CRIB Countries Analysis for Business Investment

Table of content

Introduction

The report aims to identify the risk and opportunities of BRIC countries for a retail company of Australia. This report presents the insights about the business condition of each country for investment perspective and chooses a best country for the retail company investment. This can help company executive management to introduce its retail business operation in country.

Literature review

Russia

Opportunities

The market overview of Russia presents these facts. There are over 140 million consumers. There are a good growing middle class. It has the unlimited infrastructure needs. Russia is ranked as world’s 11th largest economy by its nominal GDP. It has the highest per capital income GDP in the BRIC countries. The economic growth is sluggish though and it is revealed that it economic growth was 3.3 to 3.5 percent in 2012. The people are nearly hundred percent literate. The country is ninth most populous country. The urban population that is main attraction for the retail company is 73 percent of country’s population. Three quarter of population is between the age group of 15 to 64 that is a good potential market for Retail Company. The disposable income is considered by the retail company and it is found that in the disposable income of Russian people are growing. The retail malls play a significant role in the Russian economy and there are many super and hyper markets in Russia PWC, (2011). Russia has improved greatly according to World Bank report and now doing business in Russia becomes comparatively easy. In 2014 the country has ranked 64 for doing business that was 92 in 2013 and it has improved its position and ranked 62. This has happened due to reforms in property registration and starting a new business. There are availability of credit, minority shareholders’ protection and good procedures for bankruptcy. There are two major reforms such as elimination of charter capital and smoother property transfer. With comparison to Brazil, China and India Russia has done better. Brazil has a ranking of 116, China has ranking of 96 and India has a ranking of 134 Zagorodnov, (2013). For ease of doing business in Russia, it is identified that it has a rank of 62 ahead of china, Brazil and India. For starting a business, Russia has a ranking of 34 ahead of china, Brazil and India. The procedures for staring business are lowest in Russia among BRIC countries. Time is also taken less in Russia than India, Brazil and China for starting a business. It is also ahead from other BRIC countries for construction permission. But it lags behind other BRIC countries for providing electricity. For ease of securing property, it is well ahead of other BRIC countries. For ease of getting credit, it is behind India but ahead of China and Brazil. For minority investor protection, Russia is well behind India and Brazil but is ahead of China. For ease of paying taxes it is well ahead of other BRIC countries. For ease of trading across border, it is behind other BRIC countries. For ease of enforcing contracts, Russia is well ahead of other BRIC countries. For resolving insolvency, Russia is behind china and Brazil but is ahead of Indian World Bank, (2015).

Risks and challenges

The infrastructure is a major issue and accessing the market outside the major cities is still an issue. There are regulatory. There are disparities in wealth distribution that is visible demographically and geographically. There are hindering regulatory regimes. For intellectual property rights protection and enforcement, inadequacy is revealed. The corruption rate is extensive and there are inadequate rule of law. There are issues of inconsistent application of laws. The process of conducting business operation lacks transparency. There are large state owned and controlled enterprises that can hinder the growth of foreign investment. For hiring the expatriates to run the business, Russian immigration and visa system requires much time as well as patience. There is issue of English speaking people.

It is identified that investors must consider the security issues and crime rate in Russia. The survey of 2009 has presented the fact that 71 percent respondents have experience fraud and this has not changed yet. There were increased activities of militant islamist separatists’ people. The ranking of Russia was 154th of the 178 countries for transparency and the ranking was below from Nigeria, Haiti and other countries. The score of 2.2 was degraded to 2.1 in 2010. According to the corruption perception index, scoring below 5 shows a serious level of corruption. In 2011, Russia has done poorly in the report of World Bank doing business 2011 and it has a rank of 182 out of 183 countries. Russia has ranking of 105 out if 183 countries for paying tax and this presents the corruption rate in country. Copyright infringement and intellectual property rights violation are common in Russia. These are the records of previous years and Russia has not shown solidarity in terms of maintaining a good record for long term. The GDP growth is not good and it is grown by 0.6 percent only in 2014. Another considerable factor is that it has the smallest population of the BRIC country that can saturate the market opportunities for company. The purchasing power of the people is decreasing. It is revealed that Russian people household spending will be declined by 29.5 percent in 2015 in dollar terms. All these factors make Russia a challenging market for the retail company but the careful planning in Russia can mitigate many issues. Analysis of Russia reveals that Russia can be a viable location for the business expansion. The country has a desire to use the international standards for accounting and legal. There are young and educated workforce and good supply chain network. The retail business is attractive for the foreign investment. And IKEA and Carrefour have expanded their businesses Lossan, (2015). But again the country needs more control on corruption factor and the GDP size of country is also smallest in BRIC countries China, India and Brazil that limits the growth opportunities of company.

