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Proposal for Greenfield Venture Expansion in Brazil
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Peace of Mind Consulting, LLC
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“Where safety is our #1 concern”
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Ulrich Bernard
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Financial Analyst
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Kevin Cotter
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Operational Analyst
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Jingming Li
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Foreign Relations Liaison
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Vincentius Njauw
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Economic Analyst
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April 24, 2012
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Executive Summary
Our Team
Peace of Mind Consulting, LLC is a consulting firm, founded in 1991, that specializes in advising companies with their entry into emerging foreign markets. We strive to bring “peace of mind” to all of our clients by considering all that is necessary in order to operate a successful business in foreign nations. As a result of successful collaboration 4 years ago, Kidde enacted an export-based strategy to begin its business presence in Brazil. This process has been successful thus far, and Kidde is looking to expand its presence within Brazil in the coming months. Consequently, we have put together a team of consultants to monitor and assess the potential for expansion in Brazil. Our team consists of Ulrich Bernard, the Financial Analyst, Kevin Cotter, the Operations Analyst, Jingming Li, the Foreign Relations Liaison, and Vincentius Njauw, the Economic Analyst.
Our Assessment for Kidde
We have spent significant time analyzing Kidde’s business operations in Brazil, as well as the potential room for expansion. As a result of this analysis, it will not only be beneficial, but it is imperative that Kidde opens a wholly owned subsidiary within Brazil as soon as feasibly possible. Brazil is going to be a major source of foreign direct investment in the coming years, and therefore, there will be an influx of new buildings and infrastructure that will be in need of fire safety products. Kidde, with its lack of competition, can provide just that. This is a large sustainable market that Kidde can serve now, as well as for years to come. Finally, Brazil currently has a 10.5% industrial growth rate, which indicates steady and sustainable growth. Clearly, it would be wise of Kidde to enter the market in Brazil, and it will see further growth as time goes passes.

