The Bank in the Brazilian Market - Term Paper Example

Individual Business Report – The Westpac Group Table of Contents 0 Introduction 3 2.0 Political Environment 3 2 Government stability 3 2.2 Government and contribution 3 2.3 Analysis 4 3.0 Legal Environment 4 3.1 Regulatory framework 4 3.2 Business laws 4 3.3 Labour laws 4 3.4 Taxation laws 4 3.5 Analysis 5 4.0 Economic Environment 5 4.1 Interest rates 5 4.2 Inflation rates 5 4.3 Currency exchange rate 5 4.4 Economic trends/forecasts 5 4.5 Analysis 5 5.0 Socio-cultural Environment 6 5.1 Hofstede’s Cultural Dimensions 6 5.1.1 Collectivism Vs Individualism 6 5.1.2 Power Distance 6 5.1.3 Uncertainty avoidance 6 5.1.4 Quality Vs Quantity of life 6 5.2 Analysis 7 6.0 Technological Environment 7 6.1 Technological infrastructure 7 6.2 Communication networks 7 6.3 Logistics networks 7 6.4 Analysis 7 7.0 SWOT Analysis 8 7.1 Strengths 8 7.2 Weaknesses 8 7.3 Opportunities 8 7.4 Threats 8 8.0 Recommendations 9 9.0 References 9 1.0 Introduction Westpac bank is among the leading banks in Australia. The bank offers a wide range of banking services responding to the needs of individuals, businesses and corporations. The bank is going to enter the Brazilian market. A branch of the firm will open in Brazil. The relevant project will be completed by the end of the year. The employees will be mainly nationals who will be appropriately trained by Australians on the bank’s services and products. The aim of the organization is to continuously develop its customer relationships and its employee relationships (Westpac 2011). Moreover, the bank aims to ‘be a leader in the community’ (Westpac 2011). Current report aims to present the issues that managers in Westpac should take into consideration before the bank enters the Brazilian market. The Hofstede’s Cultural Dimensions model and a SWOT analysis have been employed for presenting the characteristics of the environment in which the specific initiative will be attempted. 2.0 Political Environment 2.1 Government stability The current president of Brazil, Dilma Rousseff, has been the first woman president in Brazil ever. The last elections were held in October 2010. The country is characterized by political stability. During the presidency of the country’s previous president, President Lula, the quality of life of people in Brazil was improved (BBC News 2011). 2.2 Government and contribution The country’s government tries to keep good relations with other states; recently an agreement was developed between Brazil and Germany for the promotion of bilateral partnership and innovation (Federative Republic of Brazil 2011). The last years the Brazilian government tries to improve the quality of life of people and the limitation of poverty (BBC News 2011). 2.3 Analysis Local authorities will provide to Westpac the necessary support, a fact critical for the successful entrance of the bank in the Brazilian market. 3.0 Legal Environment 3.1 Regulatory framework The most important legislative text of the country is the Constitution. At the next level, supplementary laws have the power to regulate important issues; ordinary and delegated laws follow these laws. At the bottom of the hierarchy of laws in Brazil are the legislative decrees (Brazil Government 2011). 3.2 Business laws The Constitution of the country is used, along with the Taxation law, as described above, for regulating business activities across Brazil. The new Civil Code Law 10.406 is the main legislative text regulating the activities of businesses in Brazil (Nogueira 2004). The Law No. 9279/ 1996 is also used in cases that conflicts appear on Industrial property (Brazil Government 2011). 3.3 Labour laws The key legal texts regulating the labor in Brazil is the Federal Constitution of 1988 along with the Consolidation of Labor Laws (C.L.T.) (Brazil Government 2011). 3.4 Taxation laws Taxation in Brazil is regulated by the Federal Constitution (Title VI); additionally, the Law 5.172 (National Tax Code) is applied for any potential issue, which is not regulated by the Constitution (Brazil Government 2011). 3.5 Analysis The Regulatory framework in Brazil regarding the various aspects of business activities can be characterized as quite satisfactory, as presented above. The firm is not expected to face barriers when entering the Brazilian market; at this point, it should be noted that no law seems to exist in Brazil that prohibits to a foreign financial institution to enter the country’s market. 4.0 Economic Environment 4.1 Interest rates The current interest rate in Brazil has been set to 11.5%, following the country’s efforts for controlling inflation (Federative Republic of Brazil 2011). 4.2 Inflation rates In accordance with a report of the Government of Brazil in December 2010, the inflation rate of the country up to the end of 2012 is expected to reach the 4.8% (Federative Republic of Brazil 2011). 4.3 Currency exchange rate As for the 23rd of March 2011, the currency exchange rate is as follows: 1 Brazil Reais is equal to 0.601 US $ (Federative Republic of Brazil 2011). 4.4 Economic trends/forecasts For 2011, the growth of the country’s GDP is expected to reach the 4.5% (Federative Republic of Brazil 2011). For 2009, the GDP in Brazil has been estimated to US $8,040 (World Bank, 2009, in BBC News 2011) 4.5 Analysis The figures related to the financial performance of Brazil, currently and in the near future are quite satisfactory and encouraging. The country seems to have prospects for long term growth, a fact that would be positive for the country in case that its project for entering the Brazilian market will be realized. 5.0 Socio-cultural Environment 5.1 Hofstede’s Cultural Dimensions 5.1.1 Collectivism Vs Individualism In Brazil, collectivism seems to be equally promoted along individualism. More specifically, the development of projects aiming to improve the performance of the economy is supported simultaneously with the business initiatives of individuals; in accordance with the relevant map, Brazil is at average level in terms of individualism, a fact indicating the promotion of joint efforts in social and economic activities. In such conditions, the firm will not face economic or social barriers. 