Economic and Business Environments of Brazil and Mexico - Research Paper Example

Country Justification Report: Brazil and Mexico Table of Contents Executive Summary .3 0 Introduction 4 1.1 Product Profile ...4 2.0 Country Analysis on Mexico .4 2.1 Socio-political environment of Mexico..4 2.2 Population Profile...4 2.3 Economic and Business Environment of Mexico..5 2.4 GDP Growth Rate..5 2.5 Treaties with Mexico.5 2.6 Mexican Exchange Rate5 3.0 Country Analysis on Brazil6 3.1 Socio-political environment of Brazil6 3.2 Geography..6 3.3 Employment...6 3.4 Economic and Business environment of Brazil.6 3.5 Tourist Attractions 7 3.6 The North East Coast.7 3.7 Ecotourism.7 3.8 Brazil's Tourism Industry..7 4.0 Country Choice .7 5.0 Mode of Entry8 6.0 Conclusion.8 Executive Summary Our Company, a chain of hotels, has been seeking for a place for expansion, preferably a country where there is an influx of tourists and where the building of a new investment or business in that particular country may not encounter much problems from the political and economic points. There were two choices for this study and they were Mexico and Brazil. At first there were a number of choices, but we narrowed this down to the two because of their showing of good political and economic climate. We gave a study on the two countries, sought the help of good advisers in these two places and started the researches. It was a collaboration of independent study and this Company's own study that we came up with some concrete decisions. Mexico is a good place of destination for tourists. Tourists can come from the USA because it shares a border with that economic power. Brazil also has a stable economic and political background. Both are stable politically and economically, so we have to give a discrete study and analysis on these two. Our study focused on the political, economic and business environments of the two countries touching on areas such as GDP and GNP, political background and stability and economic upturn or downturn during recent surveys. Primary research was provided by an independent think tank, but our very own Company did not waste time in surfing the web for possible clues and more data, from reference books, periodicals and other sources of data. We came up with the most detailed analysis and this was the choice of Mexico. Mexico is our next investment destination for our chain of hotels. 1.0 Introduction This report analyses the sociopolitical and economic environments of Brazil and Mexico, and a commercial expansion potential for hotel industry. The basis for an expansion of a chain of hotels will be taken out of this study. Brazil and Mexico were chosen as expansion because the two countries showed growth in GDP in recent years. 1.1. Product Profile Our hotel business plans to expand by 2008 and has considered Mexico or Brazil to be the two countries where we can expand our business. Our studies revolve around the socio-political, and economic and business environment perspectives of the two countries. We have concluded that it has to be only one country as place for expansion by the year, so that only one will be chosen as a result of this study. It will be either Brazil or Mexico. The studies focused on the cost of travel and tourism inside the country and the influx of tourists, costs of hotel accommodations and travel, international tourists who are the customers, and income expenditures. 2.0 Country Analysis on Mexico 2.1 Socio political environment of Mexico Mexico is an important tourism generator, just outside the top 20 in terms of expenditure, yet it is also a 'one destination' country. Roughly nine out of every ten outbound travelers go to the USA. A quarter of the population live in extreme poverty, while the richest 10% enjoy more than one-third of the total household income and the richest 20% earn more than half. According to the World Bank, Mexico ranks around 75th in the world in terms of GDP per capita, and a market to watch for the future. There was a catastrophe for outbound travel in 1995, when the peso lost almost half its value. Gross propensity to travel abroad, which was then over 13.2%, fell sharply and was still only 10.6% in 1999. The old level should be regained by 2003, establishing a new base from which to go forward. Former President Ernesto Zedillo (Institutional Revolutionary Party or PRI) pursued a policy of privatization, incorporating railways, communications and airports and the number of state-owned enterprises fell from 1,000 in 1982 to 200 in 