Host Country Analysis
Macro-Environment
In terms of macroeconomic analysis, Brazil has a strong economy and is subject to growth in the future. Consequently, Brazil is a promising location for Kidde to expand as soon as possible. In 2011, Brazil’s GDP per capita was rather low despite some steady growth over time. The country showed a GDP per Capita of $11,600 in 2011 and is ranked 101st in the world. Despite the fact that this falls outside the top 50% of nations in the world, we believe that the wide disparity in income distribution is the reason for a lower GDP than expected. Brazil's traditionally high level of income equality has declined for each of the last 12 years. In the rural areas of Brazil, poverty is widespread, while the urban areas are relatively stable. This is promising to Kidde, because Kidde should seek to do most of its business in urban areas, where consumers have money for the safety products. Despite its low ranking in GDP per capita, Brazil has a nominal GDP of $2.2 trillion, which ranks it 8th in the world as of 2011 (Exhibit 1). The GDP has grown at a steady incremental pace of 2.7%, indicating safe levels of growth within the country. Further evidence of a stable economy is that as of December 2011, urban unemployment in Brazil is at the historic low of 4.7%. Hopefully, this percentage will continue to increase the wealth within the Brazilian economy and lower the disparity of income. As previously stated, the Brazilian population is highly condensed into the urban areas surrounding cities like Fortaleza, Rio de Janiero, and the proposed Brazilian Headquarters for Kidde, Campinas, a suburb of Sao Paulo (Exhibit 2). The address for the proposed plant is Rua Nicolau von Zuben 200, Campinas, Sao Paulo 13200 (Exhibit 2C). This condensed population into smaller regions of the country will make it easier for Kidde to both reach its customers, as well as distribute its products, because it is likely that most of its sales will be generated in the highly-populated urban areas. In these areas with the highest concentration of people, it is also where the wealthiest people are and where the highest investment possibilities are in the country, As stated before, PMC, LLC believes that Brazil will be a major source of foreign direct investment in the coming years. Brazil’s economy is driven by major industries such as agriculture, mining, auto manufacturing, and a strong service sector. Also currently a world presence in aircraft and large machinery, Brazil’s industry poses serious threats for catastrophic fire damage and loss, especially if it remains unprotected as it is today. Actually, in recent years, rates of fire have increased in Brazil. (Exhibit 3). Kidde can capitalize on this vulnerability and in turn, make a considerable profit while aiding in the safety of all Brazilians, both at work and home. Rather than causing the need for much change in the way Kidde does business, the Brazilian population will instead help to facilitate the growth of Kidde’s business operations. Over a quarter of the Brazilian population (26.2 %) is under the age of 14. This is promising to Kidde, because through community and school outreach programs, they can teach the young children about the need for fire safety and the products that they should have in their homes (smoke detectors, CO2 alarms). Younger children are more impressionable and they will be likely to convince their parents to purchase Kidde’s products. Furthermore, when they become adults, they will continue to be an established customer base, and they will raise their children to be fire safety conscious, which will in turn make their children eventual customers. In addition, the population in Brazil is expected to continuously grow, further increasing the long-term market that Kidde can do business with in Brazil. According to Index Mundi, the 2011 Brazilian population growth rate was 1.134%. Religion in Brazil is not very influential and should not pose any type of threat to Kidde’s business operations. Technology As previously mentioned, the upcoming FIFA World Cup in 2014 and the 2016 Summer Olympics will most certainly be cause for new and updated infrastructure within Brazil. Safety concerns will be at a new high for that country, as Brazil will want to protect its domestic reputation. The top of the line fire safety, suppression, detection, and prevention systems will be demanded, and Kidde will be the only major firm that can supply the needs of the country at that time. The need for fire safety products will most certainly be apparent, and if able to act fast, Kidde can benefit from this huge market opportunity. Cultural and Social Issues Despite recent advances, it has been said that creating new businesses or production facilities in Brazil is relatively time-consuming and that the bureaucracy can often impede this process from taking place in a timely manner. On average, it takes more than 119 days to start a company, compared to the world average of 30 days. This is often attributed to strict labor regulations that can increase costs for smaller companies that do not benefit from economies of scale. While it must be taken into consideration, we believe that these obstacles will be offset by the potentially enormous market Kidde can capture via establishment of a first-mover advantage by making the move to Brazil as soon as feasibly possible. Corruption has also been a stated problem in Brazil in recent years (Exhibit 4). Businesses and investors bidding on government contracts have been said to encounter requests for bribes and other corrupt practices. While not immune to these threats, the fact that Kidde will be one of the only major fire safety companies in the country works in its favor, because there are few alternatives to do business with, with or without bribery.
Political and Legal Issues Just as the case with bribes in Brazil, the judicial system is very inefficient and can be subject to political and economic influence. In the past, piracy of copyrighted material and intellectual property has been an issue, but the government has worked tirelessly to correct this problem, and it is no longer a pressing issue within Brazil.
Competitive Conditions Taken from Kidde’s own website:
“As the world's largest manufacturer of fire safety products, Kidde's mission is to provide solutions that protect people and property from the effects of fire and its related hazards. For more than 90 years, industry leaders, the military, airlines and firefighters have relied on Kidde to deliver superior fire detection and suppression. Consumers will find that same advanced fire safety technology in Kidde's residential and commercial smoke alarms, carbon monoxide alarms, fire extinguishers and other life safety products.”

