Ernst & Young: BRICs face competition

By Rob Starr, Content Manager, Big4.com

According to the Ernst & Young’s annual globalization report, Looking beyond the obvious: globalization and new opportunities for growth, despite weak growth in 2012 and an uncertain economic outlook in many markets for 2013, globalization is still increasing among a majority of the world’s 60 leading economies including the BRICs.

The report draws on two sources of original research: Ernst & Young’s Globalization Index, which measures the world’s 60 largest economies according to their degree of globalization relative to their GDP, and a survey of 750 senior business executives worldwide, conducted in late 2012, canvassing their opinion on globalization.

There are real concerns from the survey respondents that continuing weak growth combined with increased global competition could spark more protectionism in the next 12 months. The respondents also specifically pointed to the increasing challenges of operating in some BRIC economies as well as slowing growth in some BRIC markets.

The Index highlights that non-BRIC rapid-growth markets are emerging as hot spots for global business, thanks to a perception of being more globally integrated on a range of trade, investment, cultural and technological criteria than the BRICs. These markets also show consistently high economic growth close to that of the leading BRICs.

Executives surveyed confirm that North America and Western Europe remain critical to protecting the bottom line. Although new investment in these regions remains patchy, high energy costs, the decline in a labor cost differential between developed and developing markets and shorter product lifecycles are driving global organizations to pursue near-sourcing. In the next three years, the number of respondents who expect to outsource more operational functions to providers in mature markets will rise to 36% from 22% today and the number that plan to near-source previously outsourced activities will more than double, from 14% to 35%.