PEST analysis of Brazil
This paper will focus on Legend theme park company possible expansion in Brazil. I will use PEST framework as a guideline for analysis and other analysis methods, such as Porter’s or Hefted, if needed. First, paper will analyze the external environment that affects decision making and furthermore, provide some internal environment information about Legends strengths and weaknesses. Brazil is South America’s most significant country, an economic giant and one of the world’s biggest democracies, with fifth large population in the world (News. BBC. Co. UK, 2013).
In owing years Brazil will host two huge sport events, World Cup in 2014 and Olympic Games 2016, which have obviously some impact in PEST- analysis areas. When speaking about Brazil it is important to know about Jetty Brasseries, the Brazilian way of doing things. In business that means that Brazilian prefer go around the rules when an obstacle presents (Morrison and Conway ,2006). Today LEGEND has all together six theme parks located in North America, Europe and Asia. Company is not fully owned by Logo Group itself, rather theme parks are owned and operated by the
British theme park company Melvin Entertainment, which operates in all parts of the world besides South America. Core values
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Congress, while Judicial power lies with the Judiciary Supreme Federal Court, and the regional federal courts. The country is a parliamentary democracy with a presidential regime and next presidential, congressional, and gubernatorial elections is to be held in October 2014. 2. 1 Political Risk Data from World Bank (2013) shows that Brazil Political risk has changed a lot in the past decade, but now country is politically stable in the long term view. However massive anti-government protests during July 2013 tell that Brazil is currently experiencing a widespread collapse of its infrastructure.
According to Paula Ramona (2013) there are problems with ports, airports, public transport, health and education. Brazilian President Dilemma Rousseau even proposed a referendum as a way to place political reform in the publics hands. 2. 2 Corruption The levels of bureaucracy and lack of transparency of rules make Brazil a difficult PEST analysis of Brazil By Kulak country to do business in. Violations to law and ethical standards committed by representatives of the legislative and executive power are common.
The organization Transparency Internationally corruption index for 2012 ranks Brazil as number 69 score 43/100) – ahead of Argentina (102), Columbia (94) and Peru (83) but behind Chile (24) and the U. S (19)- of 180 countries (Transparency International, 2013). Corruption was cited among many issues that provoked the 2013 protests in Brazil (CNN Report, 2013). 2. 3 FDA and business establishing regulations Policy competition to attract investment was “activated” in Brazil by the dramatic success of the 1994 “Real Plan” in cutting inflation and bringing macroeconomic stability to the country (COED ,2002).
Since then FDA inflows have growing tendency as we can see from the chart. Direct Investment totaled IIS$ 660. Billion, equivalent to 30. 8% of national GAP (Coed. Org, 2012). As stated in lab. Workloads. Org, 2013 foreign companies establishing subsidiaries in Brazil must have at least 2 shareholders. Executive officers of Brazilian companies must be either Brazilian citizens or foreigners who hold a Brazilian permanent visa. To file with the Commercial Registry, the company may pay an additional fee and register through SIMI, which offers an expedited registration process.
Company establishing takes 166 days and goes trough 17 procedures, to compare BIB global average is 42 days and 7 procedures, forever Brazilian ease of establishment index (64,5) is in line with BIB global average 62,5. While government approval is not required, foreign investments must be registered with the Brazilian Central Bank. According to the Rules for the Exchange Market and Foreign Capital issued by the Central Bank of Brazil, only a few entities are entitled to hold a foreign currency bank account in Brazil. 2. 4 Taxation Foreign capital that enters Brazil as direct foreign investment (DEED) is not subject to taxation.
However, the interception loans will be subject to ‘OF at a rate of 6%. Even Hough, interception loans are classified as ‘DEED (Mellon, 2012). While importing may work well in most markets, it is difficult in Brazil due to high tariffs and taxes, since Brazil does not have an industry of amusement rides and equipment, or many factories, when it comes to roller-coasters, giant wheels and similar products, there is need to import them from other countries, mainly from Europe, Asia and the United States (Macroscopic,2013). Potential export countries such as the US and Germany are not parties to a bilateral free trade agreement with Brazil.
As a result imports room these countries bear tariffs and taxes which can range from O to 35 percent on the CIFS (insurance, and freight) value. The bound rate that Brazil can levy on imports under World Trade Organization rules is 31. 4 percent. Since tariffs can be changed by the government at any time, importers are subject to risk and uncertainty (Brazil. Land of the Future, n. D. ) 2. 5 Employment Laws Employment and labor relations in Brazil are primarily governed by the Brazilian Federal Constitution, the Brazilian Labor Code – ‘CLC’ and Collective Labor Agreements.