1998. When President Zedillo was defeated in July 2000, Vicente Fox became the first opposition party candidate to attain the Presidency of the Republic for his party, the Partido Accin Nacional (PAN), ending over 70 years of PRI dominance. Mr. Fox's appointment has strengthened US ties and the former President of Coca Cola for Mexico has already started to replace government bureaucrats with key business people and is known to favor a more European Union-style common market for North America. However, with the PRI remaining the single largest party in the Chamber of Deputies, and holding a four-seat advantage in the Senate, Mr. Fox is left heavily reliant on the left-wing Partido de la Revolucion Democratica (PRD) for support. Mexico's relationship with the USA has its price however and the predictions of a boom are undergoing a revision in light of the economic slowdown north of the border. Growth estimates for 2001 have been pared down accordingly from 4.5% to 2.5% as a deterioration in the international environment weakens the peso. 2.2 Population Profile Mexico's population is still growing very rapidly, one of the highest rates in this survey. In 2000 there were over four times more births than deaths and during the 1990s the annual average increase was 1.7%. Even for 2040 - 2050 the rate of increase is still forecast to be 0.4%, taking the population from around 100.4 million now to more than 153.1 million and overtaking the declining Japanese population by 2020. Mexico has a population profile very different to most other countries in this survey because of its extraordinary population growth. The largest population group is aged 0 - 4 years (11.4 million) and each succeeding age group is smaller than the one before. Only some 4.3% of the population is aged 65 and over, and even by 2025 this will be a mere 8.6%. On the other hand, almost 44.5% of the population is aged 19 or less. Mexico's 'burden', then, is not its retired people but its youngsters. 2.3 Economic and Business environment of Mexico Mintel Reports say that the Mexican economy has proven robust and economic growth during 1998 was just under 5%. Mexico ranked 15th in the world in terms of total GNP, according to the World Bank, but only 75th in terms of GNP per capita, which was put at US$3,840. 2.4 GDP growth rate The Instituto Nacional de Estadistica Geografia e Informatica (INEGI) recorded Mexico's GDP for 2000 at US$574,445 million, fuelled by strong quarterly increases of between 5% and 7% on 1999's results, and it expects it to maintain this rate of increase during the next three years. For 1999, GDP growth is put at 2.8% by the Mexican Bulletin of Statistical Information and at 3.7% by the OECD. The World Bank provisionally calculated Mexican GNP for 1999 at US$469,904 million, but the Mexican government eventually measured it at US$429,600. 2.5 Treaties with Mexico Mexico maintains a close relationship with the USA, and Mintel says that this is the key to the Mexican economy. Mexico shares a 2,000 mile border with the USA. Mexico is one of the three partners in the North American Free Trade Agreement (NAFTA), together with the USA and Canada. Since its creation in 1994, exports have more than doubled, to US$135.9 billion in 1999. In 1998, 88% of Mexico's exports were to the USA and 74% of imports were from the USA. Outbound tourism is even more closely tied to the USA. Mexico also has free trade agreements, with Chile, Costa Rica, Bolivia, Colombia and Venezuela and negotiations continue for other countries and for the European Union. 2.6 Exchange rates Europe is becoming significantly cheaper for Mexican travelers and this should start to show up in arrivals figures. There was an average peso10.2:e1 in 1999, but at June 2000 the figure stood at only peso8.84:e1 and at peso8.05: e1 in August 2001. France is the most important destination in Europe and during the 1990s had been getting steadily more expensive for Mexicans, except for 1997 when the currency strengthened for a time against the Franc. 3.0 Country Analysis on Brazil 3.1 Socio-political Environment of Brazil Brazil has a population of 188,078,227 as of July 2006 and is located in eastern South America, bordering the Atlantic Ocean. It is the largest travel and tourism economy in the world, second only to Mexico in the Latin American region. Brazil achieved independence in 1822 after three centuries of Portuguese rule and became a republic in 1889. Overcoming more than 50 years of military rule, civilian rulers were given power in 1985. With vast natural resources and a large workforce, it is South America's leading economic power today, although income disparity remains a problem. Brazil has the largest Afro-population outside of Africa - 10.5 million according to the 2000 census - and is also home to the largest community of Japanese outside of Japan, approximately 1.5 million people. Other immigrant arrivals over the past two centuries include those from Italy, Spain, Germany and Poland. 