Table of Contents
Political, Economic, Cultural and Ethical Risks in Brazil
In Brazil, the system of government is a democratic and federative republic. The country is divided into states and a federal district. The citizens are obligated to vote for Legislative and Executive representatives. The main executive power belongs to the President who is the governor of the state (“Structure of the Brazilian Political System,” 2014). The economic and social systems of Brazil are only partially controlled by the government. However, bribery and income inequality create challenges for the political and economic development of Brazil. Economic risks associated with the country include economic crises and related issues that will be described further.
In order to compare the cultures of Brazil and the UK, it would be wise to apply Hofstede’s cultural dimensions theory to both countries. In the UK, the power distance rank is 35; this means that power distance is relatively low (“Country Comparison: United Kingdom,” 2017). Thus, most British people believe that inequalities between people should be minimized, if they still exist. At the same time, the traditional class system still exists in the UK. In the UK, the level of individualism is 89; it means that the UK is a mostly individualistic nation (“Country Comparison: United Kingdom,” 2017). People tend to make decisions independently and the influence of others on them is very limited. From an early age, children in the UK are taught to be themselves, to think for themselves, and to find unique life goals. Masculinity in the UK has a level of 66; this means that British society is mostly masculine (“Country Comparison: United Kingdom,” 2017). Thus, people are mostly oriented on achieving success in life. People focus on high performance and tend to live in order to work. The level of uncertainty avoidance in the UK is low at 35 (“Country Comparison: United Kingdom,” 2017). It means that people are not very focused on plans and can change them relatively easily according to new information and requirements that may occur. There are not many rules in the society of the United Kingdom and they are all relatively flexible. The level of long-term orientation in the UK is 51; it is medium level. Thus, British people successfully combine adherence to traditions and norms with adapting to modern customs that are a feature of the modern world (“Country Comparison: United Kingdom,” 2017). The level of indulgence in the UK is 69; it means that British society is closer to indulgence than to restraint (“Country Comparison: United Kingdom,” 2017). People are willing to realize their desires and enjoy their lives. They are optimistic and consider leisure time important for satisfaction.
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Brazil is different from the UK in most of cultural dimensions. Unlike the UK, where power distance is insignificant, power distance has a high score of 69 in Brazil (“Country Comparison: Brazil,” 2017). It means that Brazilian society considers social inequalities in their society traditional and acceptable. The role of bosses is important, and it is traditional to respect the elderly. In Brazil, unlike the UK, the level of individualism is relatively low at 38 (“Country Comparison: Brazil,” 2017). Thus, Brazilians are mostly a collectivistic people and can be influenced by different social groups that determine their life choices and behaviour for them. In Brazil, the role of extended family is very important. Moreover, people are significantly affected by the environment of their work places. Unlike the masculine UK, Brazil has a score of masculinity equal to 49 (“Country Comparison: Brazil,” 2017). This means that the country combines the features of both masculine and feminine societies. In masculine societies, people tend to focus on hard work and reaching life goals. In feminine societies, people prefer taking care of others and maintaining high quality of life. In Brazil, unlike the UK, the level of uncertainty avoidance is high at 76 (“Country Comparison: Brazil,” 2017). Thus, people are focused on rules and rarely break them. In Brazil, the role of bureaucracy is significant in most spheres of life. If rules do not work, additional rules can be created. In Brazil, long-term orientation is 44; it is on the medium level (“Country Comparison: Brazil,” 2017). Thus, Brazilians, similarly to people from the UK, successfully combine traditions and innovations that need to be accepted in modern world. Finally, like the UK, Brazil is indulgent with the score of 59 (“Country Comparison: Brazil,” 2017). It means that Brazilians have positive attitudes and optimism in their lives, as well as focus on leisure time.
Thus, Brazil is different from the UK in terms of culture, and those differences should be considered by Tesco if it decides to enter the Brazilian market. Brazilians are more collectivistic, and this feature may influence product selection in Tesco retail shops; Brazilians will make selection decisions on the basis of recommendations from their family members or other social groups. Additionally, Brazilian society is more feminine, which means that Brazilians will be more likely to purchase different goods for their homes; they spend more time there and are less focused on work. Brazilians likewise tend to follow rules and traditions, so they will be likely to purchase traditional and common goods and less likely to buy unusual or innovative goods.
