The Current Economic Performance of Brazil - Essay Example

Introduction Going international is one of the critical decisions which organizations make because entering into a new market not only require extensive knowledge and information of the market but also possess different and unique risks. In order to make a successful entry into the market therefore require a comprehensive analysis of different factors such as economic, political, legal as well as social factors which impact the presence of a company in that country. Greenfield projects are projects which are built from the scratch and require a greater investment and risk taking ability because organizations often undertake to do everything on their own without any local support in the form of franchising, licensing or any other means of entering into the market. ACME is planning to enter either in a country from European Union or a country belonging to regions other than EU with exceptions to India, China, Czech Republic and Romania. In this memo shall present a proposal to the Steering Committee of ACME to discuss such factors for Acme which may consider before entering into any of the markets. For this purpose, we shall be discussing United Kingdom as one alternative whereas the second country will be Brazil. United Kingdom United Kingdom is one of the most important members of European Union due to its political as well as economic significance. In order to initiate a Greenfield project in UK, following factors may be taken into consideration: Economic Environment UK is going through one of its toughest economic periods in its history due to the credit crisis which emerged from US. However, its performance in the recent past has been credible due to its consistent growth rates achieved over the period of time. From 2003 to 2007, it achieved an average growth rate of 2.7% whereas inflation has remained under 2% during the period. (Economist.com, 2008). The exchange rate parity between US dollar and UK pound has remained under control too as average exchange rate during 2007 remained at 0.5GBP per US Dollar. The upcoming forecasts regarding the performance of UK's economy is not favorable as many analysts have projected a negative growth in GDP for the year 2009. Demographics UK's population is over 65 million with an average age of 39 years. Out of this population, 65% of the population belongs to working class in which almost 52% of the population lies in the age group of up to 40 years. (The Times 100, 2008) What is also important to note that larger chunk of UK's population is ageing therefore it has been anticipated that there may be shortage of young employable population. It is also critical to note that UK has adopted a very lenient immigration policy which allowed it enjoy one of the largest immigration population in the region. This also however provides it a readily available pool of employable population at relatively lower cost. Political Environment UK has one of the strongest and most stable political environments in the world. The institutional support is provided to the new business and the political environment is favorable to the free market economy. As such it provides a strong risk mitigate for investing into a country whose economic progress is not projected favorable in near future. Brazil Economic Environment Brazil is a country of more than 189 million people with GDP size of approximately $1,313.7 billion. GDP per head is $6,938 whereas during the period from 2003 to 2007, country experienced the real growth rate of over 3.5%. It is also important to note that net inflow of Foreign Direct Investment into the country is 2.1% of the overall GDP of the country. This higher percentage of FDI suggests that the country is one of the most receptive in the region regarding the foreign direct investment made into the country. Due to higher growth rates, the inflationary pressures on the economy also remained high i.e. 4.2% during the period of 2003 to 2007. Further, average exchange rate during 2007 has remained at 1.95 per US Dollar. (Economist.com, 2008). Further, the country has been one of the main attractions for the foreign entities to invest due to th strong external demand, especially for transport equipments and parts. The above figures suggest that country is one of the most lucrative in terms of offering rate of returns on the investment made into the country. Demographics As mentioned above that Brazil has the population of more than 189 million suggesting that the country is heavily populated. More than 68% of the population falls into the age group of 15-64 years with median age of 29 years with life expectancy rate at birth of 72.51 years. (CIA World Fact Book, 2008). Political Enviornment Political environment of the country has not remained stable as Brazil has a history military rule. It is however important to note that the recent political history of the country suggests stability into the environment. Over the period of last ten years or so, country's monetary as well as fiscal policy has been tailored and driven by non-political experts with a relatively higher degree of autonomy granted to them. (Fitzpatrick, 2007). Generally economic environment is conducive to external foreign entities due to the favorable policies adopted by the government by offering less stringent legal as well as administrative hurdles to pass. Recommendations Based on the current economic performance of Brazil and status of being one of the booming emerging markets of the world, Brazil may serve as the best alternative for ACME to initiate its Greenfield project. Country's median age falls under 30 years therefore there is abundant labor force present in the country at relatively lower cost. The economic environment in the country is more conducive for making investment because on one hand, it provides one of the largest markets in the world neighboring few of the heavily populated countries in the region whereas on the other hand, the availability of cheap labor and raw materials provide a very balanced alternative to initiate a Greenfield project with more probability of gaining higher rates of returns. Bibliography 1. CIA World Fact Book. (2008). Brazil Demographics Profile 2008. Retrieved January 09, 2009, from Index Mundi: http://www.indexmundi.com/brazil/demographics_profile.html 2. Economist.com. (2008, December 18). Country Briefings : Britian. Retrieved January 08, 2009, from Economist.com: http://www.economist.com/countries/britain/profile.cfmfolder=Profile-FactSheet 3. Economist.com. (2008). Fact Sheet : Brazil. Retrieved January 10, 2009, from Economist. com: http://www.economist.com/countries/Brazil/profile.cfmfolder=Profile-FactSheet 4. Fitzpatrick, J. (2007, August 12). Brazil: Economic Boom - Political Gloom. Retrieved January 09, 2008, from http://www.brazzil.com: http://www.brazzil.com/advertising/9951.html 5. The Times 100. (2008). The Impact of Changing Demographics in the UK Population. Retrieved January 09, 2009, from The Times 100: http://www.thetimes100.co.uk/additional/news--the-impact-changing-demographics-uk-population--55.php Read More