Analysis of Risks and Opportunities in Brazil and India †Free Samples

Question: Discuss about the Analysis of Risks and Opportunities in Brazil and India. Answer: Introduction In the contemporary business scenario, business organizations are opting for international business for increasing their presence and market share. In entering in the international business, the first criterion that should be considered by the organizations is the market potentiality and market structure of the target or host country (Folsom et al. 2012). Accordingly, they will implement their strategies in order to effectively cater to the customers in the host country. Brazil and India are one of most potential and developing countries in the world with having huge population and increasing growth rate. Moreover, the enhancement of their domestic infrastructure in the recent years has made them more attractive for the global investors. Cheers is a small brewery firm from Australia known for their craft beer. They have gradually increased their market share in Australia and now they are looking to enter the market of India and Brazil in order to increase their market share. This report will discuss about the potentiality of the chosen markets for Cheers. Moreover, various aspects such as cultural, financial and legal risks will be analyzed for these two countries and accordingly, the best destination will be provided. In accordance to the evaluation of the business prospects of Cheers, the most effective entry mode will also be discussed. Analysis of risks and opportunities in India and Brazil The political environment of India is quite stable with having several political parties involved. The taxation structure of India is quite effective and is being amended according to the current requirement. The recent privatization policy of the government of India is initiating in enhancement of efficiency in the domestic structure. The trade and other agreements of India with other countries will also help the organizations operating in India to drive their international business from India. The recent initiatives of Make in India by the government of India are creating huge opportunities for the organizations abroad (Rajan 2015). Under this scheme, government is providing incentives and other benefits for exporting from India. Thus, it will be a huge opportunities for Cheers if they can have their manufacturing facility in India and make it their exporting hub (Levien 2012). Compared to this, the political environment of Brazil is more unfavorable. The recent impeachment of thei r president have promoted political dilemma in the country (Samuels and Zucco 2014). However, the various fiscal initiatives taken by the government and incentives provided by them in attracting FDI in the country are creating opportunities for the foreign organizations. However, there are few challenges that may be faced by Cheers regarding the political and legal environment in India and Brazil. According to the global corruption perceptions index 2016, the ranking possessed by India is not at the positive side. The current ranking of India is 79 which portrays that India is much behind in corruption index (e.V. 2017). However, the trend is showing positive growth in the last few years. It may pose a challenge for Cheers in operating in India. Another challenge that may be faced by Cheers in India is the ease of doing business. This is due to the reason that, according to the data given by World Bank, the current ranking of India in ease of doing business is 130. Thus, India is standing far lower in terms of ease of doing business. Hence, it will be a challenge for Cheers in operating their business in India with having complex regulations. Compared to this, Brazil also ranked at 79. Thus, the level of corruption in both the country is same (Olken and Pande 2012). However, the trend is fluctuating in the recent years compared to the increasing trend of India. In terms of ease of doing business, Brazil stands at 123 which are lower than India. However, there is no such difference between India and Brazil. Thus, the political scenario of both India and Brazil is more or less same. According to the Hofstedes cultural dimensions, the power distance dimension of India stand at 77 which denote high level of inequality in the society. The Indian society is more of hierarchical (Hofstede 2017). It is also been seen that top down approach is being followed in the society. In the case of Brazil, the power distance is 69 which are quite nearer to that of India. The individualism dimension of India and Brazil is ranked at 48 and 38 respectively. Thus, it denotes that India and Brazil is having both collectivistic and individualist traits in their society. Thus, the influence of society on the individual behavior is more and it will pose a challenge for Cheers. This is due to the fact that, they have to consider the social customs and regulations in order to operate in India and Brazil. India and Brazil is having rank of 56 and 49 respectively in terms of masculinity. Thus, it portrays that India is more masculine nation compared to Brazil. Hence, the Indian society is much competitive and is being driven by success and achievement. It may provide opportunities for the organizations due to the fact that the attitude of driven by success will help the organizations to achieve their organizational goals more effectively. The next aspect is uncertainty avoidance (Hofstede 2017). In this aspect, India ranked at 40 which portrays that the society in India is more patient and are acceptable to imperfection. On the other hand, Brazil ranked at 76. Thus, the tolerance factor is high in