Corruption in Brazil is among the primary ethical and business issues that should be considered by Tesco if it enters the market of this country. In Brazil, corruption is the most ubiquitous in the tax administration, public procurement, and natural resources sectors (“Brazil Corruption Report,” 2017). As Tesco deals with paying taxes, the company will be likely to face corruption in this sphere. Nevertheless, Brazil is currently fighting against corruption and success was already achieved in this sphere. Fighting with systemic corruption helped the country to attain better economic indicators and earn the trust of international organizations and foreign investors. Thus, Brazil is becoming more competitive in global markets and new foreign partners are willing to cooperate with this country (Troyjo, 2017). Tesco can be among them if the positive trends in corruption fighting continue. Tesco may also fail in Brazil because of the significant social and cultural diversity of this country. In Brazil, there are different groups segregated by income and social roles, and inequality among them is more significant as compared to social inequality in the UK. Another issue is related to religion in Brazil, because its role is more significant as compared to the role of faith in the UK. In Brazil, the largest religious groups are Roman Catholics, Protestants, and Afro-Brazilians. The popularity of different religions differs in various regions and among national minorities (“Religious Beliefs and Spirituality in Brazil,” n.d.). Due to the significance and variety of religions, different issues may occur for Tesco if it enters the Brazilian market.
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Other ethical issues for businesses in Brazil are related to low wages, poverty, and governmental control over different spheres of life. In Brazil, government controls businesses and citizens via a number of instruments, such as censorship of information sources. For instance, censorship of the Internet works in Brazil. In 2015-2016, the government of Brazil prevented access to social networks because of several reasons. Internet security is controlled by the government via so-called “Constitution for the Internet” that was adopted in 2014. In general, Brazil is ranked 32/100 in terms of its Internet freedom. During the recent years, situation became worse due to several new laws that limit the use and access to the Internet in Brazil. Furthermore, press is only partially free in Brazil (“Brazil Country Profile,” 2017). There are serious environmental issues in Brazil and they are not properly addressed by the government. The most serious issues are related to expansion of agriculture, including the growing amount of cattle and extended areas for plantations achieved via forest cutting and ruining ecosystems (“Environmental Problems in Brazil,” n.d.). Thus, the ethical issues in Brazil are numerous, and they may become serious challenges for Tesco if the company enters the national market.
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Identification and Evaluation of Business Opportunities
In Brazil, the economic situation is improving from year to year. From 2003 to 2014, the country showed significant progress in economic and social improvement. Nearly 29 million Brazilians escaped from poverty. At the same time, income inequality declined in Brazil, and an economic crisis occurred several years ago; the Gini coefficient declined from 58.1 down to 51.5 during the same period (“Brazil Overview,” n.d.). For Tesco, growth of income inequality may lead to loss of potential customers that include middle-income Brazilians.
In terms of doing business, Brazil presents a number of challenges for Tesco, as well as other foreign companies. In terms of the ease of doing business, Brazil has the rank of 123 among 190 countries covered (“Ease of Doing Business in Brazil,” 2017). There are issues with starting a business, because getting an operations permit from municipality is complicated and requires 90 days on average. Moreover, the complexity is high because of the large number of documents required from a new business. As for construction, it likewise leads to difficulties, because many documents are required to construct facilities for businesses and getting a permit from authorities takes more than 400 days on average (“Ease of Doing Business in Brazil,” 2017). Paying taxes in Brazil poses other difficulties, including the large number of different taxes that should be paid and the long processing periods. Finally, trading across borders is complicated in Brazil. If a company wants to import or export goods, more than a month is required to receive all documents and permissions. Moreover, import and export are costly in terms of documents and fees that should be paid (“Ease of Doing Business in Brazil,” 2017).
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In terms of economic and social development, Brazil is close to other developing countries. Its gross national income per capita is $14,145, which corresponds to the medium income level (“Brazil: Human Development Indicators,” 2017). Life expectancy at birth is close to 75 years, which is considered high. So is the adult literacy rate, which is equal to 92.6% in Brazil. However, there are serious social and economic issues in the country. In particular, the income inequality and poverty problems remain relevant. The Gini coefficient for income inequality is high at 51.5. The inequality in income is the highest among all social inequalities at 37.8%. The share of poor people is similarly large. In this country, nearly 3.7% of population lives below the income poverty level, and 6.7% – close to multidimensional poverty (“Brazil: Human Development Indicators,” 2017). The buying habits of consumers have changed after the crisis started, and they currently prefer cheaper gods without paying attention to brands (“Brazil: Reaching the Consumer,” 2017).
