This report is a country analysis on Brazil, it will provide a wide array of analytical insight of the various tourism opportunities available for Global Connections pursue as it seeks to expand its operations in an overseas market. The main objective of this report to the help the boards of directors of Global Connections make sound to decisions as they prepare to choose their next overseas market This report analysis the political, economic, social, and technological structure of Brazil. The report provides a holistic view of Brazil current and future investment opportunities in the tourism sector by conducting an analysis on critical current and future issues.
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Brazil is set to host the world cup in 2014 and 2016 summer Olympics; these are both the biggest events in the sporting world which pose to enormous investment opportunities for Brazil’s tourism sector. Tourist destinations will be packed due the large number of fans set to visit the country; this is just a tip of the iceberg of why Global Connections should prioritize Brazil as their number one investment destination as they look to expand their chain of Joy World resorts.
Table of Contents
INTRODUCTION
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Brazil gained its independence in 1822 after more than three centuries of Portuguese colonization maintain a monarchial system of government until it abolished slavery in 1888 (Internationalliving.com ). Brazil is by far the largest country in the continent of South America and Latin America region. It is the fifth largest country in the world both by geographical area and population with over 193 million people with only the Russian Federation, Canada, USA and China being bigger. (Geography.learnontheinternet.co.uk (2007)
Brazil lies on the eastern side of South America and it is bordered by the Atlantic Ocean on the east and on the west by Andes Mountains. Brazil lies on either sides of the Equator with part of the country in the northern hemisphere but most part of the country is in the southern hemisphere. The country is made up of one federal district which hosts the capital city of Brasilia and 26 other states (Brazil.angloinfo.com (2010). The primary spoken language in Brazil is Portuguese but there several other indigenous languages and dialects spoken in Brazil making it a country of mixed races with a rich culture and unique heritage.
Over the years Brazil has achieved remarkable economic success making one of the fastest growing economies in the world (www.prlog.org (2007). Due to economic transformation from a less developed country to a new industrialized country Brazil has become one of the top destination of foreign investment particularity in the tourism, property and energy sector
More information about Brazil refer to Appendix 1
PEST ANALYSIS
Political Environment
The political environment of a country can either affect business positively or negatively, depending to the on the prevailing situation in a country. The political environment forms the external factors which are part of macro-environment that is beyond control of the business. The factors include the way politics are conducted in a foreign country, which directly reflect on how the country is governed and the policies adopted
Brazil is a federal republic consisting of 26 states and a federal district. The 1888 constitution gives broad powers to the federal government, which is made up of legislative, judicial and executive arms of government. The president holds office for four years, with the right to contest a re-election for an additional four year term and appoints his own cabinet. (Globaltrade.net (2011) Brazil being a democratic country is it has enjoyed political stability for many years and this has been the cornerstone of the recent economic growth attracting attention from foreign investors. According to (Keith Martin Rio de Janeiro based director of international trade and investment with Aon Risk Solutions) many countries are attracted to invest in Brazil because of the business environment is more familiar than other countries such Russia, India, and China. Kieth Claims that Brazil has a better stable public and private sector and a better proven legal; framework than other countries such Russia, India and china.
Brazil has emerged as one the top destination for foreign investment due its political satiability, this has created confidence in investors because investors want to invest their money where it is safe and their property is safeguarded. A democratic Brazil has given investors the freedom to freely set up businesses in Brazil as the government promises to keep their interest at heart thus allowing business to thrive.
However despite Brazil being a politically stable country their various consideration Global Connections should to take note of has it plans to expand it chain of Joy World Resorts. Global Connections would have to face high level of bureaucracy and lack of transparency of rule making Brazil a difficult country to conduct business. Brazil has one of the highest levels of corruption and bribery making the legal process of registering a new business more difficult and costly. Many businesses that have rushed into investing in Brazil without conduction proper research have closed shop to due high level of corruption that lead increases operational costs affect profits.
