Investment climate is the cost-effective, institutional, policy, and regulatory environment in which companies operate. A PESTL analysis is an research of the exterior macro-environment that affects all firms. P. E. S. T. L. is an acronym for the Politics, Economic, Sociable, Technological and Legal factors of the external macro-environment. Such exterior factors tend to be beyond the firm's control and sometimes promote themselves as hazards.
Brazil happens to be a country with a well balanced, proactive federal government and there is almost no political instability at the moment. However, things can easily change, as they does through out the present day history of Brazil. Political conditions can become volatile, and this danger remains from election to election. Business conditions that change rapidly and cultural extremes that exist don't add to country's attractiveness.
Corruption is still a big concern in Brazil. Beginning an operation in Brazil may necessitate additional obligations to government officers, which can present a large obstacle to entering a market. Corresponding to Transparency International, Brazil holds 70th place in level of problem among 180 countries, higher then such economies as Cuba, Turkey and Bulgaria.
Due to large society and inflow of FDI, Brazil has extremely high prospect of growth. The difference between rich and poor is reducing gradually, and there's a significant development of growing middle class. Good news is the fact Central loan provider has inflation in order and the chance of domestic currency devaluation is low. Brazil's currency, the true, was presented in 1994, and is largely regarded as a success. Presently, it is known as to be overvalued up against the buck, which hurts exports and helps imports.
Government is clear when it states so it has equivalent treatment for both foreign and domestic businesses. There is great quantity of unskilled and semi skilled staff, but labour costs on the global level are quite low. With regards to import duties, there is a system set up which little by little reduces the tariff according to the period of time of successfully importing. Authorities doesn't offer any help, but local status governments have a right to offer incentives for making an investment, almost the same set of incentives as it does to domestic businesses. Corporate duty is 15% and there are no clear incentives for leaving the earnings in the united states. The tax rate is quite high in comparison to some economies like Ireland, Portugal or Greece. Price Water Coopers, consultant agency, highly recommends that exporters seek the help of local trade and taxes consultants before transport any goods.
Class distribution in Brazil has an enormous portion of low (little) income people, and a substantial number of rich citizens. However, middle class is showing progress, but is still to be set up. This explains to as that there surely is large consumer population (18 million) of quite wealthy individuals that could be successfully targeted with our product. Brazilian people are believed as modern and up-to particular date with fashion movements on the globe. They know about luxury brands and are willing to buy expensive products.
South and southeast region will be the most developed parts of the country and contain the best quality lifestyle. These areas will be the most-densely filled and take into account the biggest portion of GDP per brain. Southeast is the house to metropolitan areas of Rio de Janeiro and Sao Paolo, where the major part of human population is located. (See Appendix B)
Unfortunately, Brazil is highly bureaucratic country. Beginning any kind of business in Brazil requires huge amounts of paperwork, you may still find numerous regulations and it is an extended process. Brazil, symbolized by Sao Paulo as the major business centre, ranks 119 out of 155 in ease of doing business. That is behind other major appearing markets. For example, South Africa ranks 29, Mexico 73, Russia 79, and India 116. In Latin America, only Venezuela and Haiti regulate business more seriously than Brazil.
Starting a business is easiest in the us of Minas Gerais and Rio Grande do Sul. It really is most difficult in Sao Paulo, Ceara, and Maranhao. The time to start a company varies greatly across states-from 19 days in Minas Gerais to 152 days in Sao Paulo. It requires 19 different steps to get started on a company in Ceara, and 18 in Maranhao and Santa Catarina.
Government is exhibiting work in providing help to investors by giving guides and lists of necessary bureaucratic devices needed to start a business in Brazil. These manuals are quite complicated but supported with details, often with identified step-by-step process for obtaining necessary licences. Brazil has signed a bilateral agreement on avoiding double taxation with most countries, including Denmark.
There are specific laws and regulations regulating costing models, where we have to be mindful, especially while eventually promoting sales. Also, every venture must pay extra (13th reward) salary to its employees.
High corruption among govern. officials
volatile political situations
history of instability
stable inflation rate
many unskilled workers
deregulation of markets
undervalued real (best for importers)
growing middle class
big financial inequality
social unrest among the poor
opening to international investors
numerous rules on starting a business
strong labour unions
double - taxation agreements
II. The secrets to success: a Marketing approach
The Marketing procedure for Redgreen in Brazil depends on the assumption that increasingly more Brazilians belonging to the higher world and occupying managerial positions in international firms and in administrations are looking forward to implementing a advanced style through clothes, which can be used in the working environment as well for leisure times, and will be offering excellent quality and European design. Redgreen will compete based on the value wanted to customers by their products, in conditions of image, quality, etc. (see "Product's worth" below), alternatively than on price.
