Business Context Of Brazil Analysis Economics Essay

This paper analysed the concern context of Brazil as viewed from the planetary position, identified state specific issues in Brazil as it relates to pulling or detering foreign flow of investings from Multinational Enterprises ( MNEs ) and considered the different entry manners that will accommodate the state ‘s concern context. Weighing the possible benefits and inducements of making concern in Brazil against the pros, the paper concluded that… … the benefits outweighs the hazards and so MNEs should see making concern in Brazil.


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The concern environment has been identified as one of the major determiners of the flow of foreign investings in and out of a state. Since no individual state is self sufficient, the flow of foreign investings in and out of a state have been identified to be more than merely a beginning of economic development but besides a beginning of engineering spillovers, human capital formation, international trade integrating and a platform for more competitory concern environment ( United Nations ( UN ) 2004 ) .

Firms, in doing the of import determination of puting and runing outside their place environment considers and reply some of import inquiries like market chances that exists in the foreign market, resources advantage, associated foreign hazards, possible challenges, strategic deductions and manner of entry ( Bartlett et al 2008 ) . This clearly shows that enlargement abroad by houses non merely have advantages but besides carries with it associated challenges and hazards.

A figure of literatures have seek to explicate the factors and motivations that influence houses to put abroad. Harmonizing to Ghauri ( 2000 ) the facors that pushed houses to travel abroad can be loosely divided into two classs ; the internal factors which includes the ends and aspirations of persons and the administration like resources, capablenesss and schemes and the external factors which relates to environments at place and in the foreign markets such as revenue enhancement, ordinances, legal demands, possible net incomes, etc

The Multinational Enterprise ( MNE ) has been identified as the dominant vehicle of internationalisation in the planetary economic system ( Bartlett et al 2008 ) . The United Nations Conference on Trade and Development ( UNCTAD ) defined the MNE specifically refered to as Transnational Corporation ( TNC ) as “ integrated or unincorporated endeavors consisting parent endeavors and their foreign affiliates. ”

To give a clearer definition, Bartlett et Al ( 2008 ) defined the MNE as a house that have significant direct investing in foreign states and actively manage and respect this operations as built-in parts of the company, both strategically and organistionally.

The purpose of this paper is to analyze the concern context of Brazil as viewed from the planetary position, place state specific issues in Brazil as it relates to pulling or detering foreign flow of investings from Multinational Enterprises ( MNEs ) and propose the different entry manners that will accommodate the state ‘s concern context. The paper besides examines some theories of Foreign Direct Investment ( FDI ) and the motives behind MNEs determinations to put outside thier place state of operation.

In accomplishing this aim, the paper shall foremost analyze how state specific issues has been identified to be major determiners of whether or non a state will be a receiver of foreign investings from MNEs. A reappraisal of some of the theories of Foreign Direct Investment ( FDI ) that seek to explicate the motives behind houses determinations to put outside thier place state shall be done to back up our statement.

Thereafter, an analysis of the macroeconomic conditions of Brazil, it indexs of the concern environment, possible investing chances or hazards and a general SWOT analysis of the concern environment shall carried out. Besides, the possible entry manners for houses seeking to put in the state shall be examined.

In conlusion, … … …


This paper critically measure the concern potency of Brazil from the planetary position and discourse the differnt entry manners for foreign houses interested in puting in the state.

Harmonizing to the United Nations ( UNTAD ) defination of Foreign Direct Investment ( FDI )

A figure of literatures have seek to explicate the factors and motivations that influence houses to put abroad. Harmonizing to Ghauri ( 2000 ) the facors that pushed houses to travel abroad can be divided into two classs ; the internal factors which includes the ends and aspirations of persons and the administration like resources, capablenesss and schemes and the external factors which relates to environments at place and in the foreign markets such as revenue enhancement, ordinances, legal requiremants, possible net incomes, etc

Three major motivations have been identified as the motives by houses who carry out FDI in foreign states. Accordeing to… … ..these motivations are: market

Besides, the thesis looks at the different theories of FDI to explicate the 1s that best suits the chief grounds why MNEs go abroad

Besides, different entry manners have be suggested for entry into a new market. The determination of the entry manner to be used as the most suited into a market should be based on the proper analysis of some identified cardinal factors in the market. The cardinal factors identified are demand status, scheme, related and back uping industries, substructure, authorities policies, legal model, informal establishments, etc.

This survey critically assess Brazil ‘s concern potencies as viewed from a planetary position and discourse the possible and favourable entry manners available for foreign houses looking at making concern in the state.


