Doing Business in Brazil - Essay Example

Doing Business in Brazil Doing Business in Brazil: An In-depth Comparative Country Analysis Introduction Today’s business environment is increasingly shaped by supranational events of globalization. Nowadays, business firms today are outward looking than ever before. As domestic business opportunities and markets shrink, many entrepreneurs are now focusing on international business, especially in countries that promise market for products and a high rate of return on investments. More Canadians are looking for business opportunities outside Canada where they can rip sufficient profits. In this regard, it is important that an investor has sufficient understanding of the political, economic, social, technological, as well as legal environment of the country within which he wants to invest and conduct business. This project takes an in-depth analysis of a prospective country that promises good business. The chosen country in this case is Brazil. A comparative approach will be taken to show how Brazil is different from Canada in many aspects of business environment. Brazil The Federative Republic of Brazil, as it is officially known, is the largest independent state in Latin America and the entire South American region. In terms of population and even geographical space, Brazil takes fifth position in the world (Philander, 2012). It is a Lusophone country owing to over three centuries of Portuguese colonial rule. Although colonial rule ended in 1822, it was not until 1899 that the military proclaimed the republic thereby breaking away from the monarchical form of government that had dominated since independence. Today, the country is preoccupied with industrial as well as agricultural development in the rural areas. Today, Brazil is not only the chief economic power but also the regional leader in South America with immense natural resources and a huge labor force (CIA, 2014). Its global power has been rising steadily since the 1990s and experts claim that Brazil will play an important role in shaping this century (Dauvergne & Farias, 2012). Thus, because of its vast resources, Brazil offers unlimited investment opportunities for business enterprises. Its huge population offers a fertile market for finished goods as well as labor for the industries. Geography of Brazil Knowing the host country’s geographical conditions is very important in determining the kind of investment to undertake in it especially if the intended business is agriculture. Brazil is located in the South American continent. It is bordered by the Atlantic Ocean to the east with a long coastline extending up to 7,491 km. Countries bordering Brazil include Colombia, French Guiana, Guyana, Bolivia, Peru, Argentina, Paraguay, Venezuela, Suriname and Uruguay (CIA, 2014). According to the CIA’s World Fact Book, 2014, Brazil’s climate is largely tropical apart from the southern part of the country that experiences temperate climatic conditions. Canada also experiences temperate climate to the south while the northern part of the country is usually subarctic or arctic. Flat and gentle slopes in the north, plains, small hills as well as mountains and a thin coastal belt characterize the Brazilian terrain. Brazil experiences a number of environmental issues and natural hazards. The northeastern part of the country is prone to perpetual droughts while the southern part occasionally experiences some floods and frost. This means that those who wish to do business in Brazil must be prepared for these problems. Deforestation is a major problem in the Amazon Basin and is said to be a threat to wildlife habitat. This means that the Brazilian government may not be willing to license tree logging in the basin in order to protect wildlife habitat. Brazil also faces serious water as well as air pollution particularly in Sao Paulo and Rio de Janeiro among other major cities. Land degradation and oil spills are also major issues of concern. In Canada, major environmental hazards of concern are permafrost in the north, cyclones and snow. These have posed serious development challenges. Air pollution is also a major problem since it causes acid rain (CIA, 2014). The People of Brazil Doing business in a foreign country implies dealing with the people of that country. It is therefore important to understand the people, their society and their culture in order to be able to deal with them in an appropriate manner. Majority of Brazilians are white but mulatto also form a substantial portion of the population. Others include blacks, Japanese, Arabs and Amerindian (CIA, 2014). The official as well as the most commonly spoken language in Brazil is Portuguese; an enduring legacy of the Portuguese colonial rule. This implies that Canadians who would like to do business in Brazil must first learn Portuguese language in order to conduct business. This is because Canada, unlike Brazil uses English and French as its official languages. Very few Brazilians speak English and similarly, very few, if any, Canadians speak Portuguese. In terms of religion, majority of Brazilians are Christians; mainly Catholics Protestants. Similarly, majority of Canadians are Christians. This means, therefore that Canadians