Kidde offers products such as smoke detectors and carbon monoxide alarms that can save lives. Kidde is currently headquartered in North Carolina and its products are all made in high-tech factories that can produce thousands of devices daily.
Kidde offers a product that will be beneficial to each and every member of Brazilian society. With that being said, Kidde should regard each and every member of Brazilian society as a potential customer. While we concede that it is not feasible to expect to sell something to everyone in Brazil, we advise that the market for opportunity in Brazil is simply too large to pass up. There is a huge business-to-business opportunity due to the high level of mines, factories, and hotels, as well as a large business-to-consumer market due to the population of 193.3 million people.
Due to the upcoming FIFA World Cup in 2014 and the Summer Olympics in 2016, Brazil is going to be a major source of foreign direct investment. There will be an influx of new buildings and infrastructure that will be in need of fire safety products. Brazil will surely want to do its best to provide its visitors with state-of-the-art safety protection services. Kidde, with its lack of competition, can provide the necessary fire safety products and expertise. Brazilian industry is currently under protected in terms of fire safety, and therefore will be interested in the products that Kidde has to offer. This is a large sustainable market that Kidde can serve now, as well as for years to come.
In general, the presence of the fire safety industry in Brazil is limited at best. Both potential competitors, Tyco and 3M, have a limited presence in Brazil. By quickly and proactively acting to open a wholly owned subsidiary within Brazil, Kidde will establish the first-mover advantage and therefore have a strong advantage over any of its competitors. If operating via a wholly owned subsidiary, Kidde’s competition will simply not be able to match the quantity, and therefore price, of what Kidde can offer to its Brazilian consumers. Simply put, the Brazilian market is too large and too opportunistic for Kidde to pass up. The dire need for fire protection in Brazil will only continue to grow. However, there is limited supply of fire safety products and know-how to meet this need. Brazil recently invested $1 Billion in its fire departments, and therefore will be willing to back-up this investment by increasing the fire safety levels of each individual home by purchasing fire retardant building products, smoke detectors, and carbon monoxide alarms. Kidde has already had success by exporting its products on a smaller scale, and now is the time to increase the scale of operations and benefit from the opportunities coming to Brazil in upcoming years. Global standardization is possible due to the fact that fire and fire safety is the same everywhere, and that other than printing user manuals in both English and Portuguese, limited local responsiveness will be necessary. This will help to keep business costs down.
Cultural Norms & Ethical Standards The American and Brazilian labor systems have a few differences that could potentially be problematic if not accounted for in the planning stages. While not considered the case in the United States, oral agreements are considered as good as written agreements within Brazilian corporations.Currently, the minimum wage in Brazil is 622.73 Brazilian Real per month. This is a very affordable labor force, as this converts to only $336.61 per month per employee in labor expense. While not all employees will be paid the minimum, the favorable exchange rates, as well as lower wages in Brazil are conducive to doing business (Exhibit 5). Furthermore, a wrongful termination fund must be set up for each employee. In the event of wrongful termination, the employee is entitled to 140% of the balance in the fund. Companies must use extreme caution about sending expatriate managers to Brazil, since local labor laws cover all expatriates. Consequently, we suggest that while it is necessary to follow an ethnocentric staffing policy, Kidde should hire as many local employees as possible (Exhibit 6). In the event that Kidde is faced with ethical dilemmas regarding corruption or bribery, we advise the best plan is to abstain from any of these practices. It would be best to lose a few contracts as a result of not participating in bribery rather than to engage in bribery and have to deal with the legal issues and bad press that will be imminent around the globe. There will be more than enough business opportunities in Brazil for Kidde, so it will be able to pass on a job in which a firm is asking Kidde to engage in corrupt or unethical practices.
Firm Strategy Analysis
Financial Analysis Financial statements and forecasts play a major role in the decision making of managers and executives. The first costs incurred are the plant expenses. As stated later, we believe that location is a key for an efficient development of the operation and it implies higher costs. The property that has to be purchased will have a front cost of approximately US$2.6 million before the costs of renovations and warehouse operations. Total expenses will total approximately US$3 million for 2012 and Kidde have constant expenses of US$ 229,000 for 2013 and 2014 (Exhibit 7A). The operation expenses are based on the United States costs and are high estimates whereas renovation costs should be very much accurate. Furthermore, the thirteen expatriates that will be employed in Brazil should receive a 40% increase in there annual base salary. This would imply yearly compensation around US$118,500 in average, given that the median salary is US$79,000 in the United States. Concerning local employees and based on the current minimum wage of US$330 in Brazil we think that Kidde’s future employees should be paid US$500 per month in average in order to increase their loyalty to the company. The annual compensation expenses would reach approximately US$1.7 million, which is fairly low for 37 employees (Exhibit 7B). Concerning the income statement forecast, a six-year forecast with no expansion and with expansion is included. If Kidde decides not to expand to Brazil, its operating profits should reach US$51 million in 2018 for a ten percent profit margin per year (Exhibit 7C). On the other hand, with the expansion, Kidde would face a slight decline in profit in 2012 due to the acquisition costs. However, this decline should be quickly offset in 2013 with the high demand for safety products and during 2015 and 2016, 14 percent margin should be achieved thanks to the finalization of the warehouse. By 2018, the branch should stabilize its growth on a ten percent average per year with 11 percent of profit margin, accounting for US$167 million in profits. (Exhibit 7D) The high demand for safety products should positively effect Kidde, and a fully operational greenfield venture will help the company to maximize its profits. According to our forecasts, expanding in Brazil should increase its revenues by three fold in 2018 while pushing profit margin up by 100 basis points.
Major Competitors Analysis Perhaps the most enticing reason that Kidde should open a branch in Brazil is the fact that the competition will be relatively limited. The two companies that seemingly have a presence in the Brazilian fire safety industry are Tyco and 3M but are both limited. Tyco, which has recently completed the acquisition of United Arab Emirates-based KEF holdings, will seemingly be a main competitor. Furthermore, 3M’s presence is also relatively limited within Brazil. They have followed an export-only based strategy to Brazil in recent years. Although Kidde has done the same, we believe that being proactive towards the Brazilian market and moving quickly to open a wholly owned subsidiary within Brazil will enable Kidde to reap the benefits of first-mover advantage, an in turn, set itself apart from its competition.

