The Dispensation of Globalization in Brazil - Essay Example

? US BASED MANUFACTURER TO INVEST IN A BRIC COUNTRY (BRAZIL) Introduction The dispensation of globalization has eased the way that people relate within the global perspective. Key features within this era are the ease of movement has been made more easy and fast, communication structures greatly improved and even trade activities greatly enhanced. It is now easy and possible for one to transact business dealings with people from totally different geographical location within just click of a mouse. Technology has also made storage, transfer and retail services easier with production activities being decentralized from the central point of, manufacture to other subsidiary departments. Production can now be done within different nations as well as distant geographical regions by companies through the process of internationalization. This has probed the multinational corporations or individuals who intend to venture into the international trade to learn about international business. However, countries differ in institutional frameworks, social cultural as well as the political orientation. It is thus very important to learn and understand the different cultures, institutional frameworks as well as the political scope of the other countries for the sake of any beneficial interaction. They are critical determinants of the performance of the introduced business as wholesomely they form the business environment t in which the business will be operating. Differing perspectives within countries as regards to these institutional as structural set-ups would differently affect the business. The success of an industry within one country does not therefore automatically ascertain success to the same business within another country. For instance, the United States and Brazil are nations that regularly interact in business relations. In the United States, the first impression matters a lot and is basic to the success of every business relationship. The Americans appreciate eye contacts and a firm handshake with business partners (Bowie, n.d p.1-12). In regard to understanding the intrigues surrounding the expansion of a manufacturing industry from the Western country into a member country to the BRIC block, we shall take an analysis case of a textile firm based in the U.S.A intending to expand her operations into Brazil. Brazil is a member country to the BRIC group together with the Russian republic, India as well as China (Pedro et al, 2012, p.4). This research intends to study the opportunities and challenges, associated with the cultural and political environment in Brazil and which are likely to affect a foreign textile industry there. We also intend to study other appropriate business forms for the manufacturing plant. Lastly, we intend to survey the business environment in Brazil, through which we shall explore the opportunities available as well as the challenges that this manufacturing industry is likely to face while exploring the market within Brazil and thus have dependable conclusions and recommendations. Discussion: Administrative duties within Brazil are carried out in Brasils as it is where the elected federal officials reside, she is the 6th largest economy after she over did UK in 20111 (Lara, 2010, p.6). She has a population of approximately 180 million people with majority of the people living in urban centers. She has a modern economy with agriculture servicing about 9 percent, industry and manufacturing servicing about 37 percent and service industry servicing about 53 percent of the total GDP. Over a long time, her largest business partner has been the United States though greater trends are emerging with China and the middle-east countries taking shape in the international business scene with her. Between 1930s and 1960s Brazilian economy was dominated by import substituting industrialization. She has however, undergone through a great ideological reversal since then (Cardoso, 2009, p.5). She is now a major global participant within the global market with agricultural products, manufactured products as well as the service sector. United States on the other is not an individual country par say but rather a merger of 39 states that relate as a single unit. She originally rose from agricultural based economy to manufacturing economy though agriculture still makes a great means of livelihood to the majority of her citizen. However, the last century has noted a great revolution towards specialized manufacturing, technology products, and retailing, finance and business services. There is mutual benefit when there are good trade relations and the partners have stable political governance, this is evident from the economic recession experienced by the two countries