Established working hours in Brazil should not exceed 44 hours a week ND preferentially, 8 hours a day. Depending on the Job, there are conventions between companies and Unions, and then employees will work more than 8 hours a day. Every employee working under the CLC regulation has right of a 30-day rest every 12 months to work . Brazil NAS the 13th salary, which is a gratification equivalent to a month salary and paid in two installments in November and December For individuals considered as employees, the company must make a monthly deposit to the Government Severance Indemnity Fund for Employees.
Avis pr©vii is a notification that must be given by both employee and employer when they are no anger willing to work together. This notification must be given one month prior to the dismissal. Additionally Brazilian employers are obliged to cover its employees’ transportation costs and provide a meal for those working 8 hours a day. All in all hiring in Brazil is not cheap because of the all additional cost mentioned earlier (Coalitionist’s. Hash. Com, 2013). 3. Economic environment According to World Bank 2013 statistics the economy of Brazil is the world’s seventh largest by nominal GAP and ninth largest by purchasing power parity.
Brazil has moderately free markets and an inward-oriented economy. Its economy is the largest in Latin American nations and the second largest in the western hemisphere. Brazil is one of the fastest-growing BRICK economies in the world, however after fast recovering from 2009 recession growth slowed due to reduced demand for Brazilian exports in Europe and Asia, but as reported by BBS News 2013 Brazier’s economy grew by 3. 3% year-on-year in the second quarter and will possibly continue growing. Brazier’s currency unit is the real =R$ .
The real has been relatively stable for Brazil since its introduction in June 1994. Brazil has 5th. Largest population in the world 201,009,622) but it’s purchasing power is lower than could be expected by cause of high inflation rate, in 2012 it was 5,4% compared to 6,6% in 2011. Other factor that makes Brazil economy less attractive is high interest rates compared to the rest of the world, current interest rate is 9,0% (Central Bank of Brazil 2013). Strong labor market is the one aspect of Brazier’s economy that investors can count on to remain solid for years to come.
It’s unemployment rate reached a historic low of 5. 6% (World Fact Book 2013), If you could trade in Brazier’s Job market instead of equities, you might be better off. 3. Infrastructure and related industries While thinking about theme park industry expansion in Brazil infrastructure issues are among biggest challenges for sure. Transportation, the airport system and all in all traveling inside Brazil is difficult. In 2011 the Brazilian government launched a number of infrastructure initiatives that were warmly welcomed. Investments in infrastructure in Brazil are still little, ranging between 2% and 2. % of the GAP. The public sector employs a little over 1% of the GAP in infrastructure and that is not enough as stated in Economist 2012. Brazil would need to spend 6-8% of GAP annually to catch up with South Korea in 20 years and 4% per year to catch up with Chile. Compared to other emerging economies Brazil spending on infrastructure is among lowest (World Fact As chart snows ,Brazilian economy is service driven and is favorable for LEGEND. According to Business Wire 2013, construction related to the FIFE World Cup and the Olympic Games will support all construction markets going forward.
Those big sport events are now having positive impact especially on tourism industry, but other industries that are related to theme parks such food and soft drink industries will benefit as well. However, all in all an underdeveloped state of Brazier’s infrastructure poses a key challenge to the development of the country’s industrial sector. (Sugarcane 2013) 3. 2 Energy Brazier’s energy matrix uses the most renewable energy sources in the industrialized world, with 45% of its energy being generated by water, biomass, ethanol, wind and solar sources (Portal Brazil A 2013).
Brazil has one of the most expensive prices of electricity in the world, even though it has one of the cheapest costs of production. The electricity price is higher than the prices of some developed countries, like the Netherlands and the United States (Chartists 2012). . Technology Brazil is technologically developed country, It has highest levels of patents applications in South America (Worlds Intellectual Property Organization, 2012) and according to R Funding Forecast 2012, Brazier’s R&D spending is expected to increase in 2013 to $31. 9 billion, an 8. 1% increase over the $29. 5 billion it spent in 2012.
This increases its share of global spending from 2. 0% to 2. 1% and ranks it tenth globally, slightly ahead of Canada. Brazier’s R spending also accounts for more than 75% of the total R spent in all of South America and World Bank C 2013 statistics refer to the same result. The investments in human and political resources, the financing systems and the supporting laws to technological and innovation sector allowed Brazil to reach notable advances in science, new technologies and innovation in strategic areas like energy, biotechnology, computing and aerospace (Portal Brasilia B, 2012).
