Telstra as the Perfect Market - Case Study Example

Management: Brazil Report 0 Introduction Telstra is the Australian telecommunications company with headquarters in Melbourne. It is the largest service provider of local and long distance telephone services, mobile services, dialup, wireless, DSL and cable internet access in Australia. (Telstra 2011). From being a telecommunication service provider, Telstra diversified into mobile handset manufacturing as well, selling mobile phones named Telstra Next G. When it enters Brazil, it can export the finished mobile handsets, without the need to establish a manufacturing plant in Brazil. On the other hand, Telstra have to establish administrative set up in Brazil to get the government’s permission to start its telecommunication service. Telstra have been successful in Australia capturing optimum market share. So, Telstra can replicate this success in other markets also, and in that direction Brazil can be the perfect market for its expansion plans. 2.0 Political Environment 2.1 Government stability Although remnants of instability were there, there was progress when Luiz Inacio Lula da Silva was reelected as the country’s president for the second term in 2006, and then the election of his protégé Dilma Rousseff in 2011. He actualized a stable form of government and also launched many pro-business measures, with Rousseff vouching to follow it. 2.2 Government and contribution Immediately after assuming office as part of his second term in 2006, the Silva government launched a new Growth Acceleration Program called the Programa de Aceleração de Crescimento, or PAC. Under this program, the Brazilian government is investing sizable funds to establish infrastructures for the entry and development of businesses. Infrastructures for better transportation, telecom and for power energy are the key parts of PAC. 2.3 Analysis When the political climate of Brazil is viewed from the perspective of Telstra’s expansion plans, it augurs well. Firstly, Rousseff’s stable and investors-friendly government will work as a driving force for Telstra. Importantly, with the government investing optimally as part of PAC in building optimum telecommunication infrastructures, Telstra can effective entry 3.0 Legal Environment 3.1 Regulatory framework Regulatory framework and the resultant powers regarding foreign investment are the exclusive competence of the Brazilian Federal government; and states do not have regulatory powers in this matter. (OECD 1998). Thus, with investor friendly environment prevailing under Rousseff’s regime, the regulatory framework also has been made business friendly. 3.2 Business laws A telecommunication service licence can only be granted to companies existing under Brazilian law, with their principal place of business and administration in Brazil. (Campbell 2007). This law clearly makes it mandatory for the companies like Telstra to establish a local set up or even a subsidiary. 3.3 Labour laws In Brazil labor laws; there are impediments to hiring workers and even more to firing them. (Thomas 2006). The labor code encourages litigation to resolve disputes between the employees and the employers. Use of part-time labor is severely constrained. (Thomas 2006). 3.4 Taxation laws As part of PAC, tax system for business as been further simplified and reduced. “The measures include investment in the creation and repair of roads and railways, simplification and reduction of taxation.” (The President 2011) 3.5 Analysis From the above discussion of the Brazil’s legal environment, it is clear that Brazil has some tough laws. Although, these laws are not disadvantageous, they have to be given a lot more care, for any cell phone company including Telstra to have successful operations. 4.0 Economic Environment (Heading) 4.1 Interest rates (%) The Brazilian Government set the subsidized interested rates at 6.75 percent, with interest rates offered to middle-class producers set still lower at 6.25 percent. (Hrapsky and Ming 2010). These high interest rates and the economic boom are the key reasons for Brazil’s good economic growth. 4.2 Inflation rates (%) Inflation rates in Brazil have reached around 6%, with high local demand leading to more appreciation in near future. “Rising employment and strong domestic demand pushed inflation to nearly 6% in 2010” (US Department of State 2011). 4.3 Currency exchange rate ($) Currency exchange rate used is US$1=R$1.85. (US Department of State 2011). 4.4 Free-market/command /mixed economies Brazil operates mixed type of economy, as it incorporates aspects of both market-centric capitalism as well as socialist process. 4.5 Economic trends/forecasts Today GDP of Brazil is the largest of all countries in America except the United States. The latest global financial crisis had a negative impact on the Brazil’s economy. However, Brazil’s economy was the one of the first economies to stage a recovery, with its GDP growth attaining positive levels quicker than expected. 4.6 Tax policies Tax policies of the Brazilian Federal government under Rousseff are also on the favorable side, with PAC, as mentioned earlier, simplifying the taxation policies. 4.7 Analysis The vibrant and positive economy can aid the cell phone company like Telstra to reach their products and services optimally to the target segment. That is with their high purchasing power, the Brazilians will go for many necessary and materialistic things including cell phones. 