who wish to invest in Brazil have no major issues concerning religion. It is also important to understand the demographics of the host country in order to be able to make sound investment decisions. Compared to Canada’s slightly over 34.5 million people (2013 estimates), Brazil has a huge population of 201 million people (2013 estimates). This shows that Brazil has a huge labor force and fertile market for a wide range of goods and services compared to Canada. Majority of the Brazilian people are middle-aged adults ranging between 24 and 54 years. They form 43.6 per cent of the total population. Those aged below 25 years have are also many; they make up about 40.9 per cent of the total population. The rest (15.5 per cent) are 55 years and over (CIA, 2014). The demographic characteristics of the Brazilian population in terms of age are more or less the same as those of Canada. Majority of Brazilians live in the urban areas especially in Rio de Janeiro, Belo Horizonte, Porto Alegre, and Brasilia. Most of them are literate but a substantial population of the youth between 15 and 24 years are unemployed. Therefore, those who wish to invest in Brazil will play an important role of creating employment for the Brazilian youth. Just like Brazilians, majority of Canadians also live in urban areas particularly in Toronto, Montreal, Vancouver, Ottawa and Calgary. It is interesting to note that in both Canada and Brazil, the capital cities are not the most populated cities (CIA, 2014). The Government of Brazil Equally important for prospective investors in Brazil to understand, is the form of government. In as much as we are in the free market global economy, national governments still play some roles in trade. In many countries, governments provide a conducive, political environment for businesses to thrive. They also offer legal regulatory framework within which citizens and even foreigners conduct their businesses. In addition, governments create important diplomatic ties with other governments to enhance trade. Brazil is a constitutional multiparty federal presidential democracy that got its independence from Portugal on September 7, 1822. Administratively, Brazil is divided into 26 administrative states. The government is composed of the executive branch, the legislative branch and the judiciary. Contrary to Brazil, Canada is a parliamentary democracy and a constitutional monarchy (CIA, 2014). A popularly elected president who is the head of state and government heads the executive of arm of government of Brazil. Presidential elections are held after every four years and the next election is scheduled for October 5, 2014. The president appoints the cabinet to run government ministries. In Canada, the head of state has been Queen Elizabeth II since 1956 and the governor represents her. The head of government in Canada is the Prime Minister who is usually the majority party’s leader. The governor is usually appointed by the queen but on the advice of the Prime Minister (CIA, 2014). The Brazilian legislative branch of government of Brazil is known as the National Congress and is bicameral in nature. It is made up of the Federal Senate and the Chamber of Deputies who are elected for a period of four years. During elections, over 30 political parties take part. The legislative arm of the government of Canada on the other hand is known as Parliament. It is also bicameral consisting of the Senate and the House of Commons. Senators are appointed by the governor to serve until the retirement age of 75 years while members of the House of Commons are popularly elected for a four-year term. In Brazil, citizens who are 16 or 17 years and those above 70 years can vote voluntarily. However, those who are aged between 18 and 70 years are obligated to vote. In Canada, popular suffrage begins at the age of 18 years. The judicial arm of the government in Brazil is made up of the Supreme Federal Court with several other subordinate courts. Subordinate courts are both at the federal and state levels of government. Similarly, Canada also has a Supreme Court and many other subordinate courts. Brazilian Economy Sound investment decisions are made based on accurate information on the country’s economy. It is important for any foreign investor to understand the economic environment and performance of the host country in order to know what kind of investment to venture into. Accurate information on the country’s economic performance is also important for it enables investors to forecast. Brazil is a Latin American regional economic giant and an emerging global power. Its economy outweighs the economies of its neighbors in the region. For the past ten years, Brazil has maintained macroeconomic stability and increased its foreign reserves. Evidence of Brazil’s wise macroeconomic strategies was the achievement of a 2.7 per cent primary surplus of GDP in 2012 (MarketLine, 2013). Moreover, the country has managed to reduce foreign debt significantly by gravitating toward domestic borrowing. By 2008, Brazil was a net foreign creditor and was among the emerging markets to witness recovery in the wake of the global financial crisis (CIA, 2014). Credit rating agency, Standard & Poor rated Brazil’s sovereign