The World Bank’s predictions of a ‘perfect storm’ in 2016 as growth slows in the so-called BRICS (Brazil, Russia, India, China and South Africa) economies may be overstating the case, say the business people who deal with each nation’s challenges every day.
According to Odgers Berndtson’s senior partners in each of the BRICS countries, business leaders have remained upbeat, if cautious, about the prospects for investors into their respective economies.
Those seeking exponential growth won’t find what they’re looking for, but the BRICS nations still operate with a dynamism that developed countries would envy.
BRICS might have been a useful acronym to band up-and-coming economies together, but it’s the differences that can determine where money may be made – or lost. By the World Bank’s own forecasts for the year ahead, China’s growth could slow but India will continue to expand. Recessions in Brazil and Russia will bottom out, while Africa as a whole could pick up to 4.2 per cent growth in 2016.
But can the BRICS economies still fuel global trade and growth? Expectations may have to be lowered, but as the World Bank’s president Dr. Jim Yong Kim has indicated, the benefits from reforms to governance and business conditions in developing countries could help offset the effects of slow growth in larger economies. Growth forecasting is never an exact science, more a fine art, so should the mood in each BRICS nation be the key to where – and why – to invest?
Odgers Berndtson Ademar Couto’s prognosis for Brazil might be contrary to that of the naysayers. At the time of writing Michel Temeris had taken over the interim presidency while the legislature decides whether or not to impeach president Dilma Rousseff. Couto believes the volatile political situation can be viewed positively. “This is good for Brazil. We are doing something that needs to be done and will lead to a new start.” The will to root out corruption and impose jail terms on the corrupt is setting the tone for the future of the economy – a better future. Yes, commodity prices have slumped and the economy slowed to standstill, but that’s no reason for pessimism, in his view.
“It may not be growing right now, this year, but it will grow in years to come and when things are going badly, that’s when you can buy at the best price and make the best deals,” he says, pointing out that the strong US dollar against the Real offers the perfect opportunity for foreign investors.
Couto highlights what the government has done well over the last 10 years – literacy and numeracy have been extended to around 95 per cent of the population; construction work, driven by the 2016 Olympics, has improved the infrastructure, mainly around Rio de Janeiro, but the skills learned and the investment made have had a wider effect.
All this political turmoil and economic uncertainty doesn’t alter the fundamental pillars that promise growth to companies prepared to invest in the country’s future.
“We have great universities that are considered among the top in the world and lots of talent, not just that graduating out of college, but because, as companies closed, experienced talent was fired,” says Couto, who is currently based in São Paulo, but who has also worked in North America.
Entrepreneurship has run high as a result, but now many of these experienced leaders are ready to assume new positions, he believes.
Couto warns executives new to the country’s ways that they will face challenges unique to Brazil. For example being able to speak Portuguese (or at a pinch, Spanish) is a must.
“I believe that will change, but right now, you need to have some expertise to deal with the ‘machine’ in Brazil,” he explains.
While the notion of the BRICS and emerging economies appeared a few years ago to describe the stage of newly advanced economic development, today the BRICS countries have more differences than things in common, says Roman Tyshkovskiy, managing partner of Odgers Berndtson, Russia.
“Basically we have different natural resources and different political and social attitudes and approaches,” he says. “Each country has chosen its own way of development and today we are at different stages of economic growth: China has already done a lot, India is increasing very fast and Russia still hasn’t fully used its potential. Actually, it means that BRICS countries face the same changes as any other country in the world.”
‘Perfect storms’ and ‘new economies’ make no difference when recruiting executives, Tyshkovskiy believes.
A new economic paradigm
“Companies are looking for top managers capable of taking on the challenge at all times,” he says. “In Russia particularly business depends not only on the local market changes or competitors, but also on the external situation in the world. And there is no possible means of influencing that, so companies always need people capable of achieving goals and smart enough to face any economic situation, political or market challenges.
