Expanding Operations BlueScope Steel Limited - Essay Example

?Running Head: report BlueScope Steel Limited: Expanding operations in Brazil of the of the of the [Course] Introduction Entering foreign countries to establish business require careful planning, analysis and intellect as even a slight mistake could lead to legal hiccups as well as wastage of resources. However, it has become a daily routine for big corporations to enter new and prospective nations offering opportunities to grow and sustain the business proposition (Johnson & Turner 2010). BlueScope Steel- the Australian Steel manufacturer is all set to foray into Brazil to establish its business. The report elaborates on the external environment analysis of Brazil and its suitability for BlueScope to expand. SWOT analysis of BlueScope Steel identifies the internal capabilities and external opportunities, based on which recommendations are forwarded for the Australian company. Why Brazil Brazil, one of the member nations of BRIC, is the largest country in South American continent and also the 5th most populous and largest geographical country in the world. It shares its borders with a host of other nations which provide it a very good international connectivity. Brazilian GDP crosses the mark of US Dollars 1 trillion and boasts off a rich reservoir of mineral resources (Gurmendi 2010). Industrialization is already at peak in Brazil with automobiles, computers, aircrafts and other steel-intensive industries providing expansion and diversification opportunities to steel manufacturers and even those operating in mining industry. In the entire Latin America, Brazil ranks first in the production of iron ore, manganese, aluminium and ferroalloys. Steel production remains one of the top 10 industries and iron ore the second largest exported commodity. It stores 19,500 million tons of iron ore reserves, making it the 6th largest iron ore reserving nations of the world (Gurmendi 2010). These figures present mouth-watering prospects for steel manufacturers and those operating in mineral based industry. This is what which makes BlueScope Steel willing to enter Brazil as a part of its business expansion strategy. PESTL Analysis of Brazil Political States, Municipalities and Federal District constitute the autonomous and non-hierarchical political set up at Brazil. It has a democratic form of government and states enjoy their individual constitutions. As such, laws of States do not contradict with Federal Laws. Civil law is given preference to common law which is favourable to the general public in Brazil. Labour laws are also specialized in Brazil which acts as safeguard to protect the rights of employees and labours against ineffective foreign and domestic employment practices. Economic Economically, Brazil has shown clear signs of good economic recovery and potential to become an excellent investment hub. It has supported expansionary monetary policy which fuels the growth of private consumption and capital formation. Significant improvements in Brazil’s GDP and macroeconomic basics, it is poised to grow at an annual rate of 4-5% throughout 2012. Use of prudent policies led to Brazil’s growth by 2.8% in 2006 and 4.5% in 2007 and due to increase of exports, international expansion and reduction in unemployment, debt-to-GDP ratio and inflation; promise a very good investment opportunity in Brazil (International Finance Corporation 2006). Special legislation to promote public-private partnerships was also passed in the year 2004. To support free trade, Brazilian government is also tying hands with developing nations and getting signatories to free trade blocs like Mercosul. Developed industrial sector of Brazil strengthens its economic viability (Gurmendi 2010). Because of dominance of industries like automobile, machinery and equipment, steel, tin, computer, aircraft, etc., Brazil offers tremendous growth potential for steel manufacturers. Socio-cultural Brazil is culturally very diverse with a mix of religions, ethnicities and celebrations. While Catholicism is the primary religion there, other religions also exist peacefully. Family culture is prevalent in Brazil and Brazilians pay more attention to relationship building, informal talks and giving due time to social gatherings and traditions (Kwintessential n.d). Compared on Hofstede’s cultural dimensions, Brazil characterizes high uncertainty avoidance and feminism (Geert-Hofstede 2009). Brazilians are less open to risky opportunities and try to get the essence of everything before proceeding on it. Work and roles are not binded by rigid guidelines, rather flexibility and loose boundaries guide work divisions and networks. Technological On technology front too, Brazil offers promising prospects. Its developed industrial sector provides new technical solutions to investors and companies operating in any of the mineral based industries. With Brazilian government opening up new avenues for investors, technology will further be updated and advanced to cater to the needs of growing industrial sector in Brazil. Legal Though, establishing a new business in Brazil is quite complex due to lengthy procedures and bureaucratic hurdles, yet Brazilian government loosened the rules for use of mineral resources by foreign investors. In 1995, the government allowed investment in mining, transportations and other industrial sectors by foreign investors by deregulated means like joint ventures. Import tax on minerals was also reduced and special rebates are allowed to mineral products (“Iron Ore in Brazil: Restructuring with growth” 2002). In case of acquisitions, Brazilian law allows cent percent equity ownership to outside investors as an endeavour to open the economy to international profiling. Sustained