Editor’s note: “International Business Corner” is a new weekly column written by Joan Keston that will be providing information for people involved in or considering international operations. Keston is an international business consultant. Over the next several months she will be writing about important issues that international businesses face as they compete in the 21st-century global business environment.
Keston has experience with mature as well as entrepreneurial companies, domestically and internationally, and with an executive managerial and legal background. She has a deep understanding of the business culture and issues involved in doing business in developing countries as well as Europe. She is the Senior Managing Principal at Keston & Associates, Ltd., a partner at Paladin and Associates, Inc. and a faculty advisor at the Kenan-Flagler Business School of The University of North Carolina at Chapel Hill.
CHAPEL HILL — We have been witnessing over the past decade the arrival of several developing countries onto the global business scene.
These countries are also referred to as emerging markets or newly industrialized countries, and they include China, India, Mexico, Brazil, Chile, most of Southeast Asia, countries in Eastern Europe, and parts of Africa and Latin America.
Developed vs. Developing
When we speak of developing countries we are addressing a variety of nations in terms of regions, cultures, political traditions and economic development. In general developing countries have a low standard of living, an underdeveloped industrial base and a moderate to low Human Development Index (a comparative measure of life expectancy, literacy, education and standard of living; a standard means of measuring well-being). They have a low per capita income, widespread poverty and low capital formations. Development entails a modern infrastructure and a move away from low value add sectors such as agriculture and natural resource extraction. Developed countries usually have an economic system based on continuous self-sustaining economic growth in the service and intellectual sectors, and a high standard of living.
The developing countries that have arrived have more advanced economies than other developing nations, but have not yet fully demonstrated signs of a developed country. They are in a transition phase between developing and developed states.
In a report published in October 2003 (“Dreaming with BRICs: The Path to 2050”), Goldman Sachs created an acronym used to identify the countries expected to grow economically to such an extent that they may become part of the group of the largest world economies. The countries cited are Brazil, China, India and Russia and the acronym is BRIC. A sobering observation in terms of the potential economic force and power of the BRIC countries is the combined population of these developing countries in relation to the US population and the effect this will have as they enter the group of top world countries.
Populations in millions (World Bank 2005 Statistics):
- Brazil: 186.4
- Russia: 143.1
- India: 1094.6
- China: 1304.5
- USA: 296.4
Evolution vs. Revolution
One of the most important factors when discussing these developing countries is that the changes and development are occurring in an evolutionary and not a revolutionary manner, and at all levels of the societies. We have seen that revolutionary change more often than not merely changes the political scenery, maintaining the same economic and social condition. Following are several question that are important indicators of the evolutionary change occurring:
- Is there a free market economy?
- Is there a democratic form of government? What flavor is it?
- Is the currency free floating?
- Have governmental reforms created sustainable governing institutions?
- What are the challenges facing the government?
- What are the key social problems?
- What are the forces and objectives behind the reform?
- How strong is education in the culture?
These questions may appear to be theoretical; however the answers and emanating discussions provide direct and crucial implications for the products and services that will be successfully commercialized in a particular developing country. They are also essential to determine how and where your firm may choose to do business.
The global business culture is changing and will continue to change as the profile of the economic powerhouses begins to include countries now considered developing countries; where world economic leaders come from Brazil, Russia, India or China.
There are several social, political and economic hurdles that must be overcome by these countries, and there are no guarantees as to performance, however the projections must be considered and the question posited as to what this portends for the position of US businesses and the U.S. economy currently and increasingly over the coming decades.
Joan Keston is a Senior Managing Principal of Keston & Associates, Ltd., an international business consulting firm located in Raleigh, N.C., and a partner at Paladin and Associates, Inc. She has over 20 years of corporate business experience, including as a corporate attorney. Her firm assists companies establish business operations throughout the world. She can be reached at 919-881-7764 and firstname.lastname@example.org.