Environmental Audit of Brazil and India - Essay Example

?Global Marketing Organizations, which are operating in any industrial sectors including in the sector of Information Technology (IT), would want to expand their operations into foreign territories due to various factors. That is, organization could think about entering foreign markets if they have achieved optimal success in the home market, or due to heightened competition or saturation in the home market, or due to good opportunities in the foreign market, etc, etc. Whatever is the motivation for the firms to enter foreign territories, it is paramount on the part of the organization to study the foreign market in an in-depth as well as extensive manner. Various factors will be at ‘play’ in those foreign markets, and those factors will either aid the entering organization or will pose a major challenge to the organization. These factors will be visible both in the macro as well as in the micro environment of the organization. In the macro-environment, factors including political, social, cultural, economic, etc., could impact the entering organization. In the micro or in the immediate environment of the firm, market factors including competitors, recent trends, etc., will impact the organization. After analyzing these factors, the firms have formulate a set of objectives, so they have can have a clear path, regarding what to achieve and how to achieve those objectives. The next key process is analyzing the various entry modes and finding out the best entry mode. The firms should also plan out the marketing strategies that have to be implemented in the entering countries before-hand, so they can aptly reach their products or services to the intended customers. All these key processes will be applicable to our software development firm as well. Our company is a medium sized software firm developing software for applications in many sectors particularly electronics and communications sector. In our home operations in UK, we have around 2000 employees working in our various offices in number of cities. We are achieving optimal success and good profits in the UK market, but still some competition is emerging. Although, we can aptly fight the competition, with the intention to grow further, we are looking at foreign expansion. So, after achieving great success in the UK market, our firm has decided to broaden our horizons and target, initially the two foreign markets of Brazil and India. This report will first do an environmental audit of both the countries through the PESTEL and Porter’s Five Forces tool, and by focusing on the market as well as the competitors. Secondly, the report will set the SMART global marketing objectives for going international, then will discuss about the entry modes, finally ending with the discussion about the marketing strategies that has to be implemented for optimal success. Environmental Audit Every market or country including Brazil and India has certain unique or common political, social and economic conditions, along with different clients’ base, consumer behaviour and competitors. These distinct aspects could aid as well as impede the organisations’ entry into that particular market as well as the resultant success. So, understanding and analyzing these aspects behaviour in relation with the product or service is a key necessity. Based on this analysis only, the marketing strategies need to be formulated, so that organisation can reach maximum customers, entice them and importantly build long-term relationship, thereby retaining them. As the above mentioned country specific aspects need to be mainly analyzed in relation with the product that is going to be launched, the product’s profile should ‘fit’ with the consumer of that particular market. Although, it applies to all product range, it is of utmost importance to the firms dealing in the IT sector. So, from the above understanding, it is clear that, the macro and the micro environment for the software firms as well as the consumer behaviour in the Brazilian and Indian market has to be analyzed, based on which consumer marketing strategies can be formulated. Brazil - PESTEL Political The ruling government has to be stable and also favourable for businesses. Brazil attained stability after Luiz Inacio Lula da Silva was re-elected as president for the second term in 2006. Then, when his protege Dilma Rousseff was elected in 2011, there was a continuation of the pro-business measures initiated by Silva. Brazilian government facilitates foreign firms’ entry through tax and other benefits. Silva government launched a new Growth Acceleration Program called the Programa de Aceleracao de Crescimento, or PAC in 2006, which allocates maximal funds for the development of various infrastructures, needed for the businesses including for telecommunication and software firms. “The money promised to be spent in this Program is considered to be around R$ 500 billion (more than 250 billion dollars) over four years.” (brazilriodejaneiro.com). Economic Brazil is one of the strongest developing economies of the world. “It is by far the continent's largest economy, producing 40% of Gross Domestic Product (GDP) and its purchasing power is the 9th largest in the world. It is predicted to become one of the 4 most dominant economies by the year 2050.” (greenlandsecurities.com). This healthy economic status, and the resultant high employment rates and business opportunities have increased the purchasing power of the Brazilians, thereby optimizing the economy even further. “Once hobbled with high inflation and perennially susceptible to worldwide crises, Brazil now has a vibrant consumer market, investment-grade status for its sovereign debt,” (Forero, 2010). Social As Brazil is slotted among the moderately developed, and urbanized societies of the world, the use of computers and thereby the needed softwares is widespread. “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). This social phenomenon of using many gadgets including computers may compliment our firm. Technology As part of PAC growth program, the