National Foods in Brazil - Essay Example

?National Foods is going to Brazil 0 Introduction Being a part of Lion Nathan, National Foods is one of the Australasia’s largest food and beverageCompany, which produces: household-name brands in milk and dairy beverages, cheese, soy, fresh dairy and juices (National Foods Website, n.d.). In order to produce its products, National Foods Company needs mainly milk and milk ingredients of high quality. Efficient production facilities and well trained and coordinated personnel is another requirement for the company's successful manufacturing process. Continuous success of the National Foods is supported due to the company's commitment to strong brand, many of which are category leaders, such as PURA Milk, Australia’s number 1 milk brand, Dairy Farmers, Berri, Yoplait, Dare, Big M and Farmers Union (National Foods Website, n.d.). However, the company is seeking alternative ways for its business expansion and is going to target Brazilian consumers. The basic idea is to produce dairy products at the territory of Australia, and then to export final goods directly to Brazil. The aim of the organization is to evaluate its business idea from few different perspectives and to understand the viability of this idea. The purpose of the report is to conduct a comprehensive research and analysis, aimed to provide timely and accurate information, relying upon which will enable the company to make a right decision, regarding to the Brazilian market. Thus, the report will analyze the political, legal, economic, socio-cultural, technological environment in Brazil and provide SWOT analysis for the National Foods. Clear understanding of both external and internal environments, National Foods will be enabled to make a right business decision and to develop appropriate entry/development strategy. 2.0 Political Environment 2.1 Government stability Brazil has a stable democratic political system (Ball, 2009). Political structure of Brazil is defined as the Federal Republic, which is currently ruled by a coalition (EDC, 2011). There are difficult relations between the legislature and the executive, between state and federal governments (EDC, 2011). In 2011, Dilma Rousseff took the President’s post in Brazil. Newly elect government will likely seek to differentiate its administration regarding the general policy. Even though there is still no clear understanding of what will be changed, it is unlikely to be investment and trade policy (EDC, 2011). 2.2 Government and contribution Former President Luiz Inacio Lula da Silva has been promoting policies aimed at strengthening of the investment environment. Considering the issues of political stability, Brazil is very attractive country for the investment: it has no political enemies; there is no threat of terrorism or civil unrest (Ball, 2009). Both international and domestic markets have confidence in Brazil’s political system, due to the activity of Brazil’s democratic institutions (Ball, 2009). 2.3 Analysis Brazil and Australia are the countries that cooperate multilaterally on issues of mutual interest, including agricultural trade reform in the World Trade Organization (Australian Government, 2011). In 2001, there was established a Council on Australia Latin America Relations (COALAR); COALAR has been active in promoting Latin America as a market for Australian exporters (Australian Government, 2011). Additionally, Brazilian and Australian foreign and trade policy interests coincide in several significant areas. This friendly relationship between two countries and cooperation in agricultural sector can favourably impact the National Foods business development in Brazil. 3.0 Legal Environment 3.1 Regulatory framework Brazil has a commercial legal system, which consists of the Commercial Code. By the Commercial Code there are governed the majority of aspects of commercial association (FDI, n.d.). However, this does not relate to professional services category, which is governed by the Civil Code (FDI, n.d.). 3.2 Business laws Brazil has import restrictions on agricultural products. The country’s government applies a range of non-tariff measures in order to restrict the entry of the products of this sector into domestic market (Australian Government, 2011). 3.3 Labour laws Workers in Brazil are eligible for full-time employment at the age of 14; however, there exist some protective legal regulations, regarding the adolescents of 14-18 years old (Just Landed, 2009). The maximum working hours per week should not exceed 40-44 hours, 5-6 days per week (Just Landed, 2009). According to the Brazilian Labour Law, employees can have an annual vacation for 30 days; this vacation can be divided by two within the year (Just Landed, 2009). There are labour unions in Brazil, aimed at providing support to full-time workers (Just Landed, 2009). 