Asiaphoria and Business
Instructions:-
Q.2 Do you agree with the argument of Pritchett and Summers? Is it compatible with the BRICs thesis? (300 words)
Q3. Assuming it is true, what are the implications of the Asiaphoria argument for P&G? How should this firm adjust its strategies in light of the arguments of Pritchett and Summers?
Your answers should be fully and properly referenced. You should include a bibliography. You can download the Asiaphoria paper here:
http://www.ksg.harvard.edu/index.php/content/download/70877/1256318/version/1/file/mrcbg _fwp_2014-4_Summers_Asiaphoria.pdf
APPENDIX A
Your description of P&G should be based solely on the 2016 annual report. No additional empirical research is required.
Solution
Asiaphoria and Business
Two leading economists, Lant Pritchett and Larry Summers argue that there are credible reasons as to why countries like China and India may grow slow that it was earlier predicted. Most of the business analysts and forecasters miss discontinuities by solely making conclusion using growth figures from the past. This is because; an unusually rapid growth rate can hardly maintain that exponential curve of growing (Summers and Pritchett, 2014). Consequently, the main practical trait for economic growth is regression to the mean. In addition, democratic reforms can reduce growth significantly, for example, the countries that still grew slower even after democratizing. Such emerging countries, which show a good economic potential, tend to have a rapid growth rate but it is always short-lived (Hubbard, 2014). Summers and Pritchett have concerns regarding as to whether Asia will manage to uphold being the powerhouse of world economy. Asiaphoria is blinding the region’s long-term prospects and they cannot accept that China will slow down just like the earlier rise of Japan in 1960s (Fensom, 2014).
The 6% per year growth rate of China over the coming years would definitely bring drastic changes in the global order (PWC, 2015, p.1-4). Therefore, a lower economic growth for China can reduce the capacity that the country has in enhancing its international projection as well as decline. However, I agree with Summers and Pritchett’s argument concerning the slowdown of these countries’ growth rates because they have unprecedented growth rates. Additionally, these countries have weak institutions and organizations for policy implementation hence they are at risk of having a sudden stop in their growth rate. This article is not compatible with the BRIC Thesis because the thesis states how the member countries of the BRIC will dominate the world economy due to their rapid economic growth by 2050 (Mpoyi, 2012, p.36). Jim O’Neill’s argument was because these four countries controlled 8% of the world’s GDP more so for China whose growth was remarkable (O’Neill, 2014).
Sufficiently predicting the odds of China as well as Asia at large while monitoring their long-term growth is an important aspect more so to the policy makers worldwide. This is because it will have effects on the degree of change whereby the global order will go through in the coming years. Many multinational corporations such as the P&G rely their future success on their ability to win upcoming markets. In this case, the growth of Asia has attracted quite a number. However, according to Pritchett and Summers, we should not rely on the economic growth rate of a place in determining whether to exploit a business opportunity in that area. Such corporations tend to project their growth to be in tandem with the emerging markets. However, how much their intention could be clear, results have been mixed such that one cannot predict which way it would go in a decade or more.
With reference to
Pritchett and Summers’ claim, a corporation like P&G needs to come up with
contingency measures. This is meant to ensure that its market in Asia is still
intact despite the uncertainties in economic growth, which is directly affecting
the market growth of any business product. This company can sometimes use the
playbooks that have been successful in other emerging markets. The company uses
a united result of operations, which entail gross margin, net sales, and
selling, general, and administrative costs (SG&A), and income tax. Most of
the products sold are variable in nature and the operating costs focus on the
relative margin rather than the absolute year-over-year changes in total costs.
The driving force for the SG&A is the manufacturing overhead cost as well
as the marketing-related cost, which is variable but there are times whereby
the company can earn some level of scale benefit. The company also plans to
reduce productivity as well as cost savings in areas such as overhead costs,
supply chain, and marketing (P&G, 2016, p.16).
Bibliography
Fensom, A. (2014). US Economists Warn on China, India Growth Slowdown. The Diplomat. Available at http://thediplomat.com/2014/10/us-economists-warn-on-china-india-growth-slowdown/ (Accessed on 28 February 2017).
Hubbard, P. (2014). Asiaphoria or Asiaphobia? Available at http://www.eastasiaforum.org/2014/12/14/asiaphoria-or-asiaphobia/ (accessed on 28 February 2017).
Mpoyi, R. (2012). The Impact of the “BRIC Thesis” and the Rise of Emerging Economies on Global Competitive Advantage: Will There Be a Shift from West to East. Journal of Applied Business and Economics vol. 13(3). Available at http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.929.91&rep=rep1&type=pdf (Accessed on 28 February 2017).
O’Neill, J. (2011). Jim O’Neill: Welcome to a future built in BRICs. The Telegraph. Available at http://www.telegraph.co.uk/finance/financialcrisis/8900851/Jim-ONeill-Welcome-to-a-future-built-in-BRICs.html (Accessed on 28 February 2017).
P&G. (2016). P&G 2016 Annual Report. Available at http://www.pginvestor.com/interactive/newlookandfeel/4004124/2016_Annual_Report.pdf (Accessed on 28 February 2017).
PWC. (2015). The World in 2050: Will the shift in global economic power continue? Available at http://www.pwc.com/gx/en/issues/the-economy/assets/world-in-2050-february-2015.pdf (Accessed on 28 February 2017).
Summers, L., and Pritchett, L. (2014). Asiaphoria Meets Regression to the Mean. Available at https://www.hks.harvard.edu/index.php/content/download/70877/1256318/version/1/file/mrcbg (Accessed on 28 February 2017).