Bric(Brazil, Russia, India, China) overtakes US in energy: Goldman Sachs

United Nations: The main challengers to US economic power—Brazil, Russia, India and China—have overtaken US in dominating the global energy industry, according to a study by Goldman Sachs.

The rising power of the four countries—the new economic tigers nicknamed the Brics’—is already evident in the metals and mining sector and is starting to be felt in insurance and consumer-related industries, said Anthony Ling, a managing director at the investment bank.

“For any company operating on a global scale, world is changing rapidly, more challenging than ever before, truly globalising,” he said, and one of the significant changes is “rise of Bric economies.”

At the end of the first Gulf War in 1991, 55% of the 20 largest companies in the energy industry by market capitalisation were American, and 45% were European, according to Goldman Sachs study. But in 2007, 35% of the 20 largest energy companies are from Bric countries, about 35% are European, and about 30% are American, the study said.

“The US is now lagging with the smallest percentage number of energy companies worldwide,” Ling said. “If you think about the global resource industry typically being a leader in terms of global trends, we’re starting to see this replicated in the mining industry, where 20% of the top 20 companies are now from Bric countries,” he said. “We believe this sort of pattern will be repeated industry by industry.”

It is already evident in the insurance business, where Brics account for about 10% of the top 20 companies, and in the global beverage industry, where the new economic powers are just starting to show with about 5%. Ling predicted the Brics would soon be moving into the food and pharmaceutical sectors.

If investors and corporations don’t take the growing power of the Brics in the global economy into account, he warned, they will lose out on investment growth and competitive advantage for their companies.

Ling, who has been involved in analysing the energy industry for 20 years, said he did not believe anyone polled after the first Gulf War “would come remotely close” to predicting the market capitalisation of the energy industry today. “I think there’s a number of factors, which I think is a very good case study for just how rapidly changing the competitive environment for most industries are,” he said.

Exxon Mobil is still the No. 1 energy company by market capitalisation today, as it was in 1991, Ling said. But he said it is now followed by the likes of PetroChina Co, a unit of state-owned China National Petroleum; Gazprom, the Russian gas monopoly; Petrobras, Brazil’s government-run oil company; China’s Sinopec; Russi’s Rosneft and Lukoil; China National Offshore Oil Corp; and India’s ONGC.

“So you have major state energy companies that have entered the market capitalisation ranks,” he said. “I think it’s a combination of the US energy industry falling dramatically behind the rest of the world for a number of reasons.” First, Ling said, energy production has changed. Goldman Sachs analysed about 170 new projects around the world, each in excess of 500 million barrels, “the socalled legacy assets that will drive production in the future,” he said.

Ling said 70% of that new production is coming from outside the Organisation for Economic Cooperation and Development, which includes the world’s richest nations including the US, Japan, South Korea, Canada, and major European nations.

Fun Business: India and China are driving growth in global media and entertainment

Entertainment could be the best business proposition going. According to a PricewaterhouseCoopers (PwC) report, India and China are set to drive expansion of the global entertainment and media (E&M) industry to $2 trillion by 2011. BRIC countries will be responsible for 24 per cent of this growth, with India and China as the principal contributors.

India’s E&M market is experiencing a tearaway 18.5 per cent annual growth, the highest in the world among major markets. The country is clearly in the throes of a consumer boom. With rising disposable incomes, people have more to spend on leisure and entertainment. An increase in advertising spend, which stands at a mere 0.34 per cent of GDP in 2006, could boost the ongoing expansion of India’s E&M industry, which encompasses newspapers, magazines, TV content, TV distribution, radio, broadband Internet, films, video games, amusement parks and more. Given that India has the potential to become a big E&M player — as it is in IT today — concentrated efforts must be made to make this sector of the economy internationally competitive.

