Markets with Strong ‘Soft Power’ Brands Attract Greater Share of FDI

May 31, 2012 /

Ernst & Young has launched its Rapid Growth Market Soft Power Index, in conjunction with the Moscow-based SKOLKOVO Institute for Emerging Markets Studies which shows that countries with strong “soft power” brands attract significantly more foreign direct investment (FDI).

At its core, soft power is defined as the ability to shape the preferences of others by possessing intangible assets such as an attractive personality, culture, political values and institutions and policies that are seen as legitimate or having moral authority. The Rapid Growth Soft Power Index consists of three criteria: integrity, global integration and image.

Although year-on year changes do occur in the rankings, the absolute changes are not large, demonstrating that a strong power brand typically takes many years to acquire or lose.

Alexis Karklins-Marchay, Co-leader of the Ernst & Young Emerging Markets Center says, “Several recent trends have made the deployment and use of soft power critical and it is no surprise that the BRIC countries dominate this index. Firstly, the recent rapid growth of the emerging market economies; and secondly the issue of soft power has become vital as countries compete to attracting foreign direct investment.

“Soft power has gained widespread currency and is now regarded as an important and comprehensive indicator of national strength. In addition, soft power is essential in raising and reinforcing a nation’s brand.”

Rapid Growth Markets vs the G7s

Using the identical variables and weights as those used for Rapid Growth Markets, soft power was calculated for each of the G7 nations.  The US dominated the index with a considerably margin of almost 40 index points from France which was ranked second, followed by Germany and the United Kingdom. The G7 nations rank significantly higher than emerging markets although the gap is decreasing when compared to Japan and Italy.

According to the Index, China leads the emerging market economies, followed closely by India, Russia and Brazil and Turkey. The economies of emerging Eastern Europe comprise the largest number (10 countries) in the top 20; while Central and South America combined have only five. Africa has just one country represented, South Africa, which is ranked in seventh position.

Karklins-Marchay concludes, “Today’s economic and political environments are fluid. If the decline of the West is faster than anyone expects, rather than slow and relative, then the shift in soft power toward the developing world may be faster than anyone has anticipated.”

 

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