PEST analysis of Brazil Essay
PEST analysis of Brazil
This paper will focus on Legoland 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 Hofsted, if needed. First, paper will analyze the external environment that affects decision making and furthermore, provide some internal environment information about Legolands 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 coming 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 Jeito Brasileiro, the Brazilian way of doing things. In business that means that Brazilians prefer go around the rules when an obstacle presents (Morrison and Conaway ,2006). Today LEGOLAND has all together six theme parks located in North America, Europe and Asia.
Company is not fully owned by Lego Group itself, rather theme parks are owned and operated by the British theme park company Melin Entertainment, which operates in all parts of the world besides South America. Core values that LEGO want to make universal are Creativity,Imagination, Learning, Fun and Quality (Jones and Shaheen, 2013), (Merlinentertainments. biz, 2013). 2. Political environment According to Ministery of foreign affairs Danmark, Brazil is a federal republic with a federal government divided into three independent branches – executive, legislative, and judicial.
The President has executive power (being both the Head of State and Government) although advised by the Cabinet. Legislative power is at the National 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 Ramon (2013) there are problems with ports, airports, public transport, health and education. Brazilian President Dilma Rousseff even proposed a referendum as a way to place political reform in the public’s hands. 2. 2 Corruption The levels of bureaucracy and lack of transparency of rules make Brazil a difficult country to do business in. Violations of law and ethical standards committed by representatives of the legislative and executive power are common.
The organization Transparency International’s 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 iReport, 2013). 2. 3 FDI 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 (OECD ,2002).
Since then FDI inflows have growing tendency as we can see from the chart. Direct Investment totaled US$ 660. 5 billion, equivalent to 30. 8% of national GDP (Oecd. org, 2012). As stated in Iab. worldbank. 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 SIMPI, which offers an expedited registration process.
Company establishing takes 166 days and goes trough 17 procedures, to compare IAB global average is 42 days and 7 procedures, however Brazilian ease of establishment index (64,5) is in line with IAB 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 (IED) is not subject to taxation.
However, the intercompany loans will be subject to IOF at a rate of 6%. Even though, intercompany loans are classified as IED (Mello, 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 (Macropolice,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 from these countries bear tariffs and taxes which can range from 0 to 35 percent on the CIF (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 labour relations in Brazil are primarily governed by the Brazilian Federal Constitution, the Brazilian Labour Code – ‘CLT’ and Collective Labour Agreements.
Established working hours in Brazil should not exceed 44 hours a week and 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 CLT regulation has right of a 30-day rest every 12 months of work. Brazil has 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 tothe Government Severance Indemnity Fund for Employees.
Aviso previo is a notification that must be given by both employee and employer when they are no longer 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 (Globalconnections. hsbc. com, 2013).