“Here in Russia we do not talk about a ‘perfect storm’, we consider the current situation as a new economic paradigm. And because of this paradigm companies have begun to reduce their budgets; they have to create ways to find new smart solutions to stay on [top of] the market,” warns Tyshkovskiy.
“First of all, companies start moving to payment by performance and that applies to all business areas. New sophisticated programmes for human capital development are being used for staff instead of dismissal. So Russian business society is changing and this is now becoming a trend,” he says. More and more, companies don’t want to fire people or reduce staff, but prefer to develop them, Tyshkovskiy has found.
“Top executives insist on regular training for middle-management staff so they can assess the rules of the new economy and manage it. And that is what we really are seeing in Russia – while our search business is quite sustainable, our executive development branch is fast-growing,” he says.
India is a bright spot on the BRICS horizon, posting the highest GDP figures within the comparative economies, says Alasdair Spink, managing director of Odgers Berndtson’s India office and head of the industrial practice across its Asia Pacific offices. A drop in oil prices, adoption of mobile technology and a young workforce are all positives.
“Technology in India is used to overcome the issues of poor infrastructure and services. It is even put to use to try and battle corruption by putting government services online,” says Spink. The population has leap-frogged personal computers and laptops in favour of the smart phone, making them among the world’s most connected people. Spink agrees with economists who say India will have the third-largest economy in the world by 2030 but he sounds notes of caution.
“Although it sounds impressive… It still doesn’t mean much if you take purchasing power parity, purchasing per capita.
People are still going to be poor, but they’re going to be less poor.
With 1.25 billion people India is an enormous market especially when you consider 50 of its cities have a population of over one million and it’s urbanising rapidly… it’s all very interesting,” he says.
Prime Minister Narendra Modi is promoting a business-friendly emerging market open to foreign direct investment and, coupled with India’s demographic advantage over other economies – 50 per cent of the population is under the age of 25 and 12 million young people join the nation’s labour market each year – it is already ahead of countries such as China, says Spink.
An embarrassment of talent riches
One of the biggest advantages of developing a worldwide business in India is that educated Indians travel and are international in their outlook.
“The upper tier of the business community do their graduate degree in India and their Masters or MBA overseas – or vice-versa,” says Spink.
“English is the number one language of business in India… All business meetings are conducted in English. Finding mid-to-senior management talent in India is just not a problem, in fact, to a certain extent there’s an embarrassment of riches,” he says, adding that there’s great opportunity for those countries with an Asia and Pacific (APAC) strategy.
Spink is able to reel off a list of past Indian APAC business leaders who have progressed to become global CEOs and predicts their ilk will become the future of world business.
“India has gone through its correction and the next five to 10 years are going to be exciting and dynamic,” he says.
The press consistently discusses the slowdown in China. This is real, but GDP growth is still double that of the best performing western nations. China is predicted to overtake the US as the world’s largest economy 20 years from now, so the long term opportunity for multinational companies (MNCs) is clearly still strong. But some things have changed.
A long overdue crackdown on corruption has resulted in MNCs becoming more cautious to ensure they will not have any compliance issues, argues Mark Braithwaite, Odgers Berndtson’s Managing Director, Asia Pacific.
“This is a serious reality for Chinese as well as for foreign companies.
It has brought caution and contributed to the slowing growth, but is an essential part of China’s evolution and reform on their trajectory to being the world’s largest economy,” he says. “This change ultimately helps MNCs as it helps level the playing field.”
A big push for ‘returnees’
Every MNC cites talent as their biggest challenge in China.
Says Braithwaite: “Over recent years MNCs have had a big push for hiring ‘returnees’ in leadership positions – Chinese executives who have lived and worked overseas, bringing an ability to work seamlessly in a western company, while bridging the gap to the local team.” These people are of limited supply and salary levels have risen to a point that most MNCs are finding it hard to accept, but end up paying anyway.
