Current Situation, Cultural Factors in Brazil for Investing - Case Study Example

?Introduction Brazil, one of the fastest growing economies of the ‘developing world’, is looking forward to hosting some of the world’s largest sporting events such as 2016 Olympic Games in Rio De Janeiro and 2014 Soccer World Cup (Breukel, 2011). As one of the foremost members of the BROC nations, Brazil is moving towards becoming a major player in the 21st century (Islam, 2010). Its GDP has grown 4.7% in the last 12 months registering growth in services and manufacturing while no growth has been registered in the agriculture sector (Portal Brasil, 2011). Reform measures in Brazil have seen it attract foreign direct investment as its stock market has lifted and its currency has strengthened (Lyons, 2011). Brazil is expected to invest US $18.4bn for the 2014 FIFA World Cup in 12 Brazilian host cities funding 50 projects (Portal Brasil, 2010). By the end of the 1990s Brazil was ranked tenth in global automotive producers as the nation was willing to experiment with a wide range of supply and production arrangements (Strategic Direction, 2005). Brazil is undoubtedly poised for growth ever since its foreign exchange policy is liberalized. It is moving towards becoming the fifth largest economy (Williams, 2011). However, all these pose a very glamorous image of the nation but businesses desirous of investing in Brazil need to get a complete picture of the benefits and pitfalls. Any disappointments could damage the credibility of the country that it is trying to build up. Economic situation There were more than 10 significant oil discoveries last year which has pushed the nation up in oil producer rankings (The Telegraph, 2011). Brazil is expecting a Tsunami of riches as Petrobras gets full production from the oilfields deep under the Brazilian Seas (O'Shaughnessy, 2009). This would help the nation overcome the repression and torture which impacted the living conditions. Flushed with excessive cash has its pitfalls. Its currency is the most overvalued and real-estate bubble is expected in Brazil as banks have extended risky loans (Lyons, 2011). Cost of doing business in Brazil has risen very fast. Brazil has abundance of natural resources and could be the world power but poor management and leadership have led to large debts (Balsom, n.d.). Economic growth in Brazil has been built on a very fragile structure as 10% of its population is completely illiterate and 68% functionally illiterate (The Brazil Business, 2011). Millions of students emerge from secondary schools without being able to write in English. What is astonishing is that it is socially accepted and expected that they would not learn anything in school. Unemployment in Brazil was 9.9% as of 2009 (McGladrey, 2010). However, through targeted social programs, through subsidizing house loans and raising the minimum wage the government has been able to pull more than 20 million people out of poverty (The New York Times, 2011). President Lula paved the growth that solidified the country and made it a significant player in the world. However, the next President again has not been able to win the confidence of the people. Thus, on the one hand while it has abundance of natural resources, a large industrial base, a huge population base, making the market attractive to investors, economic uncertainties make it difficult to improve its competitiveness or build a modern infrastructure (Austrade, 2001). Labor The nation has a large labor force but the workers are either unskilled or semi-skilled. There is a shortage of technical personnel. Labor unions can be militant especially in the metallurgical, automobile, banking and transport sectors (PricewaterhouseCoopers, 2005). They make a significant force in the country. Fringe benefits and social security for the laborers is not very strong. However, foreign investors do not experience problems with labor because they follow local standards and practices. and the country has been the top producer/exporter of soybeans, cattle and beef products, and poultry. Major issues in doing business in Brazil require an understanding of the cultural differences, currency exchange control, the business environment and the labor laws. Politics and government support The President is taking a political risk in challenging and fighting corruption in the electricity companies (O'Shaughnessy, 2009). Cracking down on corruption has begun but it is yet limited to identification and investigation of criminals (People Daily, 2011). Corruption has been a perennial problem in Brazilian politics but the President is now reacting to allegations of corruption against his ministers which has forced some of them to resign (CNN Wire Staff, 2011). The government in Brazil supports public-private partnership which enables them to attract private capital (EDC, 2011). Foreign exchange control has been liberalized but the government has not given up total control. Bureaucracy is another major issue in Brazil that can hold up projects. Thus, starting a new project in Brazil can take up to 120 days against the regional average of 56.7 days as the judicial system is slow and complex. However, Brazil has been attracting DFI and it has also been investing abroad (Islam, 2010). Cultural factors Cultural factors also influence how businesses operate and how people interact with each other. Silveira and Crubelatte (2007) define culture in Hofstede’s words as “the collective program of the mind that distinguishes the members of groups or categories of people”. In Brazil people establish relationships of dependency in relation to power bases. Brazil is a collectivist society with high power distance and characteristics of uncertainty avoidance. These are the dimensions according to Hofstede which help to measure culture. Power in Brazil is concentrated at the overlap between the leader and the institutional subsystem. Loyalty to people is a dominant attitude and people also try to avoid conflicts. Thus, the opinions and desires of senior people