Apparently new “rules” appear to be guiding the emerging entrepreneurs and traders, policy makers and players in the expanding business horizon mainly due to globalization. The buzz word is competition… Just how far competition leads to, is a fundamental concern in world economies as political competition in these emerging economies which are therefore emerging markets could be affected more so in countries with high instabilities or uncertainties associated with them.
Brazil is one such economy which through the years has been shedding out the vestiges of its colonial and underdeveloped past into a more robust, optimistic and even sophisticated society. Understanding the traits of such countries such as Brazil is very important if a company wishes to open up new markets in these economies.
The cutting edge in international business is knowledge of the key concerns which according to the JIM are important to international marketing management and strategy. Market entry defines the specific mode of bringing in goods and services to a particular economy the more common includes tradeshows, launchings, etc. which usually marks the start of a marketing campaign. It is a signal that the other factors such as segmentation and positioning which, define how a company makes particular arrangements to realize fully its advantages in a particular market. Channel development and customer service are critical factors in maintaining or sustaining the market, brand loyalty and rapport with the clientele or consumers needed thorough planning as well as defining contingencies in areas with high risks or uncertainties. For companies, playing in a global setting is playing in the changing business landscape as new playing fields are opened as emerging economies made their mark in the global market (Association, 2006).
Players in the world economies and markets include banks and financial institutions, manufacturing and trading companies, franchisers and licensors, service providers and a host of other industries which are indirectly affected by economic growth levels achieved by many economies for example in Asia and South America. A company before it could make a rational marketing and operating strategies must define the general traits as well as the specificity of certain emerging economy.
Traits of a big emerging market
What make these economies tick is illustrated for example by Brazil. In a Newsweek issue on new development trends, it featured the Brazilian island city of Florianopolis as one of the top ten new cities of the world. According to the Newsweek report, from 1970 to 2004, the population of Florianopolis tripled and its economy grew five times from the same period. It is one of the new economies which have taken advantage of the knowledge explosion with top Brazilian universities locating in the island, a dynamic outsourcing and information technology industry and tourism fueled the growth. City officials eye their island city to the Silicon Valley of Brazil but with beaches (Margolis, 2006).
One trait of an emerging market it is growing and expanding into new industries. Brazil’s export for example has experience robust growth doubling from USD 58 billion in 2001 to USD 118 billion in 2005. Its import grew 30 percent over the same period from USD 56 to 74 billion. Consequently, Brazil’s trade surplus spiraled from USD 2.6 billion to 74 billion in the four year period from 2001 to 2004 (Workman, 2006).
A giant awakes: How important Brazil as an emerging market
Brazil has a population of 200 million which has one of the biggest rain forest and mineral resource. It is one of the world’s leading exporter of agricultural products including sugar, coffee, beef, orange juice and soy beans. It also exports iron ore, steel, textiles, vehicles and footwear. Brazil mostly export its products to the USA with around 19 percent of its exports. Other major partners includes Argentina (8.4%), China (5.7%), Netherlands (4.5%), Germany (4.2%), Mexico (3.5%), Chile (3.1%), Japan (3.0%), Italy (2.7%) and Russia (2.5%).
The source of imported goods to Brazil in 2005 was led by the USA with 17.2 percent of the market share. Other sources of importation includes Argentina (8.5%), Germany (8.4%), China (7.3%), Japan (4.6%), Algeria (3.9%), France (3.7%), Nigeria (3.6%), South Korea (3.2%) and Italy (3.1%) (Workman, 2006).
The big numbers in terms of exports and imports and the potential for growth of Brazil makes one of the more important market of the developed economies of Europe and North America. Supplying the technology to the developing information technology and industrial sector could be lucrative and of main interest to technology providers mostly companies based in the West.
Challenges in doing business in an emerging economy
But this does not mean that Brazil is problem free and smooth in its merry way to development. There are down swings.
Import and export are sensitive to currency movements and the appreciation of the Brazilian vis-à-vis the USD for example makes it difficult to stabilize prices as USD becomes cheaper.
Farm subsidies and protectionism continue to be a thorn in the World Trade Organizations as developed countries like the US and Japan continue resist lifting farm subsidies affecting exports of agricultural economies like Brazil’s.
Internal factors like poor infrastructures like roads, railways and seaports, inefficient transport system characterized by delayed flights and inefficient customs service and bureaucratic red tape in import-export are some of the constraints mentioned in doing business with Brazil (Workman, 2006).
A USD 182.62 billion foreign debt continue to create hard currency pressure as Brazil labor to meet its debt servicing commitments which was estimated to be 10 percent of the its total national budget.
Handling fluctuations and shortage of hard currency
There several financial instruments and strategies available to companies engaged in export, import and investment in an emerging economy. The usual instruments include the letter of credit (LC), a banking service which is widely used to avoid such risks unfamiliarity unfamiliarity with the foreign country, customs, or political instability. The LC is bank intermediated to guarantee that payments will be promptly remitted to the selling party. It gives the seller some assurance of receiving payments once documents confirming compliance with the terms of contract such goods delivery are accomplished (Investing Glossary, 2005).
The LC, however required being meticulous as banks still control the payment process and requires an array of documentary requirements and with failure to meet the strict compliance to bank’s standard may result to withholding of such payments. Banks want to be sure that they would be reimbursed by buyer (Moses, 2006).
Another way of ensuring payment is the standby letter of credit. A standby letter of credit is guaranteed by a third party which allows the use of securities in place of cash or bond deposit requirement for an LC. In such instances, the government which controls securities plays a critical role in maintaining the stability of the playing field allowing free and smooth trading (“Standby Letter of Credit”, 2006).
Using these instruments requires acquiring certain control over the process on the assumption that each day matters as severe fluctuations in foreign exchange could be triggered a number of reasons. It may do good to consider Heisenberg’s uncertainty principle, that we know it will happen but what we don’t know is when and in what manner, for example, a fluctuation might occur.
Management of business engaged in international marketing are not only up against the pressures of its internal operations but also must be intimate with the pressures acting on its partner(s) which extends from economic, political and even cultural factors. It may do well to frequently evaluate how such factors interact with each other and how it affects the behavior of the market and currency performance. Frequent evaluation could make a company better oriented and hence decide at right time to act on available options.
The volatility of currencies and even interests rates which affect currency positioning could not be totally controlled and could be considered a given attribute of the international market. It maybe that the company which does its meticulous homework in international trading may be the companies which may find the innovations and right strategy to succeed.
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