Fernando Bez, Lisa O’Brien

David Broderick & Michael de Korte

Emerging Market EntryA Strategic Analysis of Brazil

Fernando Bez, Lisa O’Brien

David Broderick & Michael de Korte

Agenda

• Brazil’s Market Assessment/Economic Profile• SWOT Analysis• Market Entry Strategy• E-Commerce in Brazil / Competitors• Risk Analysis• Conclusion• Recommendations

The Brazilian Market

• Brazil is the 5th most populated and largest geographical country

• 200 Million people

• Brazil took over the United Kingdom in terms of GDP, now raking as the 5th position in the world

• During the past decade, 35 million people in Brazil have moved from the poverty to the middle class. There are 16 million people living in poverty which represents 8% of the country

Brazil’s Economic Profile

2007 2008 2009 2010 2011 2012-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

Brazil GDP Growth

GDP Growth reached 7.5% in 2010, however GDP Growth fell to 2.5% in 2011 and it is predicted to reach 2.5% in 2012

Brazil’s Population

200 million Population with Internet

78 million

Population buying online

32 millionPopulation buying online

32 million

Population with Smartphone

100 million (2015)

Amazon potential market

$12 billion

Amazon potential market

$12 billion

Amazon.com 4 Smiles of Brazil’s Market Demand Attractiveness

Brazil’s Growing Population and Demand

Total % of populationPopulation in Brazil (Millions) 200 100%

Population who has access to the internet 78 39%

Number of People who buy through the internet 32 16%

Number of People who has access to the internet but do not buy 46 23%

Number of People who do not buy through the internet because they do not trust in the payment 32.2 16%

Number of People who do not buy through the internet because they do not rely on the products they will receive 13.8 7%

Mobiles in Brazil in 2012 232 116%

Mobiles in Brazil with internet access by 2015 100 50%

2010 2011 2012E-Commerce total Revenue in Brazil (Billions of Dollars) 8.4 10 12.7

Why Brazil?• Natural resources

– Vast amount of natural resources– No need to import large quantities, good local availability of key

resources

• Human resources

– Labor market is relatively cheap & motivated– Provision of training might be required– Melting pot of cultures and people

• Infrastructure and support industries– UPC and DHL well established in Brazil– Urbanization of population– Quality of the roads and transports

Brazil and the World Cup in 2014 &

Olympic Games in 2016

Amazon.com to Brazil SWOT AnalysisSTRENGTHS

• Amazon has been named the 3rd most innovative company in the world by Forbes magazine 2012 list

• Fast Delivery & Customer Service

• Global Reputation

• Automatically identifiable to Brazilian Population

THREATS

• Potential expensive operating costs

• Computer Hardware subject to high taxes

• Consumer growth has slowed

• Poor infrastructure – difficult for distribution

WEAKNESSES

• Difficulty in replicating current model with high labour costs and taxes

OPPORTUNITIES

• Retail market to grow by 25% in 2012

• UPS announcement of expansion into Brazil

• Internet Usage to reach 77million in 2012

Market Entry Theory• Location costs, cultural factors – such as trust and psychic distance,

financial variables, market structure and competitive factors are all taken into account when choosing a market entry strategy

• ‘Psychic Distance’ – Why do some methods offer lower costs than others?

• Circumstances will prefer one method over another– Cost-based view: A company requires a ‘compensating advantage’ to overcome

the ‘cost of foreignness’ = ‘Firm specific advantages’

• Direct foreign investment is the most risky form of entry – carries highest capital risk – Joint venture is a preferred route initially

• Exporting and licensing don’t allow for quick reaction to competitor moves

Market Entry Strategy• Direct Imports

– From the world market place– Creating a center of distribution in order to deliver world-wide

products to South America

• Direct Exports– Distribution to the whole of South America

• Partnerships and Alliances– Strategic choices of key market players– Building upon existing partnerships and alliances– Increasing the market reach of existing relationships

E-Commerce in Brazil

2009 2010 2011 20120

2

4

6

8

10

12

14

6

8.410

12.7

E-Commerce total Revenue in Brazil (Billions of Dollars)

Competitors in Brazil E-Commerce

Turnover – 4.4 Billion in 2010

5 Billion in 2011

Market Leader in Brazil

Amazon.com Risk AnalysisPOLITICAL RISKS

Shareholder Exposure Employee Exposure Operational Exposure

Distribution Center Destruction Kidnapping Market disruption

Poverty Shortages

ECONOMIC RISKS

Growth is slowing & volatile

Variability in the market

Currency exchange rates

Opportunity cost of not going

Cost of distribution

COMPETITIVE RISKS

5 main competitors

Corruption

Networks and Cartels

OPERATIONAL RISKS

Infrastructure Regulations

Transport Population national preferences

Telecommunication Regulations constraints

Suppliers Taxes

Amazon.com Market & Industry OpportunitiesMARKET

Growth in GDP, Internet & Mobile users

Population of 200 Million

Customers are in maturing market

Increase of middle class

RESOURCES

Available skilled personnel

Rich in natural materials

Need of distribution center

Investment of Data Centers

UPC & DHL operating as support providers

Strategic location in reaching Southern America’s countries

COMPETITION

5 main competitors

Government, regulations, existing industry entry barriers

Bargaining powers local suppliers

Long-term profitability forecasted

INCENTIVES

Creating of local jobs

Presence would increase competitiveness

Reaching out to larger customer base

Recommendations

• Pursue a Marketing strategy that allays the fears of the Brazilian population in terms of trust and reliability of their service

• Conduct in-depth interviews with key players in the market

• Conduct comparative analysis with local competitors

• Do a feasibility study and research locations

• Verify if desk research corresponds reality in Brazil

Thank You!