Wine Marketing to Brazil: Market Environment Analysis - Case Study Example

Wine marketing to Brazil: Market environment analysis (Name) (Institution) (Course name) (Course code) (Module) (Instructor’s Name) Date of submission 1.0 Introduction Collette Dinnigan is one of the renowned Australian fashion icons. The brand is named after the founder and designer, Collette Dinnigan. Dinnigan is an Australian fashion designer who specializes in ready to wear fashion garments for ladies and kids. One of the popular brands is the ‘wild hearts’ line of lingerie. The firm runs several stores by the same name in Australia and also through other stores. Its merchandise is also stocked in prestigious stores across the world. The firm has won numerous awards in business excellence and product excellence. Among them are; Louis Vuitton Business Award in 1997, “CLEO and Maybelline” Celebrity Designer of the Year Award in 2004, Harper’s Bazaar best Australian designer award in 2007 and Fashion Excellence Award by the National Retailers Association in 2008. The firm’s fashion items include kids’ clothes, lingerie and general fashion female wear (Collette Dinnigan 2011). The firm is seeking to introduce these fashion items in the Brazilian market. Pending this decision, the firm has to analyze the market environment in the country. This following report thus analyzes the business climate in Brazil to guide Collette Dinnigan in making the decision on whether to venture or not to. The report conducts PESTL and SWOT analysis tests to capture the micro and macro environment. The report also makes recommendations to the firm over the impeding decision of entering the Brazilian market. 2.0 Political Environment 2.1 Government stability Free democracy through regular fair elections after every four years Federalist government with 26 states and numerous municipal authorities Executive is headed by president. The current president is President Dilma Rousseff. Politically stable and a sovereign republic and member of the UN (Sarakiya n.d.). 2.2 Government and contribution Provides essential services such as business regulation Employer Government provides national security within and without borders Levies taxes to businesses and individuals Attracts numerous foreign investors. Rapid appreciation of the currency. Government raised taxes on some foreign investments. Brazilian embassies around the world provide helpful information to interested business investors (DFAT 2011). Uses economic tools such as fiscal policies to influence the economy 2.3 Analysis The government through its different functions and arms maintains an enabling environment for business. Political stability enhances consumer and investor confidence especially under a regime that shows good governance (World Bank 2011). By levying taxes (by the three levels of government) on the people and business, it adds costs to businesses, lowers disposable income on consumers but uses the funds to provide essential services such as transport infrastructure and also employs people. Monetary and fiscal policies enacted have direct impact on business and economic growth of the country. 3.0 Legal Environment 3.1 Regulatory framework All goods exported to Brazil must have a certificate of origin and a certificate of analysis carried out by a NATA accredited laboratory. These forms have to be produced at the entry of the product within the Brazilian borders (Deloite 2010; DFAT 2011; World Bank 2011). Regulatory bodies prohibit uncompetitive behaviour 3.2 Business laws All foreign business entities must be registered with the National Institute of Industrial Property. Foreign businesses must register and pay for trademark protection for their brands and are also legible for legal and notary fees. Foreign owned businesses can only remit 1-5% of their gross sales revenue to their parent companies Foreign firms that seek to establish a branch in Brazil must obtain authorisation by a presidential decree (Deloite 2010). Corruption is a criminal act punishable by law. Mergers and acquisition are prohibited where the resultant firm would create monopolistic conditions. Firms seeking with a combined market share of over 20% seeking a merger must be approved by the Administrative Council for Economic Defence (CADE) Members of the Southern Cone Common Market-Mercosur (Brazil, Argentina, Paraguay and Uruguay) may exchange goods tariff free is 60% of the content is local (World Bank 2011). 3.3 Labour laws 8% of each employee’s is contributed towards the Length of Service Guarantee Fund (FGTS) and another 20% to the national Institute for Social Security (INSS). Employees contribute 8-11% depending on their salary. Normal work week is 44 hours with extra hours paid of 50% base pay. Shifts of 6 hours for round the clock operations. Maximum of 8 hours of work daily for minors (below 18 yrs) The federal government sets the minimum wage though states can set theirs beyond but not under that of the federal government. 30 calendar days paid vacation after a full year of full service with no more than six absences for all employees. First 15 days of documented illness are payable and the rest are not No work on national and state holidays and also several days in the event of marriage or death of a relative of an employee Female employees are entitled to a mandatory maternity leave of four months and males receive paternity leave of five days. Employees to be compensated in case of unfair dismissal Prohibits all forms of discrimination in the workplace Gender equality in the workplace Foreign employees must obtain a work visa (Deloite 2010: Johnson 2005; Ministrry of external relations 2011). 