Essays on Wine Marketing to Brazil - Market Environment Analysis Report

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The paper “ Wine Marketing to Brazil - Market Environment Analysis” is a   forceful example of the report on business. Fordwich Estate is a small scale family-owned winemaker formerly part of the Hunter Valley vineyard until the split in 1997. In the 2010 Australian Small Winemakers Show, the vintage won five medals in total (Fordwich 2011). The firm produces red, white, and sparkling wines that are fairly priced. The brands are Rose 2010, Shiraz 2006, Shiraz 2010, Verdelho 2008, Chardonnay 2007, Unwooded Chardonnay 2009 Blanc de Blanc. This report uses PESTLE and SWOT tools to assess the business climate in Brazil in light of Fordwich Vineyard Estate venturing in exporting its products into the country (Fordwich 2011).

The report also makes recommendations to the firm over the impending decision of entering the Brazilian market. 2.0 Political Environment 2.1 Government stability • Brazil follows federalism • Federal government constitutes three main branches, legislative, executive, and the judiciary. • Executive is headed by a president. The current president is President Dilma Rousseff. • The country has enjoyed political stability for a long and holds democratic elections every four years (DFAT 2011).

2.2 Government and contribution • Formulates monetary and fiscal tools• Markets Brazil to foreign investors • Government raised taxes on some foreign investments. • Brazilian embassies around the world provide helpful information to interested business investors (DFAT 2011). 2.3 Analysis A stable political climate allows undisturbed business activities such as distribution. Again, a stable political climate boosts consumer and investor confidence especially under a regime that shows good governance (Kalansky, Soares & Vella 2008). THE positive GDP growth rate implies that consumer purchasing power is growing and that the consumers are optimistic about the future.

3.0 Legal Environment 3.1 Regulatory framework • A new regulation requires that all wine exported to Brazil must have a certificate of origin and a certificate of analysis carried out by a NATA accredited laboratory. These forms have to be produced at the entry of the product within the Brazilian borders (Deloite 2010; DFAT 2011). 3.2 Business laws • All foreign business entities must be registered with the National Institute of Industrial Property. • Registered firms will only be allowed to remit 1-5% of their gross sales revenue to their parent companies• Mergers and acquisitions are prohibited where the resultant firm would create monopolistic conditions.

• Members of the Southern Cone Common Market-Mercosur (Brazil, Argentina, Paraguay, and Uruguay) may exchange goods tariff-free is 60% of the content is local. • Firms that seek to establish a branch in Brazil must obtain authorization by a presidential decree (Deloite 2010). 3.3 Labour laws • Employers must contribute 8% of each workers salary to the Length of Service Guarantee Fund (FGTS) • 44-hour workweek and overtime pay of 50% base pay.

• The federal government sets the minimum wage through the state can set theirs beyond and not under that of the federal government. • Employees are entitled to 30 calendar days paid vacation after a full year of full service with no more than six absences. • Unjustified dismissals entitle employees to compensation. • Foreign employees must obtain a work visa (Deloite 2010). 3.4 Taxation laws• All private business entities in Brazil are subject to taxation on three levels federal, state, and municipal governments.

• Foreign companies are subject to taxation if they engage in certain sales activities through agents or representatives based in Brazil. • Import duty (0-35%) is charged on all imports • Federal VAT (0- 335%) is levied on imports but is recoverable in IPI output debits. • State VAT applies to all businesses and stands at 17% in all states except for Sao Paulo and Gerais which is 18% (Deloite 2010). 3.5 Analysis The Mercosur trade agreement implies that wine imports from the member countries can compete better on prices because they are exempt from the 0-335% import duty (Hills et al 2010) which is to be charged to Fordwich. 4.0 Economic Environment 4.1 Interest rates • High-interest rates hurt businesses.

As of March, the interest rates stood at 11.25% (BBC 2011; Crane 2009)4.2 Inflation rates • Inflation has been relatively stable but high standing at 5.01%. • High inflation rates have led to high-interest rates4.3 Currency exchange rate • Appreciation of the currency 4.4 mixed economies • Market regulation through regulatory bodies• Market forces control demand and supply 4.5 Economic trends/forecasts • Overall growth for the year 2010 was 7.5% as predicted.

• Inflation to remain over 5.0% in 2011• GDP to grow by 4.5%-5% in 2011• The Brazilian real has appreciated by 45% against the US dollar since early 2009• Government predicted to raise interest rates higher to curb inflation (BBC 2011)4.6 Tax policies • The federal government levies 10 major taxes • State governments impose VAT tax on circulation goods, inheritance and gift tax, and motor vehicle taxes• Municipals levy service tax (Deloite 2010)4.7Analysis Motor vehicle taxes increase the cost of business.

An appreciated currency makes exporting to Brazil expensive (Ministry of external relations 2011). The high-interest rates make loans expensive. A high inflation rate reduces consumer purchasing power (Crane 2009; Hills et al 2010). 5. 0 Socio-cultural Environment 5.1 Hofstede’ s Cultural Dimensions 5.1.1 Collectivism Vs Individualism Brazil records higher individualism (38) as compared to other Latin American countries (21) (Kalansky, Soares & Vella 2008). 5.1.2 Power Distance Brazil has a higher power distance than the US (Leng and Botelho 2010). 5.1.3Uncertainty avoidance Brazilians like many other Latin American countries have high uncertainty avoidance score at 76 (Leng and Botelho 2010).

