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Global Business Operation

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You have been employed as a business consultant to advise a company manufacturing smart phones who wishes to explore the potential of doing business in one Latin American emerging market. You must produce a report that identifies the key issues that the company will face in your chosen market and secondly offer expert advice to attain business success in that market.

CONTENTS- 1. Introduction. 2. View of Brazil’s economy. 3. Brazil as a BRICS Economy. 4. Market for smart phones in Brazil. 5. Using the porter’s five forces to analyse the market for smart phones in Brazil. 6. Competitors existing in the market. 7. How to enter the market. 8. Constraints to success for the company (using PESTLE model). 9. How to achieve a sustainable competitive advantage.

1. INTRODUCTION The Cost (this involves the legal cost, corruption, lack of infrastructure), Benefits (size of the economy or economy growth),Risk (political-social unrest, economic mis-management) analysis has been used to analyse the favourable emerging market in Latin America which is Brazil. The main reasons for choosing this market will discussed in details.

2. OVERVIEW OF BRAZIL’S ECONOMY The chosen market is BRAZIL which is an emerging market and also the largest of the Latin American nations and the second largest in the western hemisphere with an average annual GDP growth rate of over 5%. In one of my findings, Brazil is expected to become one of the five largest economies in the world in future. As at 2011 according to Forbes, “Brazil was ranked the 8th largest number of billionaires in the world”.
Brazil is the sixth largest economy by nominal GDP in the world and also ranked 10th ease of doing business rank, with a population of 201million as at July 2013. The Brazilian economy is characterized by moderately free markets and an inward-oriented economy. The country is under a free trade agreement called MERCOSUR also known as the southern market (is an economic and political agreement among Argentina, Brazil, Paraguay, Uruguay, Venezuela and Bolivia), WTO(World Trade Organisation). The following are the main reasons behind the progress of Brazil’s economy, its emphasis on building the infrastructure necessary to support a diverse and fully developed economy, a commitment to reducing poverty and inequality to ensure the maximum number of citizens can contribute to economic growth, an increasing openness to the world amd its movement to reform domestic institutions to foster efficiency. According to the country’s National Confederation of Industries (CNI), “household consumption powered economic growth in 2012, investments should have more positive impact on Brazil's growth in 2013. Sustainable growth comes from investment, "said CNI chief economist Flavio Castelo- Branco”. When investment grows more than consumption, we have a favourable situation". The group expects that investment will rise 8% by the end of 2013, corresponding to 1.5 percentage points in gross- national-product growth.
Brazil is a growing economy with a strong domestic demand and huge untapped reserves of natural resources, it is an economy with supportive government policies, simplification of licensing procedures and regulatory framework, subsidized credit and easy financing options. It has a large domestic market, long-term economic growth trajectory and wealth of natural resources. A new tax incentives, financing, tax relief for domestic sectors, including information and communication technology, was approved by the President in August 2011 to boost innovation in the information technology and telecommunications sectors, to strengthen the productivity and competitiveness of Brazilian industries.

3. BRAZIL AS A BRIC ECONOMY The BRIC acronym was created in 2001 from the first letters of Brazil, Russia, India and China by the Goldman Sachs experts. At 2011 South Africa joined this organisation which was later changed to BRICS. According to the data of the World Bank in 2010, their influence was the most significant, “the BRICS share of the global GDP was $18.48 trillion (nearly 20%), Russia had the highest per capita GDP ($15 900), then by Brazil ($10 900), China ($7 400), and the lowest one by India ($3 400). Brazil and Russia dominate more in the supplies of raw materials, Brazil as the only BRIC country achieved during the crisis in 2009, the lowest slump of shares with a loss of 15%. However it is not a country without risks, it has had a higher inflation rate (6.5%) than developed countries for a long time. The Brazilian currency – BRL predominantly strengthens, but during the financial crisis it usually weakens rapidly which means a loss in the most unsuitable time for foreign investors. Despite these facts the companies such as Taiwan Foxconn decided to expand in the Brazilian market because on the one hand the labour price in China is increasing, on the other hand the subsidiary localization in Brazil will lead to the geographical diversification and mainly to the penetration of the Latin American market. The production directly in Brazil has brought its inhabitants a decrease of the unemployment rate since new job positions have been created. Advantageous customs regimes have simplified trading. If Brazil managed to capitalize on human potential it could become a global player with a greater influence. The business relations with China are intense but also tense. Brazil supplies the Chinese industry with a great number of raw materials and China then floods the Brazilian market with its cheap products. Thus it limits the success of Brazilian products to the Brazilian market. The BRIC countries of China, India and Brazil account for much of the dramatic increase in science research investments and scientific publications. Since 2002, global spending on science R&D has increased by 45%. These countries have a high economic potential and are becoming important world economic players

