The Key Political, Economic, Legal and Socio-Cultual Factors Affecting Businesses in Brazil and the Economic and Political Thrust for Development

INTRODUCTION

Background

This research was completed at the request of SIMA Consultancy Ltd, a consulting company based in Dublin, Ireland, by CAAD International Consultancy Services. The research is an investigation of the Brazilian environment and analysis of the key environmental factors that are influential in conducting business in Brazil.

The research includes:

PART A: A review of the key political, economic, legal and socio-cultural factors relevant to businesses

PART B: An assessment of the general direction and thrust of the political and economic policies being followed in order to develop the country

PART C: An example of two firms, a domestic and multinational, conducting business in the same industry and thriving in their individual capacities.

All of which are essential information for both existing and potential business in Brazil.

Profile of Brazil

Name: Federative Republic of Brazil

Capital: Brasilia

Location: South America

Population: 203million (5th largest country in the world)

Language: Portugese

Status: Emerging global power house

Economy: Diversified market with abundant agricultural, mineral and energy resources

Currency: Real

Politics: Democracy led by President Dilma Rousseff, Head of State and Government. (2011-2015)

PART A

POLITICAL FACTORS

International Relations

As a founding member of the United Nations (UN), World Trade Organisation (WTO), Union of South American Nations (UNASUR) and a party to several international agreements, Brazil has a commendable history as an active key player on the world stage politics. (Foreign and Commonwealth Office, 2011) Its position as a leader within the Latin American region has also aided the country to foster cooperation with the Middle East and Africa. (Foreign and Commonwealth Office, 2011)

This factor is of crucial benefit to the various businesses established within the country, and potential businesses, as it provides them with an extended market separate to the already large domestic market in which they operate.

This means that businesses can benefit from trade agreements made with partner nations, such as the free movement of labour, goods and services agreed within UNASUR, (PricewaterhouseCoopers, 2010) while being associated with a member nation of the BRICS community.

However, this can also pose a threat to businesses within the nation as they will be faced with increased competition due to the inward movement of businesses into the country.

Political Stability

This is an attractive quality that Brazil possesses and has been the reason for numerous foreign direct investments in the country. (Business Latin America, 2007, p1-2) The country has remained a peaceful one over the years, owing to its democratic institutions and is said to have neither political enemies nor threat of terrorism or civil unrest. (Ball, J. 2009) It is also noteworthy, that although the country is politically stable, it is not the form of stability that hinders growth but rather one that promotes it, as political stability can also be argued to retard growth and breed authoritarian leaders. (Bueno de Mesquita, B., 2000)

This factor ensures economic growth in the long term and provides businesses with a level of confidence required for long term planning for their organisations.

Social Welfare

The Brazilian government has in recent years dedicated itself to the welfare of the people following a period of significant poverty amongst its people. (Hall, A., 2006, p 691) This dedication has seen an estimated 33m people rise out of poverty and significant movement in social classes, increasing the ratio of middle class against the lower class of the population. (Leahy, J., 2011)

This change, which started in President Fernando Henrique Cardoso's administration, has been one of the key strategies for the government of the country, which is now led by President Dilma Rousseff. (Hall, A., 2006, p692)

For businesses, this means that a significant number of Brazilians can now afford goods and services that they couldn't before the changes. Evidence is found in Brazil's leading PC manufacturer, Positivo Informatica, who saw a growth increase from 16% to 32% between 2005 and 2009 in the company's top line products. (Private Equity in Brazil, 2011)

Despite the change, a significant disparity in the distribution of income still remains in the country (Leahy, J., 2011) which suggests that businesses looking to establish within the country must clearly target their customers and position their products for differentiation.

Corruption

The level of corruption in Brazil has remained a worrisome factor for the nation as it is constantly experiencing one scandal after another, especially in its government departments. (Maclean's, 2009, p29) These scandals are responsible for a number of setbacks in the current administration led by President Dilma, who has lost four cabinet ministers in one year, with three of them guilty of corruption allegations. (Country Commerce; Brazil, 2011, p5)

This factor tarnishes the image of the country and such may affect the businesses within it as international partners may question the business's reputation.

Poor Infrastructure

This factor is probably the main hindrance to FDI in Brazil and to the actual level of growth it ought to have achieved in the last 15 years as the government has lagged in the establishment of an effective education, transportation and communication system. (Williamson, L., 2010, p45)

However, the circumstance is now fast changing as the country is scheduled to host the World Cup and Olympics in 2014 and 2016 respectively. The change began in President Lula's administration and has remained a top priority for his successor as the government has committed to a $526 billion investment in infrastructure in preparation for 2014. (Williamson, L., 2010, p50)

It is estimated that this improvement will provide opportunities for FDI to the value