3.5 Analysis Considering all previously discussed legal issues, National Foods has to take into account all these legal proceedings and monitor any changes that can potentially impact its business in Brazil. One of the key issues that need to be focused on relates to import restriction on agricultural products in Brazil. So as National Foods is going to export its diary products to Brazil, this restriction can not be ignored or undervalued. 4.0 Economic Environment 4.1 Interest rates (%) The benchmark interest rate in Brazil was last reported at 11.75 percent. For the last 10 years, the lowest record was fixed in July 2009 and was equal to 8.75 percent (Trading Economics, 2011). 4.2 Inflation rates (%) Brazil inflation rate for 2011 is 6, 01%; Comparing with the previous year this rate is higher, but not crucial (Trading Economics, 2011). 4.3 Currency exchange rate ($) 100 AUD(Australia Dollars) = 170, 57 BRL (Brazil Reais) = 127 $ (March 2011) 4.4 Free-market/command /mixed economies Brazilian economy can be referred to the mixed type of economy, because Brazil is identified as developing/emerging market. 4.5 Economic trends/forecasts Brazil is one of the emerging countries, which is forecasted to have a significant economic growth and development. Brazil is one of the key 4 emerging markets, including Russia, India, and China (BRIC). While comparing the key economic indicators of Brazil, there can be identified continuously growing GDP PPP, GDP per capita and decreased export (Australian Government, 2011). Brazil’s principal export destinations are: China (13, 2%), the United States (10,3%), Argentina 8,4%), and Australia (0,3%) (Australian Government, 2011). 4.6 Tax policies Corporate Tax: Brazil's corporate tax rate for 2010 was 34%.This tax is comprised of 15% of a basic tax, a surtax of 10% for annual income of over BRL 240,000, about $ 110,000 and another 9% for social contribution on net profits (World-Wide Tax, 2010). Brazil personal income tax rates are progressive, and exceed 27, 5% (Tax rates, n.d.). 4.7 Analysis While planning to expand its business to Brazil, Australian Producer of diary products needs to evaluate economic perspectives within the country. Therefore, tax burden is a very important issue to consider. Rapid economic development in Brazil indicates us that it is a good opportunity for direct investment; with the growth of GDP per capita and GDP PPP, Brazilian consumers will be able to by more food products of high quality. 5.0 Socio-cultural Environment 5.1 Hofstede’s Cultural Dimensions When analyzing Brazil’s socio-cultural environment through the Hofstede’s Dimensions, Brazil can be hardly differentiated from many others Latin American countries. 5.1.1 Collectivism Vs Individualism Brazil has a slightly higher Individualism rank of 38 compared to the average Latin population score of 21(Hofstede, n.d.). All the Latin countries, including Brazil are considered to be Collectivist societies as compared to Individualist cultures (Hofstede, n.d.). 5.1.2 Power Distance There is a large power distance in Brazilian society. It means that wealth and power inequalities have been allowed to grow in Brazil (Nicol, n.d.). 5.1.3 Uncertainty avoidance Uncertainty Avoidance is the highest Hofstede Dimension – 76. This indicates that the society has a low level of tolerance for uncertainty. Brazilians want to control everything in order to avoid or eliminate unexpected things (Hofstede, n.d.). In order to reduce or minimize the level of uncertainty, there are adopted various rules, policies, laws and regulations. 5.1.4 Time orientation In Brazilian society there is a high long-term orientation. This issue signifies Brazilian people respect their traditions and support strong work ethic where long term rewards are expected as a result of today’s work (Nicol, n.d.). 5.2 Analysis While planning to develop its business in Brazil, Australian National Foods team has to develop appropriate organizational culture and management style, taking into account the facts that this society does not really accept change and is very risk adverse (Hofstede, n.d.). Additionally, Australian management and other Aussie representatives will have to accustom to wealth and power inequalities, which are not a welcomed in Australian society. 6.0 Technological Environment 6.1 Technological infrastructure In order to produce dairy products, the company needs to have appropriate technologies and equipment. The best alternative would be equipment which would not only enable company to produce its products of high quality and perfect taste but also would minimize processing costs. This issue is very complex, and requires a deep analysis. Tender procedure of choosing equipment would be one of the best alternatives from both price and efficiency/quality perspective. 