Firm Mode of Entry
The acquisition of Chubb, another American fire and safety company, helped Kidde & UTC to further establish a strong business presence in Brazil. In order to capitalize on the potential Brazil offers, PMC, LLC is advising that Kidde expands in Brazil by opening its own wholly owned subsidiary based in Sao Paulo. The past 4 years of successful business operations have suggested that Kidde has been on the right business track within Brazil, and now is the time to expand. Creating a branch of Kidde within Brazil, with its own production, distribution, and management capabilities will the most profitable in the long term. The current conditions inside Brazil, coupled with the development that will occur in the coming years, makes a greenfield venture the next logical step in expanding business.
Firm Social Responsibility
At PMC, we believe that it is imperative that Kidde incorporates corporate social responsibility into its business plans and operations in order to be successful in Brazil. Consequently, we propose that Kidde develops fire safety ad campaigns all around Brazil (Exhibit 8). Especially in Brazil, a nation in which the presence of fire safety regulations is limited at best, there is a great need to inform the public about what our products offer and why they are beneficial to their lives. While developing consumer knowledge about fire safety, it will also increase the demand for the products that Kidde offers. When consumers see the fire safety campaigns on TV and in billboards around the country, they will go to local stores and purchase smoke detectors, CO2 alarms, fire extinguishers, and other Kidde products. Furthermore, we believe that it would be beneficial for Kidde to develop a working relationship with local Brazilian fire departments and schools to provide young children with lifesaving knowledge about fire safety. As elementary-aged students in the US, we were asked to design a map of our house, and an “escape strategy” in case of a fire. This type of task can be transformed into a family event in which the whole family develops their “escape plan”. This effectively makes such an assignment an educational process for not only the young children, but also their parents who may not have been taught about fire safety in their youth. Finally, since Kidde’s Greenfield Venture mode of entry calls for the need for new company buildings within Brazil, it would be good for Kidde’s business to set the precedent in environmentally friendly buildings. With that being said, we suggest that Kidde incorporates all that is necessary into its architectural and building plans in order to have any and all of our factories be eligible to become LEED certified. While the LEED certification is only recognized in the United States, it would be environmentally responsible of Kidde to hold itself to one of the highest environmental standards in the world at this time.
Our Recommendations for Kidde