Harmonizing to the World Bank Country Brief on Brazil ( n.d ) , Brazil is an economic giant whose economic system ranked among the universe ‘s 10 highest Gross Domestic Product ( GDP ) in 2009 with a GDP of US $ 1,571 Trillion. Brazil, an upper in-between income degree state with a GDP per capita estimation ( in footings of Buying Power Parity ) of US $ 10,520, has been identified as one of the BRIC states ( Brazil, Russia, India, China ) whose economic systems could be a much larger force in the universe economic system by the twenty-first century ( Economic Intelligence Unit ( 2010 ) ; GoldmanSachs ( 2001 ) ; World Bank Data ( 2010 ) .

With an mean GDP growing rate of 4.8 % per twelvemonth in 2004-2008, although falling by 0.2 % in 2009 and a forecasted growing of 5.9 % and 5 % in the following few old ages, the economic system of Brazil has been identified as an of import 1 in the Latin American part Banco Central de Brazil ( BCB ) ; BBVA Research ( 2010 ) . The economic growing in Brazil is driven by private ingestion, public disbursement, investing and external demand BBVA Research ( 2010 ) . In per capita footings, the GDP grew by 72 % between 2005 -2010 ( Refer to Postpone… … ) reflecting an addition in the income of an mean Brazilian. The high economic growing rate in Brazil has been facilitated by the pursuit of stable economic policies by the Brazilian authorities. To excite the economic system, the Central Bank of Brazil ( Banco do Brazil ) introduced expansionary financial and pecuniary policies like addition in public outgos, decrease in revenue enhancement rates, flexible exchange rate, increased accessibilty to credits from public Bankss. In controling rising prices which increased from 3.6 % to 5.7 % between 2007 and 2008 as a consequence of the expansionary pecuniary policies introduced before, rising prices aiming pecuniary policies like decrease in the involvement rates was introduced taking to a decrease in the rising prices rate to 4.9 % in 2009. Harmonizing to the Economic Intelligence Unit, the 12-month consumer-price rising prices rate as at September 2010 stands at 4.49 % , merely 0.01 footing points shy of the Central bank ‘s mark rate of 4.5 % in 2010.

The foreign militias of Brazil as at 2009 stood at 238,539 Trillion, a 32 % and 23 % addition from the 2007 and 2008 balance severally. With this solid modesty, the state can adequately back up its balance of payments place ( BOP ) and smothen any volatility in the value of its currency, the Brazilian Real. Analysing Brazil ‘s soveriegn recognition hazard evaluation showed that it has increased well with a foreign modesty that is 15 % of GDP. This figure reflects that Brazil can to the full serve its external debt Garcia-Herrero ( 2009 ) . The state ran a modest current history shortage of 1.5 % of GDP in 2009 but external solvency is non a hazard in the short term as the foreign militias provides equal buffer. Harmonizing to The Economist ( 2009 ) , Brazil is one of the first Latin American economic systems to emerge from the recession. The speedy recovery can be attributed to the strong domestic demand and handiness to credits that existed in the economic system which was facilitated by authorities ‘s acceptance of expansive financial and pecuniary policies utilizing the big militias as a agency. Besides, Brazil operates a good diversified economic system with the service, fabrication and agricultural sectors accounting for 68.5 % ,25.9 % and 6.1 % of GDP severally.

Brazil is the largest state in country and population in Latin America and the Caribbean with a population size of 193.7 Million in 2009. It is bordered by the Atlantic Ocean and portion common boundaries with every South American state except Chile and Ecuador ( World Bank Country Brief ; CIA Report ) thereby doing it an import and export gateway to other Latin American states. As a major trade good export state, the entire exports of Brazil accountted for 13 % of the GDP figure in 2009, a 7 % diminution from the 2008 figures while entire imports accounted for 13 % of the GDP The Economic Intelligence Unit ; World Bank Country Data ( 2010 ) identified lifting international monetary values for agricultural and excavation trade goods and lifting demand from Asiatic markets as an of import driver of the Brazil ‘s economic growing. The value of exports is expected to increase by 12.8 % year-on-year in 2010.

Brazil ‘s human development indexs have been every bit impressive over the old ages with the proportion of the population populating below poorness line cut downing from 1.8 % to 1.3 % between 2006 and 2007 and a grownup literacy rate of 90 % was recorded over the two twelvemonth period. Public disbursement on instruction as a per centum of GDP increased from 4.5 % to 5.2 % between 2005 and 2006. Brazil recorded a entire labour force of 99 million in 2009, a 2 % addition from the 2008 figure while the unemployment figure in 2009 declined to 7.9 % from 9.3 % in 2008. There has besides been a noticeable decrease in the income inequality spread in Brazil. This can be attributed to the upward tendency in the existent household income degree as reflected in the GDP per capita figures over the old ages.