The second leadership issue MNCs are talking about is that most local Chinese executives have only known the hyper-growth of the last 20 years and are now faced with a tougher market, rising competition and demand for productivity against a backdrop of lower growth.
“There is a new set of demands in terms of the skill sets companies need and the experience is often lacking.
Suddenly the demands are different and we are going through a period of adaptation,” adds Braithwaite.
Smart, driven young people
Braithwaite sees light at the end of the tunnel on China’s leadership talent problem.
“China has a huge supply of smart, driven young people. They are much more international in their outlook and experience than previous generations. I will go out on a limb here and predict that, when the current middle managers in their 20s and 30s have another 10 years’ of experience under their belts, China will be a leadership powerhouse.”
For MNCs, the challenge is to attract and keep these people, because Chinese businesses are now attractive places to work.
We will see more and more of them become global companies, with strong, capable, locally grown leadership.
In the world of business, China is quickly chasing down the developed world.
Through all of the economic reform and talent constraints that face MNCs in China, many are booming and reporting double digit growth, while others are in the midst of transformation projects as they focus on productivity to address a stalled top line. We live in interesting times.
As a latecomer added to the group, South Africa has an appreciably smaller population than other BRICS nations, says Leon Ayo, Chief Executive Officer at Odgers Berndtson’s South Africa office. A relatively young democracy, Ayo feels that South Africa’s situation is similar to that which Germany experienced during the reunification after the Berlin Wall came down.
“South Africa is up there with Brazil in terms of the Gini co-efficient, a measure of statistical dispersion intended to represent the income distribution of a nation’s residents and the most commonly used measure of inequality. There are a lot of issues on a macro-economic scale that affect South Africa,” he says. He believes that in the past the country relied heavily on its natural resources and commodities for growth. Now that corruption is being publicly addressed by the country’s leadership, economic improvements will follow.
World class institutions
“GDP is currently growing at one per cent, better than many countries in Europe – but we could be at least at three to four per cent given the opportunities that we have as an emerging market surrounded by fast growing economies,” says Ayo.
“South Africa has many world-class institutions which are very well regarded internationally – so there’s a lot of sophisticated infrastructure for us to build upon.”
Beyond tackling corruption, the key to South Africa’s future lies in the world-class education offered at business schools such as the University of Cape Town’s Graduate School of Business, the University of Stellenbosch Business School, the Henley Business School Africa and Pretoria’s Gordon Institute of Business Science.
Politically vocal and diverse, the country’s youthful population are also economically active in small, unmonitored businesses as well as on a larger scale.
“The youth at MBA level are as intellectual as any I’ve ever come across,” says Ayo, who has worked throughout Europe and North America.
“The racial lines that separated the country 24 years ago are blurring – so you’ve got Indians, white South Africans, Afrikaners, black South Africans all sharing a common view of what the future could look like – a non-racial society.”
Clearing the visa challenge
Legislation to promote that ideal may currently be inelegant, but the potential within South Africa is enormous, Ayo believes.
Foreign executives who clear the bureaucratic visa challenges to work within the nation find their preconceptions melting away – as Ayo himself did when he was considering his move to South Africa.
“It exceeds their expectations,” says Ayo. “I saw, within 24 hours of my arrival, a place where I could raise my family with a high quality of life, worldclass schools, world-class leisure facilities, and world-class hospitals.
I also saw I could grow a business aggressively because this is still a growing market… People come and want to stay.
“This is a country that – if you get it right – has such potential.” says Ayo.
Leslie Maasdorp, Vice-President and Chief Financial Officer, New Development Bank BRICS
The BRICS countries contribute around 23-24 per cent of the entire global economy and with strong and favourable demographics they will continue to drive such growth, says Leslie Maasdorp, Vice-president and Chief Financial Officer of the New Development Bank BRICS (NDB) – formerly the BRICS Development Bank.
In the past two decades emerging markets have more than doubled their contribution to the world – from around 21 per cent in 1992-93 to just over 40 per cent today.