during the Word War II. Economic ties in the U.S and Brazil are much dependent on the two-way trade that is far much empowered by the World Trade Organization. Additional resources and economic growth are the direct benefits realized by the countries in relation to export-import trade relations (Schott, 2003, p 2). US recorded the highest imports from and exports to Brazil in the year 1997; however, a sharp decline was noted in 2002 due to the financial crisis experienced in Brazil. A contrast was cited as US imports from Brazil rose in 2002 than in 1997. The US had commendable trade surplus with Brazil between 1990’s and 2002 when she recorded a drastic merchandise trade deficit with Brazil. United States’ basic exports comprise of industrial manufactured goods such as electric machinery, air craft’s and computers. On the other hand, she relies on imports from Brazil that comprise of steel, iron, footwear and mineral fuels. Approximately about 70% of United States’ exports to Brazil comprises of Industrial goods while Brazils 6% exports to US are industrial goods. A great difference is notable between Brazilian export interests and those of the other Mercosul partners (Schott, 2003, p3-4). Nevertheless, our study focus is on the intrigues that are meaningful when the US based textile company intends to expand her operations through opening up of a new branch within Brazil. It is however expected that the success of the company within the new environment will rely very much on the overall economic relations of the two countries; US as well as Brazil, these are macro level influences that are notable. Nevertheless, internal structures within the company will go a long way in defining her performance within Brazil; this is because the company will set policies as well as goals. These are easily seen through the perspective of government policies, the prevailing cultural as well as social background within the country and much more the prevailing economic aspects of Brazil. Political environment of Brazil: In a summary, Brazil traditional political culture can be described as one of colonialism, tradition of lack of political party and political clientilism. However, the promulgation of the seventh and the new constitution in 1988 changed the political dimension into democratic ideology from what used to be military dictatorship (Souza, nd, p.1 of 20). Democracy brought back individual rights, by ensuring freedom, and punishing offences. Nevertheless, the constitution fell short in outlining the issues in state reforms but it addressed to details the economic regulation of the country. International principles on the other hand are governed by such principles as non intervention, self determination, human rights supremacy and national independence. The key aspect that the new constitution brought into place was the decentralization of socials services to the local governance. Diversity was embraced in decision-making as democracy was now brought into play, where the local citizens were given a stake in decision making process unlike formerly where municipalities were not decision making institutions. The congresses make the legislative decrees, traditional legislative procedures enact ordinary laws and the president legislate decree laws. The federal district and the government have some common legislative issues, and they concurrently pass legislation on environment and consumer issues, education finance and taxation. The federal government is basically tasked with the role of giving general guidelines on main issues and rules. However, there are some restrictions on legislature on some local issues and municipal taxes (Moreira 2012, p.4-10). Political risks are the undesirable forces that are at play in a country’s economic environment. They are likely to affect the operations of a multi-national corporation (MNCs), in a state. Transfer factors may be explained by such cases as blocked funds, while cultural factors range from ownership structure, nepotism and corruption, religious heritage, protectionism, intellectual property rights and human resource norms. Analysts on international trade relations argue that Brazil is receiving a good number of multinational corporations interested in investing there owing to the low political risks in Brazil compared to other nations. Bureaucracy, corruption and taxes are relatively at low levels in Brazil. The other cultural and institutional risks such as nepotism, human resource norms, intellectual property rights and religious heritage are in the record of low effect to multinational corporations here. However, there has been an alarming trend in crimes and crime rates targeting multinational organizations which is now a major risk factor that is threatening the international