The rise of the 'Brics'

Silicon
Posted: 2007-12-18 18:13:37

Bric - another acronym every silicon.com reader should be aware of and, no, it's nothing to do with Microsoft or operating systems. It actually stands for Brazil, Russia, India, and China and was coined by the investment bank Goldman Sachs when they published a report titled Dreaming of Brics in 2003. The report was essentially some controlled future gazing, based on economic fundamentals and projections right out to 2050.

At the time, the Brics report really caught the imagination of those of us who have to analyse and comment on the economic development of 'developing' regions. The Brics entered into general use as a term to describe a bloc of formerly developing nations ready to step up and take over the 21st century as their own.

What's the significance of an investment bank coming up with a new acronym, especially when some academics claim they thought of it first anyway? Well, it's a useful way to think about the way the world is changing. The IT industry in India is developing at a rate that is predicted to cool each year, yet it keeps accelerating.

But think for a moment about the bigger picture. What country am I describing if I say that it is the richest in the world, it has the largest military, it is the centre of world business and finance, it has the strongest education system, it has a currency that is the world standard of value, and it has the highest standard of living.

You probably thought of the US, but in 1900 the answer would have been Great Britain. It's a powerful demonstration of shifting empires, the fin de siècle effect that saw the US sweep the UK aside in the 20th century and now will see the US swept aside in favour of the new economic world order.

This century really will be an era in which formerly developing nations become wealthy and dominant - and if you go back in history far enough then people such as the Chinese might argue they are just returning to their rightful place at the top of the pile. This YouTube video should bring the message home.

The Brics region is of course not entirely representative of developing nations becoming wealthy and entering the economic premier league. For a start, it ignores Africa entirely, but it's useful shorthand for considering the way things are changing. The Brics region alone, just these four countries, is more than 40 per cent of humanity.

The combination of these four countries in a theoretical trading bloc would offer expertise in manufacturing and services, along with valuable natural resources such as oil and gas.

But within IT we are already getting used to globalisation. Companies like Capgemini, EDS, IBM and TCS all bid against each other for contracts reflecting a varied heritage from across the globe.

Within IT services the companies from the Brics region are rapidly maturing, with India leading the way but the service buyers have become well aware of the fact they are contracting from company to company, not to a country or region.

The companies springing forth from this region need to be aware that they will eventually live or die based on their quality of service and reputation, just like any other IT service company. The cheap and cheerful offshoring story has already worn thin with Indian service companies and is unlikely to be adopted by other regions as a 'competitive advantage'.

If I have to pick out a key theme for each of the Bric countries, as outlined within my book about the region, then I would suggest the following nuggets:

• Brazilian technology firms are targeting niche areas more aggressively than companies in other regions - perhaps already accepting that they cannot compete on price alone.
• Russia still suffers somewhat from a 'wild east' perception issue among many European and American IT executives.
• Indian service providers are now ready to step into the big league of services, with the first $1bn deal by an India supplier recently signed - however most Indian suppliers are still fairly hopeless at branding themselves as being big league players.
• Chinese companies are looking far more closely at their own market, rather than exports.

Perhaps the largest issue sweeping the IT services industry at present is something that has no respect for national borders - the green agenda.

As service buyers start exploring the idea of carbon neutrality and demand this of suppliers, there will be an immense ripple of change throughout the industry. You can bet that only the nimble suppliers capable of handling these requirements are going to win new business. And where do you think those nimble suppliers are likely to come from?