Please discuss, in general terms, how Brazil might capitalise on this opportunity to ensure success in the global market - Essay Example

? Brazil can capitalize its booming economic position to ensure success in the global market Executive summary Brazil is a developing country with a booming phase of economic activities. International trade has made important contribution to the economy’s performance. Brazil is the largest exporter of ethanol in the world. With the increasing demand for alternative forms of energy around the globe, Brazil has the golden opportunity to improve its position in the world market by making sustainable production of ethanol. Although globalization has facilitated Brazil in this respect, the economy has to confront several issues, such as foreign direct investment and national differences among political economy, which can possibly influence the economic and commercial performance by the country. This report provides an overview of the position of Brazil as a major agricultural and fuel exporter in the world economy. It also provides insights on the issues that the economy has to handle and recommends on how Brazil can further capitalize on its position to ensure long term success in the international market. Table of Contents Table of Contents 3 Globalization and its effects 4 Globalization in Brazil 5 Production of ethanol in Brazil 7 Environmental and ethical issues faced by Brazil owing to ethanol production 8 Ethical issues 8 Foreign Direct Investment 9 National Differences in Political Economy 10 Exports and Imports situation 10 Conclusion and Recommendations 11 References 13 Appendix 15 Introduction The Brazilian economy has been exhibiting high rates of economic growth, although the country is still plagued with various issues and imbalances. One of the primary reasons is that Brazil has a vast and strong domestic market that facilitates the development of a stable equilibrium of its demand and supply. This attribute of the economy imparts to it the confidence to maintain its growth rate. The support of the internal factors such as a strong domestic market builds up the ability of the economy to continue growing at this pace and ensures that it is protected from the vulnerabilities of the external competitive world. This leads to sustainable development of the country. However, in order to increase Brazil’s presence in the world market, the economy has to adhere to the policies and regulations and increase its focus on making innovations. Globalization and its effects The world economy is experiencing a major shift since the beginning of the 19th century. The 19th century marked the beginning of a phenomenon known as globalization. Although globalization is believed by scholars to have a long history, the onset of ‘modern globalization’ is said to have been in the 19th century (O'Rourke and Williamson, 2000). The 19th century imperialism had made a huge contribution to shape the modern form of globalization when the European countries conquered many parts of the world, including the sub-Saharan Africa (Economic-geography, 2012). In the mid twentieth century, globalization was driven largely by the multinational corporations most of which were based in the United States. During this period the world saw a wide spread of the American culture. Two factors of the macro environment might be held responsible to lead the way towards globalization. Firstly, the barriers to the “free flow of goods, services, and capital” (Hill, 2011, p. 12) have been on the decline after the World War II ended. The second factor is the advent of disruptive technology that has brought swift and vast changes in the fields of communication, transfer of knowledge and information and processing of information. According to Hill, globalization is a shift in the economic and social functioning of the different economies towards an integrated and more interdependent economic system. This process can be broadly segmented into two facets; namely, globalization of the markets and globalization of the production process (Hill, 2011). There is a wide assortment of markets in the different countries, each of which has its own distinct characteristic features. Globalization leads to the merging of these markets thereby developing one gigantic marketplace. With many economies adopting the policies of liberalization barriers to international trade is falling and it has made the process of globalization easier. Although the multinational corporations are the forerunners of globalization it is not mandatory for the companies to benefit from globalization (Hill, 2011). In Germany almost 30 percent of the exports of the country are made by the companies that have employee strength of less than 500 employees. Globalization in Brazil Globalization has helped Brazil to come out of its long history of poverty and instability in the 1990s. Liberalization policies have helped to bring new reforms in the Brazilian economy in its social, political and economic settings. Globalization of the production process elevates the use of factors of production. It allows the producers to source goods or/and services from different parts of the world in order to utilise the advantage of price differences and differences in quality. Companies can reduce their cost structure and also improve their functionality or quality of product, which would enable them to become more competitive in the world economy (Hill, 2011). Trade liberalization brought in increased amounts of capital inflows into the country as there has been a rise in foreign direct investment. The status of international trade in Brazil has improved after these changes took effect. Globalization brings with it the light of economic growth which has also improved Brazil’s position in the world economy. Within international organizations Brazil has experienced more power than before and has become one important member of these organizations with rights to interfere in international politics. However, despite its improvement in the international form, the internal deficiencies remained and problems like poverty and severe inequality bothered the economy greatly in the twentieth century. Such a scenario was created by improper social policies and ineffective reforms. In the mid 1990s, the government introduced new changes which brought about positive effects in the form of reduced poverty level. Some of the structural adjustments made in the country are stabilization, trade liberalization and privatization (Fernando, 2002). With the dawn of the 21st century, Brazil could fully capitalize on the good effects of globalization (Hauge and Magnusson, 2011). Brazil is a big exporter of agricultural goods. The country is a market leader in terms of exports in sugar, coffee, soybeans and beef. Export of these commodities accounts for almost one third portion of the country’s GDP (Globalization, 2011). In fact, Brazil is the second biggest exporter of soybean in the world and stands fourth among the largest exporters of pork. The soy agriculture boomed in the country in 2000 (Vitousek et al., 2010). Besides, having a good domestic market, Brazil also has trade partners from diverse geographical backgrounds. The largest trading partner of Brazil, China, hails from a totally different cultural and geographical background. China also serves as the largest export market for Brazil (Globalization, 2011). Production of ethanol in Brazil With the rising concern about the preservation of the environment, the search for renewable energy and production of its various forms has become intensified in the entire world. Experts are worried with the increasing concentration of carbon dioxide in the atmosphere, which is a result of burning of fossil fuel. Besides, large scale consumption of fossil fuel is also causing depletion in the fossil fuel reserves of the world. Due to this many countries are showing interest in consuming alternative forms of energy. However, some limits have also been imposed on the types of unconventional forms of energy that can be used by the countries. It is a universally set regulation that the new types of energy have to be environmentally friendly, in the sense that it must not supplement the rising levels of carbon dioxide in the atmosphere. Besides, this form of energy has to be renewable so that it does not stand the risk of getting depleting with use. One promising form of bio-fuel is made from sugarcane. Ethanol is an environment friendly bio fuel that has a positive energy balance. This is because, the amount of carbon emitted when ethanol burns as fuel is less than the amount of carbon absorbed when sugarcane is grown (Oliveira et al., 2005). All the factors discussed above are leading to this rocketing demand for bio-fuel all over the world. It is benefitting the sugarcane ethanol industry to a great extent. Sugarcane ethanol is an environment friendly fuel and also incurs a low cost of production compared to its alternatives. Brazil is a leading producer of ethanol in the world. Since 1970 the ethanol is a highly consumed bio-fuel in the Brazilian domestic market (Martinelli and Filoso, 2008). Brazil has been taking initiatives for around seventy five years to successfully develop methods of producing renewable energy sources. Since ethanol is produced from sugarcane and the Brazilian producers are in this business for several years, scientists, researchers, governments and producers from all around the globe, irrespective of whether they belong to developed or developing countries are at present showering attention on the Brazilian ethanol industry. Along with ethanol, another sphere that is receiving higher amounts of interest in Brazil is biodiesel (Nass, Pereira and Ellis, 2007). The raw material used for the production of biodiesel varies widely across different regions in the country. Brazil enjoys several advantages for the production of bio fuel. The country has an expansive territory, a strategic geographical position, abundant resources of water and uninterrupted solar radiation. Gradually, under the effect of globalization, the Brazilian economy has been exposed to the world market and it is therefore facing the world’s demand for bio fuel. Environmental and ethical issues faced by Brazil owing to ethanol production However, the production process of bio-fuel involves various social and environmental impacts. On account of these impacts being felt in Brazil, these might be considered as severe hurdles towards a sustainable production of the fuel across the globe. Brazil has to face certain issues and come in terms with them in order to maintain its position as a world leader in production of the bio-fuel. Among the problems some are atmospheric pollution, degradation of soil and pollution of the aquatic system. Ethanol production from sugarcane is associated with a number of ethical and moral issues that not only relate to the country but also the surroundings. Research works and interference of the media channels have brought to the forefront the ethical issues of this industry and its impacts. Ethical issues Attention of the producers is getting diverted towards the production of sugarcane for the purpose of supplying to the ethanol factories rather than supplying it as food for the common mass. The species-rich forest of the Atlantic zone is getting destroyed due to encroachment by sugarcane producers. Brazil is a lucrative supplier of ethanol due to the production cost of the fuel which is the lowest in the world. This is made possible by the availability of cheap labour. This industry in Brazil is promoting exploitation of labour and is leading to deepening of poverty. Approximately 40,000 migrant labourers work on the sugarcane fields during harvest. Brazil practices poor labour laws for unskilled labour. The workers are made to work as slaves in the hot temperature and are paid the amount that is the weight of the crop that they cut (Peskett, 2007; Barbara, 2007). Increasing usage of land area for cultivation of commercial fuel crops is compromising with the allocation of land area for production of food crops. Huge expanses of land are being allocated for sugarcane production for the production of ethanol, which is reducing the priority of land for food production (Kenfield, 2007). Foreign Direct Investment FDI brings positive effects on the growth of employment opportunities in a country. For many of the countries in the Southern hemisphere FDI provides significant boost to economic growth. Among the biggest producers of ethanol in Brazil are foreign companies. In Brazil, FDI has been on the rise since 2009 (see figure in Appendix). 