E&M is being transformed by the advent of digital technologies and the PwC report says that half the expected industry growth will be generated through online and wireless technologies. Regulation of broadcasting, cable and Internet distribution networks must take account of technological convergence, thanks to which phone, TV and broadband Internet services can soon be provided together in one gadget. The policy framework must not be biased against any particular media format, and there should be a level playing field between public and private sector players. Piracy also needs to be addressed, for which legislation needs to be beefed up and enough empowered officers deployed in the field to check piracy.

Bollywood will find Hollywood taking the battle to its home markets by dubbing its products in Hindi or other regional languages. Indian movie-makers will have to respond by making films that are internationally acceptable beyond the Indian diaspora markets. Bollywood doesn’t yet have its equivalent of Crouching Tiger, Hidden Dragon, a film made with an international cast of ethnic Chinese actors that grossed $130 million in the US market. When that happens Indian soft power will be a force to reckon with in the world.

Indians head home in 'brain gain'

For much of the last century India suffered a "brain drain". Generations of Indians set off in search of a better life in other countries. Today, an estimated 25 million people of Indian origin live overseas. But could the tide be turning?

"My dad was against me moving back to India," Manish Amin tells me in his new flat in Delhi where he lives with his wife and two sons.

Three decades ago Manish's parents moved from India to the UK. He has just moved back.

"My dad's idea was that everyone wants to get away from India", Manish says. "But now he's seen the big high rise flats, the big shopping malls, even he's amazed. You get Marks and Spencer, Debenhams, everything's here now."

Manish has set up his own online travel company. He's already taking 200 bookings a day.

India's breakneck economic growth seems to be enticing the country's diaspora back to the motherland.

In Bangalore, one of India's booming high-tech centres, an estimated 35,000 overseas Indians have set up home.

In the last few years people born overseas who are able to prove their Indian descent have been able to apply for a special immigration status.

The Overseas Citizenship Certificate provides many of the benefits of full citizenship without the need to give up a foreign passport.

Mr Gurucharan, Joint Secretary in the Ministry of Overseas Indian Affairs, says they are proving popular.

"In the last six months or so we've issued over 40,000 Overseas Citizenship Certificates, and I believe that this trend will grow," he says.

"In the 1960s when people left India the buzz word was 'brain-drain'. We see it now as 'brain-gain'."

Career prospects

India's healthcare system is benefiting. Doctors who have trained in overseas health services are finding faster career advancement.

Dr Shabnam Singh recruits doctors for a private hospital.

"The Indian private sector facilities are at a par, and dare I say it, in some cases better than what is available in the West," she says.

"In the last six years I would say that from a trickle at first there is now a constant flow of people wanting to relocate back home."

The Indian government does not have the detailed figures to prove whether "reverse migration" is increasing at a significant rate.

Many of those applying for the Overseas Citizenship status may simply want the convenience of visa-free travel, without intending to relocate to India.

But there can be no doubt that many young people of Indian origin no longer see the best opportunities as being in the West.

Lifestyle choice

Ferena Scott was born and raised in Glasgow. She now has a successful career as an actress in Bollywood.

"There's something for everyone here," she says.

"And because you have a luxurious lifestyle you can enjoy yourself more."

It is an attraction some find hard to resist. The yawning gap between the new rich and the old poor means the wealthy in India have a very high standard of living.

There is also the emotional bond. Scott says that despite being born in the UK she has always felt a strong tie to India.

"As a young kid in Britain people would look at me and ask me where I was from. I'd say, 'Scotland', and they'd say, 'yes, but where are you really from?'

"Somewhere at the back of your mind you're wondering about this country that your parents came from and wondering if maybe you belong there."

Despite its so-called "economic miracle", India still has shocking levels of poverty, a burdensome bureaucracy and crumbling infrastructure. But many overseas Indians feel the country's time has come.

"When I was young, growing up in the UK, we used to play football in the streets," says Manish Amin.

"Kids can't do that there now. Here though, there's open ground, the kids can play by themselves. I think the main thing for us was just to have that comfortable life here."

India's rise as a manufacturing giant

India Inc is on a roll after a series of recent global mega-mergers and hostile takeovers in the recent past.

