Friday, September 20, 2013

BRICS Bank and The Cultural Indexes

While browsing the Wall Street Journal, I came across this article BRICS Nations Broadly Agree on Capital Structure of Bank from August 28, 2013.  I did not find the article of great personal interest, but after playing with the link Dr. Z recommended to go along with the chapter 4 study guide, I could not help but wonder how compatible these countries were.  Brazil, Russia, India, China and South Africa... that is a pretty diverse group!  I was curious to see if there were any huge disparities and if anything stuck out. 

You can only compare 3 countries at a time for the indexes so I had to split it up.  Below is the data in graphical and table format.

So, what does it mean? If anything.
  • Power Distance Index (PDI):  Authority orientation. Measures  the tolerance of the power inequality between superiors and subordinates.  Countries with a low PDI score tend to value equality and respect authority based on knowledge and respect.  Countries with a high PDI score are more likely to have a high distrust of others, are more hierarchical in nature and tend to respect authority based on power, social status and manipulation.  Note that the PDI scores of the BRICS countries ranges from a low of 69 from Brazil to a high of 80 from China.
  • Individualism/Collectivism Index (IDV):  Measures preference for behavior that promotes one's own self-interest.  Simply put, a higher IDV means "I" and a lower IDV means "We."  India scores the highest here and China the lowest.
  • Masculinity/Femininity Index (MAS):  High MAS scores mean that the culture is considered masculine. They are driven by competition. Success and winning are important.  Lower MAS scores are considered feminine and the focus is on quality of life and caring for others. Winning is not important.  China has the high and Russia has the low.
So far, nothing is really standing out but things are about to get interesting.
  • Uncertainty Avoidance Index (UAI):  This dimension measures risk orientation.  The higher the UAI (hello, Russia with a 95) tend to be distrustful of new ideas and behavior.  They have higher levels of stress and anxiety and have a very low tolerance for uncertainty.  The rules are very important and they are less willing to take risks.  Countries with a lower UAIs, like China and India, have more tolerance to change the plan or to take a risk.  They also experience lower levels of anxiety and stress. 
  • Long Term Orientation (LTO):  This dimension is related to whether a society focuses on the long or short term.  Based on teaches of Confucius, the higher the LTO, the more the society embraces forward thinking values.  Lower LTO scores mean that a society has a short term point of view and does embrace traditional and forward thinking values.  It is no surprise that China has a very high LTO, 118.  India and Brazil have much lower LTOs (in the 60's) and the data is not even available for South Africa and Russia.  I am not sure why that is.
In conclusion, this little exercise was not nearly as exciting as I thought it would be when the idea was swirling around in my head.  I am a terrible finance student (I hate it) and I have NO interest in banking but, I am smart enough to know that the differences between the BRICS countries UAIs and LTOs, especially, are going to be a challenge to overcome.  According to the WSJ article, which I have strayed pretty far from, there have already been disagreements over funding, management and shares of the bank.  A bank that will have a total capital of $50 billion.  The BRICS countries also need to decide where the bank will be based and whether or not they will seek more developed economies as share holders.  The BRICS bloc hopes that the bank will be an alternative to the World Bank, which is dominated by the U.S.  It seems like these guys have a whole lot to talk about.  They meet again Oct 11-13 and then again at the BRICS 2014 summit in Brazil.  I will be interested to watch how this all goes down!

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