small- and medium-sized enterprises working with their counterparts in smaller, fast-growing cities in emerging markets. Ultimately, such growth will create jobs in the U.S. and will generate sustainable, long-term growth in the global economy.
A similar focus exists in China where U.S. government posts there find buyers for U.S. companies in China’s numerous “second tier” cities that have populations over 1 million. Companies such as Rockford, Illinois-based ProStuff, a maker of bicycle racing starting gates with six employees, have found success there by using government assistance programs. “We are doing good business in China and India,” said company owner Pierce Barker, “And we plan to expand to more as quickly as we can.” His company now sells to 41 countries.
Accessing these programs is easy. The U.S .Commercial Service of the Commerce Department has personnel in all BRIC markets and they can be contacted through local Export Assistance Centers or directly. The office in Moscow, for example, recommends vetted Russian customs brokers, lawyers and other trade facilitators who can help get your goods to new customers. Similar kinds of practical, insider assistance is available to all U.S. companies regardless of size or resources, and much of the information is free. Go to export.gov, and check out especially the India and China online Business Information Centers. Also, each BRIC country Commercial Service office has its own Web site with information on upcoming events, advice and tips, and contact information for industry specialists and the management team at the embassies and consulates. Additional information and preliminary counseling on these markets are available by phoning Commerce’s Trade Information Center at 1-800-USA-TRADE.
Finally, when you look at the numbers, it’s hard to argue with the notion that the BRICs are where the money is and where it will continue to be. According to the McKinsey Global Institute, India will need to invest $143 billion in health care, $392 billion in transportation infrastructure, and $1.25 trillion in energy production by 2030 to support its rapidly expanding population. Similarly, China will need to pave more than 5 billion square meters of roads by 2030 to meet the transportation needs of its 221 cities with populations of more than 1 million. Likewise, Brazil will need to spend $19 billion on infrastructure improvements to its 20 main airports to meet an expected threefold increase in traffic during the next 20 years. And Russia, despite its fitful transition to a market economy, will need to invest billions if not trillions in its crumbling Soviet era infrastructure, while the glittering, impossible-to-find-a-parking-space cities of Moscow and St. Petersburg will continue to have a healthy appetite for consumer goods from around the world.
Doug Barry, Director of Marketing and Communications for the U.S. Commercial Service
www.export.gov/cs
Copyright 2010, author retains ownership. All Rights Reserved.