credit at BBB while its local currency was rated at A- (MarketLine, 2013). Brazil promises a conducive, environment for investors with high rates of interest. Brazil is quite open and takes deliberate steps and policies aimed at attracting foreign direct investment (PRS Group, 2014). Because of the friendly policies that attract foreign direct investment (FDI), foreign investors have been trooping to the country and by 2012; the Brazil Country Report indicates that FDI was to the tune of USD $65 billion. The United Nations Conference on Trade and Development’s (UNCTAD) report on world investment ranked Brazil as number five among most attractive countries for FDI affirmed Brazil’s global competitiveness. This is concerning the period 2012-2014. Almost half of the FDI in the South American region goes into Brazil according to the Brazil Country Report of 2014. However, there are a number of issues that FDI investors need to know concerning Brazil. In as much as it is considered an investor friendly country, there are certain protectionist policies that are not so friendly to foreign investors. Canadian investors with an eye on Brazil should therefore take these issues in mind when planning to invest in Brazil. There are some restrictions over FDI in certain sections in Brazil. In economic sectors such as media, insurance and aviation, there are restriction concerning foreign ownership. In aviation for example, the government of Brazil does not allow ownership of more than 20 per cent. In the insurance sector, foreign investors are equally faced with restrictions for they cannot enter the market directly. They should create a subsidiary, develop joint undertaking, take over, or create a partnership with a local firm. Banks are similarly restricted concerning entry into the Brazilian market with resolution 225 of Brazil’s National Council on Private Insurance (CNSP) requiring that not less than 40 per cent of reinsurance risk must be placed with indigenous Brazilian companies (PRS Group, 2014). In the media, the government of Brazil requires that 80 per cent of television programming content must be local in origin. On satellite television, investors must either dedicate 3 per cent of their remittances to co-production Brazil’s audio-visual products or pay 11 per cent as remittance tax (MarketLine, 2013). In contrast, there are no such restrictions of foreign capital in Canada. In fact, Canada places importance on lower corporate taxes as incentives for drawing in FDI (MarketLine, 2012). There are more limitations in other areas of the Brazilian economy. In terms of land ownership, foreigners are not allowed to own land within a distance of 150 km of the national borders. It can only be allowed with the approval of the National Security Council of Brazil. Land ownership in the Amazon is similarly restricted (PRS Group, 2014) due to the deforestation problems in the Amazon Basin. In addition, foreign ownership and/or control of agricultural land is restricted whereby foreigners cannot buy or lease more than 25 per cent of all the land under the jurisdiction of any municipal or district. Moreover, foreign nationals from the same country cannot own or lease land exceeding 10 percent in a municipal district. Canadian investors eying the Brazilian Market must therefore be aware of the restrictions that are there. This is particularly necessary because the Canadian business environment is highly liberalized. Canada scored 79.9 in the 2012 Index of Economic Freedom which placed at position six of the freest countries in the world. In addition, it takes a relatively short period to start a new business in Canada compared to Brazil (MarketLine, 2012). Energy Energy is needed to drive the economy and without it, the economy halts. All industrial processes are driven by one form of energy or the other. Brazil produces about 530.7 billion kWh of electricity while its consumption is about 455.8 billion kWh per year. This means that Brazil has a surplus electrical energy supply and for that matter, it exports roughly 2.544 billion kWh. Most of Brazil’s electricity comes from hydroelectric plants while some is generated from fossil fuels as well as nuclear fossils. Besides electricity, Brazil also produces huge amounts of crude oil amounting to about 619,100 barrels per day according to the CIA (2014). Moreover, Brazil has significant natural gas reserves although consumption of natural gas exceeds production. However, Brazil does not have energy problems and as a result, prospective investors are assured of constant and reliable power supply. Communication Communication is a key element in business management and administration. It enables transmission of important messages from consumers to the business owners and vice versa. Both local and international communication technology must be sufficient to achieve this end. We mentioned earlier or that Portuguese is the official language in Brazil. There are extensive telephone lines and telephony system that is in proper working condition. Brazil also has an excellent mobile phone penetration with over 248.3 million mobile cellular. Mobile cellular technology has played a leading role in driving the expansion for telephone services, especially