investment in the country. Government intervention is also looming on strategic sectors such as the oil and gas with a potential of tax rise and monetary tightening to control inflationary pressure (Moreira 2012, p.4,7,10). Brazil has had strong trade initiatives that are attributable to tariff reductions that took shape right during and after the country shifted her leadership into the current democratic leadership in 1988. Combination of unilateral trade measures and the 1991 formation of the MERCOSUR led to trade liberalization (Cardoso, 2009, p.2). Creation of new corporate entities or by Sheer Corporation with already existing Brazilian companies are the main ways a Multinational company would directly invest in Brazil. However, MNC can indirectly participate by investing in security and financial markets. Nevertheless, the political environment in Brazil prohibits foreign capital participation in a number of sectors; telegraph and post office services, health services, nuclear energy, domestic freight services, aerospace industry and other businesses that relate to international borders. Moreover, other restrictions apply to the ownership and running of mass media in Brazil. Ownership of rental and real estate properties are equally to a large extant affected by the legislations. Other areas with potential policy restrictions are the capital ownership by foreigners in financial institutions where investors are required to consult with government agencies. The government normally issues incentives into international relations as opposed to restrictions to boost foreign investment in the country. Normally the incentives relate to taxes, funding and also on rental issues in the real estate sector of the economy. Distributing to Brazil The Brazilian economy has a good structural arrangement, good technology advancements and embraces trade generalization. There are prospects that the country’s cotton production would be on the rise owing to the addition of agricultural land, and favorable cotton prices in the country (Kiawu,Valdes and MacDonald, 2011, p.1). In Brazil, the best business prospects in textile industry are the manufacture and distribution of children wear, casual wear denim, men and women work wear, home line products and luxury branded products (Anonymous, 2009, p.26). This is because much of the population is within the active as well as the growing stage just as it is within other emerging markets. Trade therefore should target these ages as they are more sensitive to fashion trends and thus forming the major segment of the market. Political factors such as a patenting, policy making etc also play a major role in business decision (Anon, 2007, p.185). These are framed within the political domains, which are tasked to designing and implementing policies regarding patent rights of individual innovations, trade policy making and many others. Textile industry is a rather competitive industry especially in the Western markets as revealed by the preceding discussion. Textiles are woven for different purposes that range from traditional applications, clothing, health, automotives, construction and safety among others. As an export market, Brazil is rated 15th in taking volume of USA exports. Investment and trade is in an upward trend between the two countries, with a potential of deeper economic engagements in the future, there was a meeting held between President George W. Bush and Luiz Inacio Lula da Silva in November 2005 established that the two countries were trading rather little with each other and the investment between the two countries was growing (Frink, 2006, p.1). In Brazil and the United States, closer ties majorly brought about by the trade relations serve both for economic and political reasons. The success of trade negotiation in WTO and in the hemisphere largely depends on them. An increment in trade and investment in both countries will lead to boosted employment and income. This would also lead to greater cooperation both politically, culturally and economically in the hemisphere. Brazil and the U.S both share a role to play in order to deepen their bilateral relations. They have a challenge to ensure better results for their citizen and entire trading block partners (Schott, 2003, p.22-23). Free trade is an essential emerging aspect in these countries trade, however Brazil is still a way off to understanding the benefits associated to the trade and thus is yet to open up her boundaries for the trade. Countries adopt trade policies at will and this explains the difference in trade liberalization between the United States and Brazil. Prospects are good over future trade relations going with the current signing of trade agreements to enhance mutual trade. This therefore works to encourage the potential