Friday 26th May 2017 - Logistics & Supply Chain

Building BRICs

A fascinating book has recently been landing on the desks of some of the world’s leading business decision-makers. It is called, enigmatically, The World and the BRICs Dream – the BRICs being Brazil, Russia, India and China, arguably the world’s four hottest growth economies.

The book comes from a research team at Goldman Sachs investment bank that has been studying the turbo-powered BRICs economies since 2001 and believe they are destined to play a more influential role in the world economy as this century unfolds.

Most other pundits agree, but there’s a lot of disagreement on two points. The first is which of these four economies will ultimately be top dog. The second is what other changes economic growth in these economies might drag along in its wake. We might add to these points the likely role of logistics as these economies develop.

Let’s dispose of the top dog question first. As it happens, I’ve recently spent a lot of time talking to business people deeply involved in Brazil, Russia and India. I spent time talking with old China hands last year. I’m coming to the conclusion that the received wisdom that China is set to dominate the world economy is by no means certain.

Formidable economic force
Of course, China is destined to be a formidable economic force. It already is. But one key fact leads me to suggest that we’re underestimating the potential of India – by 2050 India’s population will have far outstripped China’s.

Moreover, it’s arguable that India’s more open and tolerant society is better equipped to handle the stresses and strains long-term economic growth poses on a society than China’s authoritarian regime. But, perhaps that’s an argument we can save for another day. For the time being, let’s focus on the potential role of logistics in Brazil, Russia and India.

The first point to make is that these are all huge countries in which supply chain issues constantly loom large, if only because of the vast distances to be covered. The second is that such infrastructure as does exist is of variable quality. Do not expect services we take for granted – roads, railways, even mail deliveries – to work as effectively throughout these countries as they do in Europe. The third is that it’s simply not as easy to do business in these countries as it is in Europe.

The World Bank provides a handy ranking on ease of doing business in all countries – Russian comes 79th, India 116th, Brazil 119th. Not a good start. (In case you’re wondering, the best is New Zealand, the worst the Democratic Republic of the Congo.)

It’s perhaps most surprising that Brazil comes last in that list, even if only because the country is usually portrayed as easygoing with a seemingly permanent carnival. The reality for business is that constant rivalry between federal and powerful state governments makes it difficult for business to understand what regulations are going to be enforced and how at any given time.

The problem in Russia is less a question of laws and more a question of navigating a corrupt bureaucracy. Despite years of rule by strong-man Putin – perhaps because of it – kick-backs and organised crime are part of the business landscape companies have to live with. That and growing uncertainty about the political future. Should Putin try to override the constitution and run for a third term as president in 2008, there’s no telling what forces could be unleashed.

India too suffers from bureaucracy and corruption though thankfully not the level of violent crime that dogs Russian cities. As an example, on average it takes 89 days and 11 administrative steps to start up a company in India. But the country is realising that it must become more business oriented and a Foreign Investment Implementation Authority has been set up to help inward investors cut through the stifling bureaucracy.

Despite all these negatives, there is one positive for logistics professionals. All three countries will need much more supply chain expertise if they are to develop their economies. But businesses or individuals who want a slice of the action in any of these countries, need to take one critical lesson on board – your supply chain skills may be second to none, but there’s no point thinking you can deliver them the same as if you were working in London, Paris or Frankfurt.

In the case of each country, understanding and adapting to the culture is key to building any kind of business success.

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