By Simon Featherstone, global CEO of Bibby Financial Services
‘The BRIC economies’ is a phrase that is understood in all corners of the world. First coined by economist Jim O’Neill in 2001, the acronym was created to identify the future global economic powers of Brazil, Russia, India and China, and signal a shift away from the traditional powerhouses of the G7 nations.
O’Neill has hit the headlines again this year by championing the next breed of economies with high growth potential – the MINT economies. Mexico, Indonesia, Nigeria and Turkey have all been earmarked by O’Neill as the countries that could succeed the BRIC nations.
Already the acronym has taken hold as journalists, analysts, politicians and businesses around the world debate and monitors this latest economic prediction. But how much of a bearing does a forecast by one economist have on the millions of businesses around the world? Should you be trying to crack the MINT economies as soon as you can?
MINT may well be the new buzz term, and perhaps with good reason, but it does not necessarily mean that they are the best growth countries for your sector, product, and service. If you are planning to enter a new market don’t just go on a hunch or the latest fad, do your research and do what’s right for your business.
One of the problems we see as a business funder is a lack of confidence to export among businesses that is caused by practical and cultural barriers, particularly in emerging markets such as the BRIC and MINT nations.
Understanding which markets are best for your business and then getting to know those chosen markets is not a quick process. It should be something that is given due consideration and time, an ongoing process of gathering and monitoring.
So was BRIC a success?
O’Neill’s latest prediction is exciting and definitely deserves greater investigation, if not action, but it does raise the question of whether BRIC, the original acronym, fulfilled its potential? Are the BRIC nations still growing? Did they achieve their expected potential after 2001? Are they still a viable target for those seeking profitable markets in which to trade or grow their operations?
There were varying theories on what potential the BRIC nations could realistically achieve and, crucially, in what timescale. In global economic terms, 13 years is probably not enough time to create a new superpower. Some thought that these economies would usurp the G7 nations within a matter of years, and others believed that it could take much longer.
Undeniably the influence China and Russia have on the world stage has hugely increased. China recorded double digit GDP growth between 2003 and 2007, whilst Russia also saw growth at around eight per cent during this period. However, Russia plummeted to around minus eight per cent in 2009 before recovering to around three per cent recently. China has also seen a fall in GDP growth in the last couple of years.
Brazil’s growth has looked far less stable with GDP fluctuating year-on-year since 2001 – although only dipping to minus 0.3 per cent at its lowest in 2009. With the FIFA World Cup arriving in Rio this summer and the Olympic Games in two years’ time, the investment, improvement in infrastructure and boost to tourism could present the opportune moment for Brazil to really reach its long-awaited potential.
India has also struggled to reach the heights of growth achieved by Russia and China, with GDP growth peaking at over 10 per cent in 2010 but falling significantly since then.
That said, these economies are still producing GDP figures that many developed economies dream of achieving. So, does this mean the BRIC prediction was right? It is too soon to be certain, but when you consider the global economic turmoil since 2007 they have definitely not been failures.
It’s worth pointing out that since the widespread adoption of the BRIC acronym, there have been many other suggestions by economists, analysts and commentators as to the next world-renowned economic acronym. The reason that MINT has really taken hold is most likely because it is backed by O’Neill, and also because, once again, it is very memorable.
There are of course many robust reasons why the MINT nations could see strong growth in the coming years. All four nations benefit from a strategic location with strong neighbouring economies. Mexico’s neighbours are the US and South America; Indonesia is at the heart of South East Asia and close to China and Australia; Turkey lies exactly where East meets West on the edge of Europe; and Nigeria has the potential to become the hub of Africa. Significantly, their populations are young rather than ageing, showing great promise for a burgeoning workforce that will all contribute to GDP and the wealth of the country.
Goldman Sachs has predicted that these factors, along with many others, will make Mexico the 8th wealthiest country by 2050; Indonesia is predicted to be the 9th wealthiest country; Turkey will be 14th; and Nigeria, which is currently 39th, is expected to be 13th.
What about other markets?
The danger of creating neat acronyms is the risk of missing out a potential high-growth market. Has this happened with MINT?
The MINT acronym is a neat and tidy way of bringing together a group of countries that have huge future potential due to a number of factors. However O’Neill’s prediction is by no means a guarantee that these markets will reach their potential; there are many things that can de-rail a growth plan – natural disasters, terrorism and political insecurity are a few that come to mind. All of these are very real risk factors that must considered by any business looking to enter these markets.
So what should businesses consider?
First, utilise the guidance and expertise that is available both in the domestic market and also in your target markets. Seek out similar businesses and competitors and find out as much as you can about their operations – where are they trading? How did they enter the market? What practical, legal and financial barriers did they need to overcome?
Understand the trading cycle
When conducting your research make sure you take time to understand the trading cycle. We find that it can be overlooked by SMEs entering a new market, particularly if a business is not well versed in the process of trading internationally.
Negotiating at which point the purchaser takes responsibility for the seller’s goods is critical, as responsibility for insurance and transportation costs can jeopardise the protection of the goods and dramatically increase the overall costs of sale.
Businesses can sometimes get caught up with the excitement of new orders from abroad and then find they are liable for the delivery of the goods, all the way to the buyer’s door. Without checking the terms, they can also find themselves responsible if something happens to the goods during the exporting process.
Funding a move into a new market and managing cashflow are also key concerns for many businesses at this critical time. Cashflow in particular can come under considerable pressure due to the investment required, payment terms lengthening and orders picking up pace.
The good news is that there is a wealth of flexible funding products beyond bank loans and overdrafts that are ideally suited to supporting high-growth exporters experiencing cashflow pressure.
Ultimately, there are endless opportunities around the world, particularly as many emerging economies are reaching a critical stage in their growth and development, and there is ample room for businesses of all sizes in all sectors to seize these opportunities and grow.
My advice is to do research, understand the trading cycle and seek the right funding solution that will support your specific needs.
Economists and analysts will always be looking for the next big thing, the next memorable acronym and new global trends. Whilst it is useful to keep abreast of this information, remember that every business is different, each opportunity is unique and there will never be a one-size-fits-all approach.