5.1.4 Time orientation Brazil records more of short term orientation as opposed to long term orientation. This is indicated by the respect for culture such as through the brazilin carnival which is a display of culture. 5.1.5 Quality Vs Quantity of life Brazilians value quantity of life than quality. This is shown by the higher than average individualism ranking as compared to other Latin American countries. 5.2 Analysis Short term orientation is indicative of cultural respect. The Brazilian culture is more inclined towards the individual rather than the collective society.

This strengthens the marketability of Fordwich in that some individuals will seek a new identity through new foreign brands. However, the huge power distance is likely to affect marketing efforts negatively by perceiving the new brands in the market as belonging to the affluent in the society rather than the mainstream middle-income market (Leng & Botelho 2010). 6.0 Technological Environment 6.1 Technological infrastructure There are well-established distribution networks in the country. There are numerous chain stores and supermarkets. 6.2 Communication networks • Communication lines are excellent with internet use and penetration on the increase.

• Transport in the country is well organized, railway, road, air, and water. 6.3 Logistics networks• Road is the most popular followed by train and air. • Communities living next to large water bodies prefer water transport. • Several international airports and seaports connect Brazil with the world. 6.4 Analysis Fordwich will utilize existing distribution channels by hiring a distributor. Communication and logistic networks will facilitate effective communication between Brazil and Australia and facilitate the exportation (Kalansky, Soares & Vella 2008). 7.0 SWOT Analysis 7.1 Strengths • Fordwich owns some of the oldest and well-established vineyards in Australia.

• Rich and matured vineyards • High-quality products winning medals7.2 Weaknesses • No experience in international business (Perner 2011). • Poor brand recognition• Prone to conflict of interest between family and business• Narrow product portfolio with only several brands in the market. • Uses bottles only for packaging 7.3 Opportunities • Growing popularity of wine in emerging economies such as Brazil • Increase in disposable income in Brazil• Growth in consumer confidence in Brazil• Good trade relations between Australia and Brazil7.4 Threats • High-level competition• Market domination by certain brands • Majority of the players have a long presence and experience in the industry and have managed to cultivate customer loyalty over time (Perner 2011).

8.0 Recommendations • The age and history of the vineyards should be the marketing highlight of the company. This is recognition of the fact that the age of vineyards is a mark of quality in the wine industry. • It should strive to separate family issues with business matters and uphold professionalism.

• The winemaker should target young adults who are taking up to wine consumption and searching for personal identity. The adult wine consumers market might be hard to penetrate given that there are high uncertainty avoidance and fear for change among that segment. • Fordwich should start packaging wine in carton boxes that hold higher volumes are cheaper and are more convenient to store and transport. The Brazilian market offers Fordwich a unique opportunity for growth if the above recommendations are enacted. The firm however must be quick to adapt to new developments in the market in case any of it is to succeed (Rutihinda 2008).

All in all, the firm should go ahead and exploit the new market by laying down all the necessary foundations. This should be planned well to ensure conformity with ethical and legal issues.

References

BBC finance. “Brazil” Accessed on March 17 2011, http://www.bbc.co.uk/news/business-12630315

Crane, F. Marketing for Entrepreneurs: Concepts and Applications for New Ventures. (New York: Sage, 2009)

Deloite. “International tax and business guide, connecting you to worldwide information: Brazil.” Accessed on March 17 2011, http://www.deloitte.com/assets/Dcom-Global/Local%20Assets/Documents/Tax/Intl%20Tax%20and%20Business%20Guides/2010/dtt_tax_guide_2010_Brazil.pdf

Dfat, Doing business in Brazil: an introductory guide. Accessed on March 17 2011, http://www.dfat.gov.au/PUBLICATIONS/brazil_business/brazil.pdf

Fordwich Estate Vineyard. Accessed on March 17 2011, http://www.fordwichestate.com

Hills, G. et al History, theory and evidence of entrepreneurial marketing – an overview. International journal of Entrepreneurship and Innovation Management, 11.1 (2010), 3-18. Interscience database

Kalansky, D., Soares, B. & Vella, R. International business transactions with Brazil. (London: Juris Publishing Inc, 2008)

Brazil Ministry of External Relations. “Trade and investment promotion department.” Accessed on March 17 2011, http://www.braziltradenet.gov.br/frmPrincipal.aspx

Kraus, S., Harms, F & Fink, M. “Entrepreneurial Marketing: Moving beyond Marketing in New Ventures.” International journal of Entrepreneurship and Innovation Management, 11.1(2010) 19-34. Interscience database

Leng and Botelho. “How does national culture impact on consumers’ decision-making styles? a cross cultural study in Brazil, the United States and Japan” Brazilian Administration Review, 7.3 (2010), Interscience database

Perner, L. “International marketing; the global market place.” Accessed on March 17 2011, http://www.consumerpsychologist.com/international_marketing.html

Rutihinda, C. “Export barriers and performance of small and medium size enterprises. Journal of International Business Research. 7. 2 (2008), 57-64

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