India compared to Brazil. However, it will have challenges for Cheers. The acceptance to imperfection may pose challenge for the organization due to the reason that, the employees will be more casual in their workplace and they will not strive to gain the perfection. The next aspect is the long term orientation in which India is being ranked at 51. It shows that India is having more inclination towards the normative societies. In India, the cultures, traditions and religions are being given most preference and traditional values are being held high (Hofstede 2017). On the other hand, Brazil ranked at 44 which are lower than that of India. Thus, the practice of normative societies is more in Brazil compared to India. Thus, it will pose a challenge for the organizations due to the reason that, it will create barrier in inducting new technologies and approaches in the internal organizational environment. Moreover, the sector where Cheers is operating is being considered as taboo in a few parts of India. In the case of indulgence, India ranked at 26 which portrays that the Indian society is more of Restraint. According to this aspect, the society in India is more influenced by social norms, cultures and traditions. Thus, it will be a huge challenge f or the organizations operating in India to adhere with the social norms in driving their business. In this aspect, the rank of Brazil is much favorable at 59. Thus, the influence of social norms and traditions is less in Brazil compared to India. The financial structure of India is strong and stable. However, the taxation rate is on the higher side. Foreign organizations operating in India have to pay basic 40 percent corporate tax. Whereas, the tax rate in Brazil for corporate is 34 percent. Thus, compared to some other leading countries, the tax rate is much higher. The current inflation rate in India and Brazil is 2.36 and 2.71 as of July, 2017 (Tradingeconomics.com 2017). Moreover, it is showing increasing trend and with the increase in the rate of inflation, the customer expenditure will be more and thus being a provider of luxurious items, the market potentiality for Cheers will get lower. In terms of balance of payments, India is having trade deficits of US $ 144.2 billion as of 2015 (Xe.com 2017). Brazil is having trade deficit of US $ 588 billion (Tradingeconomics.com 2017). Thus, the trade deficit which is there for both the economies but Brazil is having more and it will have negative impact on their economy. The current rate of currency exchange between INR and AUD is .20 AUD is equals to 1 INR. Thus, the value of AUD is more than that of INR. On the other hand, 1 AUD is equals to 0.40 Brazil real. Thus, Brazil is having more favorable currency value compared to India. However, it will pose challenge for the organizations operating an exporting from India or Brazil due to the fact that they will receive less exchange valuation in the international business. It will also be a challenge to be faced by Cheers in entering the Indian or Brazilian market. In terms of industrial competition in India, there are various organizations already selling beer in the market. Domestic and global players are present in the market. However, the competition in the market of craft beer is more intense in Brazil due to presence of several competitors (Forbes.com 2017). Another challenge that may be faced by Cheers is the issue with labor problems. Due to the presence of numerous political parties in India, t rade unions are also having diversified ideologies which caused issues in the organizations. However, Cheers will an opportunity in having low cost of production due to adequate labor supply at low cost in India. However, the cost of production in Brazil will be considerably more due to higher labor cost. Huge population is another opportunity for Cheers. This is due to the reason that, the more will be the population, the more will be the market for them to operate. In this case, India is way ahead than Brazil. The annual GDP growth rate of India is 7.1 percent which is leading among the developing countries in the world. The GDP per capita of India is 1709.39 USD as of 2016 and it is also showing positive trend. However, as per the data available with the World Bank, Brazil is going through negative growth rate of -3.4 percent as of 2015 (World Bank, 2017). However, due to less population compared to India, the per capita GDP of Brazil is more at US $ 8649.95. The market for beer is increasing in India and expected to have valuation of $430 by 2017. The niche market of alcohol in India is estimated at $35 billion. On the other hand, it is being estimated that the market for craft beer in Brazil will increase at the rate of more than 40 percent. Selected destination country Based on the analysis being done above, India is being chosen as the target market. This is due to the reason that, the economy of India is having more potential than that of Brazil. It is being seen that the GDP growth rate of India is one of the leading growth for any country, whereas Brazil is going through negative growth rate which will be not favorable for business (Phillips 2013). Moreover, market size is one of the key determinants to be considered to enter in to new market. In this case, India is the second most populous country in the world (Cassen 2016). Thus, the market size is more when compared to Brazil. It is also been seen that the political and economical structure and policies of India is more effective and business friendly compared to Brazil. The political environment is India is much more stable and it is necessary for the business organizations for smooth operations. Other aspects such