3.4 Taxation laws All registered businesses are subject to taxation on three levels of government IFRS compliance is not mandatory but plans are underway to adapt it. Import duty (0-335%) is charged on all imports 0% import duty on selected goods from Mercosur members State VAT applies to all business and stands at 17% in all states except for Sao Paulo and Gerais which is 18% (Deloite 2010; World Bank 2011). Agents and representatives of foreign businesses are subject to taxation 3.5 Analysis Collette Dinnigan is subject to two major taxes; import duty and VAT. These two cannot be avoided even if a representatives or agent is appointed. If a later option of entering into a joint venture with an established firm must consider the expected market share in order to seek approval if the venture may acquire more than 20% market share. The Mercosur trade agreement implies that merchandise from the member countries can compete better on prices because they are exempt from the 0-335% import duty (Bachuss 2010: Luo & Tung 2007) which is to be charged to Collette Dinnigan. 4.0 Economic Environment 4.1 Interest rates High interest rates. As of March, the interest rates stood at 11.25% (BBC 2011). High interest rates encourage saving and discourage spending High interest limit consumers access to loans (Punnett 2010) 4.2 Inflation rates Inflation has been relatively stable but high standing at 5.01%. High inflation rates has led to high interest rates 4.3 Currency exchange rate Appreciation of the currency by 45% against the US dollar since early 2009 4.4 mixed economies Brazil follows a mixed economy style Price control on important services and products such as electricity Market regulation through regulatory bodies Market price control on majority of goods/services 4.5 Economic trends/forecasts The fourth quarter of the 2010/11 financial year recorded a lower than expected GDP growth at 0.7% as opposed to the expected 0.8%. Overall growth for the year 2010 was 7.5% as predicted. Inflation to remain over 5.0% in 2011 GDP to grow by 4.5%-5% in 2011 The Brazilian Real has appreciated by 45% against the US dollar since early 2009 Government predicted to raise interest rates higher to curb currency appreciation (BBC 2011) 4.6 Tax policies Major federal taxes are VAT, import duty and excise State governments impose VAT tax on circulation goods, inheritance and gift tax and motor vehicle taxes Municipals levy service tax (Deloite 2010) 4.7Analysis Collette Dinnigan is disadvantaged due to the relatively high taxes as compared to tax free competing goods from Mercosur member states. Total taxes amount to over 60% of profits. (World Bank 2011). An appreciated currency makes exporting to Brazil expensive (Ministry of external relations 2011). The high interest rates make loans expensive. High inflation rate reduce consumer purchasing power (Johnson 2005; World Bank 2011; Zahra et al 2001). Adherence to market regulatory bodies’ requirements may affect business policies. 5. 0 Socio-cultural Environment 5.1 Hofstede’s Cultural Dimensions 5.1.1 Collectivism Vs Individualism The Brazilin society is gradually moving towards individualism as a symptom of economic development and western influence. The country scores 38 as compared to other Latin American countries 21 (Kalansky, Soares & Vella 2008). 5.1.2 Power Distance Brazil has a higher power distance than the US. Leng and Botelho (2010) say that citizens in countries with huge power distances seek more value in life and seek empowerment. 5.1.3Uncertainty avoidance Brazil scores the highest in Hofstede’s Cultural Dimensions in this particular dimension at 76. This implies that Brazilians prefer strict regulations to controls things and do not readily accept change and are risk averse (Leng and Botelho 2010). 5.1.4 Time orientation Brazil records more of short term orientation as opposed to long term orientation. This is indicated by the respect for culture such as through the Brazilian carnival which is a display of culture. 5.1.5 Quality Vs Quantity of life Brazilians value quantity of life than quality. This is shown by the higher than average individualism ranking as compared to other Latin American countries. 5.2 Analysis Brazilians record significantly high power distance and are more individualistic as compared to fellow Latin Americans. This implies that they are more quality and brand conscious rather than pricing conscious only. Such consumers seek quality and unique brands to cement their individual identity as opposed to a collective identity (Leng & Botelho 2010). However, the high uncertainty avoidance ranking implies that consumers are unwilling to try out new products in the market in order to avoid the uncertainty over the quality. The strong cultural undertones and social expectations and obligations in Brazil point to short term orientation. The Brazilian culture is more inclined towards the individual rather than the collective society. This strengthens the marketability of Collette Dinnigan merchandise in that some individuals will seek a unique new identity through designer labels (Shields 2008). However, the huge power distance in likely to affect marketing effort negatively by perceiving the new brands in the market as belonging to the affluent in the society rather than the mainstream middle income market (Leng & Botelho 2010). This is attributable to higher economic growth of the country which tends to seek affiliation with western culture that favours individualism. 6.0 Technological Environment 6.1 Technological infrastructure There are well established distribution networks in the country. There are numerous chain stores and supermarkets. Well established business consultants in the country and research institutions Numerous cloth manufacturing industries that can be hired (World Bank 2011; Shields 2008) 6.2 Communication networks Communication lines are excellent with internet use and penetration on the increase. Transport in the country is well organized, railway, road, air and water. 