Brazil – Pestl Analysis and Swimwear Industry Review Essay Example

reduce expenditure while controlling inflation by participating actively in global forums such as the World Economic Forum and G8 forum advocating for free trade agreements and elimination of anti-competitive subsidies.

As an example of this involvement in global affairs, Brazil initiated a dispute against the United States through the World Trade Organization in 2002 claiming that subsidies provided to the American cotton industry were unfair to their own cotton industry. As a result, US goods would face yearly sanctions of around $295 million due to America's failure to eliminate illegal subsidies for cotton growers.Despite Brazil's economic progress through measures such as Bolsa Familia, poverty reduction remains a top priority for the Lulu administration. However, income distribution inequality persists with Brazil now ranking tenth in the world after dropping from second place in 1989. Furthermore, corruption remains an issue with Transparency International rating Brazil 80th out of 180 countries for corruption perception in 2008 and allegations of corruption within the government itself. The Senate has been accused of nepotism and scandals implicating four Senate Presidents over eight years until 2009 have occurred along with acts passed since 1995 rewarding employees with jobs and pay raises. Nevertheless, Brazil's economy is strong boasting Latin America's largest economy and ranking tenth worldwide with a GDP worth $1,314 billion. Diversified exports from agricultural, mining, service and manufacturing sectors have helped maintain stability during the global financial crisis. Recent data indicates that recovery is underway as GDP growth is expected to reach between 2-3% in Q3 while the BVSP index has rallied more than 55%.From January to August 2009, Brazil's trade surplus reached $19.9 billion despite a decrease in exports of almost

thirty percent and imports by nearly forty percent during that same month. Experts believe that the depreciation of Reais (up to 30%), Central Bank help for foreign debt repayment, and increased lending from state-owned development banks have improved Brazil's economic outlook by 3%. Mercosur is Brazil's most important economic group, with the US as its largest trading partner followed by Argentina and China. In 1991, Brazil, Argentina, Paraguay, and Uruguay established Mercosur with Venezuela joining soon to gradually reduce tariffs on most products among members while applying common external tariffs to non-members. Since the mid-1990s, Australia's economic engagement with Brazil has grown steadily in various sectors including mining, agribusiness and services. In 2008,Australia ranked 35th as an export destination and 31st as an import source for Brazil,two-way merchandise trade reaching A$1 billion.However,in the previous year(2007-08),there was significant growth of15.6%in Australia's merchandise trade withBrazil,totalingA$98 billion.Australia exported coal,nickel ores,and medicaments toBrazilwhile importing aircraft ,animal feed,pulpand waste paper ,fruit juices,and pig ironfromBrazil.FIFA's Project Goal is focused on investing in indoor courts to promote football, especially in areas where outdoor fields are often of poor quality. Soccer is a popular social activity among both low-income and high-income males in urban areas of Brazil. The country has a family-oriented society with extensive family structures, and a young population with only about 6.4% being over the age of 65. Watching TV is a common leisure activity in Brazil, with soccer team sponsorships and soap operas used for product marketing. According to Euromonitor's research, Brazilian children prefer watching television (88%), DVDs (83%) and listening to music (82%). Socializing through social sites like Orkut or text messaging has become prevalent due to widespread

internet and mobile phone usage similar to more developed nations. Inexpensive independent restaurants have led to an increase in eating out, particularly for lower-income families. Brazilians enjoy family outings at shopping malls, parks and beaches, hosting barbecues at home, and going to the cinema. Clothing and home decoration markets use emotional consumption as a business model where consumers seek happiness through their purchases.The trend of purchasing products and services, such as bed linens, furniture, jewelry, shoes, accessories, decorations, nutrition and cars is driven by consumers seeking to satisfy their desires and emotions rather than just necessity. This trend is centered around the concept of "fashion," where emotional buyers seek style, sensuality, cheerfulness and fulfillment in their purchases. According to Euromonitor International's data, Brazil has more than 53 million internet users which account for approximately 23% of households; this number is increasing among lower-income groups due to government programs. The "people's computer program" (PC Conectado) provides affordable computers with internet access at reduced prices using accessible payment terms for underprivileged consumers. Approximately one million machines were expected to be sold in 2005 at a discounted price of R$1,200 each - a 55% reduction compared to retail outlets. Additionally, internet access is available for R$7.50 per month for 15 hours of use time along with tax reductions implemented in 2006 resulting in an overall price cut of about 30% for computers that retail less than R$2,000. Children and young adults widely use the internet throughout Brazil; according to a survey conducted by the Brazilian Chamber of Electronic Commerce (Camara Brasileira de Comercio Eletronico), typical e-consumers are male aged between 25-49 years old belonging to classes A and