investors within the country that the framework within which trade is carried out within these two countries is bound to improve. Through this, the confidence of such an investor as our company stands a better chance to benefit at the long run with improved business infrastructures and environment. It is also crucial that these two countries maintains and develops the already established trade partnership for the well being of the two economies. Indeed for the two countries, closer ties in Free Trade Area of the Americas (FTAA) have served the purpose (Noriega, 2006, p.2-3). Brazil was rated 2.75 within a scale of 1-5 where 5 meant the highest in terms of ease of facilitating trade. Another index, the logistics performance index rates Brazil at 2.75 on a scale of 1-5 with 5 indicating the excellent performance. Brazil has been portrayed as a regional leader due to her great fight for the South American trade integration. Brazil trade priorities ranked in the following preferences in order of priority are: expand and strengthen Mercosul, where Brazil is the undisputed industrial hub and political leader; advocating developing country interests in the Doha Round, especially on agricultural issues, and; resisting what she views as a welfare reducing, U.S.-designed FTAA, and to a lesser extent, also a preferential trade arrangement with the European Union unless it serves as a counter influence to the FTAA (Hornbeck, 2003, P 1-2). The above rankings and indices reveal that indeed, Brazil remains a great potential to foreign investors and such encourage the multinational companies to invest three. It is worth noting that the rankings are done within the context of the global perspective and thus would be more representative. Case study: Brazil major merchandise traded with the US, 2009-2010          United States       exp imp Agricultural products 2009 3.34 0.64 2010 4.12 0.91 Food 2009 2.39 0.26 2010 2.73 0.37 Fish 2009 0.07 0.00   2010 0.11 0.00 Other food products 2009 2.32 0.26   2010 2.62 0.37 Raw materials 2009 0.94 0.38 2010 1.39 0.54 Fuels and mining products 2009 3.25 2.31   2010 4.85 5.06 Ores and other minerals 2009 0.29 0.09   2010 0.38 0.17 Fuels 2009 2.59 2.12   2010 4.14 4.73 Non-ferrous metals 2009 0.37 0.10 2010 0.34 0.16 Manufactures 2009 8.83 17.25   2010 10.06 21.29 Iron and steel 2009 1.04 0.30   2010 1.57 0.33 Chemicals 2009 1.32 5.92   2010 1.75 7.42 Pharmaceuticals 2009 0.13 1.07   2010 0.15 1.38 Other chemicals 2009 1.18 4.84   2010 1.59 6.04 Other semi-manufactures 2009 1.76 0.97   2010 2.12 1.31 Machinery and transport equipment 2009 3.75 8.33   2010 3.66 10.11 Office and telecom equipment 2009 0.24 1.02   2010 0.17 1.32 EDP and office equipment 2009 0.07 0.39   2010 0.06 0.50 Telecommunications equipment 2009 0.16 0.46   2010 0.10 0.56 Integrated circuits 2009 0.01 0.17   2010 0.01 0.26 Transport equipment 2009 1.78 2.04   2010 1.53 2.53 Automotive products 2009 0.33 0.50   2010 0.38 0.84 Other transport equipment 2009 1.45 1.54   2010 1.15 1.69 Other machinery 2009 1.72 5.28   2010 1.96 6.27 Power generating machinery 2009 0.67 1.96   2010 0.57 1.82 Non-electrical machinery 2009 0.81 2.59   2010 1.17 3.50 Electrical machinery 2009 0.24 0.73   2010 0.22 0.95 Textiles 2009 0.23 0.13   2010 0.21 0.18 Clothing 2009 0.02 0.01   2010 0.02 0.02 Other manufactures 2009 0.72 1.59   2010 0.73 1.93 Personal and household goods 2009 0.47 0.10   2010 0.45 0.11 Scientific and controlling 2009 0.08 0.91 instruments 2010 0.10 1.13 Miscellaneous manufactures 2009 0.17 0.59 (Williams, 2012, p.1). A quick analysis from the table reveals a constant increase in quantities exported to the U.S over the two years. The same trend would be noted in import trade from U.S except in fish, where the imports are nil. The global financial crisis and the U.S. recession, during the 19 months from December 2007 to June 2009, caused the U.S. trade deficit to decrease, or lessen, from August 2008 to May 2009. The financial Crisis caused United States imports to drop faster than the exports, but that trend has reversed as her demand for imports is on the recovery trend (Williams, 2012, p.1). However, there are relatively low levels of transactions within the textile and clothing industry. This reveals the high potential that lays untapped and hence the need for such a company to exploit this niche. Massive investments in financial services however lead the share to climb to about 22%. Over 67% of the U.S foreign direct investment is in transportation and chemical equipment, in the manufacturing industry. Many countries have turned down the idea to open up their boundaries to free trade. Maintained trade barriers are thus a common feature to many countries despite the costs associated with the barriers. Firms and workers often bear