One of the biggest things exemplifying the faith that this will continue has been the creation of the New Development Bank, the primary focus of which is lending to infrastructure and sustained development projects, backed by the BRICS governments themselves as an alternative to what is seen as the US-dominated World Bank and International Monetary Fund.
The NDB has been set up to foster greater financial and development cooperation among the five nations.
At 6.5 per cent, China’s economic growth remains spectacular in global terms, especially taking into account the country’s large size, Maasdorp points out.
“It is becoming increasingly integrated with the world, so whatever happens in China impacts directly on Europe, the US and large emerging market countries, such as [the others making up] BRICS,” he says.
It’s natural that any slowdown in China’s economy would have a knock-on effect globally, he says.
“China is still the fastest-growing economy by a long shot,” he says, and it is projected to become the biggest economy in the world within the next decade or so.
In the past the buoyancy of the BRICS economies depended strongly on sales of commodities, but the steady drop in the price of these, together with currency depreciation and drought – the latter has created inflation in food prices – have added to the range of challenges affecting emerging economies to a greater or lesser degree.
Yet for all of these adversities the faith in the ability of BRICS nations to maintain or renew their upward trajectory remains strong, as proven by the formation of the NDB.
The bank has started the process of recruiting up to 100 professionals for its headquarters in Shanghai, one of the fastest-growing cities in the world with a reputation for drawing dynamic and talented executives to the heart of its financial district, Pudong.
“The bank is on very solid ground… We are looking for executives who understand the long-term opportunity that emerging markets represent,” says Maasdorp.
These executives will also need to show adaptability to integrate culturally into their new environment.
Maasdorp is seeking executives who are open to develop new ideas while understanding all these factors.
They must focus on clean and sustainable means of economic growth, moving away from the carbon-intensive patterns of past growth, he says.
“As we develop the bank, we want to be at the cutting edge of innovation and adopt new technologies and new innovative ideas that will make us a bank of the 21st century, so innovation is the very important quality that we are also looking for,” he says.
Angus McDougall is the Regional Vice-President of Entrust Datacard Asia Pacific Limited
“We’ve seen a dramatic increase in terms of expense for Indian executives as their skills become in more and more demand,” says Angus McDougall, the Regional Vice-President for Entrust Datacard Asia Pacific Limited.
China represents a different challenge because, after a phenomenal run between 2009 and 2013, the business was hit by headwinds and American presidential candidates threatening sanctions haven’t helped matters.
His company manages billions of secure transactions annually and issues a majority of the world’s financial cards as well as secure identity cards for governments and businesses and employs more than 2,000 people in 34 worldwide locations.
“If you look back at the past 200 years of history you will find there are no winners in trade wars, only degrees of losers,” warns McDougall.
Other market challenges include the ‘Edward Snowden effect’ making Chinese businesses reluctant to invest in US-based technologies and instead favouring local-based organisations.
Technology tends to see a high turnover of talent, which is why, despite its own good track record of executive retention and development, Entrust Datacard has created strategies that include a leadership academy through which high-potential China-based talent spends time in Silicon Valley in the US, and US- and Europe-based talent is brought to China.
Places on the programmes are highly sought-after.
Though McDougall thinks there’s a bumpy ride ahead for business in the APAC region, overall he expects to be more positive at the end of 2016 when the US elections are over.
He sees India as the exception to the gloom, but points out that China enjoys a significant share of the APAC countries’ combined GDP, with predictions that the figure will rise to 51 per cent by 2020.
“So China will be our most critical market going forward.
From our business perspective it is vying with Japan.
Whilst India has the strongest potential for growth, that’s because it is starting from a lower position than either of those two.
We’ve been in Japan for 35 years… we achieve the profitability [there] that we expect to achieve, but it’s low growth.
But in China, with its potential to have the greatest proportion of the overall [APAC] GDP pie, if we don’t execute well it is going to cost us… And that will dictate our future prosperity.”
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