Expanding an MNC
International Business 300 – Fundamentals of Global Management
February 24, 20xx

2
Expanding an MNC – Part 2

Given Brazil’s prominence on the international stage and strong underlying fundamentals, it has been decided that Brazil will be our country of choice for expanding our U.S. based manufacturing company. To begin this process we considered factors that we have studied in detail such as their economic system, political environment, legal regulatory environment, technological environment, ethical system, social responsibility indicators, and cultural dimensions. We will now build our strategy to enter and expand our manufacturing company using a methodical process for entry into this country. We have decided to look for buildings in the Southeast part of Brazil which comprises of Rio de Janeiro and Sao Paulo, Minas Gerais and Espirito, with our focus centered on Sao Paulo. The Brazilian business environment is as rich and varied as the country itself. Our company will be entering Brazil as a wholly owned subsidiary clearly; the advantages in going this way out weigh the disadvantages. Such advantages as reducing the risk of losing control over our product, allows us a firm control over operations, which is necessary for engaging in global strategic coordination, and gives us 100 percent share in the profits if generated in the foreign country. It also gives us the ability to realize location and experience economies. Being a manufacturing company we may want to establish a global production system that requires a high degree of control over our operations which is something we should consider. The only disadvantage we can see is that this is very costly; however our partners in the US have assured us that we have the necessary funding to go forth with this venture. So using this entry 3
Expanding and MNC – Part 2 strategy will allow us complete control over our operations in Brazil without having to worry about any interference from any potential Brazilian takeovers. In our attempt to provide an accurate forecast of trends that relate to the external changes in Brazil, we conducted an environmental scan here we found some factors to be considered that might affect our company. Industry/Market Political/Economic Regulatory Jean Company Social

In formulating our strategy we begin by exploring Brazil’s strengths that address several points which include:
• consistent economic growth and governmental policies have boosted a solid enlargement of a middle class avid for durables goods and consumer products; tenth largest economy; has a diverse economy which is characterized by well developed agricultural, mining, manufacturing and service sectors; increased globalization where the Brazilian government policies favor exports; inflation has been under control for over 10 years; Consolidated democracy, established institutions and enforced financial discipline – all state governments are required to run a primary surplus; has a more business friendly environment than others. 4
Expanding and MNC – Part 2 To further explore we also have to consider the weaknesses and threats that exist, such as:
• Brazil is known to have a fast changing business conditions; in the past it also has had a volatile political environment; administration of legal bodies is slow and cumbersome; it has also been stated that hiring skilled workers are difficult because of stringent labor laws; the average number of days required to start a business is 152; excessive taxation. While these factors remain in the forefront of our minds, we are alerted to any political and human resource issues that exist. We will become familiar with their systems and find solutions so that they will not impede our progress. Being a jean manufacturer we do have to contend with hiring of employees to work in the factory; so further exploration of this will be needed by our human resource department to ensure that we have the necessary training and also contact with the labor board to get a clear understanding of the labor laws in Brazil. We will deal with any political issues as they arise, however I do feel that the strengths out way the weaknesses and threats, there are many opportunities in Brazil for our company. To stop this from progressing forward would not be beneficial. During our macro political risk assessment we found that Brazil president elect Rousseff may replace the current central bank chief Meirelles, so that she can exercise greater control over monetary policy and get the real interest rates down. Her proposed replacement for the position, some say this would be very problematic as monetary policy would get more politicized. Upon further research we found that the new President of the central bank is not 5
Expanding an MNC – Part 2 who president Rousseff suggested. Government activities in Brazil has had corruption allegations in the past and the current president is showing a hard line approach to this which has resulted in the resignation of six cabinet ministers. The current pace of credit growth in Brazil finally slowed in December, dropping slightly to 20.5% year-on-year from 20.8% in November. This comes as a welcome relief while the monetary authorities seek to curtail the supply of easy credit to the economy, also the loan growth will need to drop if further inflation is to remain with their target range of 2.5 to 6.5%. Brazil’s government policy is focused on stimulating the business activities of the private and government sectors toward rapid industrialization and economic growth. This policy do include protective measures for domestic industries considered to be of strategic economic importance as well as monetary policies designed to keep inflation in check and maintain the availability of foreign exchange. Brazil is becoming a world leader in production of foods and minerals and other sectors such as steel, aluminum, automobile, aerospace, and wood pulp, chemical and textile industries. Because Brazil is so large, and because of the different historical roots of its colonization as well as its economic and social development and the variation among its regions, however there exist strong national values, beliefs, norms, customs and general behavioral patterns. Their organizational cultures can in general be traditionally seen as closed system in which leaders with strong personalities, rigid values, paternalistic patterns and highly centralized hierarchical structures, but the cultural consequences of these traits are the

6
Expanding an MNC – Part 2 improvised style of doing things which include the lack of planning, a disagreeing environment, and a strong emphasis on a bureaucratic structure. With all of this in mind we will attempt to build a multicultural workforce because there will be both employees from Brazil and America. We will begin by building teams consisting of Americans and Brazilians who will take the first steps in building trust and cohesion. From here the teams will begin to bond by building trust, understanding the different cultures, defining goals, sharing in decision making, building respect and providing feedback. An orientation presentation will provide all employees with the do’s and don’ts of the company. There will be continued professional training every year to ensure employees have the right skills in their jobs. We will continue to focus on our goal which is to produce quality made jeans by staffing our plant with qualified employees. In considering the organization structure it has been decided that our company will establish an International division and if Brazil shows successful others may be incorporated as well. Consideration has been made and a new operating division is formed from this subsidiary consisting of a VP of International operation with its first a subsidiary, Brazil. This division will be our first with hopes of expansion in the future; so in addition with our already established structure consisting of CEO, production, marketing, finance and human resource departments we establish our first operating division. Establishing this division will allow us to closely coordinate and monitor activities in Brazil and alert us to any problems that come up. This division will be responsible for submitting financial, security, production and supply reports along with any foresight of economic changes. 7
Expanding an MNC – part 2
We will be able to closely monitor production of our jeans along with importing and exporting of shipments in regards to Brazil using our current computer system. Issues arising in Brazil will be better managed with an on sight production manager and staff capable of handling and reporting problems. Any suggestion for changes can be made directly to the VP and then elevated to the CEO. I feel that this approach will allow us to develop an overall, unified approach to this new division as well as give developmental opportunities to managers. In analyzing what it takes to succeed in Brazil we will continue to study their market size and growth potential along with regulatory, competition and possible future developments. Teams have been formed and assigned a task to handle the financing, human resource along with the oversight of scouting for a potential sight or the purchase of an already existing building. Brazil’s attractiveness at this point is the country is on the rise of becoming a major environment for companies to expand, investing in this country at this point would be beneficial, because when it reaches its full potential business opportunities here could become very, very costly.

References

Luthans/Doh, 8th Edition, 2012. International Management: Culture, Strategy, and Behavior. McGraw-Hill Learning Solutions, Boston, MA.
Hill, Charles W.L., 2009 Custom Edition. International Business. Mc-Graw-Hill Learning Solutions, Boston, MA. http://www.uhy.com/media/PDFs/doing Retrieved February 24, 2012. http://www.creditwritedowns.com Retrieved February 24, 2012. http://www.latinamericamonitor.com Retrieved February 24, 2012. http://ebooks.iaccp.org Retrieved February 24, 2012 http://www.kpmg.de Retrieved February 24, 2012.