6.2 Communication networks Communication networks, such as Internet and phone are available in Brazil. This will enable Australian exporter to communicate quickly with suppliers, customers, partners, employees and legal representatives. 6.3 Logistics networks There are different types of transport that might be appropriate for dairy products transportation. 6.4 Analysis If the National Foods is planning to set its plant in Brazil, it needs to have effective supply chain management. Therefore, it requires a lot of various transport vehicles which would not only deliver the resources (milk, etc.) but also will deliver finished products to consumers/shops. 7.0 SWOT Analysis 7.1 Strengths The key strengths of the National Food are: strong foundations of great brands (Berri, Dairy Farmers, Coon, PURA and others); experienced people; good production facilities; strong position on domestic market; broad range of dairy products assortment; tasty products made of high quality ingredients; strong financial position; a vast array of rewarding careers in the food and beverage industry through National Foods (National Food Website, n.d.). 7.2 Weaknesses One of the key and most important weaknesses is the risky relationship with milk suppliers/farmers; this makes the company to be very sensitive to price setting for milk. 7.3 Opportunities Opportunities: continuously growing disposable income; good relationships between Brazil and Australia. 7.4 Threats Threats: legal import restrictions for diary products; many competitors; high criminal rates; informal market; corruption. 8.0 Recommendations National Food, being an Australian based company is thinking about the alternatives to expand its business internationally and focus its strategic efforts to Brazil market. In order to enter Brazilian market, high economic indicators and signs of recovery is not enough for choosing this market as the most attractive. First of all, the company needs to focus on legal restrictions imposed on import diary products. However, National Foods many not directly export its products to Brazilian market but to invest money and open the dairy plant on the territory of Brazil. For these purposes, the company has both strong financial position and strong brand recognition. One of the key weaknesses the company has, it is its dependence on farmers, key milk suppliers. Thus, the company can not control the prices for milk. However, it is possible to set good and lasting alliance with key suppliers. While deciding to start business in absolutely different country, National Foods needs to take into account cultural and mentality differences between two nations. Top management of the National Foods should be prepared for the threats of informal markets, corruption and high criminal level in the country. In order to develop proper and sensitive strategy of entry and market expansion, it is necessary to conduct more analysis about the competitors, suppliers, customers’ preferences, etc. Rather than starting absolutely new business, it makes sense for the National Foods to make an acquisition of one of the local dairy Brazilian company. This will enable NFs to be highly competitive, and strong at the early beginning of it business. References Australian Government (2011). Brazil Country Brief. Department of Foreign Affairs and Trade. Retrieved from http://www.dfat.gov.au/geo/brazil/brazil_brief.html Australian Government (2011). Brazil Country Fact Sheet. Retrieved from http://www.dfat.gov.au/geo/fs/braz.pdf Ball J. (2009). 2009 Brazil Investment guide. Investing in Brazil. Investment International. Alternative Investments. Retrieved from http://www.investmentinternational.com/magazine/alternative-investments/investing-in-brazil-3057.html EDC (2011). Brazil, Economics. Export Development Canada, Canada. January 2011. Retrieved from http://www.edc.ca/english/docs/gbrazil_e.pdf Foreign Direct Investment (n.d.). The regulatory framework of FDI in Brazil. Retrieved from http://www.fdi.net/documents/WorldBank/databases/brazil/fdilaw_brazil.pdf Hofsteede G. (n.d.). Geert Hofstede Cultural Dimensions: Brazil. Retrieved from http://www.geert-hofstede.com/hofstede_brazil.shtml Nicol J. (n.d.). Brazil. Geert Hofstede Analysis Brazil. Retrieved from http://www.cyborlink.com/besite/brazil.htm Just Landed (2009). Working in Brazil. Retrieved from http://www.justlanded.com/english/Brazil/Brazil-Guide/Jobs/Working-in-Brazil Tax Rates (n.d.). Brazil Tax Rates. Retrieved from http://www.taxrates.cc/html/brazil-tax-rates.html Worldwide Tax (2010). Brazil tax laws and tax system. Retrieved from http://www.worldwide-tax.com/brazil/brazil_taxes.asp Read More