Brazil and India - a Comparison in Business Environments - Essay Example

Brazil and India: A Comparison in Business Environments Brazil and India: A Comparison in Business Environments Introduction The end of communism marked the beginning of a new era in free trade where competition became the hallmark of any business transaction. Every socialist country has tried to make up for lost time, and has made capitalism the paradigm for their economies. Countries all over the world are racing ahead by making themselves attractive for both local as well as international business. India and Brazil are two such countries which matter in the present economic scenario. They are significant on the basis of their size and the population that they contain. They have commanding positions in their respective continents, India in Asia, and Brazil in South America. Both these nations have similarities and differences at the same time in their environment and approach to the business world. Institutional Structures India is a predominantly agricultural country. A vast majority depends on it for livelihood. However, the share of agriculture is proportionally lesser due to a buoyant and growing service sector. Manufacturing sector has not seen the growth required of it in the past. However, with continued flow of investments, even this sector is looking up. India is a republic which follows a parliamentary democracy. By virtue of its population, it is the largest democracy in the world. Other institutions like the judiciary and a free press have a firm grounding in India. India has a financial sector which is looking for consolidations. The liberalisation of the past two decades has brought down poverty but much more needs to be done. While the rich and the middle class reap the benefits of globalisation, the underprivileged need to be brought into the business radar. A sizeable section of the people remains outside the scope of financial services on the basis of their low income. Moreover, these financial services are not reaching the rural landscape where much of the requirement exists. Though India has become more urbanised than the past, the majority still resides in villages, which should now reap the benefits of prosperity. Brazil is the fifth largest country in terms of population size. Brazil now has a settled political system which brings stability to the economic sector as well. It is the largest and most important nation in Latin America, and enjoys the economic clout in this region. Brazil dealt with the primary sector for a few centuries given that it is blessed with an abundant supply of raw materials. It now caters to diverse needs and is spread across the various sectors. As Baer (2008) points out, Like India, Brazil too is increasingly becoming urbanized. The contribution from the manufacturing sector has shown a remarkable rise, whereas agriculture is on the decline. However, on the basis of per capita income, it still is a less developed nation. Brazil has a sizeable section of young population which accounts for its growth in per capita income. The south east of Brazil has witnessed more prosperity and is hence the focus of foreign investments (p. 2). Similarities for business seeking MNCs According to The World Bank (2013) report on the Economy Profile (for Brazil and India), there are two aspects viz. paying taxes and trading across borders where the ratings for Brazil and India (among 189 countries) are quite close. One can assume similar circumstances for both these nations. In terms of paying taxes, India ranks 158th followed by Brazil at 159. The number of times the tax paid for a manufacturing company (in 2012) with regard to value added tax, sales tax etc. are taken into account. We also consider the time taken for compliance with three important taxes and the profit before all taxes. According to the World Bank findings, in terms of trading across borders, Brazil fares better at 124 than India at 132. The number of documents necessary for export and import and the number of days to complete the export or import process are considered in this regard. The cost incurred in the export or import per container (in US dollars) is also taken into account. Differences for business seeking MNCs According to the World Bank’s Economy Profile (for Brazil and India) (2013), Brazil has the upper hand in terms of starting a business (123rd), dealing with construction permits (130th), obtaining electricity (14th) and enforcing contracts (121st). However, India fares better in terms of registering property (92nd), obtaining credit (28th), safeguarding investors (34th), and resolving bankruptcy (121st). To start a business, we consider the number of procedures required to officially commence a firm’s operations. The cost and the number of days of each such procedure and the paid capital as a percent of per capita income are also taken into account. Examples include the period before, during and after registering a business. Dealing with construction permits involves the number of procedures to construct a warehouse. This includes the time taken and cost incurred for each such procedure. Some instances are submitting relevant documents and notifications, obtaining a telephone line, water connection etc. The above three aspects are taken into account in the case of the obtaining electricity and enforcing contracts indicators as well. External installations and materials are an example of the obtaining electricity indicator. Costs incurred at court and attorney fees are examples for the enforcing contracts indicator. Registering property includes aspects like checking for liens, registering in the country’s largest financial city etc. Obtaining credit involves collateral laws that protect the borrowers and lenders like, insolvency laws to protect secured creditors, access to credit information etc. Safeguarding investors involves the permissions for transactions, and disclosures thereof. The extent to which a director is liable, the legal remedies possible, access to internal documents for the shareholders, documents available during trial etc. are other examples of the same. Resolving bankruptcy comprises the number of years to recover the debt including appeals to extend the period, cost of recovering the debt viz. legal fees and those of the assessor and auctioneer, the recovery rate in terms of the creditor for e.g. the present value of the recovered debt, depreciation etc. Relative Attractiveness India and Brazil offer advantages to various stakeholders with respect to business. We look at three of them viz. the domestic entrepreneur, Multinational Companies (MNCs) and international investors. 