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BRIC: Promises and Caveats

By: Irina Barbalova, Euromonitor International
Posted: November 5, 2008, from the November 2008 issue of GCI Magazine.

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However, expansion in China is not without risk. Rapid growth and increasing inflation have led to concerns that the economy may overheat and fall into recession. There is also the ongoing challenge of low penetration rates and a polarized population.

The Future of BRIC

While each of the BRIC countries is expected to continue showing strong growth well above the predicted world average, it must be noted that, across the board, their growth is set to slow. The long-term dominance of BRIC is by no means a certainty, and each of the countries presents fundamental difficulties to manufacturers looking to sustain earlier levels of growth.

All currently have a large income disparity, poverty in rural areas and poor infrastructure, which will continue to be a problem for the foreseeable future and hinder market development. Furthermore, the rise in living standards and disposable income, which is currently underpinning the booming sales, will eventually bring about a rise in production and marketing costs and diminish the factors that made the economies so attractive in the first place.

The BRICs will remain the powerhouses of the global beauty market in the coming years and, for most major multinationals, the risks they present are still well worth taking. The extent to which these markets will be affected by the global economic slowdown is likely to be far weaker than in Europe and North America. Many international producers have made further investments in the BRICs recently in the hope for more growth opportunities. Estée Lauder’s ongoing outlet expansion in India and its recent purchase of Forest Essentials, for instance, are indicative of the company’s commitment to the country and its attempts to compete in the current economic climate.

Nevertheless, much economic growth in these markets has been driven by manufacturing and service industries consumed by ‘Western’ economies. A fall off in demand for these industries will indirectly affect consumption patterns in emerging markets to a certain extent. Nonetheless, the consumer bases are so much larger and the markets so much more immature that the cosmetics and toiletries markets remain full of potential.