4. MARKET FOR SMART PHONES IN BRAZIL Brazil is one of the largest economies, with a population of almost 200 million. In the past decade, more than 40 million of those people have risen out of poverty into a new hard-working, big-spending middle class now makes up more than half the population. As a result, Smartphone sales in Brazil increased gradually. Brazil ranks fourth in the world in number of Smartphones, with 55 million devices today and is a traditionally feature phone-centric country when it comes to mobile. According to research firm IDC 2013(International Data Corporation), “Brazil is the world's fifth-largest Smartphone market, with an estimated 23.9 million units expected to be sold this year”. IDC projects that by 2017, Brazil will jump to fourth, behind China, the U.S. and India.

ABI research(alliance business intelligence) also claims that the emerging markets in Russia, India, and Brazil, a four country category referred to as BRIC, are set to overtake traditional markets found in the United States, Western Europe, and Japan by 2018, citing the cheap accessibility to the Internet Android and Smartphone provide. According to TechNavio's analysts forecast, “the Smartphone market in Brazil will grow at a rate of 89.8% over the period 2011-2015. The Smartphone market in Brazil has also been witnessing a number of incentives being provided by the local government for the production of Smartphones in the country. Brazil is a good economy to venture into the manufacturing of Smartphones. This is a country that loves its gadgets. Walk the streets of the poorest of Rio de Janeiro's favelas, or urban slums, or visit its shiniest shopping malls, and it's a common sight to see people on their Smartphones.

Porter’s five forces will be used to analyse the competitive situation and threats in the Brazil Smartphone market. Porter (2008) recognizes 5 forces that shape competition. These forces will be discussed below.
Threat of entry- The Smartphone business requires high capital investments and high sunk costs and this may discourage new entrants. Also there is high competition between existing companies with established and respected brands. Consumers tend to be loyal to the brand they use. The existing competitors possess technologies and patents, which give them competitive advantage, these may be costly or impossible to acquire. Thus, the threat of entry in the Smartphone industry is low.
The power of suppliers and buyers -The power of suppliers is low this is due to the high competition between suppliers and substitute inputs available. The power of buyers is low as well, because there are large numbers of buyers.
Threat of substitute- Threat of substitutes is low in the Smartphone industry. As the Smartphone is many devices in one, there is no one product that can substitute the Smartphone. It will be too costly to acquire substitute. Rivalry among competitors- The Smartphone is highly perishable product this may create high rivalry among competitors. According to Porter (2008) highly perishable products need to be sold fast, that is why companies are often tempted to reduce prices and increase competition. The threat in the Smartphone industry comes mainly from existing competitors.

6. COMPERTITIORS EXISTING IN THE BRAZIL MARKET- The key major players dominating this market space are Apple, Motorola, Nokia, Research in motion limited and Samsung electronics. According to research firm Gartner, “as at 2012, Samsung sold 42.4% of the Smartphones in brazil, followed by Lg with 13.3% and Apple with 9.1%, just barely ahead of Nokia and Motorola.

7. HOW TO ENTER THE MARKET- After identifying the attractiveness of this emerging market, the industry will enter this market as a late entrant (when a firm enters a market after other firms have already established themselves in the markets), and also invest in this market as a whole owned subsidiary in other to engage in global strategic co-ordination, protection of technology even though this entry incurs high costs and risks.
While investing in this market as a wholly owned subsidiary, the industry will be advised to go locally by using the right people (literate indigenes of this market) to establish the market structure, by employing local people with experience because the local experts know the local market very well and this can help the Smartphone industry to expand quickly and also attracts Smartphones users through the local experts.

