International Business Expansion
International business expansion is accelerated by the development of transportation, industrialization, globalization, multinational firms, and outsourcing. Any country's economic growth is significantly influenced by international commerce, and by advancing and involving international business, a country can broaden its predictions outside of certain limits. Additionally, having access to international trade gives a nation a powerful position in world affairs. As a result, governments are focusing on building infrastructure to promote the expansion of their international trade, and they are eager to form partnerships with other nations to use their comparative advantages and position themselves as major participants in international affairs (Gibson 240).
The BRIC Countries
The abbreviation BRIC stands for Brazil, Russia, India, and China. These countries are considered to be at the same initial phase of advanced economic development. The acronym is sometimes as "the BRICs" countries to include South Africa. Over the past decades, these countries have developed aimed at restricting trade and controlling capital, which they have perfected to protect their local industries from the effect of foreign countries dominance. These policies have also helped the BRIC countries to preserve their investments for foreign exchange. These countries have corporate governance system with varied scopes including legal rights, court system that complement the rights and political system framework that back up the court system (Estrin, and Martha 45).
Policies and Economic Growth of the BRIC Countries
The policies developed by BRIC countries caused alteration of both social and private capital returns, which led to reduced flow of foreign investments. These policies additionally impaired economic growth of all the BRIC countries. Consequently, these countries took some measures to manage the development problems facing their countries. They began to reform and remove restrictions on foreign investments and trade. These measures caused a significant advancement in their economies. Additionally, after experiencing varies challenges and deficiencies of domestic resources to finance their developments, these countries are currently sourcing for financial resources from foreign nations (Klapper, and Inessa 720). Therefore, all the BRIC countries have developed various policies to assist in attracting foreign investments.
Thesis Statement
The corporate governance system of most of the BRIC countries have the potentials of attracting foreign investments. As much as there is no strong laws in China, that protect shareholders and other investors, the country has a system of corporate governance that is best suited to encourage foreign investment that other BRIC countries. This paper will examine how the corporate governance system is the most likely to encourage foreign investment than other BRIC countries. The paper will additionally evaluate how other BRIC countries are able to attract foreign investments.
Overview of the BRIC Economy
Due to large population and remarkable economic growth, rate BRIC countries are turning to "valued place" for foreign investment. "As of 2014, BRICS countries represent at least 18% of the world economy and 3 billion people. BRICS nations' combined nominal GDP is US$16.039 trillion, which is 20% of world GDP, that puts BRICS as economic union in a third place after EU ($17.3 trillions) and US ($16.8 trillions)" (Khan et al., 17). The available combined reserves in the economy of BRICS countries is estimated to be US$4 trillion. GDP growth rate of BRICS economy is getting bigger every year and considering having about 40% of world economy by 2030. BRICS economies posted an average growth rate of 4.11%, which is 2.74% higher than the average growth rate of developed countries (Khan et al., 17). The table below shows the GBD in BRICS countries.
Foreign Investment in BRIC Countries
Foreign investment has the potential of bringing a lot of benefit not only to the BRIC countries but also to the multinational companies operating in these countries. Foreign investment to BRIC countries will provide financial resources, which adds to what these nations already possess (Fan 352). These financial resources comprise creation of employment opportunities, investments and taxes, transfer of some essential aspects such as technology and management expertise and most importantly the practice of corporate governance. Additionally, foreign investment will assist these countries to gain access to varies existing markets around the world; assist in the exploration of natural resources.
Accounting Standards and Economic Growth
Based on the accounting standards, the Brazil, Russia, India as well as China (BRIC) states are in the position to locate their production activities or the business so that they can explore their economies of scale. This is because the market is never a perfect. Additionally, they are able to take advantage of ownership of the incentives from the government (Mishra, and Pitabas 275). The economic approach also helps in dealing with the imperfection in the business within the states that are hosting the businesses or trade. On the other hand, it improves the multinational enterprises in order to internalize the operations within. Therefore, having better accounting standards is a favorable as well as economical way of dealing with services and also that the services are not affected in any way (La Porta, Florencio, and Andrei 298).