3.2 Geography Covering a huge territory of over 8.5 million square kilometres, Brazil comprises half the landmass of South America. About the size of the US (excluding Alaska), it is one of the most biodiverse countries on earth. With most of its 188 million population concentrated on the coast, a wild nature defines the interior. Brazil has the highest number of plant, primate and amphibian species of any country. In the Amazon forest alone there are 30,000 plant species, 2,000 kinds of fish, 1,000 kinds of birds, 300 mammals, 300 amphibian animals and 250 kinds of reptiles. Brazil has over 350 national parks, accounting for 5% of the national territory. 3.3 Employment Brazil's travel and tourism economy employment is estimated at 5,495,000 jobs in 2006, 6.4% of total employment, or 1 in every 15.6 jobs. By 2016, this should total 6,855,000 jobs, 6.6% of total employment or 1 in every 15.1 jobs. The 2,337,000 travel and tourism industry jobs account for 2.7% of total employment in 2006 and are forecast to total 2,740,000 jobs or 2.6% of the total by 2016. 3.4 Economic and Business Environment of Brazil Brazil is the 18th largest travel and tourism economy in the world, second only to Mexico in the Latin American region. Brazil's tourism picture has changed significantly since the last report in 2002. A return of economic and political stability to the region has seen Brazil emerge as South America's leading economic power. Stability in Argentina, Brazil's main market for tourism, and a steady increase in arrivals from Europe (following the development of its sun and sand product on the north east coast) saw 2005 bring about a return to pre-2001 arrivals levels of 5.3 million, according to statistics from the tourism board. Although beset with capacity problems in 2006 following the collapse of VARIG (the international carrier), and with the World Cup and elections in December diverting both budget and attention, Brazil continues to perform well. Air capacity is due to be increased by the end of the year, allowing for further expansion. 3.5 Tourist Attractions The three most popular Brazilian attractions are the iconic city of Rio (with its colourful carnival and famous beaches), the Iguau Falls and the Amazon at Manaus. With 8,000km of Atlantic coastline, Brazil's beautiful beaches are also a main selling point. 3.6 The north east coast With European investment and both scheduled and charter services to Bahia, Ceara and Natal, the north east is experiencing a boom in top-end tourism, with new properties and tourism services mushrooming in 2006. Many of the new resorts being built here are driven by strong domestic tourism to the region, served by low-cost airline Gol, whilst north eastern beaches offer winter sun to Europeans. New inexpensive packages from operators Thomas Cook and First Choice have introduced Natal and Salvador to the UK mass market. 3.7 Ecotourism With most of the population along the coast and only wild nature in the interior, Brazil is ripe for developing its ecotourism product. This has huge potential but is largely untapped. With most of the country inaccessible by road - including most of its 350 national parks, which do not have a particularly developed tourist infrastructure - much of the ecotourism (bird watching, fishing, trekking etc) is concentrated near the Iguau Falls. The unique Amazon Basin, which accounts for almost 50% of Brazil's territory, is the other main centre, with accommodation ranging from farms to ecological resorts. The Pantanal region in the south has some of the richest animal and bird life in Latin America, with over 200 species of bird seen annually in March. 3.8 Brazil's Tourism Industry Brazil's travel and tourism industry is expected to contribute 2.8% to GDP in 2006 (BRL59.3 billion or US$25.3 billion), rising to BRL125.1 billion or US$36.0 billion by 2016 (according to the WTTC). The travel and tourism economic contribution is predicted to rise from 6.7% (BRL141.1 billion or US$60.1 billion) to 6.9% (BRL322.4 billion or US$92.9 billion) in the same period. 