Business Report (Brazil)
Business Report (Brazil)
Introduction
Nowadays globalization is an ongoing process that involves numerous companies of different sizes all around the world. It provides many benefits for the companies and therefore more and more businesses would like to establish their presence in other countries. The benefits include having access to the foreign markets, outsourcing of production and other operations of the companies, getting access to the outstanding talent, and etc. Therefore many organizations make decisions to establish a subsidiary in one or more foreign countries.
Global Tech LTD. is the U.S. based company involved in the developing and manufacturing the computer technology for enterprises and individual customers. The company is interested in expansion of its operations abroad. It already has subsidiaries in Germany, Turkey, and Russia and now it would like to enter the market of one of the countries of South Africa.
The management of the company preliminary has chosen Brazil for the investment. The purpose of this report is to analyze the local economic situation and market conditions and conclude whether it is a suitable country for investing.
Overview of the Brazilian Economy and Market Conditions
Brazil occupies the area of 3.3 million square miles. The population of the country makes 204.5 million (estimated for 2015), including 47.7% of white, 43.1% of mixed race, 7.6% of black, 1.1% of Asian, 0.4% of indigenous. There are the following religions in the country: 65% Catholic, 22% Evangelical Christian, 8% none, 4% other. The official language of Brazil is Portuguese. Principal exports of the country include iron ore, soybeans, meat, machinery, and oil (Meyer, 2016, p. 3).
Political Environment
At the moment the political situation in Brazil is stable. However, taking into account the history of this country, it may easily change. This threat remains before each elections.
One of the most significant issues of Brazil is its high level of corruption. This may present a significant obstacle for the foreign companies willing to start operations in this country, as it may be required to give bribes to the local authorities to resolve various issues.
Economic Environment
The economy of Brazil is in quite good condition now. Due to the country’s territory, large population number, rich natural resources, it has all the chances to grow and attract Foreign Direct Investment. Also Brazil has an emerging market that means that the launching of new products has a high possibility to become successful.
Social Environment
It is possible to observe a significant social inequality in Brazil. Nowadays the number of middle-class representatives is increasing; however, there are still a lot of poor people.
Southeast and South regions are the financial and industrial centers of the country and thus their citizens have higher income than those from the other regions.
Technological Environment
The level of technological development in Brazil is lower than in the U.S. or in the European countries. However, the steps are made by the government in order to improve it. Significant amounts of FDI will most probably contribute to it. This provides additional possibilities for the company to sell its equipment in Brazil
The Economy of Brazil
The economy of Brazil is diverse and large. The country has undergone a number of state-owned companies’ privatization programs; the largest of which took place in 1998 and the telecommunication companies (previously state-owned) were sold. Almost all of the companies that belonged to state are in the private sector now. However, there are still a significant semi-state and state participation in different strategic sectors of economy, for example, utilities and transport.
Agriculture and natural resources has been the traditional economy’s mainstay, possessing large human resources. However, since the 1960s, an accent has been put on the development of industry, largely financed by international investments and loans. Consequently, today exports reflect a significantly more balanced manufactured items and commodities mix.
The imports profile during the 1970-1980s became more restricted, due to the scarcity of foreign exchange and import substitution. Such situation is being changed, due to the trade barriers’ lowering and the increased economy’ opening to globalization.
The Brazil’s wealthiest areas, in which a modern regional economy and industrialization are available, are the South and the Southeast. The Central Western and Northeastern regions are mostly agricultural and rather poor as modern social and economic programs have not reached them yet. Characterized by the Amazon rainforest, Northern region remains virtually unexplored and has a low density of population (Doing Business and Investing in Brazil, 2013, p. 15).
Below there is important information to be considered by the exporters:
Import duties are established in accordance with the current plan of the government to protect or promote the domestic market and its balance of foreign trade;
Trade barriers are designed with the purpose to protect the local production against foreign products;
Companies that would like to export to Brazil have to consult local tax and trade consultants prior to their activities’ starting;
It is strongly recommended to work with a local agent with the purpose to arrange simple and fast customs clearance;
There are duty deferrals in case of using special tax regimes/customs bonded warehouses’
Assessments of customs valuation have increased recently (Doing Business and Investing in Brazil, 2013, p. 62).
Restrictions of Import
After 20 years of liberalization of trade, Brazil has begun to establish trade barriers and to create mechanisms of trade defense with the purpose of national industry protecting against the world economic crisis effects and the imports from Asian countries boom. For this reason, certain products classes are subject to import quotas, special customs procedures, or high import duties.
Besides the customs regulations, imports to Brazil are also subject to the regulations and laws of other agencies of government with that the authorities of Customs cooperate. For example, it can limit or prohibit certain ports entry, restrict storage, use, or routing, or demand specific licenses, processing or labeling as a customs clearance condition.
