Country Factbook - Brazil - Case Study Example

Brazil is a democratic country with a democratically elected government. However, the country’s history is plagued with a dark past of military rule. The democratic institutions that have been created after the democratization process have enhanced the democratic space in the country. The constitution of Brazil, which was enacted in 1988 but has undergone numerous reforms since then provides the legal basis for the political and social structure. The government is comprised of three independent but interrelated branches including the executive, the judiciary, and the legislature. In terms of social structure, Brazil is an ethnically and demographically diverse country comprising of diverse races, ethnicities, and other social groups. These include whites, mulatto, Blacks, Asians, and indigenous groups. In terms of age composition, the youth form the largest part of the population (CIA, 2016).

Microeconomic Conditions

Business Environment

Brazil is one of the BRIC economies. This implies that the country is among the most promising in terms of foreign investment and overall business environment. With the highest per capita income among the BRIC economies, Brazil forms a great business environment with major opportunities. Additionally, the country has a large population with a growing middle class that provides a significant consumer market. Finally, thanks to trade liberalization, economic diversification, and privatization, the business environment in Brazil has improved a great deal over the years. However, the country still faces some challenges that create risks to business such as corruption, government bureaucracies, and the current recession.

Emergence of Large Companies

Thanks to the improved business environment and economic prosperity in Brazil in the last decade, the country has attracted large companies including local and foreign-based companies that are shaping the country’s micro economy. Some of the leading companies in Brazil include Telefonica S.A, Previ, BBD Participacoes, Telemar Participacoes, Shell, Nestle, General Motors, Volkswagen, Unilever, Ford, and Embraer. The presence of these large and well-known companies and brands in the country is an indication of the improved microeconomic conditions in the country.

Brazil’s National Diamond

Porter’s national diamond framework provides an important tool for comparative analysis of the competitiveness of countries within particular industries, sectors, or clusters. The framework is based on four components including factor conditions, demand conditions, related and supporting industries, and strategy, structure and rivalry. In addition to these four components, the framework also considers the role of government in managing and facilitating companies to attain higher levels of competitive performance. As a developing country, Brazil’s national diamond is typical of most developing countries with several exceptions.

• Factor Conditions – Brazil is endowed with important natural resources such as significant agricultural land, water, and a conducive climate. Additionally, the country is strategically located such that it can conduct trade with neighbouring South American economies as well as other countries from other continents.
• Demand Conditions – although Brazil has a high level of poverty and significant income inequality that undermine the local demand, the country has a large middle-income class that increases local demand and consumption. In fact, local demand is a major driver of the country’s economic development.
• Relate and supporting industries – from the overview of Brazil’s economy above, particularly the composition of the economy, we established that the country has a diverse economy comprising of multiple industries. Apart from the industries, the country has multiple economic clusters. This implies that the country has multiple industries and clusters that are related and or support each other. For example, the agricultural sector provides the necessary raw materials for manufacturing sectors.
• Strategy, structure and rivalry – with the adoption of crucial macroeconomic policies and reforms in the country, Brazil’s competitiveness has improved over the last decade. Currently, doing business in Brazil is easy and not as risky as before thanks to the structure and policies of the different industries and sectors. Moreover, intense competition in the local industries enhances the innovation and competitiveness of the companies operating in Brazil.
• Role of Government – the government has been a major facilitator of the competitiveness of Brazil through developing, implementing, and enforcing various laws and policies to manage collaboration in clusters and moderating direct competition through appropriate anti-trust laws.

Recommendations for Country Competitiveness

To improve Brazil’s competitiveness and address the current challenges, the following recommendations are necessary.

• Addressing Concerns of Corruption – corruption is one major stumbling block to Brazil becoming a more competitive economy regionally and globally. The high prevalence of corruption has spurred local and foreign concerns and loss of trust in the country and the government. Therefore, it will be important that the government in conjunction with the private sector adopt effective measures to eliminate corruption.
• Focusing on New Foreign Markets – recently, external demand for the products from Brazil has declined leading to reduce export levels. The implication of this has been the declining contribution of commodity exports in the economic growth of the country. To address this, there is an urgent need to identify new foreign markets with greater potential that will increase the amount of exports flowing out of Brazil.
• Improving Local Business Environment – the competitiveness of Brazil is largely dependent on the suitability of its business environment. While major steps have been made to enhance the business environment in the country, there are major issues that need to be addressed. These include lack of adequate infrastructure and political unrest that have increased business risks. Therefore, it is important that the government and other stakeholders invest more in developing local infrastructure to attract local and foreign businesses as well as dealing with the political unrest by addressing the fundamental governance and institutional issues causing such unrest.