25 percent share of the production is shared by the international groups operating in Brazil. Among them are 16 companies from both the developing countries as well as the developed countries, such as, the US, France, Japan, Norway, China, India, Argentina and some others (MECAS, 2012). Foreign entrepreneurs are entering the Brazilian industry often by making acquisitions of existing companies or merging with them. But, presently certain barriers to mergers and acquisition are arising. Some of the mills have gone bankrupt and collapsed following some financial constraints faced by their owners in their respective countries. These mills would stop operations and the huge outstanding debts of some mills are adding to the financial instability of the country. While FDI leads to creation of jobs, closing of these mills brings massive shocks of unemployment to the country. The Brazilian government has to actively implement the rules set on ownership of land by foreign entrepreneurs in the country. Alongside, it also should make a detailed background check on the foreign company that is investing in the country to ensure stability and viability of the company in its base country or other countries. National Differences in Political Economy Different countries operate within different political and judicial framework. The general level of education determines the skill level of the mass of population in the country. The social system and cultural practices affect these factors largely and defines the stage of economic development in which the country belongs. These differences among countries have significant implications for the way in which the country participates in international business. The costs, benefits and risks involved in running business with foreign countries are highly influenced by the national characteristic differences among the economies. Brazil is at present one of the market leaders owing to its exports of agricultural goods and ethanol bio-fuel. In order to maintain its position in the world economy, the Brazilian firms should focus on adopting effective and efficient business strategies specific to the macro environment of each different country with which it is associated. Exports and Imports situation As an agricultural producer Brazil holds a high rank in the world ranking in terms of sugar production and exports (Reuters, 2012). Since 2009, Brazil has also been a net exporter of liquid fuel. In 2009, Brazil produced more liquid fuel than the amount it consumed. In 2010 Brazil has been the largest exporter of ethanol and has maintained its position since then (see figure in Appendix). According to estimates made by Energy Information Administration, liquids consumption by Brazil has been roughly equal to the country’s production in the year 2012. Ethanol exports by the country have been higher in 2012 than any of the past years in the last decade. Increased demand for the fuel by the United States boosted exports for Brazil (Reuters, 2012). The scenario is also favourable for the year 2013. This year the country would be a net exporter of liquids driven by the expansion of production of crude oil (EIA, 2012). Conclusion and Recommendations “Brazil has made great strides in increasing its total energy production, particularly oil and ethanol” (EIA, 2012). Brazil is also the ninth largest consumer of energy in the globe. Unrelenting economic growth has enabled the country to maintain its position as the top producer and exporter of sugar and ethanol. However, the industry is competitive and the country has to focus on several issues in order to keep up its position in the international market. Factors like favourable climate, availability of vast expanses of land and cheap labour has helped the country to grow into the largest producer of sugarcane in the world. Brazil can capitalize on these endowments by making efficient pro-ethanol policies and overseeing that the policies are effectively implemented. It requires greater initiative by the government. Increase in productivity has been found since 1970s following conversion of pasture ground into sugarcane fields. Since these gerunds had been previously used for cultivation of food crops, the rise in sugarcane fields has the implication of decline in land area for the cultivation of edible crops. The government has to face this issue on a serious note since production of food crops has to be increased and it cannot be compromised for commerce. Brazil has an inner trouble of poverty and inequality which it has to deal with positively in order to reflect true growth in the world market. One solution to this problem would be to not to encroach upon the pastureland but increase productivity of sugarcane on the existing grounds through application of modern technology. It might also increase number of harvests from one to two times. The Brazilian companies should spend resources in research to find out whether sugarcane can be harvested during parts of the year, except in the low rainfall period between June and December, when it rains in the country. References Barbara, J. S., 2007. The False Promise of Biofuels: A Special Report from the International Forum on Globalization and the Institute for Policy Studies. Washington: International Forum on Globalization Economic-geography, 2012. History of Globalization. [online] Available at: < http://www.economic-geography.org/index.php?option=com_content&view=article&id=94:history-of-globalization&catid=98:inf&Itemid=85> [Accessed 19 April 2013]. EIA, 2012. Country Analysis Briefs. [online] Available at: [Accessed 19 April 2013]. Fernando, C. N., 2002. The Effects of Globalization on Brazilian Labor Market During the 1990’s. [online] Available at: [Accessed 19 April 2013]. Globalization, 2011. 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E. and Rykiel, E. J. J., 2005. Ethanol as fuel: energy, carbon dioxide balances, and ecological footprint. Bioscience, 55, pp. 593–602. O'Rourke, K. H. and Williamson, J. G., 2000. When Did Globalization Begin? [online] Available at: < http://www.nber.org/papers/w7632> [Accessed 19 April 2013]. Peskett, L., Slater, R., Stevens, C. and Dufey, A., 2007. Biofuels, Agriculture and Poverty Reduction. [pdf] Available at: [Accessed 19 April 2013]. Reuters, 2012. Brazil sugar, ethanol exports at peaks – ISO. [online] Available at: [Accessed 19 April 2013]. US Department of State, 2012. 2012 Investment Climate Statement – Brazil. [online] Available at: [Accessed 19 April 2013]. Vitousek, P., Martinelli, L., Naylor, R. L. and Garrett, R., 2010. Globalization, Trade, and the Environment: The case of Brazil. [online] Available at: [Accessed 19 April 2013]. Appendix Figure 1: Largest exporter of ethanol: Brazil (Source: Foreign Agricultural Service, USDA, 2011) Figure 2: FDI as a percentage of GDP in Brazil (Source: US Department of State, 2012) Read More