As a critical player in the production and export of sophisticated technological equipment, International Logistics endeavors to remain ahead of the competition by finding avenues for business diversification. New entrants in the market, coupled with existing cutthroat competition, have triggered a need for the company to seek a new international market for its products. A company that is considering expanding its operations to new markets must consider when to establish its presence in the new market (Lo & Alena, 2018). Considering early market entry will be a strategic decision by management since it will lay a foundation for its success and survival. In this regard, targeting emerging economies will be perfect for International Logistics. According to Lo and Arena (2018), several studies have been conducted that have indicated that factoring when to enter has serious implications for a firm's future performance in that market. Brazil, as a top emerging economy, will be ideal for the International Logistics market expansion plans. The changing nature of the Brazilian economy, especially regarding its income distribution, provides a host of opportunities for new entrants. A country once defined by pyramid-shaped income distribution, Brazil is gradually shifting towards a diamond-shaped income distribution, as evidenced by a growing middle class (Gouvea, Kapelianis & Montoya, 2016). Due to this change in income distribution, the Brazilian economy will present International Logistics with opportunities such as franchise development and the thriving electronic commerce sector. Differently, the company will be faced with challenges such as corruption and state interventionism.
In the recent past, Brazil has attracted considerable attention and investment from multinationals around the world spanning different industries. The force behind this ever-increasing attention is a need for companies to expand their international market share (Gouvea et al., 2016). As mentioned above, International Logistics has cited increased competition among its peers in the matured markets. For example, the company has projected a heightened decrease in its sales growth in the established markets. Also, by the firm expanding into the Brazilian market, it will be fulfilling its short and long term viable expansion plans. Investing in the Brazilian economy will allow the organization to increase its international revenue sources. Gouvea et al. (2016) note that it is projected that by mid-21 st century consumption in emerging economies will hit $30 trillion, with about 4 billion consumers enticing transnational companies to invest in the new economies. In 2013, emerging economies contributed above 50% of international gross domestic product (GDP), which confirms their undeniable significance to global organizations (Gouvea et al., 2016). As Brazil progressively entrenches its place as a middle-income country and prepares to become an economic giant, its consumption rate will increase since people will have more disposable income.
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In the past two decades, the Brazilian business environment has undergone noteworthy changes. During this period, Brazil embraced market-friendly reforms that radically changed its business environment (Gouvea et al., 2016). For example, trade liberalization policies coupled with privatization restructurings laid a foundation for the rebuilding of its economy. As of 2014, Brazil was ranked as the world's 8 th largest economy, which signified the expansion and superiority of the country's business landscape (Gouvea et al., 2016). The shift of income distribution from pyramid-shaped income distribution to a diamond-shaped one shows that the country is making huge strides towards economic growth. Brazil’s diverse industries include equipment, information technology, aircraft, and automobiles (Azudin & Norhashim, 2017). These industries are in their late formative stages, and therefore it is an opportune moment for International Logistics to establish base and market links in this country. The promising Brazilian economy, as evidenced by its high consumption rates which rose by 163% between 2003 and 2013 makes it an ideal oversea investment hub for International Logistics (Gouvea et al., 2016). The consumption culture in Brazil is characterized by a demand for sophisticated and expensive products. This consumption trend is particularly evident among members of the ever-increasing middle class in the country.
As an entry strategy, the management of International Logistics can target middle-class consumers who have more consumption capacities. The middle-class consumers will help the organization to establish balance in the economy expeditiously. According to projections, the demand for sophisticated products in Brazil will increase in 2020. In the last two decades, the country experienced a continued expansion of different income brackets. Steadily, the distribution of income in Brazil is assuming a diamond shape, a move from the traditional one of a pyramid (Gouvea et al., 2016). The change in income distribution is due to an expanding middle class, which makes the country an appealing market for companies targets all people within the economy.
Besides the vast consumer base and its enticing consumption culture, the Brazilian economy is fertile for franchising. As a real hub for franchising, Brazil is offering lots of short and long term prospects for multinationals (Cristofoletti, 2017). Cristofoletti further notes that as one of the leading global economies, Brazil ranks among the top five nations with the most number of franchise systems, which consequently puts it ahead of the world's most significant economies. For many years, the Brazilian shopping centers were mostly frequented by first class and second class citizens, however, due to changes in income distribution, people who were classified as poor can access these places (Gouvea et al., 2016). This trend is bettered by the rise of new generation shopping malls, which are established to accommodate the expanded bottom of the income diamond. International Logistics can use the franchise system to set base in the country since there is already established infrastructure. As an established franchising country, Brazil has more than 3,000 brands, with 90% of them being Brazilian (Cristofoletti, 2017). This indicates that multinationals are yet to infiltrate this area of business fully. International Logistics can take advantage of this fact to enter into this thriving and evolving economy. Franchising in Brazil will provide the organization with an opportunity to understand the dynamics of emerging economies that they can leverage on to enter in others such as India and China.