As reported by World Fact Book 2013 use of telecommunications systems, and Internet is high, which means that intercommunication and global communication won’t be a problem. LOGAN doses ‘t have super advanced roller- coasters or other raiders and in that case technological development of Brazil is high enough. . Socio- cultural issues Brazier’s population is very diverse, comprising many races and ethnic groups. With 80 percent of its population living in cities and towns, Brazil is one of the most urbanize and industrialized countries in Latin America.
As can be seen from pyramid population growth in Brazil is slowing as the country urbanites and increases its wealth (World Fact Book, 2013). Growing proportion of middle class appear. 60% of society, will increase consumer demand in Brazil and so is the favorable atmosphere for LEGEND (World Bank D, 2012). According to World Bank E, 2012 GIN index in 2012 was high 54. , but it has decrease tendency which as well explains middle-class growth. In Brazil, 41% of adults aged 25-64 have earned the equivalent of a high-school degree, less than the COED average of 74%.
Among younger people – a better indicator of Brazier’s future – 53% of 25-34 year-olds have earned the equivalent of a high-school degree, also lower than the COED average of 82% but snowing progress. Compared to other BRICK countries Brazil is still b and 20% of it’s population is still illiterate (Coed B, 2013) (The Economist, 2010). This fact might decrease companies reluctance to invest in Brazier’s economy, bur Brazilian free education would be reflected in the long term. Since Brazil is world’s 5th. Large country by it’s area, LEGEND will have enough choice where to locate the theme park. So Paulo (1 1. 277. 19) and ROI De Jeanine (6. 074. 081) are the two largest and most important cities in Brazil, some other large major cities include Below Horizon, Formulate, Salvador and the capital Brasilia. 5. 1 Brazilian cultural environment Since the theme parks aim to provide a mixture of fun, adventure and education for children, Brazil has excellent environment for that. The Brazilian culture is one of the world’s most varied and diverse. Much of it is centered around local traditions and celebrations such as caperer, the national sport (football) and all around the world known festivities of Carnival (Quintessential, 2013).
Hefted 2013 research reveal that Brazilian and Danish cultures are almost a contrast to each other. High PDP of Brazil reflects a society that believes hierarchy should be respected and inequalities amongst people are acceptable, while low individualism score means that in business it is important to build up trustworthy and long lasting relationships: a meeting usually starts with general conversations in order to get to know each other fore doing business. Brazil masculinity rate 49 is in the middle, but compared to Damask’s 16 Brazilian society is driven more by competition, achievement and success.
However, conflicts are avoided in private and work life and consensus at the end is important. Like the majority of Latin American countries Brazil scores high in AJAX, which mean that country shows a strong need for rules and elaborate legal systems in order to structure life. Executives should also understand that Brazilian need to have good and relaxing moments in their everyday life, chatting with colleagues and enjoying a long meal is an integral part of working day.
Danes are a short term orientated people and focus in business life is very much on what is happening now instead of in ten years time, at the same time Brazil places itself amongst the long term oriented societies as the only non-Asian society. The “Jettison brassiere” is really to look for alternatives to do what in a Western eyes could be regarded as impossible (The Hefted Centre A and B 2013). If possible Leganes’s managers will be expatriates from Denmark a tailor made cultural assimilated training is highly recommended. . Conclusion After finishing my PEST analysis I will argue that to talk about LEGEND expansion n Brazil today is to talk about a promising future and good business opportunities. The fact that Brazil was the first South American country elected to host both the 2014 FIFE Football World Cup and the 2016 Olympic Games in ROI De Jeanine, proves that the country has reached internationally. Brazilian theme park industry has big potential mainly because of country’s huge population, growing tourism and low competition.
There are only 11 theme parks in the whole country and Brazilian/ Latin-Americans who now travel to the US in order to visit amusement park will have competitive domestic option. Population demographics promise good future as middle-class is growing, children population is big and there is huge amount of potential labor force in Brazil. Since The Logo brand is well known all over the world and associated Witt quality and reliability, this positive brand image will attract boot locals and international visitors.
Challenges of tapping Brazilian market is very high importation and local taxes. Lack of equipment needed for amusement park is the other minus of Brazilian market. On the other hand it could easily be imported from the US and supporting industries such as food industry is well developed. The Federal Government has also shown its support to the theme park industry by lowering the taxes on the importation of equipment and machines used for the rides. Brazil has still a long way to go to improve it’s poor infrastructure and that’s the third disadvantage of country.
However, the World Cup and Olympic games have had huge positive impact on infrastructural development and I would highly recommend to place LEGEND in So Paulo or ROI De Jeanine since their excellent infrastructure. High electricity price is the fourth disadvantage, which will cause extra spending to the company. Recent oil discoveries and great potential on renewable energy market may reduce electricity price in the future. Brazilian rich culture and long history gives additional value to Leganes’s miniature land.