8. CONSTRAINTS TO SUCCESS- The PESTLE MODEL is a framework which is used to analyse the influence of macro environmental factors on an organisation. They are factors beyond the company’s control. It will be used to analyse the constraints to success of entering the Brazilian Smartphone market.
This explains the political situation of the country and how it can affect the industry. These factors are tax policies, fiscal policy, trade tariffs Terrorism, geopolitical uncertainties, public health issues, could cause damage or disruption to international business and thus could have a material adverse effect on the Company, its suppliers, logistics providers. The Company’s business operations are subject to interruption by terrorist attacks, labor disputes, change or increase in tax or duty which can change the entire revenue generating structures of an industry and other events beyond its control.

These factors are determinants of an economy’s performance that directly have impact on a company and also have a long term effects. Economic factors include inflation rate, interest rates, foreign exchange rates, economic growth patterns etc. a rise in the inflation rate of any economy would affect the way companies price their products and services, therefore the Company is subject to significant risks of supply shortages and price increases. The Company might experience decreases in its gross margin percentage in future periods, adding to that it would affect the purchasing power of a consumer and change demand or supply models for that economy.

These factors scrutinize the social environment of the market, and gauge determinants like cultural trends, demographics, population analytics etc. An example of this can be buying trends like where there is high demand for smart phones during the Holiday season.

These factors are mostly technological innovations that may affect the operations of the industry and the market favourably or unfavourably. The rapid development of technology requires quick reaction by businesses in order to survive in an emerging competitive market and keep up with new trends and innovative services which other competitors might be offering. These factors, Understanding Web Terminology, Technology legislation, Technology infrastructure in a country (Web, Broadband, Mobile), Secure Systems (encryptions, digital certificates) can affect the industry.

Current legislations or change in the legislations can affect the industry. These factors have both external and internal sides. There are certain laws that affect the business environment in a certain country while there are certain policies that companies maintain for themselves. Foreign laws and regulations affect the Company’s activities including, but not limited to, intellectual property, advertising, consumer protection, telecommunications, infringement, patent violation, mobile communications, tax, import and export requirement. Through the involvement of legal forces, the shape and future of the Smartphone market has been altered significantly.

These factors include all those that influence or are determined by the surrounding environment. The factors are weather, geographical location, global changes in climate, environmental offsets etc. it is important for industries to be seen as environmentally friendly and ethical in its organisational facilities, because of the global effect it has on global warming and also Smartphone industries should engage more in mobile phone recycling in other to reduce environmental factors.

9. HOW TO ACHIEVE SUSTAINABLE COMPETITIVE ADVANTAGE- Competitive advantage is achieved when a firm acquires attributes that allows it to perform at a higher level than others in the same industry. There are many factors that can help this Smartphone industry achieve a sustainable competitive advantage and a good market performance, such factors are Brand Equity, Competition, Product, Supply, Channel Efficiency, Marketing and Promotion.
This Smartphone industry can achieve a sustainable competitive advantage through the following activities. * The Smartphone industry should carry out intelligence research from the users of Smartphones on what they expect to be on a smart phone and they are not getting from the current available Smartphones, this will guide the industry on how to get the attention of the market. * The industry should also employ local experts with experience which can help the industry expand well by understanding and delivering what the users want. * Reliability, usability, features, durability are what users really factor before purchasing a Smartphone. The industry should also consider incorporating features such as larger viewing screens, user-friendly keypads and clear audio signals. * The industry should also consider a Smartphone product which can be compatible with thousands of third party business applications and services.

Apple faces competitive hurdle in Brazil market, by Vincent Bevins and Chris O’Brien (July 10, 2013). Retrieved on November 15, 2013, from;

Brazil's Economy to Grow 2.4% in 2013, Industry Group Says by Dow Jones Business News, (September 25, 2013). Retrieved on November 15, 2013, from;

Smartphone Market in Brazil 2011-2015 by Infiniti Research Limited (June 2012) BRIC Countries – Background, Latest News, Statistics and Original Articles by Global Sherpa Oľga Slobodníková and Renáta Nagyová 2011. Global Influence of the BRIC Countries

Ernst & Young Global Limited 2012. Attractiveness survey- Brazil. Porter, M. E. (2008). THE FIVE COMPETITIVE FORCES THAT SHAPE STRATEGY. Harvard Business Review, 86(1), 78-93…...

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