Product Adaptations Due to the nature of the products that Kidde offers, limited product adaptations will be necessary. Generally speaking, the same product Kidde sells in the United States can be sold in Brazil. However, the only adaptation necessary is that the power plug be compatible with those in Brazil, so that the devices can be properly powered. This is still a minor change, because many of the smoke detectors are battery operated. Also, it would be wise to have the owner’s manual and instructions also printed in Portuguese, the native language to Brazil, so that customers can understand how to install and maintain their products.
Distribution
Because Kidde will be opening its own wholly owned subsidiary within Brazil, production and distribution will be internal. Kidde Brazil will have full control over all production, sales, and distribution processes, and due to the first-mover advantage Kidde will reap great economic benefits. Kidde should strive to continue doing business with the businesses that it has had a working relationship with in the past years, especially in the short term to keep its company reputation strong in Brazil.
Media Censorship Based on our research, Brazil has a relatively free media and therefore, we advise that Kidde prepares its marketing plan without any preoccupations of media censorship or blackouts. We believe that honest marketing will be a key foundation of growing business in Brazil, both now and in the future.
Pricing Adaptations We advise that Kidde prices its products at the same price points in Brazil that they are in the United States, adjusted for the differences in currency rates. However, in the short term, in order to capture the market, we suggest that Kidde offers a 20% discount on all products. For example, we suggest that a $40 Kidde smoke detector be sold for 75 Brazilian Real’s at full price, then discounted 20% so that it sells for 60 Brazilian Reals.
Potential Risks & Obstacles Any entry into a foreign market is a risk. Kidde has taken the cautious approach of slow entry into the country via an export strategy, and now is the time to increase business presence. In the event of future competition, Kidde will still remain strong due to the customer loyalty that will be established as a result of its first-mover advantage. In the event of facing bribes, we advise that Kidde abstain from such practices. The market for fire safety products is so underserved right now that Kidde will have plenty of honest businesses and customers to do business with. Furthermore, the staffing policy we have advised (2/3 local employees with an ethnocentric management team) will help to thwart any human relations or labor issues. Brazil has often been said to be harsh on expatriates, but this plan limits expatriate involvement and creates jobs for local Brazilians.
Prospective Expansion Now achieving sustainable growth, the Brazilian economy will be a major player in the economic world in the years to come. MERCOSUR is becoming a major trading bloc in the world market, and it relies heavily on the successes of the Brazilian economy. The MERCOSUR member nations have also been in talks with the European Union to decrease trade barriers between the two blocs and facilitate more worldwide trade. This presents a great opportunity for future expansion within South America, as well as the potential of entry into the European Union market.

