Rivers Australia in Brazil - Case Study Example

Rivers Australia in Brazil 0 Introduction Today the Federative Republic of Brazil is, according to Cora Malinak (2009), the fifth largest economy in the world and the strongest economy of Latin America. Therefore, Brazil seems to be a good choice of a new market to enter for Rivers Australia, an Australian national retailer of clothing and footwear. The company sells clothes and footwear in Australia, and is one of the largest retailers of the country. The final product will be manufactured in Australia and exported to Brazil, then sold by Brazilians trained by Australians. This report is to present the major peculiarities of the Brazilian market, and retail market in particular, a SWOT analysis of the company, and recommendations regarding the planned foreign market entry. 2.0 PESTL Analysis 2.1 Government stability 1988 is the year when Brazil was proclaimed a democracy (Portal Brasil, 2010). Since then the country has been developing as a federal presidential representative democratic republic. 2.1 Government and contribution Bralizian government encourages foreign companies and investors to enter Brazilian market. This has lead to the growth of the country’s economy. Registering a business in Brazil is a very simple and easy process (Alston, Eggertsson and North, 1998, 96). Still, Brazil is the country where having personal contacts with people working within the system is often crucially important for managing a business. 2.2 Analysis Since Brazilian government is eager to cooperation with foreign companies, Rivers Australia is not likely face any negative circumstances when entering the market. Relatively low fixed entry costs is a positive peculiarity of the Brazilian market is (Alston, Eggertsson and North, 1998, 105). 3.0 Legal Environment 3.1 Regulatory framework A negative feature of the state is insecurity of orders – quantity of the good to be supplied, for instance, may be being negotiated up until the actual delivery. Therefore, in Brazil it is less risky to sell at own shops or selling only noncustomized items from stock (Alston, Eggertsson and North, 1998, 117). 3.2 Business laws Consumer Code of Brazil has strict regulations regarding goods’ quality, customer service and warranty. Brazilian offers to foreign companies certainty regarding enforcement of foreign arbitration awards in Brazil (de Cunto, 2009). 3.3 Labour laws The labour laws of Brazil state that a maximum working day last no more than 8 hours. A person may work 44 hours a week. Each employee should be provided with social security insurance and work accident insurance. Men may retire when after they have worked for 35 years, and women - for 30 years. 3.4 Taxation laws Three types of import taxes are to be paid by the company when bringing goods into the country. They are the import duty, the industrialized product tax, and the merchandize and service circulation tax (U.S. & Foreign Commercial Service, 2009). 3.5 Analysis According to US & Foreign Commercial Service (2009), Brazilian market is commodity-driven. Still, high import taxes make consumer prices about 200% higher in some cases. In addition, uneven income distribution is another market challenge. Due to legal formalism of the country, much time and effort of the company should be continuously devoted to compliance with government regulations (Alston, Eggertsson and North, 1998, 110 4.0 Economic Environment 4.1 Interest rates The maximum Interest rate in Brazil is 11.75%, as Trading Economics (2010) informs. 4.2 Inflation rates The same source reports that the inflation rate was 6.01% in February 2011 (Trading Economics, 2010). 4.3 Currency exchange rate ($) The official currency of Brazil is Brazilian real. 1 BRL exchanges for 0.60 Australian dollars. 4.4 Free-market/command /mixed economies As for the economy in general, Braziliaen economy is a free-market mixed one. Brazil is a moderate free market and export-oriented country. 4.5 Economic trends/forecasts The economy has been showing steady growth recently: performance increased by 7.5% in 2010 (U.S. Department of State, 2010) and continues to grow. 4.6 Tax policies The tax policies of the country are defined by the state constitution. The corporate tax rate in Brazil is 34% (EzineMark.com, 2010). Personal Income Tax makes 15-25%. Goods and service tax rate vary from 7% to 25%. 4.7 Analysis According to Bharat Book Bureau (2008), the Brazilian retail market is one of the most rapidly growing ones of the country and one of the largest retail markets of the world. A favorable stage of development, when the market is not oversaturated with similar goods of the rivals, makes Brazilian retail market a very good potential choice for expanding a large retailer’s business internationally. 5.0 Socio-cultural Environment 5.1 Hofstede’s Cultural Dimensions 5.1.1 Collectivism Vs Individualism Brazil is more collectivistic and individualistic. However, the level of individualism is increasing with time. 5.1.2 Power Distance It can be said that less powerful members of Brazilian organization are used to the fact that power if distributed unequally. So, Brazil is a country with high power distance. 5.1.3 Uncertainty avoidance Brazilian society has a relatively low level of tolerance to uncertainty. For this reason and in order to lower the levels of uncertainty Brazilian laws are rather strict. 5.1.4 Time orientation Brazilians are more attached to short-terms goals, because the process of reaching short-term goals is easier to control. 