1. Domestic entrepreneur The domestic market of Brazil is dynamic and large, which can expand in the future as well. The manufacturing sector has a multiplier effect on the domestic economy, creating jobs all over. As per the survey of Deloitte (2012), Brazil has substituted imports with locally produced goods, which has led to a diverse manufacturing sector. Domestic entrepreneurs also have tax incentives. Moreover, the social classes have moved up the ladder in the last 20 years. The crisis in Europe notwithstanding, the domestic market is known for its size and quality. According to the Deloitte report, the government is developing an industrial policy which promotes Brazilian products by encouraging innovation and fortifying production chains. India has a huge domestic market and a large workforce, which present many avenues to companies. India also has solid engineering skills along with a functioning banking system. The record of Indian entrepreneurs is there for all to see. India is backed by an educated workforce. Moreover, the education system is strong and has its focus on niche areas like management as well. Internal consumption is the reason for most of the domestic success. 2. Multinational Companies From 2004, Brazil has seen continued activity by MNC’s due to the economic policies adopted and the advent of a stable government. Brazil has become the regional hub for Latin America. A noteworthy point was the adoption of Six Sigma model for quality. This has brought dividends to all the companies that have adopted it. Brazil follows the international quality standards followed by the parent companies. Hence, Brazilian subsidiaries are able to make for the shortfalls in other countries. The 2014 Football World Cup and the 2016 Olympics have further attracted automobile and construction majors. The revenue from Brazilian subsidiaries has started to rise. For instance, according to the Deloitte (2012) report, the Brazilian subsidiary of Cummins contributes 10% of global sales. It now focuses on domestic sales, where it used to export all its production previously. And, with the gradual reduction of ‘Brazil Cost’, more and more MNC’s will flock to it expecting better returns. In case of India, according to the Ernst & Youngs (2012) report, safe harbor rules were created so that transfer pricing for MNC’s operating in India could be made easy. MNC’s having arrangement with other companies are said to have more flexibility on this count. An unbroken stream of production coupled with a vast talent pool is the reason for the presence of MNC’s like GE. India is said to become a base for MNC’s by 2020 due to the prevailing entrepreneurship. 3. International Investors The facility for Foreign Direct Investment (FDI) in a country attracts international investors to it. In case of India, around four-fifths of the FDI comes from Western Europe, the US and Japan put together. Not only the Middle East, but also South East Asia is increasingly investing in India. Globally, FDI’s bring India 6.3% of all projects, account for 5.5% of inflows and create 9.4% of jobs (Ernst & Youngs, 2012). TMT is the most attractive sector for investors. By 2015, India would be the fifth fastest growing economy in the world. FDI ceilings have been removed (in 12 sectors) raising their limits in sectors. According to the Ernst & Youngs (2012) report, India ranks above Brazil in terms of the number of projects at hand. Automobiles, TMT and Industrials account for the focal points of FDI. More foreign inflows are expected with Japan and Korea starting their industrial zones in India. Referring to Ernst & Youngs (2012) report on Brazil, the situation looks promising on the FDI front. For instance, China has invested considerably in the infrastructure sector. FDI in 2007 was at 2.7% of Gross Domestic Product (GDP). UK is the second largest investor in Brazil with the southeastern region attracting most FDI’s. These are mostly in business services, manufacturing etc. Conclusion In overall terms, comparing the statistics from The World Bank report, one can see that Brazil has an overall rating of 116 whereas India stands at 134. Both differ significantly in ratings over four aspects each, with the differences being lesser over two aspects. However, India has slipped three places over the last year, whereas Brazil has moved up two notches over the same period. Hence, India needs to do more to improve its performance on the rating front. However, this is a case of oranges and apples, and it would not be fair to arrive at a conclusion only on the basis of ratings. Each nation has its own business environment with an attendant socio-cultural context. At the present rate, one can safely say that both India and Brazil will only grow from strength to strength on the business front in the days to come. References Baer, W. (2008). Excerpted from The Brazilian Economy: Growth and Development. US: Lynne Rienner. Deloitte. (2012). Competitive Brazil, In the eyes of the Multinationals. Retrieved from http://www.deloitte.com_assets_Dcom-brazil_LocalAssets_Documents_Indústrias_Manufatura_livro_ingles.pdf Ernst & Youngs. (2012). Capturing the moment, E & Y’s 2012 Attractiveness Survey: Brazil: UK Investor’s Perspectives. Retrieved from http://www.ey.com/Publication/vwLUAssets/2012_UK_Brazil_Attractiveness_Survey/$FILE/EY_2012_UK_Brazil_attractiveness_survey.pdf The World Bank. (2013). Doing Business 2014. Economy Profile for Brazil. Retrieved from http://www.doingbusiness.org/data/exploreeconomies/brazil/~/media/giawb/doing%20business/documents/profiles/country/BRA.pdf The World Bank. (2013). Doing Business 2014. Economy Profile for India. Retrieved from http://www.doingbusiness.org/~/media/giawb/doing%20business/documents/profiles/country/IND.pdf Read More