Brazilian municipalities are highly populous, which a situation that is perfect for franchising. According to Gouvea et al. (2016), there are approximately 287 municipalities in Brazil, with each having a population between 80,000 and 300,000 inhabitants. This translates to about 40 million potential consumers. With shopping centers expanding rapidly in the Brazilian market, demand for high-end products has also soared. International Logistics in the business of producing high tech equipment that has a potentially ready market in Brazil. The franchising environment in Brazil is supported by improving political and institutional efficiencies (Tourinho & Sheng, 2017). Tourinho and Sheng further state that in 2015, Brazil was among the largest emerging markets a fete, which highlights the country’s significance to foreign investors. Although the country struggles with issues such as state bureaucracy and corruption, it is on a positive projectile to becoming a global economic powerhouse.
The other advantage that International Logistics will have by expanding its operations to Brazil is the country’s thriving e-commerce. Gouvea et al. (2016) note that in 2013, more than 50 million Brazilians conducted their shopping online with projections during that year, estimating that by 2018 the figure will have increased to 100 million Brazilians. Approximately 40% of Brazilian households have access to the internet, which is enhanced by the high mobile phone penetration rate (Gouvea et al. 2016). Mobile penetration and thus the availability of internet in Brazil is an added advantage that International Logistics can capitalize on to set a thriving business in the country. Besides the vast potential in the use of e-commerce, International Logistics can capitalize on the country’s logistics glitches and poor client service.
The company can develop a workable logistics and customer service model that will work to rival those of already established multinationals in the country. For instance, International Logistics can choose to implement multichannel e-commerce strategies (Gouvea et al. 2016). Such strategies will head start ahead of its rivals in its industry. Also, it will be crucial to consider before and after-sale services since they will help the company establish loyalty with its Brazilian clientele. For example, the management can consider prioritizing areas such as having precise physical locations that will help the business create a strong rapport with clients. However, government interference and corruption will be critical hindrances to International Logistics, establishing a formidable existence in Brazil.
Corruption will be a barrier to International Logistics, establishing a business hub in the South American country. According to Gouvea et al. (2016), close to $350 billion was pilfered from the government between 2001 and 2011. Additionally, in 2014 Brazil was ranked 72 nd most corrupt country, which shows how rampant corruption is in the country. According to Winter (2017), the Brazilian economic and political landscape are characterized by unending corruption, which threatens the forward progress of the country. Corruption is a significant deterrence to serious investment by multinationals since it interferes with investments, healthy competition, and the goodwill of investors. International Logistics operates on the principle of transparency, and as such, a working environment will significantly affect its operations. Nevertheless, the Brazilian government, through its judiciary branch, is actively fighting against the state of corruption (Madeira & Geliski, 2019). The Brazilian Federal Criminal Justice System is relentlessly aiming at instilling accountability across all levels of government. If the efforts by the Brazilian judicial system bear fruits, then International Logistics will be able to quickly establish their presence in Brazil and successfully spread to other South American countries as well as other emerging economies such as China and India.
The other hurdle that International Logistics should expect to face while attempting to establish a presence in Brazil is state interventionism. Gouvea et al. (2016) write that in the last twelve years, Brazil's business landscape has been affected by interventionist government policies. Due to such policies, it becomes less efficient for both local and international businesses to operate successfully. For example, according to the Doing Business Index by World Bank, Brazil was ranked at position 116 globally out of 185 (Gouvea et al. 2016). The increased levels of interference by the government translated to higher levels of tax, heightened opacity, and entrenched corruption. The expensive and substantially ineffective government has instituted punitive tax policies that will result in higher costs for multinationals companies. For example, high taxes trigger an increased cost of labor and power.
Supply Chain Assessment
Establishing of Strategic Goals
Since International Logistics will be making an early entrance, the management is concerned with three key factors, which include revenue, growth, and retention. Concerning revenue, the company's focus is on supply chain models, which can bring in maximum income to the organization. For International Logistics to achieve this, it is considering ways to increase sales at minimum costs. Second, the organization will use supply chain models that will guarantee growth and expansion of its operations in Brazil. Lastly, to achieve the above two agendas, management has prioritized customer retention by building customer loyalty.
Link to Supply Chain Metrics
The key considerations in this phase are supply chain staffing, returns, and logistics costs. The employees will be an essential cog in the supply chain management. Experience, expertise, and professionalism are the primary characteristics that will define International Logistics human resources in Brazil. This is because they will form the bridge between the company and the customers. Returns metric is the second factor that will indicate the effectiveness of the supply chain. The chain of supply that will rake in maximum returns will be considered. Lastly, the supply chain associated with the least costs will also be ideal. The organization aims to reap the minimum benefits from its proposed investment in Brazil.
Base Metrics on Actual Data
Marketing data and financial reporting will give management the actual situation on the ground. The two sources of information will aid the management to strategize on ways of improving the company's supply chain. Marketing data will be correlated with sales reports, which in turn will be compared with the final financial reports.