5.1.5 Quality Vs Quantity of life Brazilian nation is the one that values personal relationships above everything else. At the same time, material goods are valued as well. 5.2 Analysis Brazilian business relationships are based on personal contacts. Therefore, it is highly recommended to visit potential business partners in person before deciding to conduct business. Furthermore, a qualified local agent or distributor might be of a great help. Good alternatives are an office or a joint venture in Brazil. 6.0 Technological Environment 6.1 Technological infrastructure Brazil is the country, the technological infrastructure of which is the best in Latin America. It can provide the facilities for manufacturing in case Rivers Australia decides to manufacture goods in Brazil. 6.2 Communication networks Brazil is now the most promising internet market of Latin America (U.S. & Foreign Commercial Service, 2009). Electronic commerce is becoming more popular, and the estimated growth for 2009, for example, was 45%. So, along with phones, internet is one of the greatest communication networks of Brazil. 6.3 Logistics networks The majority of Brazilian citizens live in urban areas – large cities – that have no significant problems with transportation. Airports, railroads and roads are the major logistics channels for delivering goods in Brazil. 6.4 Analysis Brazilian technological environment is developed enough to provide Rivers Australia with an opportunity to manufacture clothing and footwear in Brazil in case the company decides to do so. Since the logistics network is very well developed, River will have no problems exporting goods into the country and distributing them further. The rapidly developing Internet communication channels will allow launching a successful online business. 7.0 SWOT Analysis 7.1. Strengths The company is well-known for the high quality of its goods. Furthermore, the company has a well-established online presence due to its Internet store (Rivers.com.au, 2011). Therefore, Rivers is likely to become a visible player in the Brazilian retail market: there are only three large competitors in Brazil: Brazilian Pão de Açúcar, French Carrefour and US Wal-Mart. (Bharat Book Bureau, 2008). 7.2 Weaknesses While buying via the Internet is a quite common habit of Australians, Brazilians still prefer to pay cash (Global Intelligence Alliance, 2010). Therefore, either more emphasis should be put on physical sales, or a special strategy for online stores should be developed. Still, teaching people to shop online and making the consumption move to the Internet may make Rivers the greatest online merchant of Brazil. 7.3 Opportunities It should be remembered that Brazilian retail market is still developing and growing. The market is only shaping and structuring via companies going through mergers and acquisitions. It is important to enter the market, if such a decision is taken, quickly, and create a vast chain of distribution channels. 7.4 Threats Brazil is the country with high taxes: the tax burden reaches 36.54% of Gross Domestic Product (GDP) (La Motta Araújo, 2011). That is a problem for a retailer – high taxes increase prices and, as a result, may lower sales. Another potential problem is a relatively strict Consumer Code of Brazil. Brazilian customers are to be guaranteed after-sales service, long warranty periods and extended return rights. 4. Recommendations To sum up, while Brazilian retail market seems to be a rather attractive choice, there is a great number of concerns to be thought over. The scope of the given report does not allow to perform an in-depth analysis of the situation. However, the major peculiarities have been identified: Building personal relationships is a key to building a business in Brazil. Effective entry would require some investment and, of course, establishing a branch office in Brazil. High taxes may influence the pricing, so this issue should be examined deeper. Consumer Code of Brazil has strict regulations regarding goods’ quality, customer service and warranty, so it should be analyzed well for the company’s procedures to comply. References Alston, L., Eggertsson, T. and D. North. 1998. Empirical studies in institutional change. Cambridge University Press. Bharat Book Bureau. 2008. “Opportunities in Brazil Retail Sector (2007-2011)” Press-release. http://www.prlog.org/10046419-opportunities-in-brazil-retail-sector-2007-2011.html (accessed March 19, 2011). de Cunto, R. 2009. “The evolving Brazilian legal environment: bridging the gap to the future” Pinheiro Neto Advogados. EzineMark.com, 2010. Brazil Tax, Law and Business Briefing. http://business.ezinemark.com/brazil-tax-law-and-business-briefing-16b0697f2f4.html (accessed March 19, 2011). Global Intelligence Alliance. 2010. “Six Trends that will Shape Brazils Consumer and Retail Market” Bulletins. La Motta Araújo, M. 2011. Brazils Retail Market. Davenport Lyons. Malinak, C. 2009. Doing Business in Brazil. London: Communicaid Group Ltd. Portal Brasil, 2010. “Citizen: Constitution” Brasil.gov.br http://www.brasil.gov.br/sobre/brazil/citizen/constitution-1/br_model1?set_language=en (accessed March 19, 2011). Rivers.com.au. 2011. Clothing & Footwear Merchants. http://www.rivers.com.au/ (accessed March 19, 2011). Trading Economics, 2010. Brazil Interest Rate. Tradingeconomics.com. http://www.tradingeconomics.com/Economics/Interest-Rate.aspx?Symbol=BRL (accessed March 19, 2011). U.S. & Foreign Commercial Service and U.S. Department of State. 2009. “Doing Business in Brazil: 2009” Country Commercial Guide for U.S. Companies. U.S. Department of State. 2010. “Background Note: Brazil” State.gov. http://www.state.gov/r/pa/ei/bgn/35640.htm (accessed March 19, 2011). Read More