Brazilian Wine Industry - Essay Example

?Marketing Table of Contents 0.Introduction 5 2.0.Political Environment 6 3.0.Legal Environment 7 4.0.Economic Environment 9 5.0.Socio-Cultural Environment 12 6.0.Technological Environment 14 7.0.SWOT Analysis 15 8.0.Recommendations 17 References 18 1.0. Introduction Australian Vintage Ltd. is an Australian wine manufacturer and marketer. It was formed in 2002 from the merger of two other companies, McGuigan Wines and Simeon Wines and was named as McGuigan Simeon. After the merger, the company gained its recognition as the fourth largest wine manufacturers of the Australian economy. It was also in this year, that the company got listed in the Australian Securities Exchange. In the year 2008, it was re-branded with the title Australian Vintage Limited. Few of the brands which are marketed by the company in the nationally and internationally include McGuigan, Miranda, Nepenthe, Passion Pop, Sunny Vale, Tempus Two, and Yaldara. Internationally, the company operates in the wine markets of Asia, New Zealand, UK & Europe, and USA & Canada (Australian Vintage Ltd 2008). The objective of the company in this context is to initially market its products in the Brazilian economy, which have been produced in its wineries in Australia. It is due to the fact that Brazilian Wine Industry is identified as one of the most promising and fastest growing markets, offering many opportunities to the foreign trade. In this regards, the paper shall analyze the economic environment of Brazil along with the current status of the company in order to suggest few strategic measures to the Australian Vintage Limited. 2.0. Political Environment 2.1. Government Stability The democratic economy of Brazil depends on a presidential system in its political environment, i.e. the president of the country (presently Mr. Dilma Rousseff) is the head of state and at the same time, he is also the head of the government. The political system of the economy states the voting is compulsory for the literates from 18 to 70 years old and are optional or citizens aged between 16 to 18 years and above 70 years. The elections are also held in regular intervals (Georgetown University Political Database of the Americas 2006). 2.2. Government and Contribution In the present context, the foreign relationship is termed to be quite vital in the Brazilian economy. This can be evidently witnessed, as the interactions of Brazil with other economies have improved largely from the previous years’ reducing the social and economical barriers. Accordingly the foreign investment of Brazil in other economies and the investments made by other economies in Brazilian markets have also increased. Thus, it can be stated that the foreign relations of the economy and its friendliness towards foreign investment is quite effective proving that the government’s contribution in promoting political stability is quite significant (Woodrow Wilson International Centre for Scholars 2007). 2.3. Analysis From the above discussion it is apparent that the political environment of the economy is quite stable and the government is also providing considerable significance to the attribute. Moreover, the foreign trade is also efficiently encouraged in the economy. Therefore, it is most likely that the entry of Australian Vintage Ltd. in the Brazilian economy will receive moderate political interventions, which in turn would make the entry easier. 3.0. Legal Environment 3.1. Regulatory Framework Rules and regulations with respect to the foreign investments are controlled and supervised by the Federal Government of Brazil. However, the states of the economy control the commercial registration of a foreign firm, the yield on investments and the terms of infrastructure projects. The participation of foreign companies in this regard is entirely depended on the approval of the Brazilian Government. The economy also has a Commercial Code in order to regulate the operations of commercial firms, both national and foreign. The economy also serves the opportunity to the foreign firms to enter the market through acquisition or setting up a local subsidiary in the targeted market with the authorization from the President of the Republic (World Bank n.d.). 3.2. Business Laws Despite of the lenient regulatory interventions in the foreign trades, the economy also possesses few restrictions to the foreign companies in terms of tariffs. For instance, the economy charges high amount of import duty on the wine exporters of other nations as wine is considered to be a luxury product in Brazil. Wines also have a higher sales tax in the economy which emerges as a major restriction to the company (Austrade 2010). Notably, the economy witnesses a strict control over the bribery transaction in the country, adhering to the OECD Anti-Bribery Convention Norms (OECD 2007). 3.3. Labor Laws The labor laws in Brazil are regulated by the ‘Consolidation of Brazilian Labor Laws – CLT’ since 1943. According to the CLT, the minimum age of workers is set above the age of compulsory school education. However, the working hours and the working conditions according to the Brazilian labor law are strictly mentioned which must be followed by the company in order to operate in the economy (Hindman 2009). 3.4. Taxation Laws Taxation laws are imposed on the foreign company in Brazil only when it carries out its sales activities in the economy. However, if the company is acting as a representative agent between the foreign company and the ultimate consumers, it will be excluded from the taxation. The foreign companies which include themselves as residents of the economy, i.e. the companies which perform their operations directly in the Brazilian market shall have to pay almost every indirect and direct taxes and duties to the government at a different rate (Deloitte 2010). 