External Analysis
The external environment of a business can affects the business either negatively or positively depending on the country’s situation. The external environment consists of the political, socio-cultural, economic, legal, technological and environmental factors as part of the chosen country. For this assignment, I will focus on Brazil as my country of choice for business expansion.
Political
Currently, Brazil is a country with a stable and proactive government (Doing business in Brazil 2017). It is politically stable at the moment. However, this could easily change, as it was the case during the modern history of Brazil. There are chances that the political situation could turn volatile and this threat remains alive from one election to another. Such an environment that changes rapidly does not add to Brazil’s attractiveness.
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Socio-cultural
Brazil is based on a class division; there is a big percentage of the wealthy people and a significant number of low-income people (The Economist Magazine, 2011). However, the middle class is growing rapidly though they are yet to establish themselves financially showing the huge consumer base of rich people as our targeted segment for our products and services. The Brazilians are modern and up-to-date with fashionable and luxury brands and are willing to purchase goods at a premium price (Doing business in Brazil 2017). Southeast is the home to Sao Paolo, a location with the largest percentage of the population. In fact, this is the most developed part of Brazil and holds the greatest percentage of GDP per head.
Economical
Sao Paolo offers our company a prosperous future for investment for various reasons. First, the vast population and huge FDI inflow give Brazil an extremely high growth potential (Doing business in Brazil, 2017). The gradual reduction in the gap between the rich and the poo the growth of the middle class offers great opportunities to our company. The most important thing is that the risk of domestic currency devaluation is low as seen from the Central Bank’s effort to curb inflation (The Economist Magazine. 2011). Since its introduction in 1994, Brazil’s currency has been a success (Dill, 2017). In fact, today, it is has been overvalued against the US dollar which benefits US business in Brazil. The sad news is that the tax rate in Brazil is high compared to countries such as Greece, Portugal, and Ireland.
Legal
Brazil is a purely bureaucratic economy. Therefore, expanding our business into Brazil may involve vast amounts of paperwork, adhere to numerous regulations and the process involved is quite lengthy. Sao Paulo has represented Brazil as the largest business destination. Starting a business is most difficult in Sao Paulo, but easiest in the Rio Grande do Sul, and Minas Gerais states. It takes almost 200 days to start a business in Sao Paulo and only 19 days in the Rio Grande do Sul and Minas Gerais (Dill, 2017). However, the government is showing effort in making this process easy in Sao Paulo by providing lists of necessary bureaucratic instruments and manuals needed to start a business. Moreover, Brazil has entered into bilateral trade agreements aimed at avoiding double taxation with most economies such as the US (The Economist Magazine, 2011).
Environmental
Brazil’s geographic location provides the advantage of accessibility via the sea. In other words, there is an exit through the Atlantic Ocean. Our company can easily import its raw materials and equipment via the sea which is much cheaper compared to air transport. Additionally, we are specifically targeting the Sao Paulo area; this area has never experienced any natural disaster such as tsunami and earthquakes which might cause stoppage of our business (The Economist Magazine 2011).
Technological
A recent report by World Economic Forum suggests that Brazil has progressed regarding technological use. Moreover, the latest World Information Technology Report ranks Brazil 50 th out of 140 world economies in the context of technological advancements. Sadly, despite this ranking, the country’s spending on national infrastructure faces major challenges because of the dramatic economic development. For instance, from 1960 to 1980, Brazil has had to deal with blackouts and power shortages which have only reduced from 10% to only 3% as of today (The Economist Magazine 2011). It may negatively affect our operations by increasing costs because we may have to consider other power sources like solar and generators to ensure the smooth running of our business.
Potential Challenges
Corruption is the biggest political challenge in Brazil. For us to open a business in Brazil, we will have to pay additional payments to government officials. This will present a huge obstacle to entering this market. Transparency International ranks Brazil 70 th in corruption out of 180 nations (Dill, 2017). Therefore, corruption here is higher compared to economies like Bulgaria, Turkey, Cuba, Greece, Portugal, and Ireland.
How Brazil is Addressing the Global Goals (SDGs)
Brazil has not just municipalized the SDGs but also metropolitanized them as well. Most of the cities are overpopulated and addressing the SDGs necessitates a metropolitan approach. For instance, Brazil’s traffic woes derive from regional commuting trends because lower-wage workers reside in peripheral municipal zones and commute to the central city daily. Moreover, though cities such as Rio and Sao Paulo have been known to crack down on organized crime, there are complaints that drug traffickers are simply moving outside the city’s limits and erecting shops in the neighboring municipalities. As a result, state government agencies, the private business sector, regulatory agencies, universities and dozens of professional associations engaged in various projects such as the metropolitan strategic plan. With such projects, Brazil is rolling its sleeves to begin implementing the SDGs.
Conclusion
Brazil is an emerging economy that presents a great business opportunity for our company to expand its operations and secure a significant market share. Its huge population of a growing middle class and rich individuals gives us a perfect target market. The country’s political and economic environments are stable which freely welcomes our company. If our company decides to expand to Brazil, the state of Sao Paulo would be our number one location because this region has been declared as being responsible for a third of Brazil’s entire GDP.
If Sao Paulo were a country on its own, its economy is comparable that of Belgium and Poland. Therefore, it is no surprise that many international businesses and the world’s biggest banks have their headquarters here. In simple words, if our company decides to expand, we would obviously do business in Sao Paulo.
References
Dill, C. (2017). What are the top risks to doing business in Latin America? Retrieved Apr. 18, 2019 from https://www.weforum.org/agenda/2017/03/risks-business-latin-america/
Doing business in Brazil: Brazil trade and export guide (2017). Retrieved Apr. 18, 2019 from https://www.gov.uk/government/publications/exporting-to-brazil/exporting-to-brazil
The Economist Magazine. (2011). Doing Business in Brazil: Rio or São Paulo? The Economist. Retrieved Apr. 18, 2019 from https://www.economist.com/blogs/schumpeter/2011/08/doing-business-brazil