4.0 Country Choice 4.1 Mexico is the choice for hotel expansion due to the following strong points: According to Mentil Report, Brazil is only second to Mexico when it comes to travel and tourism economy (Mentil Report presents report of economies and industries throughout the world); The Mexican economy has proven robust and economic growth during 1998 was just under 5%. Mexico ranked 15th in the world in terms of total GNP, according to the World Bank, but only 75th in terms of GNP per capita, which was put at US$3,840. Mexico's GDP for 2000 recorded at US$574,445 million, fuelled by strong quarterly increases of between 5% and 7% on 1999's results, and it expects it to maintain this rate of increase during the next three years. Due to political and economic stability since 2002, Brazil has emerged as South America's leading economic power. 5.0 Mode of Entry The mode of entry chosen focuses on ownership advantages and location advantages. Mexico is strategically located and shares a border with the USA. Expansion for hotel is most recommended and preferred. Also, there is an availability of labor and at low cost. Hispanic people are easy to train, and are well-versed in English. The USA is a source of customers, tourists, who are free to enter Mexico. 6.0 Conclusion Mexico is a good investment destination. An expansion of a chain of hotels in the Mexican land will make our company richer and grow bigger. The country is conducive to foreign business because of the present political and economic stability. As mentioned earlier, Mexico is an important tourism generator because of its proximity to the USA. Even if one fourth of the population live in extreme poverty, it still ranks 75th in the world in terms of GDP per capital. It is a market to watch in the future. According to reliable reports from the Mintel website, Mexican economy is robust and ranked 15th in the world in terms of total GNP, according to the World Bank. Its GDP for 2000 at US$574,445 million was because of quarterly increases. Brazil is second to Mexico, our main reason for the choice. Although Brazil's tourism picture has changed significantly since 2002 and a return to economic and political stability has been seen, Mexico is more stable politically and economically. References Grihault, N. http://academic.mintel.com/index.html Mexico Report, GDP per annual growth, can be found online at: http://globalis.gvu.unu.edu/indicator_detail.cfmCountry=MX&IndicatorID=19#row Appendices Appendix A: Mid-year Population estimates for Mexico Appendix B: Exchange Rate against Mexican peso Appendix C: Brazil's Tourism Receipt Appendix D: International Tourist Arrivals for Brazil 1990 - 2005 Appendix E: Brazil Hotel and Room Capacity Appendices Appendix A Mid-year population estimates for Mexico, 1950 to 2050 Year Population Year Population Period Average annual % change 1950 28,485 1996 94,080 1950-1960 3.0 1960 38,579 1997 95,667 1960-1970 3.1 1970 52,775 1998 97,245 1970-1980 2.6 1980 68,686 1999 98,807 1980-1990 2.1 1990 84,446 2000 100,350 1990-2000 1.7 1991 86,055 2010 114,995 2000-2010 1.4 1992 87,667 2020 128,008 2010-2020 1.1 1993 89,280 2030 139,125 2020-2030 0.8 1994 90,888 2040 147,660 2030-2040 0.6 1995 92,488 2050 153,162 2040-2050 0.4 Appendix B: Selected exchange rates against the Mexican peso, 1994-00 1994 1995 1996 1997 1998 1999 2000a Peso1 US dollar (US$) 3.36 6.41 7.59 7.91 9.14 9.56 9.50 Euro (e) - - - - - 10.20 8.84 French franc (FFr) 0.55 1.29 1.48 1.36 1.56 1.56 1.38 As at June 2000 Appendix C Brazil's Tourism Receipt Receipts and expenditure Figure 1: Tourism receipts, 1990-2005* Year Receipts (US$ million) 1990 1,492 1991 1,079 1992 1,066 1993 1,097 1994 1,051 1995 972 1996 840 1997 1,069 1998 1,586 1999 1,628 2000 1,810 2001 1,731 2002 1,998 2003 2,479 2004 3,222 2005 3,861 Appendix D: International tourist arrivals in Brazil, 1990-2005* Year Arrivals 000s 1990 1,091 1991 1,228 1992 1,692 1993 1,641 1994 1,853 1995 1,991 1996 2,666 1997 2,850 1998 4,818 1999 5,107 2000 5,313 2001 4,773 2002 3,785 2003 4,133 2004 4,794 2005 5,358 Note: *provisional Appendix E Brazil hotel and room capacity Type of hotel 2003 2004 2005 2006* Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms Independent 4,883 200,883 4,925 202,600 6,430 255,889 6,494 258,488 Hotel and condo (national) 202 30,211 312 39,010 292 38,464 333 41,990 Hotel and condo (international) 270 46,198 272 47,866 281 49,183 305 53,615 Total 5,355 277,292 5,509 289,476 7,003 343,536 7,132 354,238 Note: *provisional Read More