5.0 Socio-cultural Environment 5.1 Hofstede’s Cultural Dimensions 5.1.1 Collectivism Vs Individualism Brazil is the home to the largest Catholic population in the world. So, majority of the Brazilians involve themselves in all the Christianity related festivals and events. During the Christmas season only, the sales of many products will reach the top and this includes cell phones. “The competition among the mobile phone operators will heat up this Christmas in Brazil - 38mil cellular users. The expectation is of a 40% growth on sales.” (Cell phone operators 2003). 5.1.2 Power Distance With good employment rate, sizable sections of the Brazilian population are becoming economically well-off and are enlarging the Brazilian Middle-Class population segment. 5.1.3 Uncertainty avoidance Corruption has imbibed a lot in the government circles in Brazil, leading to more breaking of rules and guidelines. So, still there are corruption issues and the entering firms should be careful regarding it. 5.1.4 Time orientation “Brazil is generally classified into the third world according to its economy and infrastructure, but Brazilian levels of cultural sophistication differ very much with the region.” (Hosokawa 2003). Being influenced by the Western culture’s lifestyle, Brazilians dissecting from the past archaic ways are using all the modern gadgets and services. 5.1.5 Quality Vs Quantity of life With economic backing, western influence and the wish to move forward, Brazilians are buying and utilizing many new modern products including cell phones. That is, Brazilians view cell phone as one of the important modern day gadgets and go great lengths to own one, focusing on quality, rather than inferior cheap ones. 5.2 Analysis Brazilians’ collectivism in regards to their buying behavior, accentuation of their purchasing power, their wish to move forward and become modern could make an impact in the cell phone market 6.0 Technological Environment 6.1 Technological infrastructure As part of PAC, the Brazilian government is actualizing optimum telecommunication infrastructures. In addition, the government plans to use state-owned telephone company Telebras to expand broadband Internet access providing both opportunities and also challenges to entering telecommunication companies. (Colitt 2010). 6.2 Communication networks With the government encouraging public-private partnership, there will be business opportunities for the foreign firms while implementing the broadband connections in infrastructure aspects, technical know-how aspects, maintenance aspects, etc. 6.3 Logistics networks Brazil has a wide network of transportation system, providing good logistics for all types of industries including telecommunication major. 6.4 Analysis From the above discussion, it is clear that Brazil can provide apt technological environment and opportunities for Telstra to make optimal entry. However at the same time, with government itself providing internet access, it will create a kind of monopoly and will limit the ability of the Telecom firms to garner new customers. 7.0 SWOT Analysis 7.1 Strengths The company is technologically advanced to back diversification Having operated in an important and diverse market like Europe from 1992, Telstra has good strengths 7.2 Weaknesses Apart from Europe, company has not diversified much outside Australia Some instability in Telstra as it is still downsizing, leading to employment relations issue with the Unions. 7.3 Opportunities Stable government’s initiatives to actualize apt infrastructures Increasing economic status of the Brazilian population has increased their purchasing power. 7.4 Threats Corruption issues Monopolistic behavior of the government in the telecommunication sector 8.0 Recommendations With the Brazilian government providing apt business environment, Telstra with its mobile handsets and telecommunication services can make an optimal entry. Although, it has not expanded maximally, Brazil’s enticing factors can push them to study the market in-depth and then make the entry. It can handle any employee issue by actualizing effective HRM system. While entering, it has to positively as well as ethically handle the corruption issues. By offering quality and effective services, Telstra can handle monopolistic acts of Telebras. So, with Brazilians favoring cell phones as part of their modern lifestyle and has gift items during the festive seasons, Telstra can enter Brazil offering successful Telstra Next G handsets as well as telecom services as a combo package or as independent product and service. References Campbell, Dennis. 2007. International Telecommunications Law, Raleigh, N.C: Lulu.com. Cell phone operators bet on Christmas. 2003. Jornal do Brasil/SABI via COMTEX, South American Business Information. http://www.allbusiness.com/media-telecommunications/9668294-1.html Colitt, Raymond. 2010. FACTBOX-Key political risks to watch in Brazil. Reuters. http://www.reuters.com/article/idUSRISKBR20100701 Hosokawa, Tamiko. 2003. “Food Culture in Brazil – A Wealthy Supply Due to Bountiful Nature and Human Creativity.” Foods Food Ingredients 208 (9): 749-758. Hrapsky, Alan D. and Ming, Priscila. 2010. Brazil Dairy and Products Annual Diary Report. United States Department of Agriculture. http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Dairy%20and%20Products%20Annual_Brasilia_Brazil_11-22-2010.pdf. OECD. 1998. Brazil, Bedfordshire: OECD Publishing. Telstra. 2011. Mediaman. Accessed March 22, http://www.mediaman.com.au/profiles/bigpond.html. Thomas, Vinod. 2006. From inside Brazil: development in a land of contrasts, Palo Alto, CA: Stanford University Press. The President of Brazil. 2011. Accessed March 22, http://www.brazilriodejaneiro.com/president-brazil.htm US Department of State. 2011. Background Note: Brazil. http://www.state.gov/r/pa/ei/bgn/35640.htm Read More