China

Opportunities

The population of the country is 1.4 billion that is the largest population in the world for a country. The GDP is 13.4 million and is expected to rise. The growth of GDP is 7.7 percent. The per capita income is 9,844 dollars. Inflation rate is low that is 2.6 percent. The unemployment rate is 4.6 percent. FDI inflows are 123.9 billion dollars. The country is very attractive for foreign investment due to size of the market, very low cost of labour and country’s growth potential Makos, (2015). The strengths are that government structure has resulted in quick decision making and country has ample reserves and stable employment. It is expected that 100 million people can move to cities in coming years Financial Post, (2014) that will be good for the organized retailing. The economy is robust due to skilled force, exporting business and urban growth. The literacy rate in china is over 90 percent. There are 420 million internet users in country. The technological environment has developed and there are new products, purchasing mechanisms, distribution mechanisms and mobile telecommunication have been evolved.

The retail sector overview of china presents the fact that it is the second largest retail market in the world. According to the National Bureau of Statistics, the per capita net income of rural and urban household has increased respectively 9.6 and 10.7 percent Fung Business Intelligence Centres, (2013). The sales growth and growth in store numbers are respectively 13 percent and 10 percent. This shows a remarkable growth in retail industry.

Challenges

The economic freedom in china has a score of 52.7 and makes it s 139 freest economies in the 2015 index The Heritage Foundation, (2015). There are modest improvement in labour freedom, business freedom and freedom from corruption. It is ranked 30th out of 42 countries located in the Asia-Pacific region. Its overall score is also lower than the global and regional averages. The legal environment shows that the protection of property rights has been deteriorated. There is a week judicial system because of high political influence and the urban migrant workforce has less legal protection. For incorporation of business, it takes about a month with 11 procedures. The enforcement of labour laws is not consistent. The government has a tight control on the financial system and it screens the foreign investment. The risk of not having correct perception by the people of china towards the e-commerce is a major hindrance. Also the government has been unable to protect the intellectual property rights. The prices of property are also very high in China. According to Australian trade commission, companies may suffer from commercial frauds, contract breeching, intimidation and threats as well as bullying to safety of people, movement restrictions and criminal charges for those activities that are not considered as crimes under the Australian laws. The absence of innovative leaders and business managers can be a challenge and there are limited opportunities for company to grow to large scale. The research and development mechanism is not proper. The role of government is not conducive for foreign companies and it is fairly difficult to merge or acquire any company in country (Dacri, 2011).

The concluding report regarding ease of doing business in china can be understood with the fact of World Bank. China has a ranking of 128 in starting a business. For construction permits its ranking is reduced from 174 to 179. For getting electricity its ranking has reduced to 121 from 124. For property registration, it has a ranking of 37. For getting credit, it has an improved ranking of 71. For protecting the interest of minority investors it has a poor ranking of 132. For trading across borders country has a ranking of 98 that is not changed from previous year. For enforcing contracts it has a good ranking of 35 and for resolving insolvency it has a ranking of 53 (World Bank Group, 2015).

All these factors suggest that China is better than Russia for expanding the business operation. This has drawn on the basis of GDP size and growth, cheap labour availability and second largest retail industry position in the world.

Brazil

Opportunities

The country is the fifth largest country in the world in terms of both population and area. The economy of Brazil is seventh largest economy in the world. The political analysis suggests that it has a stable government now. The growth if middle class is phenomenal and the gap between the rich and poor is declining. The central bank of country has reduced the currency devaluation and has control inflation (Makos, 2014). The foreign and domestic companies are treated equally. Its population is 198.3 million. The GDP is 2.4 trillion. The FDI inflow is 64.0 billion. It has rich resources and strong domestic services sector. The intellectual property rights implementation in the country is good.

Risks

The risks are in terms of economic freedom. The country is the 118th freest economy in the world. There are decline in the investment freedom, monetary freedom as well as management of government spending freedom. The overall score of Brazil for freedom index is below the world average. The inefficiency in regulatory is revealed. The GDP growth is only 0.1 that is lowest against Russia, China and India. The inflation and unemployment rate is high and are 6.2 and 6.6 percent respectively. Country has recently entangled corruption scandals. The incomes per head in Brazil are low and ranks 74th in the world. The inflation rate has further risen and it was 8.1 in 2015. The ease of doing business ranking is 120 out of 183 countries. For starting a business country has a rank of 167. The construction permits ranking is 174. For getting electricity, it has a ranking of 19. For registering property, it has a poor ranking of 139. For getting credit, it has a ranking of 89. For protecting minority investors, it has a ranking of 35. For paying taxes, it has a poor ranking of 177. For contracts enforcement it has a poor ranking of 118. For resolving insolvency, it has a ranking of 55. The time taken for starting a business is 102.5. All these ranking show that Brazil may be an average country for investment purposes. Though the retail industry has done well and the industry has progressed with 11 percent during 2011-2014. There are factors such as strengthening middle class and rising purchasing power of people that have propelled the growth of retail sector. But there are issues such as small GDP size and growth that may limit the potential of company.