Brazilian government is developing good telecommunication related infrastructures. Also, the government, through their state-owned telephone company Telebras, is optimally expanding the broadband Internet access, thus providing opportunities for software companies like us. (Colitt 2010). Thus, it is clear that Brazil is providing good technological environment for the foreign firms to enter and develop. Legal The legal aspects in Brazil stipulate certain conditions for software companies. Service license to the software and other telecommunication foreign firms can be given only if their principal place of business and administration is in Brazil. (Campbell 2007). This being the legal rule, it is mandatory for foreign firms including our firm to establish a local set up or even a subsidiary. As part of PAC, tax regulations also has been simplified and reduced, for the benefit of the foreign firms. Environmental As far as the natural environment is concerned, it may not have major impact on the establishment and functioning of the software firms. Unlike firms in other sectors like oil, energy, etc., firms in IT sector may not have major negative imprints on the environment. It can have only in-direct impacts, as it necessitates high electrical energy, generation of which could affect the environment. Porter’s Five Forces Degree of rivalry Brazilian software and IT market is one of the largest in the world, and so there are number of strong players. “The market turned over US$ 29.4 billion in 2008, making it the eighth largest in the world.” (BRASSCOM). The major software companies are Totvs, Datasul, Logocenter, Microvix. However, these companies does not have maximum market share, and so the degree of rivalry for our software firm will be in the middle ranges. Threat of substitutes This threat is quite high for this industry because many pirated software are being brought out by individuals and small companies. This is visible in Brazil as well, with piracy of softwares being a major problem. Bargaining power of buyers The main buyers of the products produced by Brazilian software firms are the Americans. “This fast growth in software services was due to the low-cost, high quality software produced by Brazilian programmers for companies located primarily in North America.” (Singh 2003). However, with many Brazilian companies undertaking computerization in a maximal manner, a lot more buyers are there. As in any service industry, the bargaining power is mainly with the buyers including the indigenous as well as the foreign buyers. Bargaining power of suppliers With our firm directly entering Brazil, without the outsourcing route, it minimally depends on the suppliers. With software development done without depending on any raw materials from the supplier, their bargaining power is nil or minimal. Threat of new entrants The threat of new entrants remains high in the Brazilian software sector, because of the entry of many small companies. More than big companies, these small firms or start-ups, even with minimal employees, are making huge impacts. “Much of the growth will be driven by small companies, which are gaining more business despite tough competition,” (Pacheco 2011). India - PESTLE Political The political climate in India is stable as well as business friendly. Speaking about stability, the strong showing of the “Congress-led political alliance in national elections meant the Government, led by Prime Minister Manmohan Singh, no longer needed the support of communist parties for its survival.” (Wade 2009). Although, the government has lost ground due to a slew of corruption scandals, it has majority in the Parliament and that augurs well for political stability. The Congress government only initiated globalization friendly policies, and in that direction, it is providing many benefits to the foreign businesses including software firms. They have developed exclusive Software Technology Parks (STP) or IT parks through out the country, with optimum facilities for the software firms. Economic Economically also India is posting good figures, immune to the recession. “India's economic growth is expected to remain robust in 2012 and 2013, despite likely headwind of double-dip recessions in Europe and the US, according to a United Nations' annual economic report - World Economic Situation and Prospects 2012” (IBEF 2012). From the perspective of the Software firms also, the economic picture looks good, with the software industry only driving the Indian economy. Indian software companies have been doing an exceptional job in optimizing its economy in the recent past. In fact India’s foreign exchange reserves have shot up maximally. The reason is purely due to the contribution from the software sector. “During the last 10 years exports of these services have been growing at an annual rate of 32%.” (Agarwal, 2008, p. 19). Social The social setup of India is also modernizing very quickly due to the IT boom. In addition, the whole population particularly the various business sectors are becoming technology savvy, by using computers for various applications, and that will be beneficial to the entering software firms, including us. “About 47% of India's population is under the age of 20; and this will increase to 55% by 2015 and this young population is technology-savvy.” (Garg 2007). Technology The technological environment of India has also developed in the recent times fully complementing the software firms. That is, as pointed out above, with the development of many Software Technology parks or IT parks, with all the technological backup, software firms are getting all their technological requirements under one roof. These parks “maintains internal engineering resources to provide consulting, training and implementation services, with services including “Network Design, System Integration, Installation, Operations and maintenance of application networks and facilities in varied areas ranging from VSATs to ATM based networks.” (MIT). Legal The legal frameworks and judiciary is strong in India, and that also support the software firms, particularly