B socioeconomic status brackets.The majority of e-consumers, comprising 71%, belong to an age group that is older than 24 and younger than 65, while only a small percentage of consumers are aged between 18-24 years old or over 65 years old, with just1% being under the age of 17. Additionally, there are differences in income levels among e-consumers; more than35% earn between R$3,000-R$8,000 per month while31%earnR$1,000-R$3,000permonth,andonly5%earnlessthanR$1,000permonth. The rise in income levels may result in decreased transaction values over time. Currently, electronic sales focus on consumer electronics and media products; however, as consumers become more comfortable purchasing higher-end items online, it is likely that other categories such as cosmetics and food and beverages will increase in popularity.

In Brazil's legal system which operates under civil law with federal and state courts handling government or agency matters; international disputes; and commercial litigation precedents provide guidance for applying principles of law but judges have discretion when making judgments. There are significant appeal opportunities available which can cause delays in proceedings. Juries are only used for crimes endangering individual life like murder while arbitration has been available since 1996 and is commonly used for contractual and commercial disputes.

Foreign investment requires registration with the Central Bank which has established guidelines regarding profit remittance and capital repatriation.Foreign ownership restrictions in Brazil are generally limited, except for certain industries such as rural land, press and broadcasting, banking and insurance. However, there is an expectation that these restrictions will soon be relaxed. There are two main types of companies operating in Brazil - "limitada", which requires at least two partners with limited liability and is a straightforward organizational form. The Consolidation of Labor Laws-CLT

outlines labor laws in Brazil, providing workers with significant rights regarding working hours limits, annual leave entitlements, profit sharing opportunities, overtime pay qualifications, parental leave requirements , notice periods obligations,and pension funds. Strict immigration policies exist to protect employment opportunities by requiring foreign companies transferring employees to invest a minimum of US$200k into their capital stock per each foreign citizen occupying a director or officer position. All imports must be registered electronically with SISCOMEX and are subject to tariffs, duties and taxes; however tax reductions and waivers may apply for regulations incentivizing technological development. The Brazilian System of Competition Defense enforces anti-competitive laws while intellectual property laws protect against infringements on trademarks, patents and copyright issues. Environmental protection is regulated by the National Policy Law for the Environment which covers industrial activities as well as liability definitions.In Brazil, foreign investment restrictions have been relaxed over time in favor of exports rather than imports, leading to potential barriers and restrictions like import tariffs ranging from 0% to 35%, with taxes increasing import costs up to 100%. Additionally, it is worth noting that "sociedade anonima" resembles an Australian company with numerous shareholders. The tax system in Brazil is complex and involves federal, state, and local levels with as many as 63 different taxes that can apply to businesses. Medium-sized companies need approximately 2,600 hours each year on average for preparing, filing pay or withholding taxes and contributions - significantly higher than the OECD average of 202 hours. The high tax burden in Brazil poses a significant disadvantage for businesses since company tax can reach up to 34%, along with possible additional indirect taxes amounting potentially to 71.7%

of profits (Euromonitor 2007). This complexity results in increased expenses for firms regarding preparing tax declarations and dealing with the tax agency. Tax evasion is prevalent in Brazil's large informal sector which creates challenges for companies paying taxes as they may be undercut by those who do not pay them. The labor market in Brazil has heavy unionization resulting in increased costs and reduced productivity. Non-wage expenses such as social security benefits and payroll taxes make up around 37% of an employee's salary compared to the OECD average of only21%, while regional averages are at just12%.In addition, Brazil's labor regulations are intricate and include restrictions on employee duties as well as mandatory overtime pay. Nevertheless, the country has witnessed an average yearly growth rate of 12.6% in disposable income per capita in real US$ terms, leading to a consumption growth rate of 15.6% during the same period (Euromonitor 2007). Income inequality is also widespread in Brazil with 41.5% of households earning less than US$2,500 in 2006 (Euromonitor, 2007). Despite limited financial resources, some Brazilian consumers have been buying durable goods like TVs, music systems, personal DVD players and mobile phones by using consumer credit. On the other hand, swimwear sales have surged remarkably with the industry generating US$2.9bn revenue alone in 2005 and expanding over 241% between 2002 and 2005 (Newberry, 2007). The domestic market for swimwear is valued at EUR1.4bn which is primarily dominated by Brazilian brands while foreign labels penetrate through high fashion channels. Major export markets for Brazilian swimwear include Portugal, Spain, Holland France and the USA exporting over one million seven hundred thousand swimsuits annually whereas European exports to Brazil remain