Another point Global Connections should be aware of is the high costs of labor and taxes imposed by the Brazilian government. According to Carlos Caicedo “the tax system is antiquated and has grown into a monster, with many layers of taxes” this would have a negative effect of Global Connection business endeavors” as result it will be difficult to comply with the tax policies making it difficult to make clear taxes forecasts. Also there is a large informal job market which as lead the Brazilian government to enact labor laws that favors employee rights. This distorts the labor market by empowering with workers better barging power therefore increasing the minimum wages
Despite the negative attributes of the political environment in Brazil, in recent times the government of Brazil has undertaken some positives measures to attract foreign investment. FDI flows and stocks have greatly increased over the past 15 years, making the country the largest host for foreign investment in South America and secondly only to china among the developing countries. (Mia, I. et al. (2009)
In recent times in a bid to attract FDI in the tourism industry, the Brazilian government announced it would exempt projects in the tourism sector from the recently passed three year lock in. The exemption is a measure taken by the Brazilian government to encourage foreign investment in the hospitality sector. This an opportunity Global Connections could bank on to open up a new Joy World Resort as their could mean high return on investment of the company
Economic Environment
Brazil score 57.9 on the freedom score, making its economy the 99th freest in the 2012 Index to conduct business. Brazil is one of fastest growing economy among the developing countries and with funding from the World Bank; the country is increasingly becoming a key players in the world economic market. The country is largely characterized by development in agricultural sector moving into the category of the newly industrialized countries in the world. The country has steadily enhanced macroeconomic stability, strengthening foreign reserves, decreasing its debt, reducing it inflation and also striving to achieve fiscal dependability (CIA World Fact book 2010)
The following are several economic reasons why Brazil offers investors a prosperous future for investment and why Global Connections should prioritize it there number one investment destination.
Capital Growth
Brazil is categorized as a new emerging property market, which puts potential figures at their highest at present. Over the past five years, the property market in Brazil has done remarkably well which has seen increases of up to 20% in returns (Propertyshowrooms.com (2003)
That being said now is the right for companies in the property market to invest in Brazil. Property prizes are low and are set to rise in the near future as there is anticipated increase spending in infrastructure development as Brazil plans host two of the biggest events in the sporting world, the 2014 World Cup and 2016 summer Olympics. Global Connections should look into getting a slice of this action because with event such as the world cup in 2014 Brazil is expected to experience tremendous growth in the tourism sector and as result this offers an opportunity that Global Connections with is Joy world resorts cannot afford watch to pass by.
Booming Property Market
Many areas are being transformed into top class resorts with increased spending on infrastructure spending to boost the tourism industry. Brazil success in tourism is creating a huge demand in the hospitality sector such as accommodation. Global connections should act early so as to gain purchasing bargain of properties with the potential of generating good rental yields.
Currency Exchange
The Brazilian currency has in the recent time gain ground and stabilized to become far more competitive with other major world currencies such the US dollar. As a result this has increased the purchasing power for foreign investors in Brazil. With the competitiveness of currency exchange it also means companies like Global Connections that has been successive in the Malaysian market can easily set base in Brazil and be able to operate at a much lower cost, therefore maximizing profits and productivity.
Current exchange rates favor Brazil, making it one of the most conducive and viable investment market for investors looking into buying property and avoid losing large amount of money in their exchange rate transactions against the Brazilian real
Inflation Rate
After the elections in 2003 inflation dropped to 16% and today inflation stand at an all time low of about 5.7%, strongly giving an indication of a robust and secure economy to invest in (Propertyshowrooms.com (2003). Brazil’s economic success, growth and low inflation could to lead to a situation where the central bank adopts a monetary policy of lowering interest rates. This in turn would spur growth in the property market and increases spending because it would decrease the cost of borrow making loans cheaper for both Brazilian citizen and investors.
Social and Cultural Factors
Cultural Characteristics
Brazil has several regional differences and although the citizens are united by one language, some regions are so diverse form each other that they could be easily mistaken to be from a different country. The Brazilian population is made up of a multicultural mix that includes Africans, Europeans, and Native American which form the majority of the Brazilian culture. This influences culture habits and patterns in society (Noble J., Chandler G., & Clark G., 2008). Nova, carnival and samba include some of the popular rich culture and heritage.