in the issues of piracy. As the Indian government also loses tax revenue, when people use pirated software, amendments have been done to various laws. “Software piracy also affects the Government by way of loss of tax revenue and wrath of the IT industry etc” and so amendments were made to the Copyright Act in 1994, providing more protections against piracy. (Mali 2012). Environment As with the natural environment of many fast growing economies, India’s natural environment is also impacted by the high number of industries. However, as in the case of Brazil, IT industry does not make any direct negative impacts because of the non-use of polluting substances. At the same time, electricity used for powering the IT industry indirectly makes carbon imprint on the environment. Porter’s five forces analysis Degree of rivalry India is saddled with high number of large, medium and also small IT companies throughout the country. Apart from the industry leaders, Infosys, Wipro, TCS, Cognizant, etc., many medium and small IT players operate in the Indian IT industry, thus showing very high degree of rivalry for the entering foreign software firms including us. Threat of substitutes The threat of substitute products or softwares also remains high in India, as in many countries. A grey market exists, which sells pirated softwares for very cheap prices. “India is one of the leading countries in Software Piracy – Even today over 65% of Indians use pirated software on daily basis. Although, the rate of software piracy is coming down, it still is at a level where it causes Billions of dollars of losses to Software Manufacturers.” (Prabhudesai 2011). Bargaining power of buyers As mentioned in the Brazil’s Porter Five forces, in the service industry, the bargaining power of the buyers, in relation to the software companies, will always be on the higher side. In addition, as pointed above, due to the availability and accessibility to high number of pirated softwares, the power of the manufacturers and sellers decrease, thereby increasing the buyers’ bargaining power. Bargaining power of suppliers In India, quite contrastingly to Brazil, the suppliers in the form of small IT companies have sizable bargaining power. That is, many large IT companies outsource certain sections of their work to smaller firms. Although, these smaller firms work under the control of the large firms, these firms by determining the quality as well as the speed of the work, decide many factors, thereby slightly increasing their bargaining power. Threat of new entrants Due to the high opportunity filled business environment, there will always be the threat of new entrants. Many small IT companies prop up in many IT centers like Bangalore, Chennai, Pune, etc., with sizable foreign customers for them. Thus, our software firm will also face threat from new entrants. Objectives – SMART analysis With my software firm deciding to enter both Brazil and India, the key process is formulating a set of objectives to accomplish. Only if the organization has clear, feasible and optimal objectives beforehand, it can fully focus on it and importantly carry out all its organizational processes to achieve those objectives. In the case of my firm, there can be 3 objectives, which can ‘set’ the firm in the correct path. 1. The first objective is to sell its already developed and successful softwares to minimum of 1000 customers within 1 year of establishment in each country. 2. The second objective is, increase its software or product range by developing more customized softwares within 1 year. 3. Gain a return on investment within 1 year. One of the key differences between an aim of the organization and its objectives is the degree of specification in them. That is, aims are more general in nature, and do not provide a clear picture about its feasibility and timelines, while on the other hand, objectives can be more specific and importantly SMART. SMART is the mnemonic for Specific, Measurable, Accurate, Reasonable and Time frame. When an objective is analyzed from SMART perspective, it can give a more accurate idea about the feasibility and the applicability of the objectives. In the case of my software firm, the objective to sell “already developed and successful softwares to minimum of 1000 customers within 1 year” is aptly specific in terms of the number of customers (1000), which are need to be targeted, and the timeframe within which it has to be sold to them (1 year). However, it cannot be accurate, because based on the response or feedbacks of the customers in Brazil and India only, new customers can evince interest. Thus, there are chances of customer numbers falling short and also going over the set target, and so it cannot be reasonable also. It cannot be reasonable because there are no supporting figures from the real market, which can validate such an objective. The second objective is not specific, measurable and accurate in relation to the number of customized softwares that need to be developed. That is, only after entering into Brazil and India and studying the market trends, and by interacting with the prospective customers, the number of softwares that needs to be developed can be found. Otherwise, this objective specifies apt Time Frame and also reasonable because with the recruitment of apt employees, it can be achieved. With both countries having high number qualified IT personnel, it is possible. The next objective of “gain a return on investment (ROI) within a year” mentions a timeframe, and is reasonable. However, as it does not clearly specify what ROI is the firm targeting, it do not fall in line with the SMART aspects of specific, measurable and accurate. From this SMART study of my firm’s objectives, it is clear that although my firm has quite constructive and feasible objectives, it need to do more work. Entry Modes After making the decision to enter Brazil and India, the key entry modes has to be focused and the best entry mode has to be selected to make the eventual entry. As far as Brazil is concerned, the most common modes for firms including software firms