India

Opportunities

The legal environment of India is favourable to investment. The government has lifted the FDI restriction in retail sectors. The GDP growth of India is predicted to be 7.4 percent that is highest in the world and it is similar to the China GDP growth. It has 1.7 trillion economies and per capita income has increased to 74,930 rupees. The FDI inflows are 25.5 billion dollars. The demography of India is attractive and 18.1 percent people come from age group of 15-24 and 40.6 percent of people come from 25-54 years. These can be potential target market for retail companies. The political environment reflects that there is a stable government. There are many decisions that can bring in reforms in FDI and repatriation of profit and can reduce the tariff rate. It has good trade relations with Asia, ASEAN and African countries. The economy is dominated by the service sector mainly that has a contribution of 69 percent to GDP in the year of 2013. The contribution of retail and wholesale is also impressive 23 percent. It is the fifth largest economy in terms of purchasing parity. The natural and mineral resources are in abundance. The attractive features of India are independent judiciary system, highly skilled manpower, strong legal and accounting system, free press, and use of English as a main business language. The retail sector of India has offered good promise to investors. The retail sector accounts for over 10 percent of GDP and around 8 % of employment. it is world fifth largest destination for retail space. The overall retail market is expected to rise by 12 percent. The retail spending in top seven Indian cities has amounted to US $57.6 billion and the organised retail penetration is 19 percent. The e-commerce of Indian market is expected to expand over 100 billion us dollars by 2020. There are many international retail companies such as Amazon, Wal-Mart, Tesco and others. There are many initiatives taken by the government such as implementation of GST that makes the movement of goods easier. The government has approved a proposal that reflects that portfolio investment up to 49 percent will not require the approval of government and the resultant effect is that the foreign investment is likely to increase. The large young population, nuclear families in the urban area, increasing working women population and opportunities in service sectors have become catalyst for the retail industry growth in India. The Indian retail industry is expected to rise by 25 percent and may become US$175-200 billion by 2016. The retail industry is growing at over 20 percent per year. The growth in India for organised retailing are due to low share of organised retailing, falling prices of real estate, increase in disposable income of people and customer aspiration and increase of expenditure for Luxury items by customers (Dhanabhakyam, & Shanthi, n.d.).

Risks

The risks are high level of corruption in India that can prevent company to operate there. Also the cultural diversity of India can overwhelm the company and company may not be in a position to understand the different needs of customers completely. The World Bank report about ease of doing business in India makes it unattractive with comparison of Russia and China.

Chosen country and market entry strategy

The retail sector of India is going through transformation (Malyadri & Rao, 2011). The retailing sector is the largest private industry in India (Mundra, Mundrab & Singh, 2013).India shines against china as India has the lowest penetration rate of organized retailing. India has 19 percent of organised retail sector but China has more percentage in organised retailing. That means the Brazil, China and Russia organised retail markets are more saturated than India. The huge population of India and the largest retail stores presence in the world makes it a more viable option for retail business. India has the similar highest growth rate of GDP as China but the property prices are higher and lack of transparency in government decisions is prevalent in China. Also the limited scope of development for foreign companies makes the country less attractive than India. The lack of English speaking people is also an issue company has to face that is not a problem in India. Though the GDP of China is much larger than India but the retail sector particularly makes India a more preferred destination. It has huge GDP and highest GDP growth rate, good infrastructure, rising middle class and young age group that are the potential target for retail company, good stable government, affordable real estate prices, English speaking people, economic labour, skilled people, highest opportunities in retail market as it has the lowest organised retail sector among BRIC countries, good double digit growth of retail sector, good care of minority investors and credit facility to investors. The other countries such as Brazil and Russia have not been considered due to high organized crime rate, corruption, lack of infrastructure but the main reasons are their small size of economy and their disappointing GDP growth rate and their saturated organized retail market that is not developing as per the Indian retail industry that is growing over 20 percent per annum.

Market entry strategy

The company should choose joint venture in to entering the Indian retail market. it is identified by the foreign direct investment report in India that companies have opted for joint ventures and mergers to capture the attention of local markets. This local company can work as a agent to spread the brand name of company to the Indian customers. for entering the market company can utilize the rapid penetration strategy for pricing of the products as the Indian people are price sensitive too and brand loyal. The initial prices of products should be kept low to allure the customers to purchase and there should be discounts offered to the customers by sales promotion and advertising methods. Company has to adopt a polycentric approach or geocentric approach that means the company should understand the needs of the customers properly and offer them customized solutions in terms of products, and services.

For marketing of products company has to take in to care of cultural and economic factors. The languages, literacy and other factors must be taken in to account. In India, reference marketing works so the company should market its products through reference and celebrity marketing. For marketing company should focus on the relationship marketing. The relationship marketing must be established by creating rapport and credibility. For this purpose, company has to partake in social events and sports events particularly cricket and sponsor them to gain popularity. Company has to recruit the people who have good interpersonal, managerial and cultural competency.

For managing the Indian staff, company people have to develop the cultural competency. It is combination of knowledge, attitude and skills (Kathryn, 2011). The cultural competency training can help them to understand the cultural norms and behaviour of Indian people. There are different religions, caste systems, and different ideologies prevalent in India. So developing insights about these can help company to better manage the Indian staffs.
References

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