3.5. Analysis With an overall perspective, the regulatory framework of Brazil may seem to be quite welcoming for a foreign company but with an in-depth analysis it can be stated that the economy imposes few major restriction to foreign trade in terms of labour laws and taxations, especially on the wine products and foreign marketers. Therefore, Australian Vintage Limited should focus on the regulatory framework of Brazil to commence its business in the economy. 4.0. Economic Environment 4.1. Interest Rates The interest rates in Brazil have been recorded to witness a steep rise over the past year in order to control the inflation in the country. Presently, the economy’s interest rate is 11.75% per annum which is recorded to be among the highest in the world (Cowley and Jeffris 2011). 4.2. Inflation Rates The inflation rates in Brazil has been forecasted to continue rising in the present and the next year. However, the current inflation rate of the country is fluctuating around 5.82% (Reuters Africa 2011). 4.3. Currency Exchange Rate The effect of growing inflation can also be witnessed in the fluctuations of currency exchange rates in Brazil. However, the current exchange rate of the economy was last recorded at 1.66 (approx) (Trading Economics 2011). 4.4. Free-Market/Command /Mixed Economies In the past century, i.e. in the 1980s, Brazil was categorized as a developing mixed economy. But presently, with the liberalization and the privatization policies the economy has gained its existence as free market economy (Spanakos and Bordin 2004). 4.5. Economic Trends With the virtue of its stability, the Brazilian economy tends to grow further with a healthier economic environment. According to most of the economists, the country is set to grow with a 5.5% increase in the GDP growth over the few years and most probably become the seventh largest economy of the world. However, its growing inflation rates, high unemployment and falling currency exchange rates can emerge as a constraint to the economy’s growth. Being a free market economy and a liberalized framework, the economy shall grow with rapidity (Economy Watch 2011). 4.6. Tax Policies The corporate income tax (IRPJ) charges are levied to 15% on the taxable profits of a company, while a surtax of 10% is imposed on the income if exceeded BRL 240,000. The social contribution tax (CSLL) is charged at the rate of 15% for any financial institution and 9 % for other firms. However, this is only applicable for the foreign companies which have their sales operations directly executed in the economy without any agent (Deloitte 2010). 4.7. Analysis With an in-depth analysis of the economic environment it can be stated that the Brazilian economy is quite promising for a wine company with minimum entry barriers and continuous growth with stability. However, Australian Vintage Limited should concentrate on the taxation of the economy in order to expand its business to the free market economy of Brazil. 5.0. Socio-Cultural Environment 5.1. Hofstede’s Cultural Dimension 5.1.1. Collectivism vs. Individualism According to the Hofstede’s cultural dimensions, Brazil can be identified as moderately individualist. That is, the socio-economic culture of the country tends to favor individualism more than collectivism which depicts that the influence of an individual on another is feeble (ITIM International n.d.). 5.1.2. Power Distance The power distance within the socio-economic culture of Brazil states that individuals and the corporate located in the economy is likely to have a great difference in power enjoyed by every personnel in the organizational hierarchy and in the economy as well (ITIM International n.d.). 5.1.3. Uncertainty Avoidance The Brazilians also tend to be highly reluctant to any kind of uncertainty which in turn depicts that they fear to examine anything new to the society (ITIM International n.d.). 5.1.4. Time Orientation According to the study of Hofstede, Brazilians tend to favor the long-term return over short-term. Thus, the socio-economic culture tends to be long-term oriented (ITIM International n.d.). 5.1.5. Quality vs. Quantity of Life Hofstede’s cultural dimension depicts that Brazilian society is moderately masculine in nature but a significant consideration is also provided to the femininity of the economy (ITIM International n.d.). 5.2. Analysis Hofstede’s study on the socio-economic culture of Brazil depicts that the economy has a flexible social environment. This in turn makes the entry of Australian Vintage Limited easier in Brazil with minimum social interventions. 6.0. Technological Environment 6.1. Technology Infrastructure The Brazilian technology infrastructure can be recommended as quite efficient to produce a percentage of the total wine produced in the global platform. Most of the wines are produced in the Southern part of the country. These wines are then distributed through a wide network accumulating the supermarkets, convenience and the specialized stores (Sawis 2011). 6.2. Communication and Networks Over the past few decades communication technology has become one of the crucial elements of the economy. For instance, it has witnessed steep rise in the number of peoples using internet and phones to communicate with the rest of the world (Brazilian Institute of Geography and Statistics 2006). 