Benefits of Foreign Investment in BRIC Countries
Foreign investment has contributed to the growth of the economy of the country that is involved because of the protection as well as having higher returns (Sheth 168). For example, the transfer of various productions to different countries, the countries involved are given the opportunity to access the local market in the foreign country. Therefore, different expenses are reduced and the low-cost labor advantage is allowed and favorable taxes as well as rules and regulations that favor. Additionally, the tax break can be allowed and concessions as well as guarantee because they are seeking to improve the flow of cash. The return is the huge flow of cash and improvement of capital leading to economic growth. Taking much time in the benefits of the importance of the BRICs reduces its growth. This paper will particularly address the benefits, the countries that apply the accounting standards, what agreements and the benefits to the foreign investors respectively.
The Trade and Agreements of BRIC Countries
The trade and corporations as well as the agreements of the BRIC countries enable them to enjoy protections during the investment period. For example, the country that applies the 'what agreement' which is also known as Withholding Tax Agreements (WTA) is an agreement often signed between two countries, which ensures that taxes deducted in one country claiming tax residency are mutually recognized and allowable in another country (Sheth 168).
Work Cited
Black, Bernard S., Antonio Gledson De Carvalho, and Joelson Oliveira Sampaio. “The evolution of corporate governance in Brazil.” Emerging Markets Review 20 (2014): 176-195.
Cheng, Hui Fang, et al. “A future global economy to be built by BRICs.” Global Finance Journal 18.2 (2007): 143-156.
Estrin, Saul, and Martha Prevezer. “The role of informal institutions in corporate governance: Brazil, Russia, India, and China compared.” Asia Pacific journal of management 28.1 (2011): 41-67.
Fan, Ying. “The rise of emerging market multinationals and the impact on marketing.” Marketing intelligence & planning 26.4 (2008): 353-358.
Gibson, Michael S. “Is corporate governance ineffective in emerging markets?.” Journal of Financial and Quantitative Analysis 38, no. 01 (2003): 221-250
Gugler, Klaus, et al., “Corporate Governance and the Returns on Investment”, Journal of Law and Economics (2003).
Hill, Charles WL. Jain. International Business Competing in the Global Marketplace New York: McGraw-Hill Education, 2015.
Khan, Tarequl Islam, Ujjal Barua, and Md Iftekharul Islam Bhuiya. “Brics Economy: An Appealing Investment Opportunity on the International Stage.” (2001).
Klapper, Leora F., and Inessa Love. “Corporate governance, investor protection, and performance in emerging markets.” Journal of corporate Finance 10, no. 5 (2004): 703-728.
La Porta, Rafael, Florencio Lopez-de-Silanes, and Andrei Shleifer. “The economic consequences of legal origins.” Journal of economic literature 46.2 (2008): 285-332.
Mishra, Supriti, and Pitabas Mohanty. “Corporate governance as a value driver for firm performance: evidence from India.” Corporate Governance 14.2 (2014): 265-280.
Sheth, Jagdish N. “Impact of emerging markets on marketing: Rethinking existing perspectives and practices.” Journal of Marketing 75.4 (2011): 166-182.
Trading Economics. Foreign direct investment in 2014. Retrieved September 21, 2014, from http://www.tradingeconomics.com/foreign-direct-investment-net-inflows-percent-of-gdp-wb-data.html
Yaprak, Attila, and Hülya Tütek. “Globalization, the multinational firm, and emerging economies.” Globalization, the Multinational Firm, and Emerging Economies. Emerald Group Publishing Limited, 2000. 1-6.
Appendices
Appendix 1: The speculated comparison of BRICS GDP with World, US and EU’s GDP conducted by Los Angeles Research Group.
“Source: www.laresearchgroup.com”