Exhibit 1: Brazilian Gross Domestic Product

Exhibit 2A: Population Concentration in Brazil

Exhibit 2B: Map of Major Brazilian Cities

Exhibit 2C: Proposed Production Plant

Exhibit 3: Fire Rates in Brazil

Exhibit 4: Corruption in Brazil

Exhibit 5: Brazilian Exchange Rates

Exhibit 6: Ethnocentric Staffing Policy

Exhibit 7A: Acquisition Costs

Exhibit 7B: Staffing Expenses

Exhibit 7C: 6-Year Financial Analysis & Milestones

Exhibit 7D: Expansion 6-Year Forecast

Exhibit 8: Advertisement

Exhibit 9: SWOT for Kidde Brazil

Exhibit 10: Team Charter Contract

Exhibit 11: Summary of Group Meetings

Throughout the course of the semester, our group met often as a way to touch base with each other and what research we were doing, both for the debate as well as this Market Entry Project. Often meeting around 3PM in the library, we were able to effectively work together and provide input on each other’s work and put together a great project and plan. We were able to overcome the obstacle of having a group member that did not help at all, and then proceeded to drop the class. As our business titles suggest, we tried to break up the work into areas which best suited each group member’s strengths. Ulrich Bernard, our “financial analyst” is finance major, and therefore, he handled all the financial work on this project. Jingming Li, the “Foreign Relations Liaison”, focused on the cultural and ethical side of doing business in Brazil, and Vince Njauw the “Economic Analyst” focused his research on the macroeconomic environment of Brazil and the impacts that Kidde would face by doing business in Brazil. Kevin Cotter, the “Operations Analyst” focused on pointing out potential opportunities as to why Kidde should do business in Brazil, and worked to detail the suggested plans that Peace of Mind Consulting, LLC gave to Kidde. In summation, we had a very effective group and in turn, we produced a very comprehensive and well-thought-out report.

Annotated Bibliography

"Brazil Age Structure - Demographics." Index Mundi - Country Facts. Web. 17 Apr. 2012. <http://www.indexmundi.com/brazil/age_structure.html>.

This source was key in helping to get a hold on the culture and demographics of Brazil. Knowledge of the age structure of the Brazilian population was pivotal in making the point that the people that made up the Brazilian market were the right people to make a market for Kidde that can be profitable in the short-term as well as sustainable in the long term, beyond the window of opportunity for the Olympics and World Cup.

"Brazil Economy: Facts, Data, & Analysis on Economic Freedom." Conservative Policy Research and Analysis. Web. 17 Apr. 2012. <http://www.heritage.org/index/country/brazil>.

Used mainly in gathering information about the culture and everyday life in Brazil, this source was a vital window of insight into the culture of corruption in Brazil. It gave insight into how bribery and corruption can sometimes be commonplace in Brazil. This shaped our plans of how to do business with Brazil, and as a consulting firm, it was our obligation to inform Kidde of these potential risks.

Field Listing: Economy Overview. Brazil. 2011. CIA World Factbook. 17 Apr. 2012. < https://www.cia.gov/library/publications/the-world-factbook/fields/print_2116.html>.

Throughout the course of our research, we consulted the CIA World Factbook on several occasions. As a highly reputable source, we consulted the Field Listing as a way to get an overview, as well as several graphs, about the current macroeconomic environment in Brazil. Due to its GDP as well as several other factors, our findings suggest that Brazil is a country ripe with opportunity.

South America: Brazil. 2011. CIA World Factbook. 17 Apr. 2012. < https://www.cia.gov/library/publications/the-world-factbook/geos/br.html>.

As another section of the CIA World Factbook, we consulted this source as a way to gain insight about the overall industry and large markets in Brazil. As evidenced in our paper, we found that mining and auto production are some of the biggest industries in Brazil, both of which are susceptible to fire danger. These findings indicated that the opportunity for a fire safety company is huge in Brazil, because the industries that employ the most people are subject to some of the highest threats of fire danger.

"Termination." Fredrikson & Byron P.A.. Summary of Employment Law in Brazil and Mexico. Web. 17 Apr. 2012. <http://www.fredlaw.com/articles/international/intl_97sp_jlv.html>.

This source was consulted as a way to gather information about the Brazilian labor force and labor regulations within the country. Our findings indicated that expatriate failure is often high in Brazil due to the regulations that require a majority of national employees. These findings shaped our suggested staffing policy so that 2/3 of employees are Brazilian. Furthermore, we collected data about employee compensation that gave an idea as to how much labor and employee costs will be when opening a wholly owned subsidiary in Brazil.

"USDBRL - Brazilian Real Exchange Rate ." TradingEconomics.com - Economic Data for 196 Countries. Web. 18 Apr. 2012. <http://www.tradingeconomics.com/brazil/currency>.

Due to the nature of this “international business” project, it was necessary to become informed on the nature of currency exchange rates and values. This source was consulted to gather information specifically on exchange rates between the US Dollar and Brazilian Real. This was vital because it pointed out the low cost of investment due to the exchange rate, which limits risk in expanding business in Brazil. Furthermore, this source provided supplementary information about the current state of the Brazilian economy.

Footnotes