the burden in the costs incurred with free trade even with the well stipulated trade benefits accruing to a nation. With free trade, diversity en sues in the product selection for the consumers especially from imports and there is an overall efficiency. There are diverse trade policies to be adopted by a country based on political, social and historical facts that can only be explained by evaluation of economic benefits and costs associated to each. There is a notable difference in the approaches adopted by both US and Brazil in trade liberalization. U.S adopted the competitive trade liberalization while Brazil adopted a narrower approach restricted much to market access and regional trade dominance by competition. This approach is competitive in that gains made in one level of agreement can stimulate incentives to further the negotiations to other levels. Brazilian approach has benefits in that there is greater bargaining power through Mercosul coalition, time for economic adjustment and domestic economy is protected by enhanced national influence (Hornbeck, 2006, p.2-3). A national Export Initiative was established by president Obama to create new jobs and double the United States exports by 2015, Brazil is such a partner for the wellbeing of the two countries (2011, p1-3). However, there are no specific export controls to Brazil by the US government; only normal controls which include controls on military equipment, equipment of highly sensitive measures and high tech information systems (Anon, 2011, p.1). Approximately 20 federal government agencies are involved in supporting U.S. exports directly or indirectly (Hanrahan, et al, 2012, p.1). This would therefore go a long way in helping the textile industry from US to establish and thrive businesswise within Brazil. Conclusion In conclusion, Brazil would be argued to have a relatively strong political structure through which foreign investors would peg their goals. The political governance under the leadership of the president has been very instrumental in the past in creating favorable environment for thriving of the investment spirit, both from local investors as well as targeting the foreign investors. Her economic performance has been seen on the rise especially so through the trading agreements assented to among which liberalization is acknowledge and there is relatively low impediments to trade. The people of Brazil are well united within cultural values and thus understanding the cultural values within the country would result to improved or better performance for any investing company. Nevertheless, there are also some little factors that are seen to adversely affect the MNCs intention to work there but others work to encourage the MNCs to invest there. In addition, there are other political risks and freedoms that equally influence the operations of MNCs in Brazil. An understanding of the deeper-level assumptions that explain why a certain culture upholds certain practices is of paramount importance and as such the U.S textile Company has to undertake a very thorough investigation whenever a peculiar behavior in the market is noted (Ghemawat P. and Reiche S. n.d p.1-2). Neyer and Harzing in their research “The Impact of Culture on Interactions” found out those persons who are sensitive to and acknowledge other persons culture are always successful. Cross cultural behavior would enable individuals to engage in business enabling behavior and in enhancing mutual considerateness towards each other (2008. p. 12-13). Adam Smith, famously known as the modern economics founder, is quoted in his classical work ‘Wealth of the Nations’ to argue that the pursuit of one’s interests is not basically driven by the need to economic gain. He thus developed the theory of ‘Moral Sentiments’ and acknowledged cultural values that drive the interrelations of people (Francis X. Hezel, 2009, p. 5). David Ricardo argued that if countries exploited their comparative advantage by exporting in bulk those products that they are relatively at an advantage in production and importing the rest, then that would improve their national welfare. This theory has been adopted well in the trade relations between the two countries as indicated by the prevailing trends. On analyzing international trade relations, we would argue that Brazil is receiving a good number of multinational corporations interested in investing there owing to the low political risks in Brazil compared to other nations. Bureaucracy, corruption and taxes are relatively at low levels in Brazil. The other cultural and institutional risks such as nepotism, human resource norms, intellectual property rights and religious heritage are in the record of low effect to multinational corporations here. She is seen to have a very well