carry weight while participative and open-discussions do not take place between the managers and their bosses (O’Keefe & O’Keefe, 2004). High power distance implies that decision-making is usually done by the seniors and the instructions followed by their subordinates. Value standards also differ and the employees would not focus on individual goals; neither do they feel empowered (Beekun, Stedham & Yamamura, 2001). Being a collectivist society personal relationships are valued (Tanure & Duarte, 2005). Because of the uncertainty avoidance culture and used to following instructions was the reason that managers faced challenges in making people change their behavior (Strategic Direction, 2005). Workers had to be incentivized through competence-based pay scales which encouraged the workers to acquire new skills. It is thus essential to understand the cultural dimensions typical to Brazil as it could impact managerial operations and people management techniques. English is not the major language spoken in Brazil and businesses or their representatives should know Brazilian Portuguese to deal with people effectively (World Business Culture, n.d.). Using Spanish is culturally insensitive in Brazil. People usually adhere to oral communication and hence if they send a written communication it is followed by a phone call. They also rely extensively on non-verbal actions and the environmental settings to convey meaning (Ardichvili, Maurer, Li, Wentling, & Stuedemann 2006). While the Brazilians are modest and obey the seniors, this culture also has disadvantages. For instance, decisions are centralized and power is confined in the hands of a few (Parboteeah, 2003). Seniority is a symbol of maturity and hence respect for seniors is the natural outcome. Because of Brazil’s colonization by the Portuguesa, the MNCs too have adopted the bureaucratic structures in their organizations (Islam, 2010). Brazilian management and contracts have to be carefully dealt with as they would not hesitate to back out of their commitments (Morrison & Conaway, 2006). Dismal infra-structure Infra-structure in Brazil is the biggest block to growth and sustainable development. Massive power failure in 2009 left 60 million people without electricity in Brazil (Williams, 2011). No investment in the country has been made in infrastructure in the last 30 years and the transportation system too needs an overhaul (People Daily, 2010). Roads are extensively used in Brazil and the poorly maintained roads make the rods trip very expensive and cumbersome (De Mello, 2011). However, because of the forthcoming sports events scheduled for Brazil, infrastructure in Brazil and particularly the transportation system is expected to benefit (De la Cerda, Fernandes, Huebner, Madanes & Suarez, 2011). The enhanced features would greatly benefit the inbound tourists thereby impacting the Brazilian economy. Current situation Brazil’s old assumptions and prejudices have to be set aside. Its rising geopolitical significance has to be acknowledged (Global and Mail Newspaper, 2011). It is now a global leader. Despite its dismal infrastructure and the economic uncertainties, Brazil has been able to attract foreign investors. Thus, the first iPad factory outside China has started operations in Brazil and is set to ship its first consignment in December 2011 (Yapp, 2011). The United States, even though in its own interest, has offered to help Brazil enhance the infrastructure. The US companies are opening offices in Brazil as construction boom is expected due to the sports events (Hyatt, 2011). The US organizations are aware of the impediments to the progress of work which could range from financial, temporal or cultural barriers. However, in expectation of several social and economic benefits, the US companies are willing to take the risk. Conclusion An evaluation of the situation in Brazil suggests that the nation has overcome its stereotype image of gloom and depression. It is now marching ahead of many nations and signifies growth in all sectors. The government support is available to all investors – both domestic and foreign - and the same laws govern all. The nation does face political and economic challenges but these challenges are prevalent even in developed countries. What needs to be noted is the future prospects and growth potential. The country has abundance of natural resources and several oil fields have been discovered in deep seas. The fact that Brazil has been chosen as the destination for the first iPad factory outside China signifies the potential that investors perceive in Brazil. However, managers need to be cautioned about the labor laws and the cultural factors that would definitely impact human resource management. Language is also a major constraint in China and hence local managers may need to be employed. Expat managers would need to be given cross-cultural training before being given charge in Brazil. Bureaucracy is also at work and hence to extract work in the shortest time would require skill and tact. Laws and regulations would have to be complied with. Challenges do exist but they are not insurmountable. Because of the culture of collectivism relationships are valued and bonding prevails both at workplace and in families. References Ardichvili, A., Maurer, M.Li.W., Wentling, T. & Stuedemann, R. (2006). Cultural influences on knowledge sharing through online communities of practice. JOURNAL OF KNOWLEDGE MANAGEMENT, 10 (1), pp. 94-107 Austrade. (2011). Doing Business in Brazil: an introductory guide. Retrieved October 21, 2011 from http://www.dfat.gov.au/publications/brazil_business/brazil.pdf Beekun, R.I., Stedham, Y. & Yamamura, J.H. (2001). Business Ethics in Brazil and the U.S.: Egoism and Utilitarianism. Retrieved October 21, 2011 from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=272036 Breukel, C. (2011, July 27) Brazil On the Rise. 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Brazil opens first iPad factory outside China. The Telegraph . London, UK: Telegraph Media Group Limited Read More