Earlier this week, KM Birla's Hindalco acquired the world's largest producer of rolled aluminium products, Novelis, for $6bn.

Before that, LN Mittal - who is based in London but holds an Indian passport - took over the world's largest steel-maker, Arcelor, and Ratan Tata gobbled up another steel manufacturer, Corus, to become the fifth largest producer.

The deals herald the emergence on the world stage of global Indian entrepreneurs in manufacturing, and indicate that India is becoming an international hub for metals, petro-products and auto components.

Global leaders

The rise of the manufacturing giants follows that of services firms, like TCS, Wipro and Infosys, who have all left their mark globally.

Now ambitious Indian conglomerates are thinking of either crashing into the Fortune 500 list, or vastly improving their existing position.

The country's second largest private firm, the Mukesh Ambani-owned Reliance Industries, aims to be among the top 10 in the list.

With Novelis in the bag, Kumar Birla's Hindalco Industries is sure to enter the list, three years ahead of its target year.

Others like Videocon, Moser Baer and Bharat Forge have emerged as global leaders in their respective sectors.

A Boston Consulting Group (BCG) report last May argued that "a revolution in global business is under way", and the axis of corporate power was shifting towards the BRIC (Brazil, Russia, India and China) countries.

It identified 100 new global challengers from these nations, which included 21 Indian firms, including Bharat Forge, Hindalco, Videocon and Tata Steel.

Last year, a McKinsey study found the dynamics in emerging markets like India "actually provide an invaluable springboard" for their companies to go global.

A 2006 study by Mape, an investment bank, concluded "the Indian Multinational Company (MNC) has finally come of age" and "Indian buyers have become a force to reckon with in many industries such as pharma, auto components and oil and gas".

Factors such as liberal policies, access to cash, and the rise of entrepreneurial ambitions are responsible for the emergence of global Indian groups.

At a public meeting a few weeks ago, India's Finance Minister, P Chidambaram, commented that Tata Steel's multi-billion dollar interest in Corus reflected the rising aggression among Indian promoters.

Ratan Tata, who was present, countered that this would not have been possible five years ago because of restrictive policies.

Even as Indians shop abroad, foreigners are eyeing investment potential in India.

Operational incentives

But unlike the 1990s, when global MNCs wished to tap only the burgeoning base of Indian middle-class consumers, they are now planning to take advantage of low costs and widely available natural resources to make India their exports hub.

In steel, Arcelor-Mittal and South Korea's Posco wish to set up a plant producing 10 million tonnes of steel every year in the east of India - for both domestic sales and exports.

A similar trend can be witnessed in other sectors like auto components.

As India plans to build dozens of special economic zones, with a slew of financial and operational incentives, it will attract more foreign investors.

A recent DSP Merrill Lynch study pointed out that Foreign Direct Investment (FDI) inflows to India this fiscal year (2006-07) are likely to overtake Foreign Institutional Investors' investments (FII) on Indian bourses.

Between April and November 2006, India's FDI inflows stood at $7.3bn, a 117% rise over the same period in the previous year.

With foreign money pouring in, Indian firms have no option but to become bigger, better and bolder.

Buy the world

They have to go global and capture new geographical markets.

If the proposed Mittal or Posco plant had come up in India prior to the Tata-Corus deal, Tata Steel would have become a puny player even in the domestic market.

Now, with an additional annual production capacity of 19 million tonnes, Tata Steel can effectively compete with either of them, both globally and domestically.

Other Indian groups like Birla and Dhoot (of Videocon) have realised they have to initiate similar acquisition moves in a bid to survive - and thrive.

Grant Thornton has estimated that while Indian outbound deals, or global mergers and acquisitions, were valued at $4.3bn in 2005, they crossed the $15bn mark in 2006.

In the first month of this year, the two combined deals (Tata-Corus and Birla-Novelis) have been valued at over $18bn.

Indians, it seems, are taking over - or buying out - the world.