Aspects of the Business Environment of Brazil - Essay Example

SECTION A Business environment of Brazil Business environment of Brazil is ranked on the 7th place in Latin America, whereas it is the second-least globalized economy in the Latin America (Bamrud 2011, 36). For more comprehensive analysis of the Business environment of Brazil there is used the PESTLE framework which is a good tool for evaluation of macro environment for doing business in any country through the analysis of five long-term factors, including: the Political, Economic, Social, Technological, Legal and Environmental (Cheverton 2004). Political environment Even though Brazil is referred to the list of developing countries, it has a strong federal republic. Federal government has a final authority despite the fact that the country is divided into municipalities and states (MarketLine 2014). There is one significant disadvantage of the political environment in Brazil – freedom of speech is under severe control and extreme threat. Even in 2013 there were reported many cases when journalists and other activists were murdered or attacked (Marketline 2014). Corruption in politics and high crime rate in urban areas are the potential pitfalls for businesses. Any company willing to do business in Brazil should be very careful in terms of their statements and thoroughly develop relationships with the government. Economic environment Macroeconomic framework in Brazil is strong enough to attract capital inflows and FDI, mainly due to a flexible currency, fiscal responsibility legislation, and inflation control measures that were undertaken by government (MarketLine 2014). Due to the FDI inflows the country’s exporting activity has been growing especially in the commodity sector (MarketLine 2014). Another important factor here is that Brazil is leading among BRICS countries by the share of informal employment. This has a real problem as workers are not socially secured and are vulnerable to job instability (MarketLine 2014). Social environment Population in Brazil is very disproportionate: about 24% is below 14 years’ age. On one hand this is a huge opportunity for some companies whose target audience is of young age (MarketLine 2014). On the other hand, the opportunity is challenged with the fact that significant amount of Brazilians live below the poverty line (22-31%) (Denend 2009). Technological environment Brazilian government encourages prominent universities, foreign entities and other R&D organization to contribute to the science and technology area in Brazil as its current activity is minimal. In addition to various programs for researchers, the government has developed incentives for businesses to encourage R&D investment (income tax deduction on R&D up to 100%, reduced Federal VAT on asset acquisition, accelerated R&D assets’ depreciation (MarketLine 2014). Legal environment Brazil has a comprehensive legal structure at all levels, including regional, state and federal. In order to accelerate the registration process, government has simplified the trade and tax law and this has contributed to more favorable legal environment of doing business in Brazil (Marketline 2014). However, tax structure in the country is excessively complicated, fragmented and burdened with indirect taxes. This factor results imposes a threat of increased litigation costs for businesses and raises uncertainty (MarketLine 2014). Environmental factors Brazil is a country rich for natural resources (namely rainforests) and biodiversity. However, the Amazon region is currently under massive exploitation because of dams building projects. This construction is threatening to the global environment and might have fatal impact on the world’s carbon emissions increase (MarketLine 2014). # of words: 547 SECTION B As Stefan Tammler, the head of the chassis system control division (CC) of Robert Bosch GmbH (Bosch), evaluate the advantages and disadvantages of bringing the development of the new ABS system for the low-price vehicle segments to Yokohama and to Suzhou. Based on the above analysis, explain the final decision in relevance to the R&D role of the new site. The major advantages of bringing the development of the new ABS system for the low-price vehicle segments to Yokohama include the following: R&D center in Japan is an established facility with the strong team of engineers; The employees already have a deep product knowledge; R&D center in Japan is the center of excellence which make it more competitive on the market; In Japan technical and quality standards are very high and this will make CC division comply with these standards in order to keep its products competitive (ESMT Case study 2012). Besides these advantages, there is a number of significant disadvantages of focusing R&D centre in Japan, namely: The net R&D costs of CC division are higher than in China (6,5 % of sales vs 6%) The overall R&D costs remain high because of not 100% inefficiency of current teams High investments are required into engineering enforcement because of the challenges faced in the area of electric and hybrid vehicles (ESMT Case study 2012). The major disadvantages of bringing the development of the new ABS system for the low-price vehicle segments to Suzhou are the following: Weak legislation in relation to the Intellectual property rights which imposes significant threat of know-how “leaking” for Bosh company; Lack the deep knowledge required for the development of new platform (transfer know –how) (ESMT Case study 2012). On the other hand, China as a