to enter and set up business in Brazil are Joint Stock Company or Corporation (Sociedade Anonima or S/A), Limited Liability Company (Sociedade limitada or Ltda) and branches. Among these three modes, the most feasible mode can be the Limited company or Ltda mode, because setting up company in that mode is a simpler process. “Setting up a Limitada is simpler and less expensive than incorporating a joint stock company and is therefore often recommended for initial establishment.” (Luxembourg for Business 2010). It could be transformed into a corporation, if there is a need, at a later stage. With our software firm, being a medium-sized company, this entry mode could be practically and financially beneficial. As mentioned above, setting up a joint stock company or corporation will lead to fulfilling various criteria, excess spending and could take longer time. The other entry mode of branches is also unfeasible for software firms because “the process is very bureaucratic, lengthy and, compared with the Limitada or Anonima, expensive.” (Luxembourg for Business 2010).). When our entry into India is focused, there are three common entry modes. They are Joint Venture, setting up a subsidiary and importantly acquisition of an Indian company. Among these modes, our firm can enter by acquiring a small or medium-sized but effective Indian software company. As mentioned above, there are many small and medium sized companies operating in India, with capable employees and strong support structure. Thus, this option can be used particularly where there is existing ‘assets’, which would be effective and could be transferred for good utilization. This being the case, any one of the company can be acquired and made to function as part of our firm. This acquisition of firms also provides advantages of “corporate structuring and tax efficiencies” (UK India Business Council). Instead of competing with these firms, it would be better for our firm to acquire one, and with the Indian employees exposed to all the advances in the software field and also exposed to UK organizational culture, it would be easy to manage them. The Joint-Venture mode may not work out because firstly it is a time consuming process and importantly involves sizable costs and other formalities. (UK India Business Council). Even the negotiations with the JV partner could take time. Setting up a subsidiary will also lead to sizable delays, with the need to find and establish everything from scratch and thereby involves high investments. Recruiting and managing new set of staffs will also be a tough process. Marketing Strategies Organisations including software firms like us will be able to succeed only if we can come up with enticing marketing strategies. To formulate enticing and effective strategies, prospective customers’ behaviour patterns have to be found out. For that market segmentation is a key process, because using it, the target market can be divided into distinct groups of customers with particular characteristics, so they can focused exclusively. In Brazil, the prospective customers of our firm will mainly be organizations operating in various sectors particularly oil companies, retailers, electronic and telecommunications companies (E&T). After segmenting them, the electronic and telecommunication companies can be targeted. As our products maximally deal with this sector, and also have optimum applications in this sector, they can be targeted by aptly positioning the products or softwares. Our products have to be positioned as ones which can improve many organizational processes in the E&T companies. With few large players like Oi (previously Telemar), Brazil Telecom, Telebras, etc., operating in the sector, mass-media promotions will not be a feasible option. Instead, our firms can approach them through our marketing personnel, by providing presentations or demos at customers’ place. As far as the price is concerned, it can be in the medium range. As firms in developing countries will avoid high priced products and will abhor low-priced products as well accusing it of cheap quality, medium price will be a feasible option. This marketing strategy can be replicated in India as well. In India, after segmentation focusing on E&T companies, Textile companies, biotech companies, etc., E&T companies like Airtel, Reliance, etc., can be targeted. As in Brazil, the products has to be positioned as an effective tool having widespread applications and promoted at the customers’ place itself through presentations and demos. In India also, mass-media campaigns can be avoided and the price can be set in the medium range. Conclusion In this globalization era, many organizations including software firms are maximally moving into newer markets including irrespective of geographical as well as economical ‘boundaries’, as potential markets offer good business opportunities. To effectively tap those opportunities, our firm has to analyze the above discussed distinct aspects of the Brazilian and Indian macro and micro environment, and then importantly have to set the objectives, select the entry mode and initiate optimum marketing strategies. Thus, the bottom line is, the sound entry strategies can make the firm reach its targeted customers, making the entry a great success and thereby elevating our to the top echelons in various countries. References Agarwal, A., 2008. Emerging Markets-India’s role in the Globalization of IT, Communications of the ACM, vol. 51, no. 7, p. 17-19 BRASSCOM. The Brazilian new brand strengthens the global IT industry, [Online] Available at http://www.brasscom.org.br/en/content/view/full/3317 brazilriodejaneiro.com. The President of Brazil, [Online] Available at http://www.brazilriodejaneiro.com/president-brazil.htm(Accessed on April 11, 2012) Campbell, D. (2007). International Telecommunications Law, Lulu.com, Raleigh, N.C. Colitt, R. (2010). FACTBOX-Key political risks to watch in Brazil, [Online] Available at http://www.reuters.com/article/idUSRISKBR20100701(Accessed on April 11, 2012) Forero, J. (2010). 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