relatively low at less than ten thousand units each year.North-coastal areas are known for their vibrant and minimal swimwear designs, while south-coastal areas have more conservative European-influenced styles due to a larger European population. Swimwear brands are typically sold in beach fashion stores or sports shops owned by major companies that may also operate concept stores (Newbery, 2007). Euromonitor and Newbery report that branded bikinis can range in price from USD$10 - $40 depending on where they fall within the mass market category. Brazilian swimwear brands such as Rosa Cha, Lenny, Agua de Coco, Cia Maritima, and Grupo Aguia offer unique and innovative designs. Rosa Cha was founded by Amir Slama in 1988 with a focus on incorporating Brazilian style into his creations. The brand is sold at over 200 points of sale worldwide including Bergdorf Goodman in New York and Harvey Nichols in London. Lenny Niemeyer established her European-influenced brand, Lenny, in 1993 which is available through Barneys and Saks in the United States as well as over 20 branded stores throughout Brazil.Agua de Coco is a well-known brand in Brazil, with over 250 multi-brand shops selling their colorful prints and embroidery work. Their products are also exported to countries like Australia, the U.K., and the U.S. In 1990, Cia Maritima joined the Rosset Group as another top-performing brand alongside sister company Agua Doce. Agua Doce creates high-fashion bikinis that are among some of the largest exporters globally. Groupo Aguia has been around since 1937 and sells five different labels: Aguia for affordable fashion; Catalina for mature women; Manvar for classic swimwear styles; Club del Sol for high-end retail; Praia Brazil offering bold designs

suitable for youth.

Australian manufacturers such as Quiksilver or Billabong International could potentially export products to Brazil's market. Quiksilver was founded in 1970 by three friends who brought innovation to boardshort design with features like yoked waists, quick-dry cotton, two snaps, and a Velcro closure on scalloped legs. Following its NASDAQ listing in 1987, Quiksilver expanded into footwear (DC Shoes), snowboards (LibTech), and teen wear (Roxy, Hawk). Today, Quiksilver distributes licensed products through branded retail outlets and specialized retailers across over 100 countries.

Billabong International offers apparel, accessories, eyewear wetsuits and hardgoods under various brand names such as Billabong, Element or Von Zipper.Gordon Merchant founded the company in 1973, selling boardshorts to surf shops before adding skate and snow boards in the '80s and '90s. Billabong went public in the mid-2000s, enabling them to expand globally. In 1969, Charlie Bartlett and Doug Warbrick created Rip Curl, initially focusing on wetsuits for water sports enthusiasts with different technological approaches for each market segment instead of exporting from Australia. The first Rip Curl corporate licensee was established in Southern California in 1981 followed by Frogs development where their products were first created back in 1985. There are currently nine global corporate licensees producing and selling Rip Curl products. Firms expanding into international markets can export directly or indirectly through intermediaries who have established contacts and distribution channels; direct exporting requires an overseas office for sales management while indirect exporting involves less investment and risk. Joint ventures allow foreign companies to partner with local businesses for product production and marketing purposes.There are various options available to expand a swimwear business into Brazil, including licensing for royalties or fees, contract manufacturing,

joint ownership, or direct investment. While each option has its advantages and disadvantages, it ultimately depends on the foreign company's established presence in the market and their desired level of control over the manufacturing process. Contract manufacturing allows for quicker start-up and distribution but less control over production. Joint ownership can accelerate establishment while sharing financial burden and decisions. Direct investment requires significant capital investment but offers potential cost savings and better understanding of the local market. Licensing is preferred by established firms while aggressive export strategy suits startups or local producers entering foreign markets with low capital investment and risk.

This approach is faster than joint ventures since direct investment may not be possible due to high financial demands. To enhance the probability of success in Brazil's market, utilizing intermediaries with experience for indirect export can help with product promotion and distribution. The Australian headquarters must allocate resources to form an export department that includes a Sales Manager and an assistant who will supervise logistics and sales development activities. As sales increase and market share expands, other choices like direct exports or joint ventures might become more appealing.