potential destination of the ABS system development has many important advantages: The company already has built know-how in software development ABS system and in the area of product management system; The team of engineers is also partially available already; The average cost of an engineer in China is much lower than the average cost of an engineer in Japan: the company can employ 2,5 engineers in China or 1 engineer in Japan; Growth of the automotive market in China offers huge opportunities for the company to gain its niche on the local market; Knowledge of the local customer requirements; Availability of a leader (Chen) who has a deep knowledge on the products, and has good relationships with the customers Based on the above analysis it is possible to make a decision by bringing the ABS system to China, Suzhou. However, the company will have to address some of the important issues, such as motivate Mr. Chen to lead the CC division in China, and to develop more sophisticated protection of the Intellectual property and company’s know-how. Counterfeiting and violation of IPR are the real problems in China, despite the fact that Chinese government has introduced a number of IPR laws (Intellectual Property Office, 2013). # of words: 449 SECTION C 1. How would you assess the overall performance of the Suzhou development site and how would you characterize its role within the Bosch global development strategy? The overall performance of the Suzhou development site can be viewed as effective and productive. Two years after the company moved its Suzhou chassis systems control division unit to Suzhou, it has created a development center with 178 employees and 72 engineers. The company has successfully implemented knowledge management strategy by utilizing its global knowledge on the local Chinese market through its cross-functional teams. The concept of knowledge management implies that the company leverages the existing corporate knowledge in its organization (Reinmoeller & Nicole 2005) for maximization of the use of the expertise and skills of R&D specialists in the international CC technical centres (ESMT Case study 2012). Thus, the practice of knowledge management enabled the company to develop further its development center, avoid a problem of lack of expertise on the local market, and thus become more competitive on the market. The efficiency of this business model was supported by the growth of number of project that the development center was managing: the increase from 14 to 20 projects within one year was a significant advance. The company had an ambitious plan to increase its performance by managing 40 projects by 2008 and then doubling its activity by 2009 (ESMT Case study 2012). The duration of the projects was ranging from 8 to 24 months; however the lead-time for product adoption of ABS system was much lower in China than in Europe (12-18 months vs. 8-10 months, respectively) (ESMT Case study 2012). The company has developed a four-year plan which was based on the idea to build the R&D department similar to the regional R&D centres. The plan of making R&D department in China a completely independent centre capable to manage local customer projects was definitely the right one. Continuous growth of China’s GDP, economy growth, huge population, growing FDI’s (Agarwal 2011), and increasing competition of foreign rivals were all the factors that have encouraged Bosh to proceed with the China’s R&D centre. The Suzhou development site had played a strategic role within the Bosch global development strategy. As of today, the company has presented all its business sectors in China, including not only automotive technology, but also industrial technology, energy and building technology, and consumer goods (Bosch.com.cn, 2014). Nowadays, the company employs more than 30 000 associates and operates 63 legal entities across the whole China (Bosch.com.cn, 2014). The overall sales activity in China was 41, 2 billion yuan in 2013 (Bosch.com.cn, 2014). Based on this key information, it is possible to see what a great role the Suzhou development has played within the Bosh global and development strategy. Moreover, the company’s management believes that Bosch’s strategic approach in China was very effective and it attributed to the Bosh’s current steady business growth. # of words: 455 References: Agarwal, M. 2011, ‘China, India And The US: Shifting Economic Power. China Report 47.3. Bamrud, J 2011, Brazil: Latin Americas Superpower, Latin Trade (English), 19, 2, p. 32, MasterFILE Premier, EBSCOhost, viewed 16 June 2014. Bosch.com.cn, (2014). Locations | Bosch China China. [online] Available at: http://www.bosch.com.cn/en/cn/our_company_4/locations_4/location_10240.html [Accessed 16 Jun. 2014]. Cheverton, P 2004, Key Marketing Skills: Strategies, Tools, And Techniques For Marketing Success, London: Kogan Page, eBook Collection (EBSCOhost), EBSCOhost, viewed 16 June 2014. Denend, L. 2009. The Business Environment of Brazil: Navigating the financial crisis (1st ed.). Stanford Graduate School of Business. ESMT Case study, 2012. “Global product development strategy at Bosh: selecting a development site for the new low-cost ABS platform”. ES1301. Intellectual Property Office, 2013 “Intellectual Property Rights In China”, Newport. Intellectual Property Office, 2013. Web. viewed 16 June 2014. MarketLine, 2014. Brazil In-depth Pestle insights. Country Profile Series. Reinmoeller, P., & Nicole, v. B. (2005). The link between diversity and resilience. MIT Sloan Management Review, 46(4), 61. Read More