5.1.2 Power Distance Brazil has a high power distance (world map of Power distance) – mostly because of the continuation of the support of inequalities among the population, a problem related with the existence of caste social system. 5.1.3 Uncertainty avoidance Because of the distance between the country of origin and the foreign market, concerns for potential failure may appear. However, these concerns would not be justified taking into consideration the host country’s economic and social status. 5.1.4 Quality Vs Quantity of life People in Brazil live for an average of 70 years – 77 years (BBC News 2011). The annual income of people in Brazil has been estimated – at ‘an average of US $8,040’ (World Bank, 2009, in BBC News 2011), which is a quite low-income indicating high level of poverty. 5.2 Analysis The cultural characteristics of Brazil, as identified through the Hofstede’s Cultural Dimensions model should be taken into consideration when developing the firm’s marketing strategy for the Brazilian market. 6.0 Technological Environment 6.1 Technological infrastructure Efforts are made in Brazil so that the country’s technological infrastructure to be improved aiming to support more effectively the various business activities but also the needs of the public sector. The current status of technological infrastructure in Brazil can be characterized as quite satisfactory; sectors like nanotechnology and biotechnology are currently under development in the particular country (Federative Republic of Brazil 2011). 6.2 Communication networks Phone and Internet networks are developed across the country allowing the communication and the retrieval of valuable information (Federative Republic of Brazil 2011). 6.3 Logistics networks In Brazil, trade has a critical importance for the national economy – supporting, along with services, over the 50% of the GDP (Federative Republic of Brazil 2011). Appropriate logistics networks are in place allowing the development of trade activities in all the country’s regions. 6.4 Analysis The organization will have the necessary support, in terms of the technological infrastructure, communications and logistic networks required for its activities (Capon 2004). Therefore, no operational problem of such kind is expected to appear. 7.0 SWOT Analysis 7.1 Strengths The banking sector in Brazil is highly developed. It should be noted that the correspondent banking system – used extensively in Brazil – reached a growth of 85.5% between 2000 and 2008, a fact showing the prospects of this sector (IFMR 2009). 7.2 Weaknesses In Brazil, banking system has a particular structure. Correspondent banking is used for covering the relevant needs of people across the country (IFMR 2009). The operation of a foreign bank branch could be possibly faced with skepticism, even initially (Henry 2008). 7.3 Opportunities Brazil is among the world’s most rapidly growing economies; in fact, it is included in the so-called BRIC countries (Brazil, Russia, India and China), a group of countries, which face a continuous growth (BBC News 2011). In 2010 the country managed to further increase its job market (Federative Republic of Brazil 2011). The company is also considered as ‘the largest oil producer in South America’ (Federative Republic of Brazil 2011). 7.4 Threats The political, social and economic turbulences worldwide could possibly be considered as a threat regarding the stabilization of the firm’s position in the Brazilian market (Chapman 2006). The ability of the Brazilian government to keep the national market safe from global financial and political pressures would be of key importance for all the country’s industries. 8. Recommendations Because of the lack of stability in the context of the global market, as described above, it is suggested that the amount invested on the relevant project to be kept low; the operation of the bank’s branch for a trial period of 1 year would allow the collection of valuable information on the market’s response but also on the prospects of the firm in the particular market. At this point, the findings of the study of Chen and Liao (2011) should be mentioned; through appropriate empirical research, the above researchers found that foreign banks have more chances to be profitable compared to the local banks (Chen and Liao 2011). On the other hand, the country’s monetary policy should be taken into consideration before deciding to proceed with the particular project (Olivero and Jeon 2011). 9. References BBC News. Brazil Country Profile. 19 March 2011. http://news.bbc.co.uk/2/hi/europe/country_profiles/1227110.stm Brazil government. Brazil laws. 2011. http://www.v-brazil.com/government/laws/ Capon, Claire. 2004. Understanding organisational context: inside and outside organisations. Essex: Pearson Education. Central Bank of Brazil. 2011. http://www.bcb.gov.br/?ENGLISH Chapman, Robert. 2006. Simple tools and techniques of enterprise risk management. West Sussex: John Wiley and Sons. Chen, Sheng-Hung and Liao, Chien-Chang. 2011. Are foreign banks more profitable than domestic banks? Home- and host-country effects of banking market structure, governance, and supervision. Journal of Banking & Finance. 35(4): 819-839. Federative Republic of Brazil.2011. http://www.brasil.gov.br/?set_language=en Henry, Anthony. 2008. Understanding Strategic Management. Oxford: Oxford University Press. Hofstede’s Cultural Dimensions. 2011. http://www.kwintessential.co.uk/intercultural/dimensions.html IFMR. 28 July 2009. Correspondent Banking in Brazil. http://ifmrblog.com/2010/07/28/correspondent-banking-in-brazil/ Nogueira, Danilo. 2004. The Law of Business Organizations under the New Brazilian Civil Code. Legal Translation. Vol 8, No 1. http://translationjournal.net/journal//27brascorp.htm Olivero, Maria, Li, Yuan and Jeon, Bang. 2011. Competition in banking and the lending channel: Evidence from bank-level data in Asia and Latin America. Journal of Banking & Finance. 35(3): 560-571. Westpac bank. 2011. http://www.westpac.com.au/about-westpac/ Read More