6.3 Logistics networks Road is the most popular followed by train and air. Communities living next to large water bodies prefer water transport. Over 2500 airports and airstrips A number of functioning seaports (World Bank 2011) 6.4 Analysis Collette Dinnigan will utilize existing distribution channels by utilising established chain stores and boutiques. Bombarding the country with new stores would not auger well with that a market that has a high uncertainty avoidance ranking communication and logistic networks will facilitate effective communication between the Brazil and Australia and facilitate the exportation 7.0 SWOT Analysis 7.1 Strengths Collette Dinnigan has won numerous merit awards Unparalleled creativity and business acumen Wide product range 7.2 Weaknesses Average financial resources Poor brand recognition 7.3 Opportunities Growing popularity in fashion wear in emerging economies such as Brazil Increase in disposable income in Brazil Growth in consumer confidence in Brazil Good trade relations between Australia and Brazil 7.4 Threats High level competition Market domination by certain brands Majority of the players have a strong presence and experience in the industry and have managed to cultivate customer loyalty over time (Bachuss 2010; Shields 2008). 8.0 Recommendations Collette Dinnigan should target the middle income market in Brazil. This is because established fashion labels such as Gucci and Louis Vuitton have concentrated and dominated the upper income market. Their hold on the market is not easy to break. The low income market is not very conscious about fashion and is more price sensitive hence should be avoided for now. Collette Dinnigan should target young college women and those in first time employment. This age group is more versatile and adventurous and does not necessarily subscribe to the high level of uncertainty avoidance by virtue of their age and development stage. Such a clientele is willing to try out new designs in fashion wear that Collette Dinnigan has to offer. Collette Dinnigan should strive to display its brands through fashion shows and exhibitions. The firm has penetrated other markets such as Italy and UK through such exhibitions. The firm should celebrity endorsement approach in this market in order to minimize the effects of uncertainty avoidance. A good start would be using football oriented heroes by virtue of popularity of football in the country. The firm should only use existing stores and boutiques to distribute their merchandise o avert the high taxes and strict regulations on remittances to parent company. The business environment in Brazil for small firms such as Collette Dinnigan seeking to expand and grow is very tough (Communicaid 2009). The growing economy opens up many business opportunities and also boosts consumer spending. By utilizing the right marketing mix, addressing the weaknesses and threats that the firm face, protecting the firm’s strengths and exploiting the opportunities, Collette Dinnigan has a clear opportunity to succeed in the Brazilian market. The threats and challenges in the market are real but can be managed (Bachuss 2010; Communicaid, 2009) hence the firm should go ahead and exploit the new market by laying down all the necessary foundations. Prior planning and research into the market is important for business given that Brazil is not the easiest in doing business as per World Bank (2011) ranking at 127 out of 189 countries. References Bachuss, R. 2010. “Challenges for doing business with Brazil.” Brazil Explore Magazine January issue. http://www.rosalienebacchus.com/articles/ChallengesOfDoingBusinessWithBrazil_100509.html BBC 2011. Brazil http://www.bbc.co.uk/news/business-12630315 Brazil Ministry of External Relations. 2011. Trade and investment promotion department. http://www.braziltradenet.gov.br/frmPrincipal.aspx Collette Dinnigan. 2011. http://www.collettedinnigan.com.au/ Communicaid, 2009. Doing Business in Brazil | Brazilian Social and Business Culture. http://www.communicaid.com/access/pdf/library/culture/doing-business-in/Doing%20Business%20in%20Brazil.pdf Deloite. 2011. International tax and business guide, connecting you to worldwide information: Brazil. http://www.deloitte.com/assets/Dcom-Global/Local%20Assets/Documents/Tax/Intl%20Tax%20and%20Business%20Guides/2010/dtt_tax_guide_2010_Brazil.pdf Dfat. 2011. Doing business in Brazil: an introductory guide. http://www.dfat.gov.au/PUBLICATIONS/brazil_business/brazil.pdf Johnson, A. 2005. Brazil Tax, Law and Business Briefing, 2005. New York: World Trade Executive, Inc Leng, C. & Botelho, D. 2009. “How does national culture impact on consumers’ decision- making styles? A cross cultural study in Brazil, the United States and Japan” Brazilian Administration Review, 7 (3) Interscience database Luo, Y and Tung, R. 2007. International expansion of emerging market enterprises: A springboard perspective. Journal of International Business Studies 38 (1), 481–498. Punnett, B. 2010. Experiencing International Business and Management: Exercises, Projects, and Cases. London: ME Sharpe Sarakiya, S. n.d. Country analysis Brazil. http://www.scribd.com/doc/28796465/Country- Analysis-Brazil Shields, R. 2008. “Brazilian style: South American fashion on the world stage” The independent. http://www.independent.co.uk/life-style/fashion/news/brazilian-style-south-american-fashion-on-the-world-stage-907215.html World bank. 2011. Doing business in Brazil report. http://www.doingbusiness.org/~/media/fpdkm/doing%20business/documents/profiles/country/db11/bra.pdf Zahra, S. Hayton, S., Marcel, J. & O’Neill, H. 2001. “Fostering entrepreneurship during international expansion: Managing key challenges.” European marketing journal, 19(4), 359-369 Appendices Appendix A. Source: http://www.rosalienebacchus.com/articles/ChallengesOfDoingBusinessWithBrazil_100509.html Read More