to the low incomes segments of the Brazilian economy. Apart from telephones, there is also a state-run radio as well as TV network besides thousands of private radio stations and hundreds of TV channels. However, internet usage in Brazil is relatively low with slightly over 26.5 million hosts serving about 76 million internet users (CIA, 2014). This means, therefore, that those who invest in Brazil will reach a large audience by using electronic media than internet. Transportation Just like communication, transport is essential in the conduct of business for it plays a crucial role of delivering raw materials to the factories and finished goods to the consumers. An efficient system of transport ensures that goods get to the market on time. Brazil has second largest number of airports in the world amounting to 4,093 (CIA, 2014). It also has an excellent pipeline system and a good road network amounting to 1,580, 964 km. Besides, the country has a good number of seaports and merchant ships. Therefore, foreign investors need not to worry about transport in Brazil. Military Although Brazil’s rise is based on soft, non-military power (Dauvergne & Farias, 2012); Brazilians aged between 18 and 45 years of age are required to serve in the military. The Brazilian armed force is divided into the army, the navy and the air force. Because of the compulsory requirements for military service, Brazil has over 83 million men and women who are fit for military work. The country spends about 1.5 per cent of its GDP on the military (CIA, 2014). Transnational Issues Brazil faces a number of transnational issues such as drug trafficking, smuggling of arms, as well as paramilitary activities that penetrate the country from neighboring countries. There is also a small border dispute pitting Brazil against Uruguay over the Brasiliera Island (CIA, 2014). Moreover, cocaine consumption in Brazil is very high while illicit production of cannabis continues unabated. Because of high cases of drug trafficking, cases of drug-related violence are high with highly organized and sophisticated gangs posing serious security challenges in cities such as Rio de Janeiro. Market Entry Strategies Strategies determine the depth of a company’s success. Evaluation is crucial in identifying the tactics to use to achieve the desired strategic goals. It is healthier for a company to identify specific market to experiment the strategies (Osterwalder, & Pigneur, 2010). The market is assumed a representation of the whole market. The experienced weaknesses are gauged, and the strengths encouraged. The tactics to be used involves creating market mix that has the product, price, promotion and place as the components. These components aid in the fulfillment of the targeted consumer’s needs. It is this skill that Apples has applied skillfully to penetrate in the Brazilian market (Osterwalder, & Pigneur, 2010). Apples have gained their entry in Brazilian market through innovation and experimentation of their products (Lindstrom, 2008). The apple company, many times, set standards of their products through experimentation. They embrace innovation thereby becoming the leader of technology creation. An iPad model, which includes iPod air and iPod mini, has got the user interface which is put within the multi touch screen of the device together with a virtual keyboard. The device has got Wi-Fi that is in –built and cellular connectivity models instituted in it(Lindstrom, 2008). The iPad models can perform internet functions effectively, shoot videos, play music and take photos. In addition, the device has got the gaming system with the variety of game applications, GPS navigation, references and effective social networking among other features which can be downloaded and installation of applications (Osterwalder, & Pigneur, 2010). Apples iPad has been enhanced and developed leading to varied versions and generations of iPad with different designs and sizes of screen(Lindstrom, 2008). The second version of iPad has a dual core processor with rear facing cameras that can enable video calling. The third generation of iPad included Retina Displays and a quad core processor and high quality megapixel camera. The advancement preceded the iPad Air that has got the processor of Apple A7. All these iPads development have made the product gain its entry to the market Brazilian (Osterwalder & Pigneur, 2010). Due to the technological and consumers rising needs, the consumers would go by the trend in the advancement of the products if one product has got the rear camera, large screen and processor; the consumer would go for that product (Lindstrom, 2008). Therefore, since Brazil is highly populated industrially developing faster, the iPod took the advantage and gain its entrance through the improvement of the product according to the consumer’s demands (Osterwalder, & Pigneur, 2010). Apple’s iPod uses launching technique. The launch of each and every new version of the Apple’s iPad is held in various countries (Osterwalder & Pigneur, 2010) .The Brazilian market has had the privilege to witness the launching. During the launching, the new devices with advanced applications and features are introduced to the people and marketers. Launching