Brazil Coffee Cluster Analysis

Cluster Context

Brazil is the world leader in the production and consumption of coffee. Brazil has been the leading coffee producer for over 150 years. However, the total percentage of Brazil coffee production in the total coffee production has declined in recent times. Despite this, Brazil’s coffee cluster continues to thrive. The coffee cluster comprises of multiple stakeholders in the coffee value chain from the coffee producers to the processors and distributors including the exporters.

Brief History

Coffee is not native to Brazil. It was introduced in the country in the 18th century. However, it was not until in the 19th century that the country experienced a coffee boom. Since then, coffee became a major export commodity for the country. In the 1920s, Brazil almost monopolized the global coffee market by accounting for over 80 per cent of the total global coffee. Coffee became a major driver of the economy of Brazil through its significant contribution to total exports. This coffee boom had a major contribution to the economic development of Brazil. However, it did not last long. Towards the middle of the 20th century, the coffee boom came to end, which laid the ground for the emergence of other sectors and clusters (Mello, 2012).

Cluster Structure and Value Chain

The coffee cluster in Brazil comprises of coffee producers, processors, and distributors. There are over 220,000 coffee farms in the country. These include small-scale and plantation farms. The coffee plantations cover an area of approximately 27,000 square kilometres. The coffee producers are organized into cooperative societies. After harvesting coffee, the producers often take their berries to their respective cooperative societies where the coffee is cleaned and sun dried before the outer layer is removed and the beans are then sorted and packed in 60-kilogram bags. This packed coffee is then sold to processors who finalize the processing to come up with the finished product including instant coffee and roasted coffee. The processing industry comprises of two categories of processors; those processing grounded coffee and those processing instant coffee. The former is more competitive with many companies while the latter is more consolidated with a few major players. Instant coffee is the main type of processed coffee and Brazil is also the leading country in the export of instant coffee.

To ensure order in the coffee cluster, Brazilian Coffee Industry Association (ABIC) was established in 1973 with the main objective of regulating the coffee industry. With over 500 processing companies in Brazil currently, ABIC is the most important regulator of the coffee cluster in the country (Mello, 2012).

Performance of Coffee Cluster

Overall, the performance of the coffee cluster in Brazil has declined since the coffee boom of the 19th century. Globally, Brazil accounts for about 30 per cent of total coffee production and is the leading coffee producer and consumer. In terms of coffee varieties, Brazil is also the leading country in terms of the number of coffee varieties grown. However, considering the two main commercial varieties of coffee, Arabica and Robusta, Brazil produces more Arabica than Robusta coffee. In 2011, coffee exports represented about 10.2 per cent of all commodity exports from Brazil. In the same year, total coffee production was 2.7 million tonnes with Arabica accounting for 10 per cent and Robusta accounting for only five per cent. In terms of revenue, coffee exports generated over $7.8 billion in 2011 (Mello, 2012).

Challenges in Brazil Coffee Cluster

The Brazil coffee cluster is facing various challenges some of which have been there for quite a long period. One of the greatest challenges is the declining production and contribution of coffee to the economy of the country. With the diversification of the economy, other economic clusters have come up and the effect has been the decline of the contribution of the coffee cluster. Another major challenge, which is not peculiar to Brazil, is the declining price of coffee. As illustrated in diagram 2 below, coffee prices in the global market have been declining since 2010/2011 (Esser, 2015). As a demand factor, the declining coffee prices have discouraged coffee producers leading to limited production. The low prices and delays in payments are pushing many coffee producers into other sectors.

Diagram 2: Global Coffee Production, Consumption, and Prices 2002/2003-2012/13

Source: (Esser, 2015, p. x).