Managers in international companies, people, yuppies in Sao Paulo
Doctors, plastic surgeons
Diplomatic Corps and politicians in Brasilia
State staff in Ministers or administrations (with alternatively high positions)
Rich people spending getaway time in luxury resorts like Costa do Sauipe.
The choice in terms of setting of admittance as well as the places where we recommend the company to market (Sao Paulo, Brasilia and Costa do Sauipe) flawlessly reflect the mark market which has been chosen. The targeted consumers will indeed shop in those places and can have the chance to buy Redgreen products following that.
A two times product use
We have to make prospects understand (cf. "communication" below) that Redgreen clothes can and really should be used in a specialist environment as well for their leisure times: boating, golfing, visit friends, go to cocktails, brunch or receptions
Why we imagine Redgreen products can draw in our goal? What do we offer to customers?
A new and exclusive brand
Security and excellent quality
Seriousness as well as casual/comfortable clothes
Fashionable, superior design, Nordic style
A Western touch
A perfect style: our clothes should be described and will be perceived as "stylish, graceful, tasteful, chic, chic, posh, expensive, elaborate"
Can be utilized in every circumstances (working and leisure times).
Launch a campaign of minor importance in a first step. The business should not make any big investment initially, no national plan, no television campaign because we remain at a level where we are only tests the Brazilian market. A major communication marketing campaign could come later on, after a couple of months, depending on first reactions of Brazilian customers in conditions of sales, etc. The "first step" campaign will be made using posters exhibiting photos of our own models and a slogan reflecting the actual fact that Redgreen clothes are high quality, flawlessly made to be nice and fashionable, both in a specialist environment and then for leisure times (golfing). These posters will be viewed in the places where products will be sold. Some advertisement could be produced in one or two pretty journals (Business Week).
Try to find a meeting that could be sponsored (especially a local golf event, a boating/sailing event, a local reception).
Submit all sellers the marketing concept and ask those to communicate on the products - while selling and speaking with clients - in accordance to this theory.
We can export all the range of clothes but the differences will be made in terms of quantity. Obviously more amounts should be allocated for summer months clothes and export less winter clothes. Summer months clothes fit better with the neighborhood local climate, environment and consumer style. Still there are people who need warm clothes in Brazil and Redgreen can offer them with excellent coats for their journeys (we can notice that there are frigid regions sometimes in the Southern parts of Brazil). Various colors will be exported because Brazilians are likely to dare buying colourful clothes. The selection of products for export to Brazil may be changed in accordance with the result of customers on site.
V-neck knits women/men
Long sleeves rugby men
Modern sweets women
Functional spencer women/men
Quilted coats women
Trench jackets women.
III. A strategic distribution choice
To choose an designed distribution strategy, the utilization of Porter competition advantage, (Porter, 1986, p24) leads R-G to focus on a narrow concentrate on and more especially a niche strategy. Our choice is never to remain competitive on price (cost reductions) neither on differentiation for a huge target considering that nearly all Brazilian can't find the money for expensive product.
In the strategy of the business, a key aspect is the decision of investment (immediate or indirect). 3 options will be presented to weight pros and cons from 6 alternatives provided in the written text publication quoted in the written text book: Licensing, franchising, management agreements, Turnkey operations, joint endeavors and equity alliances.
According to a comparative study (Franchising, joint venture and Nook) within appendix C the decision of Redgreen for its business in Brazil is to set up a franchise. "Franchising is a specialized form of licensing where the franchisor not only sells an unbiased franchisee the utilization of the intangible property necessary to the franchisee's business but also operationally assists the business on a continuing basis, such as through sales advertising and training" (Text book). Then, in trade, the licensee should pay twelve-monthly fees and also a percentage of his gross earnings.
For Red Green, the main advantage is speed to start a new business. It is much faster than to set up a joint venture and not much longer than to have a area. The brand already are present, retailing activity can be kick off in a brief time frame in virtually any continent. The chance is low thanks to the limited investment; it is even cheaper than Joint venture. However, making can be not negligible in case there is success in a country such as Brazil. The last gain is the probability to check on how is going the business by making an audit. Nowadays, 119 brands are franchised like Levis, Wranger or Lee. This means that it is a more developed way to export.