environmental operations though remain a priority for Brazilian government in mining activities and production of other mineral based alloys. Environmental licensing is mandatory and companies are required to use appropriate technologies to rehabilitate the environment and surroundings which might be affected by such production activities. SWOT analysis Strengths BlueScope Steel (established in 2002) holds quite a good experience in operating in steel industry and mineral based manufacturing which provides it with the knowledge of practices, issues and concerns at different levels of mining, production and other extended operations. BlueScope Steel deals in varieties of steel products namely automotive, galvanized, corrugated, etc. With increased globalization, demand for steel and steel made alloys is also going to increase. This operations and expansion strategy fits to the business strategy of BlueScope Steel. BlueScope Steel enjoys a global presence which spans across New Zealand, North and South Asia, USA, Oceania and South-East Asia. Entering Brazil compliments its expansion spree to worldwide nations and is also justified on the grounds that when BlueScope Steel is present in 15 countries today (BlueScope n.d); Brazil is still left behind which is one of the most abundant sources of minerals and iron ore. Weakness BlueScope Steel concentrates only on steel products which mars its future expansion strategies and prospects available into other mineral based manufacturing. Opportunities Brazil presents a host of opportunities in terms of its rich reservoir of mineral resources. Labour at Brazil is also very cheap and high on availability which further reduces the cost of operations in Brazil. There lies a favourable market for crude oil also in Brazil which can later on be tapped by the Australian steel giant. Steel is already positioned high in the mineral based manufacturing industry of Brazil (International Mining 2010). Threats Legal framework of Brazil is still not very liberal and supportive to outside investors. This could place hitches of delay or complications for BlueScope Steel. Brazil being such a lucrative nation for steel manufacturing, entry of competitors can pose threats to the company. Establishing rapport and consensus with Brazilian local partners can be challenging because Brazilian culture is more inclined towards relationship building. They first try to know each other, interact on informal tones and then proceed with any business. Thus, this fact involves patience, showing respect to the Brazilian culture and establishing trust which can be a difficult thing to hold amidst cut-throat competition. Recommendations Brazil, no doubt offers a favourable and lucrative market for BlueScope steel in terms of abundance of iron ore, growing market for steel and steel products, developed industries which rely heavily on steel and reduced tariffs and entry barriers. BlueScope Steel can further avail the benefits of high-technology manufacturing equipments, cheap labour, flexible transport and communication system and other related industries supplementing steel production. Keeping in mind the legal and socio-cultural environment of Brazil, the recommended entry strategy for Brazil is Joint Venture. Though licensing and acquisition are also two of the choices, yet both have their own disadvantages. Licensing could involve legal issues in getting approvals and non-familiarity with Brazilian laws can add to its woes. Acquisition on the other hand seems to be a risky and an expensive option initially because of the relationship focused culture of Brazil (Massachusetts Office of International Trade and Investment 2010). Thus, Joint venture seems to be the most appropriate entry choice. This would share the risks as well as provide ready made access to the market, facilities, equipments, employees and synergistic benefits with the partner. Some hiccups in terms of cultural synchronization and getting acquainted with the local laws of Brazil can be felt intermittently, yet with careful analysis and experience of operating in 15 countries will surely help BlueScope Steel in handling Brazil too. It is already a leader in steel production. Brazil offers a new trajectory of diversification and expansion to other mineral production opportunities. BlueScope Steel can use this in its favour and create a unique business proposition as Brazil is supposed to be the emerging leader in oil and gas and gemstones exploration (International Mining 2006). Neighbouring nations to Brazil offer a comprehensive coverage to BlueScope Steel which can later on be used to expand its reach in South-American continent. References “Brazil, Great Potential” 2006. International Mining. “Culture in Brazil” Kwintessential. Accessed March 21, 2011. http://www.kwintessential.co.uk/country/brazil/culture.html Debra, Johnson & Colin Turner. 2010. International Business: Themes and Issues in the Modern Global Economy. New York: Routledge. “Doing Business in Brazil” 2006. International Finance Corporation. “Doing Business in Brazil- A Guide for Massachusetts Companies” 2010. Massachusetts Office of International Trade and Investment. “Geert Hofstede Cultural Dimensions” 2009. Geert-Hofstede. Accessed March 21, 2011. http://www.geert-hofstede.com/hofstede_brazil.shtml “Global Operations.” BlueScope Steel. Accessed March 21, 2011. http://www.bluescopesteel.com/about-bluescope-steel/our-company Gurmendi, Alfredo.C. 2010. “The Mineral Industry of Brazil.” U.S. Geological Survey. “Iron Ore in Brazil: Restructuring with growth” 2002. Accessed March 21, 2011. http://www.bndes.gov.br/SiteBNDES/export/sites/default/bndes_en/Galerias/Download/studies/is88.pdf “Leader of the BRICS” 2010. International Mining. Read More