The Political and Economic Risk of Investing in BRIC Countries

The BRIC countries refer to a group of developing countries with an excellent demographic nature that offers a promising emerging market. The BRIC countries include South Africa, China, India, Russia, and Brazil. The economy of the BRIC countries is promising with a high potential for growth, and these economies have been ranked as the most significant economies in the world, and the most influential world economies in the 21st century (Fasano, & Galloppo, 2015). These economies contribute over 25 percent of the global gross domestic product (GDP). However, these countries are facing political and economic risks which have a high impact on the market growth.

Political and economic risk a corporation may face when investing in a BRIC country

Political risk refers to the problems faced by corporations, and government because of change in political decisions, conditions or event which alter the economic value and ability of business to achieve their set objectives. The political risk such as political interference, political violence, and sovereign non-payment has to lead to a weaker business environment for operations in BRIC countries (Fasano, & Galloppo, 2015).

Political violence which interferes with a country’s economic system. China has faced increased political violence that has made a severe impact on economic growth. Political violence influences the economic policies of a state, and this leads to economic sluggishness. Some of the strategies that may negatively affect business include, tariffs, trade quota, and other trade barriers that may limit trade. Further, terrorism and territorial disputes and ethnic conflict may add to political violence. 

  Political interference from the government that may affect trade and business performance. For instance, the government may increase tax for the foreign investors and firms operating in their country, and this may substantially impact on business profitability. Moreover, a corporation may face corruption while investing in a BRIC country where some business may have favorable terms. Due to political interference, strikes have been witnessed in South Africa which have an enormous impact on the countries economy and investments (Fasano, & Galloppo, 2015).  

Investors hold sovereign risk when investing in a foreign country that arises when a foreign state fails to comply with the payment agreement made. Noncompliant results in sovereign debts that influence business operations.

Economic risks arise due to changes in government regulations and exchange rates in a foreign country hence affecting the investors. The fluctuation in the rate of an exchange influences the market. The volatile nature of the domestic price of trade expose risk to investors and hence impacting sales and revenues earning for the companies. Further, changes in the interest rates present dangers to corporations operating in a foreign nation.

Cultural factors that may impact on the role of a corporation’s manager in these nations 

Cultural backgrounds differ from one manager to another and culture impacts both on personality difference as well as business difference. Culture influences the negotiation process of the managers, and due to cultural differences, each manager has his viewpoint (Avdasheva, 2018). Depending on the culture, a contract can be sealed in a written agreement or verbal agreement and hence the need to adopt the lifestyle of the region. Moreover, culture impacts on the mode of communication, and this explains why some managers such as Americans value direct contact with a high emphasis on gestures. Nevertheless, culture influence managers value and sensitivity to time. For instance, when dealing with German delegates punctuality must be upheld (Avdasheva, 2018).   

In conclusion, investing in BRIC countries exposes the investor to political and economic risks which must be analyzed before investment. Further, a manager in a new region needs to adapt to the cultural differences in the new business environment. Otherwise, they will be frustrated.

References

Avdasheva, S., & Radchenko, T. (2018). Remedies in BRICS Countries. Oxford Scholarship Online. doi:10.1093/oso/9780198810674.003.0009

Fasano, A., & Galloppo, G. (2015). Active Investing in BRIC Countries. Procedia - Social and Behavioral Sciences, 213, 448-454. doi:10.1016/j.sbspro.2015.11.432