As a drawback, costs of national ad in Brazil should be paid by Redgreen like other support services to the franchisee. Which has a nook it wouldn't be the truth but with a joint venture, it would be even more (national and local advertisement) In addition, training of franchises should be achieved that imply costs and involvement. It is more costly than with a area but always cheaper than if Redgreen setup a joint venture (set cost + salary)
According to benefits and drawbacks analysis, by chosing to open a franchise, Redgreen can concentrate on the two 2 main locations in Brazil: Brazilia and Sao Paulo, where the primary portion of the wealth is targeted. Additionally it is possible to start a shop in the holiday area Costa do Sauipe (next to Bahia) to focus on a hotel chosen by many local and foreigners as any occasion place.
IV. Enlargement opportunities
Now, the market examination should underline opportunities in term of extension on the clothes market in Brazil. As a first statement, key numbers can give an overall idea of the problem. Almost 50% result from China, 10% from Hong Kong, 6% from India and 5% from Italy. It means that 4 countries are on this oligopoly market with 71% of the marketplace. In addition, it means that Danish brand will not penetrate easily the marketplace. Nevertheless the importation development is expending (based on a study from 2003 until 2005)
The competition in the clothing market will be based on the sample of Sao Paulo as a result of existence of most important data on this area. This city is one of the unusual city to truly have a high ranking area so called "gold triangle", ranked 9th most luxurious avenue on the globe, where the most well-known and luxury fashion goods are sold.
On the Brazilian market, since 1995 and the decrease of tariff barriers, many famous brands have created sites to truly have a strong influence on the market. Rather than quoting all these brands, most important will be positioned on the perceptual credit card in line with the price of clothes and get older of consumer (also link to the look and fashion). All of this brands focus on wealthy people who can afford international famous brands.
5 Forces of Porter can be used to give a standard idea of the problem. At first view, it's possible that competition is hard because of many famous and more developed brands (start to see the conceptual credit card). However, immediate rivalry is from the attentiveness. The less the focus is important (many competition like in Fashion industry in Brazil), the better it is to be competitive. The growth of the marketplace and its own dynamism is real and allow Redgreen to get some good market talk about easily. Due to the statement: "the low is the expansion rate, a lot more competition is a question of life among competitors". Then, the possibility to truly have a differentiation strategy can pay off and limit the effect of competition. Considering that there are almost no exit barrier, in case of a low progress rate, rival will just leave the marketplace and not be competitive until loss of life.
In term of new competitors entering the market, the activity's progress can get new competition and new brands to come in the forex market. The inexistence of accessibility barriers on investment and R&D confirms the lack of risk. Substitutes products don't symbolize risks; negotiation ability of customer is also marginal. The bargaining vitality of suppliers is not linked to Brazil development and the research will not cover this part.
"The Porter 5 forces"
V. Specific Operational Aspects
In order to be a successful exporter to Brazil, a certain amount of essential disposals should be taken. Sign up at the "Registro de Exportadores e Importadores" (Ministry of Trade). As an importing company, we or our legal consultant have to fill the "Declaration of Importation" which has to be presented to the "Receita Federal". Custom clearance is entitled. for every type of merchandise; clothing products are at the mercy of a 20% custom clearance. The products are also permitted Taxes on Merchandise traffic, which is 18% in the condition of Sao Paulo. The best way to transport our products is the maritime freight to Brazil.
It has been soundly encouraged, to avoid discriminatory procedures and "shock" taxes on custom clearance or importation licences, to hire a middleman called "despachante aduaneiro" who will look after the legal aspect. Their cost broadly covers time and energy used to handle all the steps by our company.
As a bottom line, Brazil as an emerging economy reveals a great chance of Red Green to increase its procedures and gain significant market show. Its vast inhabitants of abundant individuals and growing middle income present a perfect marketplace for our products. Our main opponents haven't fully proven their functions and demand for our kind of product is growing. This is a great opportunity, and we shouldn't miss out on it.
As an accessibility model, the decision has been designed to put into practice franchising model, to be able to limit the chance and share it with our companions in Brazil.
The current strategy is currently defined however in the future, it is possible to open a Redgreen shop or to have a clothes processing procedure in Brazil. So, vertical integration could add value and increase revenue. This extension could be achieved if the business enterprise is more developed and forecasts of sales are appealing increase in earnings.
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