Drive Supporting Actions
Allocating new staff to issues and managing to ship with be the special considerations in efforts to drive forward supply chain activities. Issues arising along the supply chain will require quick action by the available employees. This will ensure that there are no bottlenecks in the supply chain. Coupling this with managing to ship and monitoring shipping activities will ensure that stores are stocked on time.
Overview of the Plan
International Logistics is a multinational organization involved in manufacturing and export high-end equipment. International Logistics' currently operates across Europe and North America. In these two continents, the organization has established a vibrant customer base due to its durable products, professionalism among its employees, investment in corporate social responsibility, and market research. The company seeks to expand its market boundaries to Brazil, where it will focus on the exportation of high-end cameras, surveillance systems, and drones. The objectives of this market expansion are increasing production volumes, improving sales and profits, and spreading the market risk.
Market Segmentation
Brazil being a rapidly emerging economy, International Logistics will mainly focus on segmenting the market along with the use of e-commerce and social classes. Regarding social classes, the company will target the middle and upper classes since they have the greatest potential to purchase the products on offer. The average earning of members in these two classes have a monthly earning upwards of BRL 7,000. The upper and middle classes also the most connected to the internet in the country. Since they are active users of the internet, the company estimates that about 60% of these citizens conduct most of their business online. In terms of regional segmentation, International Logistics will first prioritize three states, which include Sao Paulo, Minas Gerais, and Rio de Janeiro. During segmentation, the firm will conduct extensive research aimed at fully understanding the consumption behavior of Brazilian, especially regarding high-end electronic devices.
Seeking Exportation and Operation Licenses
Before commencing the transportation of goods and operations, it will be critical for the organization to acquire the relevant authorization documents from the Brazilian government. These documents include exportation and operational licenses. Without these documents, International Logistics will not be legally recognized in the country, and operating without them will also attract legal suits against the business.
Establish Physical Stores and Online Platforms
After acquiring the necessary licenses, International Logistics will focus on establishing physical stores. As mentioned above, Brazilian urban markets are characterized by many malls, while others are rapidly coming up. The organization can hire several stores in these malls from where it will operate. Online platforms will be crucial for e-commerce since internet shoppers will form a substantial segment of the firm's clientele.
The hiring of Local Employees and Conducting Marketing Outreaches
International Logistics cannot only rely on employees from its already established branches in other countries. It must hire Brazilian employees who are familiar with the country's business dynamics and geography. These employees will work with existing ones shifted to the new country. With teams already in place, the organization will then carry out marketing activities such as advertising and the use of online platforms to create awareness and brand name positioning.
Moving of Products into the Country
After the organization has acquired the necessary licenses, established physical stores, hired employees, and conducted public awareness, the organization will begin shipping products into the country and stocking their stores. This will be followed by the launching of their operations in the country, which will signify that they are officially present in Brazil.
Recommendation for Implementing the Transportation Plan
Extensive research and consultation with relevant authorities in Brazil will be vital if the organization will have to establish their presence in Brazil successfully. The organization will also have to conduct an in-depth analysis of its internal strength, especially regarding its financial capacity. Besides, it will be apposite for the management to analyze the external environment, especially aspects such as competition and political stability. It is important that the management realize that different elements can overlap. For example, the hiring of employees can happen parallel with the establishment of physical stores. The last recommendation is that the leadership of International Logistics to fully understand the laws and regulations that govern the business environment in Brazil. With full knowledge of the legal requirements, the organization will establish its presence in the country with minimal hurdles.
References
Azudin, N., & Norhashim, M. (2017). Challenges facing the Brazilian economy in the emerging market: Future trade opportunities for Malaysia. Journal of Fundamental and Applied Sciences , 9 (7S), 558-570.
Cristofoletti Jr, A. (2017). Brazil: A Hub of Franchises and Opportunities. Retrieved 25 January 2020, from www.franchise.org/franchise-information/international/brazil-a-hub-of-franchises-and-opportunities
Gouvea, R., Kapelianis, D., & Montoya, M. (2018). Marketing challenges and opportunities in emerging economies: A Brazilian perspective. Thunderbird International Business Review , 60 (2), 193-205.
Lo, F. Y., & Kletsova, A. (2018). Entry timing into international markets: evidence from the Taiwanese service industry. Economic research-Ekonomska istraživanja , 31 (1), 1059-1077.
Madeira, L. M., & Geliski, L. (2019). The Federal Justice act in combating corruption in Southern Brazil. Revista de Administração Pública , 53 (6), 987-1010.
Tourinho, J. C. S. T., & Sheng, H. H. (2017). Expansion Mode Choices: The Case of US Multinationals in Brazil. Internet , 12 (2), 31-44.
Winter, B. (2017). Brazil's Never-Ending Corruption Crisis: Why Radical Transparency Is the Only Fix. Foreign Aff. , 96 , 87.