Some products are subject to import permits or licenses. Licenses for import are monitored by the Foreign-Trade Department of Brazil (DECEX), and the consenting respective body of government. Customs clearance is possible only in case such additional demands are met. Such regulation relates to all imports types.
Exporters have to be sure that the importer in Brazil has submitted proper products information to the Customs authorities with the purpose for them to check that data. Prohibited products for import include certain herbicides, obscene, certain narcotics, seditious and immoral matter (Doing Business and Investing in Brazil, 2013, p. 62). Thus, computer technology products should not cause difficulties while import customs clearance in Brazil.
The economy of Brazil has been significantly transformed during the recent 10 years. After about 25 years of insignificant per capita GDP growth, there was a large change starting from 2004. Per person GDP grew annually at a rate of 2.5% during 2003-2014, over three times more quickly than the annual growth of 0.8% of the previous government operating during 1995-2002. Such rate of growth was reached regardless the global financial crisis of 2008-2009 that caused recession in Brazil in 2009. The dynamics of Brazil’s GDP is presented in Appendix A and B.
The recent decade was also characterized by new trends in the inequality and poverty reduction. Such positive changes took place due to the growth of employment and income, as well as the government’s social programs and spending expansion. The above-mentioned factors together with the large growth in formal sector employment and in the real minimum wage helped to improve the workers’ bargaining power.
As the Workers’ Party with President Lula came to power (2003), country’s poverty has been decreased by more than 55%, to 15.9% in 2012 from 35.8% of the population. High poverty has been decreased by 65%, to 5.3% from 15.2% over the same period of time. During the recent 10 years, 31.5 million individuals living in the country were taken out of poverty, including more than 16 million of people out of high poverty.
Large changes also took place in the way how the economic growth gains were distributed, in comparison with the previous 10 years. For instance, the top 10% of households got over 50% of total income during 1993-2002; however, it reduced to around one-third in 2003-2012. The largest gainers were below the median 40%: they almost doubled their income gains share to 21.1 from 11.3%.
Significant growth of the economy was the principle contributor to reduction of inequality and poverty in Brazil during the recent years. However, programs of government also are of significant importance (Weisbrot, Johnston and Lefebvre, 2014, p. 1). All the above-mentioned positive changes in the economy of Brazil open possibilities for the successful operations of Global Tech LTD. in the country.
The Labor Market in Brazil
Either informality or unemployment (the workers percentage in the informal sector) has considerably decreased over the recent years. The level of unemployment was very high (13.0%) in 2003 and has pretty steadily improved, except for several increases in view of the world economic crisis, to 5.0% now.
The employed in the informal sector workers’ percentage has sharply fallen to 13.3% in August 2014 from 22.5% in December 2003. Such change toward employment in the formal sector is significant for protections like sickness and disability benefits, pensions, regulation of working hours, and paid annual leave. Formal sector workers can also receive and use credit cards.
During 2003-2014, in Brazil the real minimum wage increased by 76.2%. It was a significant contributor to the inequality decline in the recent years. In 2000-2012, insurance coverage against unemployment increased by 99% (Weisbrot, Johnston and Lefebvre, 2014, p. 3). Taking into account the large population of Brazil, Global Tech LTD. can be sure to find staff for its Brazilian subsidiary.
Conclusions and Recommendations
The country has an emerging market; many businesses are entering it trying to receive benefits of the situation. Therefore it is possible to suppose that the demand for computer products will be high in this country. As known, computer equipment is definitely required for any modern organization.
As the economy is developing, people get more chances to get a good job and to purchase more products and services, including computer products for individual use.
Important facts that should be taken into account by investors to Brazil are as follows:
Brazil is the 5th largest country in the world. It is also the 5th world’s most populous state following India, China, Indonesia and the United States;
The economy of Brazil is very large. In terms of GDP (Gross Domestic Product) Brazil’s economy is the 7th world’s largest;
Biodiversity of the country is very rich;
Significant agricultural, energy and mineral potential;
Large potential of internal growth;
A diversified economy and broad industrial infrastructure and base;
Business conditions are fast-changing;
High level of bureaucracy;
Social inequality (Doing Business and Investing in Brazil, 2013, p. 11)
Brazil is the country with a long history and rich culture. It is recommended for the foreigners to become familiar with it before dealing with the local business persons. In view of high level of personal relationships importance as well as widespread corruption in the country, it is recommended to use services of local intermediaries and advisors while dealing with the local executives, e.g. customs, tax authorities, registration, and etc.
Before shipping goods to Brazil it is necessary to carefully study all the details of customs procedures in this country and prepare beforehand all the documents necessary for import customs clearance. In this case it is also better to use the services of local customs brokers.
Even though the economic situation in Brazil is not ideal, careful preparations and professional approach will definitely ensure successful launch of the company’s products to the country’s market.
BIBLIOGRAPHY
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Appendix A
GDP Growth in Brazil (Annual %)
Source: Worldbank
Appendix B
GDP per Capita in Brazil (Current US$)
Source: Worldbank