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Hofsted identified 5 cultural dimensions that could be used as indicators to give insight into different cultures. Using the Hofsted cultural dimensions we can identify how values in Brazil are influenced by culture. The five cultural dimensions are Power Distance, Individualism, Masculinity, Uncertainty Avoidance and Long Term Orientation. These five Hofsted cultural dimensions could also be used to compare and contrast two different cultures. For example Malaysian culture and Brazilian culture
Uncertainty Avoidance
Brazil is mainly characterized by its high uncertainty avoidance which shows that the Brazilian society has a low level of tolerance for uncertainty. The strict laws, policies and regulation implemented help minimize this level of uncertainty (international, 2010). The main goal of the general population is to control everything so as to eliminate the unexpected. As result this high level of uncertainty avoidance indicates that the Brazilian society is not willing accepts change and is very risky and diverse. (Meuleman & Roeland, 2006)
Long Term Orientation
The Brazilian people tend to be more patient and tolerant to problems in the short term because they mainly focus more on the future consequences of their action of today. This means change tends to take a long time to happen in these societies and business relations’ may take awhile to develop more specifically for foreigners. Therefore Global Connections should into consideration when building relations with business partners.
Individualism
The brazilin society is a more collective society since Brazilians commit to a group ranging from family members to work mates. Also the Brazilian society has high level of loyalty and offer utter most respect to their leaders
Masculine/feminity
The Brazilian society leans towards being a more masculine society, as women expect men to be the breadwinners and the heads of family. In the Brazilian society boys are not expected to cry and girl expected to be well behaved and not fight in public. However despite the men being looked up in the brazilin society women play big in role the governance of the country as women are elected in general elections.
Technological Environment
According to a report published by World Economic Forum Brazil has progressed slightly in context of its use in of ICT in the digital economy. Also the lasted Global information Technology Report now ranks Brazil 56th out the 138 economies worldwide (itdecs.com (20120). However despite this ranking Brazil’s spending on public infrastructure has face a major problems due the rapid economy advancement the country has to deal with power shortages and black outs which have only decreased from 10% (1960-1980) to only 3% today. This could have a negative impact on business operations by increase costs as business might have to use other power sources such as generators to ensure smooth running of their businesses
Companies like Global Connections could look into take up these opportunities of providing energy solutions in future to the Brazilian people if they are able to meet the legal requirements.
Mode of Entry – Foreign Direct Investment (FDI)
Foreign direct investment is a process of owning an overseas property or manufacturing plant through investing in plant, machinery and labor in the target market. Direct investment can be made through
Greenfield entry which involves establishing a new business entity from scratch
Brownfield entry which involves acquiring an already existing business entity
Joint Venture involves partnering with either a local entity or a foreign entity in the same line of business.
The main advantages of FDI include
More control over foreign operation
Offers better protection for firms FSAs
Better understanding of host market, easier and quicker to adapt product for market and respond to make changes
The disadvantages of FDI include
High cost involves inventing a large amount of capital to set new property
Increased exposure to economic and political risk
Global Connections being a Malaysia company that has enjoyed success in the Malaysian market for the past 15 years and with the current economic situation and property market in brazil, foreign direct investment trough a Greenfield entry approach is one of the best suited mode of entry for the company This would give the company the opportunity to identify an idea location to set up a new five star Resort in one of Brazil’s most populous tourist destination. Locations such Salvador (brazil’s second largest tourist destination for international visitors) could be a ideal spot to set up a resort as this would enable Global Connections earn good return on investment and maximize profits at the same time . This option would give Global Connection the full ownership of the property meaning that the company can choose the design of their new resort to meets their long term strategic goals. However as much this venture might be require heavy capital expenditure at the beginning the long term benefits outweigh the costs
Conclusion and Recommendations
It would be a wasted opportunity for Global Connections to overlook Brazil as their next investment destination as the country has enjoyed enormous economic growth in recent times and its destined to prosper in the near future, the country also has more political stable economy which freely welcomes foreign direct investment therefore Global Connections should not be afraid losing its investments due to political instability
If Global Connections was to decided to invest in Brazil in their future expansion plan it should seriously consider the Island of Salvador as their number one location in Brazil as the Guardian newspaper declared Porto da Barra Beach in Salvador as the 3rd best beach in the world with an eco friendly and sustainable environment provides stunning opportunity.
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