as corruption index and ease of doing business are more or less similar for the both countries. Thus, based on these criterions, it is being selected that India will be the chosen country for market expansion. Proposed market entry strategy: Mode of entry Based on the analysis of the organizational structure and area of operation of Cheers, it can be concluded that the most effective market entry strategy for them will be joint venture. The main reason to initiate joint venture is having low risk and having presence in the host market (Beamish 2013). In the case of joint venture, Cheers will form an entity with an experienced domestic partner from India in setting and driving their operational facility there (Killing 2012). However there are various mode of entry is available for the organizations to enter in the international business. Most notable are direct and indirect exporting, joint venture, licensing and franchising, and direct investment. However, in the case of the direct investment, the business risk and the investment involved is more for the organizations due to the fact that the investment has to be done only be them. Thus, in entering the new markets and effectively determining the market requirement, it will be a huge risk in investing enormous amount. Direct and indirect mode of exporting involves fewer amounts of investment and risk. However, in the case of exporting, organizations will not have any physical presence in the target market, which will pose challenge for them in enhancing the brand equity. Another issue that may be faced by them in the case of exporting is the increased cost due to the involvement of duties and tariffs. Justified mode of entry Thus, among the available mode of entries, Joint venture will be the most effective mode of entry for Cheers. It will help them in effectively targeting and marketing their products according to the market requirement. This is due to the fact that, the domestic partner will have the more knowledge about the taste and preference pattern of the Indian customers more than Cheers. The business risk involved in investing in the foreign country will also be less due to the presence of a partner (Kraus et al. 2015). Cheers can leverage the brand value and goodwill of the domestic partner in marketing their products in India. Moreover, due to direct investment in the Indian market, Cheers can avail the benefits from the government of India. They can further make their operation unit in India as their export hub which will further attract more benefits and incentives (Freixanet 2012). Moreover, due to the presence in the local market, the cost involved in paying import duties can also be avoided and thus, the pricing can be effectively done (Amiti and Khandelwal 2013). In addition, the sourcing of the resources in India will be easier due to the reason that the labor cost in India is much lower compared to other countries. Fruits, which are the key raw material for breweries, are having abundant supply in India. Sourcing of skilled employees is also not an issue in India. Cheers have already established their market in Australia to extent and thus they have the financial resources to invest in the foreign market. Moreover, the sourcing of fund is also easy and efficient in India due to their stable banking system. Commercial infrastructure of India As discussed earlier, India is one of the leading developing nations in the world. Thus, in accordance to their development, the government (Pradhan and Bagchi 213) is developing the infrastructure rapidly. The roads are well connected. Al modes of transport are available and sea and airports are having access with all the major cities around the world. It is already being discussed about the higher rate of corporate tax in India, but with investing in India, tax benefits will be available for Cheers. India is having high margin of income disparity. The percentage in the top of the pyramid is increasing at a rapid rate. Thus, it will be an opportunity for Cheers due to the fact they will cater to the higher end and niche market (Murray and ONeill 2012). However, issues with labor union can be generated due to the reason that they have great influence in the Indian business environment. However, effective management is required in order to prevent these issues. In this case, the measu res taken by other foreign organizations in India will be beneficial for Cheers. Conclusion Having discussed the external environment of Brazil and India, it can be concluded that India will be the perfect market to enter for Cheers. The market segment where Cheers is operating is growing at a rapid rate in India. This report have discuss about the various aspects that should be considered by the organizations before investing in foreign countries. In majority of the cases, it is been seen that Brazil and India is going head to head. However, India is being selected due to their sheer market size and enhanced infrastructure. The financial condition of India is also much favorable than that of Brazil. Moreover, the perfect entry mode strategy for Cheers is being chosen as joint venture. It is been discussed that joint venture will help them in utilizing their resources effectively with enhancing their market presence. Thus, it can be said that entering the Indian market through joint venture will help them in effectively targeting their chosen customer segment in India which will eventually help them in increasing their market share. References Amiti, M. and Khandelwal, A.K., 2013. Import competition and quality upgrading.Review of Economics and Statistics,95(2), pp.476-490. 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