In general, the Brazilian market is not good for foreign retailers for several reasons. The first reason lies in the deep economic crisis in the country. The GDP per capital is declining; it fell to $8,731 in 2016 as compared to $12,364 in 2012. Consumption is declining, while the unemployment rate is growing (“Brazil Economic Outlook,” 2017). The current economic crisis is considered to be more serious for Brazil than any of the previous ones. Furthermore, it exacerbated after the Olympic games of 2016, because the expenditures were significant. Fighting corruption helped improve the economic situation, but most problems are still serious. Moreover, due to serious bribery issues, foreign investors usually refuse to invest in Brazil and the country loses its ability to recover (Gillespie, 2017). The crisis may have contributed to lower sales of retailers, because customers have lower incomes. Moreover, corruption and bad conditions for foreign firms have all created risks for the retailers that wish to enter the Brazilian market.
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The second reason retailers might not want to invest in Brazil is the high taxes in this country, especially when it comes to imported goods. They are 75% or higher as compared to FOB costs (Picasso, 2016b). Thus, foreign companies are not in favourable conditions, and it seems that the Brazilian government does not support foreign investments and foreign entrants. The third reason is the strict governmental control over Brazilian companies. Tesco will have to deal with local partners in Brazil, so it may have problems with purchasing goods and getting required services in full amount. The fourth reason why issues might arise in connection to doing business in Brazil is the complicated transportation systems and logistics in the country. Brazil is large, but the transportation system is poorly developed and too slow (Picasso, 2016b). For a retail chain, this problem is serious because goods should be transported quickly between different locations. Thus, one may say that foreign investors are not welcome, and the economy is not free.
If Tesco decides to enter the Brazilian market, it may face the serious complexities of doing business in this country. Due to economic crisis in the country, the demand for Tesco products will not be high; the income of consumers declines on average. The difficulties are especially critical when it comes to construction, because the company operates in the retail sector and needs to build large warehouses and stores in Brazil to function normally. Moreover, the company is foreign, so exporting and importing operations will be necessary. This will lead to a number of issues that can all negatively influence Tesco’s business. High taxes and poor transportation will also create complications. In Brazil, government typically does not support foreign firms, and local retail chains have more favourable conditions. One of the largest chains that can compete with Tesco is Carrefour (Picasso, 2016a). In general, it is clear that Brazil is a risky country for foreign investor, and challenges often outweigh the potential benefits for business.
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Examples of Foreign Companies in Brazil
There are different examples of foreign companies that entered the market of Brazil and either became successful or failed. One of such companies is Wal-Mart. Its example is worth investigating because this company was successful in the beginning, but faced challenges as it developed. Moreover, Wal-Mart and Tesco operate in the retail industry, so the experience of Wal-Mart should be considered, as Tesco may face similar challenges. Wal-Mart entered the Brazilian market in 1995 and became successful quickly. The success of Wal-Mart reflected the fast growth of the number of stores in Brazil. The company not only owned retail stores, but also pharmacies, restaurants, and gas stations. Overall, 18 states and the capital of Brazil had at least one Wal-Mart location. The growth of Wal-Mart in this country lasted for about ten years up to 2005 (Picasso, 2016a). However, the situation changed after 2005, when the economic boom of Brazil stopped. Wal-Mart experienced a decline in sales and was forced to cooperate with local retail chains and acquire some of them in order to remain competitive on the market. However, the difficult period continued, and local chains that had more favourable conditions because of the government’s efforts became the top players in the retail market. As a result, Wal-Mart was forced to cut a number of its stores in different regions (Picasso, 2016a). Thus, Wal-Mart’s example shows what can happen to Tesco if it decides to take a risk and enter the Brazilian retail market.
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Conclusion, Recommendations and Proposed Market Entry
In conclusion, this throughout analysis of Brazil as a potential market for Tesco shows that the country is not fitting for Tesco in the next several years. There are more risks related to opening a business in Brazil than there are opportunities. Ethical risks are related to social inequality of the country, high focus on collectivism in making decisions, corruption in different spheres, and censorship of the Internet. The largest risks are related to the economic situation in Brazil, because the country is currently experiencing a crisis period and consumption is declining. Moreover, Brazil is ranked among the countries where it is the most complicated to conduct business, according to the World Bank. If Tesco enters the Brazilian market, it will face challenges with construction permits, paying taxes, and imports-exports operations. These issues will require time, many procedures, and high fees to resolve. Moreover, the country has problems with transportation and logistics, which are important for a company that owns a retail chain with different locations around the country. Due to slow transportation and other problems in logistics, Tesco is likely to face problems trading its goods and meeting the everyday needs for business operations. Brazilian government does not care to attract foreign investors and companies to their country, because favourable conditions are not present or being created. Thus, Tesco should refuse to invest in Brazil and another country should be selected. The example of Wal-Mart that succeeded but then failed in Brazil is relevant to support such a course of action for Tesco, because two companies operate in the same sphere. Tesco may try to enter the Brazilian market, but only after the crisis ends and government control over business is less strict than it is currently.