developed patenting system through which the business innovations and research would be protected. The systems of patenting are critical within the business frameworks of countries as they are key in winning the confidence of investors to a nation (Organisation For Economic Co-Operation And Development, 2004, p.5). Therefore, my research would recommend that the textile company directors invest in Brazil. She has a growing population and thus would offer a wide market segment for textile products. Possible tradable goods are children wear, casual wear denim, men and women work wear, home line and luxury branded products. However, management will be tasked to determine the most prevalent growth amongst the diverse groups through strategic research for proper implementation of their policies. The relatively sober political scene coupled with the economic performance would form the basis of my argument that among other emerging markets and especially within the BRIC, Brazil has the highest potential for the good performance of Textile Company. Moreover, with the high growing population, Brazil would offer a large pool of working group and thus the textile industry would benefit from cheap and readily available labor force. Bibliography Anonymous, 2007. Legal Guide for Foreign Investors in Brazil. Brazil. Ministry of External Relations. Centro de Estudos das Sociedades de Advogados(CESA) p.185 Anonymous. Trade Regulations and Standards, 2011. import tariffs. p.1. Retrieved from: (Accessed on 15th May, 2013) Anonymous, 2009. The importance of the textile industry in the Brazilian Economy, U.S commercial service.p.26 Bowie A. n.d, The Effect of Culture on Business Relationships,p. 1-12. Retrieved from: http://www.neumann.edu/academics/divisions/business/journal/review_08/bowie.pdf (Accessed on 15th May, 2013) Cardoso E. 2009. A brief history of trade policies in brazil: from ISI, export promotion and import liberalization to multilateral and regional agreements. First Draft 2009, The Political Economy of Trade Policy in the BRICS. p.2-5 Frink A. 2006. U.S.–Brazil Commercial Dialogue Launched During a four-day visit to Brazil, Secretary of Commerce Gutierrez initiated a new Commercial Dialogue with this important Latin American trading partner. International trade update. JUNE 2006. p.1 Francis X. and Hezel S. J. 2009. The Role of Culture in Economic Development. p. 5. Retrieved from: http://www.micsem.org/pubs/counselor/frames/culture_economic_developmentfr.htm>(Accessed on 15th May, 2013) Ghemawat P. and Reiche S. n.d. National Cultural Differences and Multinational Business.Globalization Note Series. p. 1-2. Retrieved from: http://www.aacsb.edu/resources/globalization/globecourse/contents/readings/national-cultural-differences-and-multinational-business.pdf>(Accessed on 15th May, 2013) Hanrahan C. E. Ilias S. and Villarreal M. A. U.S. Government Agencies Involved in Export Promotion: Overview and Issues for Congress. Congressional research service, 2012 Prepared for Members and Committees of Congress. P.1 Hornbeck J. F. 2003. Brazilian Trade Policy and the United States, 2003, Congressional Research Service ? The Library of Congress. p.1-3 Kiawu J.Valdes C. and MacDonald S. 2011. Brazil’s Cotton Industry Economic Reform and Development. A Report from the Economic Research Service. p.1 Lara A. 2010. A View of Brazil: The Culture and Geography, 2010. A Lesson Plan for Grades 4–6. p.6 Maitah M. n.d. How Culture Affects Your Business, para 4. Retrieved from: http://www.maitah.com/wp-content/How%20culture%20affects%20your%20business.pdf >(Accessed on 15th May, 2013) MOREIRA U. 2012. Doing business in Brazil. -Web page.para.4-10 Retrieved from: (Accessed on 15th May, 2013) Neyer, A. K. and Harzing A. 2008. The Impact of Culture on Interactions: Five Lessons Learned from the European Commission. p.12-13. Retrieved from: (Accessed on 15th May, 2013) Noriega R. F. 2006. Launching an “Opportunity Partnership” in the Americas. American enterprise Institute for public policy research. January 2006. p.2-3 OECD, 2004. PATENTS AND INNOVATION: TRENDS AND POLICY CHALLENGES. OECD Publications. p.5 Pedro et al. 2012. THE ROLE OF BRICS IN THE DEVELOPING WORLD. Policy Department DG External Policies. European Parliament policy department. April 2012. p.4 Schott J. J. 2003. US-Brazil Trade Relations in a New Era, 2003. Institute for International Economics. p.2-23 Souza C. nd, Federal republic of Brazil. p.1 of 20. Retrieved from: (Accessed on 15th May, 2013) Ward J. 2011. Brazil and the United States: Working to Advance Their Common Prosperity, 2011. US department of commerce, International Trade administration.p.1-3 Williams B. R. Donnelly J. M. 2012. U.S. International Trade: Trends and Forecasts, 2012, congressional research service.p.1 Read More