Monday, June 3, 2013

China, India, BRICS and Africa

The January/February 2013 Thunderbird International Business Review contains an article titled "Adjusting to BRICs in Glass Houses: Replacing Obsolete Institutions and Business Models" by Raj Aggarwal, Sullivan Professor of International Business and Finance at the University of Akron. 

The article demonstrates the projection of economic power of the new economies by focusing on China's and India's economic expansion in Africa.  The analysis shows that non-economic state-driven entities are likely to be a significant part of the rise of South-South trade and investment flows.  It also poses theoretical and practical problems for existing market-based economic and geopolitical institutions.  It argues that global adjustment to these new realities is challenging as existing international financial institutions seem to be inadequate.

The most original part of the analysis is the author's contrasting approach of India and China to foreign direct investment (FDI) in Africa.  Aggarwal concludes that the tectonic forces of demographics, technology, globalization, sustainability, and climate change are forcing obsolescence in developed country business models and simultaneously leading to the emergence of some large developing economies.  Rising South-South economic flows with their unusual modes have to be accommodated by the existing economic powers--an accommodation that must happen while the global economy also deals with major restructuring of value chains and business models. 

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