allows the company to reach a concentrated market and effective display of products (Lindstrom, 2008). The marketers will have the taste of the new apple device (Osterwalder, & Pigneur, 2010). In addition while launching the promotion of the apple product is done which facilitates the entry of the product in the market (Lindstrom, 2008). Price is one of the marketing mixing elements that many companies use as marketing strategy. The price is gauged by the quality of the product or the level of performance of the product that is being availed to the consumers(Osterwalder, & Pigneur, 2010) .The prices are, therefore, set according to the value the consumers give that product. The Apples iPad neither are nor left out in pricing as a strategy of marketing. Apple’s iPad pricing strategy is balanced. Apple cuts down its prices from the older tablets .This makes Apple’s iPad have a better balance in catering for the increasing demographic price expectations without losing profits on its premium devices (Lindstrom, 2008). They enhance pricing by improving cost and performance. Their continued innovation leads to high demand of their products. Apples enjoy the designs of high standards and dominance. The strategic platform helps the company to be the architecture of a standard design. These standards are essential in eliminating the uncertainty that emanates from a wider variation of platforms. The company, therefore, came up with OSX system of operation that can be used exclusively in all apple devices including iPod and phone touch. The consumers benefit from the platform strategy (Lindstrom, 2008). The standards designs are reliable and stable thereby requiring minimum repair, service and maintenance. Apple has entered the Brazilian market through its strategy of technology evolution. Initially, Apples was famous for its production for fashionable products. The company known for the creation of good-looking products has transformed into a creator of useful and appealing products. The iPod began in one material with specific color (Lindstrom, 2008). The very product underwent series of change to yield a product of a different material with several colors. The consumers of Apple products in Brazil are knowledgeable about the initial product defined by its color. Upon the introduction of the new version of the product, the market loyalty is still retained. The technological evolution provides an opportunity for the customers to experiment new taste and fulfill their needs in other areas of the product (Lindstrom, 2008). This is a strategy that has allowed the Apples to penetrate this market (Sull, 2009). Apples have developed a mass market in the country. The high quality of products improved performance and reducing prices have seen Apples expand its market share in the region. Similarly, the company endeavors to deliver adequate information to the public (Mudambi, 2008). Easy access to these products increases the consumers awareness. Presently, Apples has generated the greatest revenue in retail business from its stores. The discussed methods accelerated its market penetration (Hooley et al., 2008.). The mass market in Brazil created and enjoyed by the company enables it to introduce new products without much resistance having created a brand. Most markets express loyalty to brands (Ghauri, & Cateora, 2010). Besides the high quality of the iPods developed by the gifted Steve Jobs, the Apples Company struggled to create a mass market that has seen it control the Brazilian market (Sull, 2009). Like a giant, Apples has discovered new markets in the country and has consequently conquered them to their advantage (Lindstrom, 2008). Apples have done well regarding market leadership in all ventures inclusive of iphone, iPad and computers (Sull, 2009). Apple has obtained a bold move in experimentation of its products as well as us ensuring sustainability in its market environment .Apples iPad uses various market strategy to gain entrance into various countries market .Technological innovations have boosted its market across the world. This comes as a result of new versions and designs of the apple ipad. Iphone and computers. Their products have been found to require minimum maintenance, repair and service thereby boosting its marketing. The strategies discussed above has enabled the Apples company gain market in Brazil. References CIA (2014). The World Factbook. Central Intelligence Agency. 2014. Retrieved 2014-03-07. Dauvergne, P., & Farias, D. (2012). The Rise of Brazil as a Global Development Power. Third World Quarterly, 33(5), 903-917 Ghauri, P. N., & Category, P.,2010. International marketing. McGraw-Hill Higher Education. Hooley, G. J., Piercy, N., & Nicoulaud, B. 2008. Marketing strategy and competitive positioning. Pearson Education, London Lindstrom, M. (2008). How Apple, others have cultivated religious followings. Advertising Age, 79:45, 16-17. MarketLine (2012). PESTLE Analysis. Canada Country Profile, 13-32. MarketLine (2013). Brazil Country Profile, 1-73. Mudambi, R. 2008. Location, control and innovation in knowledge-intensive industries. Journal of Economic Geography, 8:5, 699-725. Osterwalder, A., & Pigneur, Y. 2010. 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