6.3. Logistics Network The Brazilian logistics network comprises of 62% of highways, 24% of railways, and almost 14% of waterways. However, the usage o roadways transportation is the highest in the economy as it has a wide coverage (GLG Expert Contributor 2010). 6.4. Analysis To market the products of Australian Vintage Limited, the Brazilian economy renders a wide network of roadways which can be used to distribute the products to various outlets, such as the supermarkets, convenience stores and others all around the country. 7.0. SWOT Analysis 7.1. Strength Australian Vintage Limited is unique in marketing few of the globally renowned wine brands with the extraordinary Australian flavor which is not available widely in the Brazilian market The company already has a wide coverage in the US and Canadian markets which shall prove supportive to commence its business in Brazil with a strong financial position. The company promotes innovation to match the tastes and preferences of the socio-economic culture in the foreign country (Australian Vintage Ltd 2010) 7.2. Weaknesses The company is relatively inexperienced in the Brazilian market and is habituated to operate in the framework of Australian regulations It expanded its business only to the markets where there is a high demand for wines in comparison to the Brazilian markets. 7.3. Opportunities The economy offers a supportive infrastructure in terms of technology and logistics The political environment is also quite stable There is a minimum interventions from the government and the society The regulatory framework of the economy is also encouraging 7.4. Threats The inflationary rates are rising which in turn shall raise the operating cost of the company in Brazil The currency exchange rate is decreasing It is an emerging market and the Brazilian wine industry is also quite young which tend to be increasing competitive The transport is mostly restricted to the roadways with a minimum scope for waterways, and airways or railways 8.0. Recommendations With an in-depth analysis of the business environment of Brazil, it can be stated that the economy offers numerous opportunities to a new entrant or a foreign company. Considering the various limitations of the company and the opportunities and threats of the economy, Australian Vintage Limited can market its product in Brazil. In this context, it can employ an agent, native to the economy or merge with a national marketer in the economy which would reduce its taxes and operation costs also. However, the brands can be marketed to the ultimate customers through supermarkets, convenience and specialized stores in the urban areas of the country with the assistance of the roadway communications. In this regard, the promotional activities of the product can be executed through internets, audio and other audio-visual media. References Austrade, 2010. Wine to Brazil. http://www.austrade.gov.au/default.aspx?ArticleID=8457 (assessed 2011/03/16). Australian Vintage Ltd, 2008. Our Journey. http://www.australianvintage.com.au/OurCompany/OurJourney.aspx (assessed 2011/03/16). Australian Vintage Ltd, 2010. Annual Report 2010. http://www.australianvintage.com.au/LinkClick.aspx?fileticket=MwqXIAEtkj0%3d&tabid=154&mid=484 (assessed 2011/03/16). Brazilian Institute of Geography and Statistics, 2006. The Department of Information Technology and Communications in Brazil. http://www.ibge.gov.br/home/estatistica/economia/stic/publicacao.pdf (assessed 2011/03/16). Cowley, M. & G. Jeffris, 2011. Already Lofty Interest Rates in Brazil Get Even Higher. http://online.wsj.com/article/SB10001424052748704005404576177071649000368.html (assessed 2011/03/16). Deloitte, 2010. International Trade and Business Guide. http://www.deloitte.com/assets/Dcom-Global/Local%20Assets/Documents/Tax/Intl%20Tax%20and%20Business%20Guides/2010/dtt_tax_guide_2010_Brazil.pdf (assessed 2011/03/16). Economy Watch, Brazil. http://www.economywatch.com/market/world-markets/brazil-market.html (assessed 2011/03/16). Georgetown University Political Database of the Americas, 2006. Federative Republic of Brazil. http://pdba.georgetown.edu/Constitutions/Brazil/english96.html (assessed 2011/03/16). GLG Expert Contributor, 2010. The Logistics Scenario in Brazil. http://www.glgroup.com/News/The-Logistics-Scenario-in-Brazil-47933.html (assessed 2011/03/16). Hindman, H. D., 2009. The World of Child Labor: An Historical and Regional Survey. Armonk NY: M.E. Sharpe. ITIM International, 2011. Geert Hofstede™ Cultural Dimensions. http://www.geert-hofstede.com/hofstede_brazil.shtml (assessed 2011/03/16). OECD, 2007. Brazil: Phase 2. http://www.oecd.org/dataoecd/61/30/39801089.pdf (assessed 2011/03/16). Reuters Africa, 2011. UPDATE 1-Brazil 2011 Inflation Forecast Rises to 5.82 pct. http://af.reuters.com/article/currenciesNews/idAFN1425301020110314 (assessed 2011/03/16). Sawis, 2011. Brazil Country Profile. http://www.sawis.co.za/info/download/Brazil_Profile_2011.pdf (assessed 2011/03/16). Spanakos, A. P. & Bordin, C., 2004. Reforming Brazil. UK: Lexington Books. Trading Economics, 2011. Brazilian Real Exchange Rate Chart (USDBRL). http://www.tradingeconomics.com/Economics/Currency.aspx?symbol=BRL (assessed 2011/03/16). Woodrow Wilson International Centre for Scholars, 2007. New Directions in Brazilian Foreign Relations. http://www.wilsoncenter.org/topics/pubs/english.brazil.foreignpolicy.pdf (assessed 2011/03/16). World Bank, No Date. The Regulatory Framework of FDI in Brazil. http://www.fdi.net/documents/WorldBank/databases/brazil/fdilaw_brazil.pdf (assessed 2011/03/16). Read More