BRICs Up Ante For Control Of 21st Century Board Room

Dec. 8, 2006
In the next three years 71% of companies plan to do business in the BRIC countries.

Driven by an era of unprecedented growth, Brazil, Russia, India and China are now leaving their mark and raising eyebrows on the world stage through a series of massive corporate takeovers. Multi-billion dollar offers from Sao Paulo, Moscow, Mumbai and Shanghai for global companies are no longer uncommon, forcing their leaders to rethink diplomatic ties to ensure their cherished growth prospects are realized.

Earlier this year a series of surveys released at the World Economic Forum in Davos found the global economy rests increasingly on the club of four emerging giants, collectively known as BRICs. More than 1,400 executives surveyed by PriceWaterhouseCoopers found 71% of companies planned to do business in at least one of those countries within the next three years. China topped the list.

Increasingly these four -- who stand out as the world's major leading developing countries primarily because of their population size -- are turning the tables and investing abroad in prime assets. This was highlighted recently by the battle of the steel producers. Control of Anglo-Dutch steelmaker Corus is up for grabs with Companhia Siderurgica Nacional (CSN) of Brazil bidding $10.1 billion and trumping a rival offer by India's Tata of $9.8 billion. The offer came after Brazilian mining giant CVRD won control of Canadian group Inco in October, creating the world's second-biggest miner in a $15.8 billion deal.

Russian steel producer Evraz has announced it will acquire U.S. competitor Oregon Steel for $2.3 billion as a base for expansion into the US. Meanwhile, Severstal, Russia's second biggest steelmaker, is reportedly hoping to buy US Steel and merge Russian mining companies Gazmetall and Metalloinvest.

"Russia, Brazil and India are buying industrial assets in rich countries at a time when industrial countries are leaving manufacturing," Charles Robertson from ING Bank in London said. He said manufacturing was no longer considered value-added work in the West where firms are moving towards ever more into services and this gives firms from emerging economies more room for maneuver.

For resource rich countries like Russia and Brazil, their ability to spend has dramatically improved with the boom in commodity prices. "Russia has become immensely richer thanks to the rise of oil and commodity prices. That now allows steel companies from Russia, and also from India or Brazil to spend much more money in acquisitions," Robertson said. In 1999, the Russian economy was worth $200 billion and ING expects Russia to become a trillion dollar economy next year, the 10th of its kind in the world.

Chinese takeovers have been more diverse, buying-up strategic stakes in U.S. banks and computer makers, European home appliance and agriculture groups, and Canadian traded oil assets in Kazakhstan.

However, energy supplies are most important to China and India, and success or failure in the board room battles will test whether Chinese President Hu Jintao was right when he declared in November: "The 21st century will be Asia's." China National Offshore Oil Corp (CNOOC) was forced to abandon an $18.5 billion bid for the California-based Unocal group after political obstacles in Washington, sparking accusations that Beijing had failed to properly assess the political risks.

While there may be further such setbacks, it is highly unlikely that the tide can be turned and in many respects that may not be a bad thing for the global economy as a whole as the emerging economies take up any slack left by the United States and the other developed countries. "The BRIC (nations) have a much stronger influence than we have realized," Jim O'Neil, head of global economic research at Goldman Sachs, told the World Economic Forum meeting in Davos, Switzerland. "The chances of some kind of (global economic) collapse are actually really low and that's one of the benefits of not being a democracy," O'Neil said, referring specifically to China.

Copyright Agence France-Presse, 2006

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