Harmonizing to Sacerdoti, El-Masry, Khandelwal and Yao ( 2005 ) , the quality of establishments in an economic system plays an of import function in explicating its economic public presentation. The goverment of Brazil can be said to hold a strong weight on the economic system as observed in its high degree of intercession in the economy.The state operates a democratic system of authorities with a fundamental law that has been in consequence since 5 October 1988. The official langauage is Lusitanian and the capital is Brasilia. Although, the current disposal of President Lula district attorney Silva has been credited for keeping policy credibleness, political stableness, strong macro-economy and improved domestic investing clime, the noticeable rise in financial disbursement and the strong inventionist function of the govenment in the economic system has been a major concern ( Economic Intelligence Unit ) . The authorities is actively involved in the direction of the state ‘s cardinal sectors having important bets in the oil, fiscal and energy sector thereby curtailing private investings in these sectors.

Brazil operates a legal system based on the Roman codifications and its yet to accept the International Court of Justice ( ICJ ) legal power. The legal procedure in Brazil is really breaucratic and cumbrous thereby hindering private concern development. Harmonizing to EIU, “ Contracts in Brazil are by and large unafraid. It is of import, nevertheless, to stipulate the legal power for any difference. Each province has its ain judicial system, and there is a national tribunal system for affairs outside province legal power. The bench and civil service are just, but time-consuming processs hamper their ability to make rapid judgements. ”

In the Latin American part, Brazil ‘s economic system is a consistently of import economic system in the part because of its intimacy to the US market and its ownership of a well developed agricultural, excavation, fabrication and service sector CIA ( 2009 ) . Owing to its macro economic and politcal stableness over the old ages, its profusion in natural resources like oil, excavation and agricultural resources and huge local market, Brazil has become an attractive finishs for foreign direct investing ( FDI ) among emerging-market economic systems ( EIU ) . As a consequence of this economic advantage, many MNEs are utilizing the state as a base for their operations in Latin America. Examples include General Electric, Hyundai, GE Healthcare.

Infrastructural development has been a challenge to the economic growing of Brazil ‘s economic system. The overutilized airdrome, hapless route webs and congested port has significantly contributed to the addition in logistics costs in the fabrication and agricultural sector thereby haltering international trade. Besides, the one-year addition in electricity ingestion has put a force per unit area on the energy capacity of the state thereby demanding an enlargement of the energy substructure. In deciding the infrastructural job, the authorities has initiated a Public-Private Partnership to promote investing in substructure. Besides, it has invested one million millions of dollars to better its rail web. As a consequence of the rush in the figure of cyberspace users in Brazil, the state ‘s e-commerce activities has increased significantly hiking the already bouyant service industry in Brazil.

Although falling by 42 % in 2009 as a consequence of the planetary fiscal crisis which Brazil was non immune to being an unfastened economic system, the net influxs of FDI into the state over the old ages has been overpowering. The net influx of FDI into the state increased from US $ 15 Trillion in 2005 to US $ 45 Trillion in 2008 stand foring a 200 % addition over the 3 old ages period. The stock of FDI and flow of FDI accounted for 20 % and 1.65 % of GDP severally. Brazil, a member of the World Trade Organisation ( WTO ) as been identified as the third-most-attractive state for future foreign direct investing, behind China and India ( World Investment Prospects Survey 2010-12 ) . Harmonizing to BCB, the Netherlands accounted for 20.6 % of FDI influxs during the first half of 2010, in front of the US ( 15.5 % ) , Spain ( 10.8 % ) , Germany ( 7.8 % ) and France ( 6.8 % ) .

Despite the encouraging figures on FDI in Brazil, the state still possess a strong regulative and institutional hazard. Harmonizing to the 2010 World Bank Ease of Doing Business Report on Brazil, the state slipped 3 topographic points from 127th place in 2009 to 129th topographic point in 2010 among 183 economic systems in footings of overall easiness of making concern. As shown in Table… … , the procedure of registering new concerns, belongingss, acquiring credits, shuting concerns in Brazil is cumbrous and breaucratic. Asides this, companies operations are subjected to a high revenue enhancement load and a stiff labour jurisprudence which impedes the enforcement of employment battle contracts. In extenuating these regulative and institutional hazards in… … … ..



Strategic place as a trade good manufacturer

Demographic advantage in footings of its geographic propinquity to the U.S

Institutional Stability

Size of domestic market

Effectiveness of Human Resources

Competitive Risk-Adjusted Cost


Strong Banking system


Low salvaging rates

Excessive governtment intercession in the ecomony

Legal system Corrupt and unqualified bench

Private sector instabilities

Slow advancement of economic reforms

High unequal income distribution

Foreign Perception of the State


Springboard to the U.S. Market

Maturing Economies in Latin America

Emerging Local Service Providers

Institutional Support for the IT Service Industry

Leveraging Different Language Skills

Credence of Alternate Delivery Models

Development of a sound rail system


Government direction of oil resources

Regulatory Environment Shifts

Percept of Economic Status

Investings in the IT Sector and Support of the Education System

Labor Rate Additions

Labor Law Requirements

Intellectual Property Protection, Privacy and Data Security Issues

Crime degree being the 2nd largest consumer of cocaine in the universe.



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