Holden and BrazilIntroduction
Foreign direct investment can be termed as an investment made by an institution based in a country, into an institution based in another country. Direct foreign investments significantly differ from indirect investments on matters such as portfolio flows in which overseas companies invest in equities listed on the stock exchange of a nation. Units making direct investment have significant degree of control and influence over the institution into which investment is made. Open economies that have good growth prospects and skilled workforces tend to endear larger amount of foreign direct investment than countries with many limitations. Brazil is one such country that has prospects of openness in economy due to the democratic nature of the country. Companies from neighboring countries are drifting towards Brazil through direct foreign investments. An automotive industry in Holden has a choice to make between two countries for the reason of investing directly in one or both countries. Before a choice is made, the industry has to examine both countries so as to come up with a sound decision on foreign direct investment in those countries. The main investment that the Holden industry intends to invest in is a car manufacturing industry. The purpose of the industry is to spread its wings of market share within the South America. The analysis will be based on political, economic, social, technological, legal, and environmental aspects. This paper looks at each and every point with reference to the two nations.
Environmental analysis of the potential overseas market
Democracy in Brazil is the biggest driver for many economies which have chosen to directly invest in it. Its constitutional rules and recent reforms endear institutions into country. Moreover, it is ranked among the world’s biggest economies due to its market stability. The current state of Brazil is owed to the progressive liberalization of its market that began in 1991. The county is opened to foreign investors and its business laws treat both local and foreign firms with equal measure.
The current growth in foreign investments in Brazil has subjected the country to develop in its industrial sector. The country has industries that range from automobile manufacturing to textile to transport equipment to chemical products, as we as footwear, automobile parts, iron ore, general electronics, coffee, soya beans, and much more. The rate of industrialization in the country coupled with good government policies has attracted many foreign investors and encouraged local people to invest.
Based on the above analysis, Holden, which is an automotive industry, is better placed to invest in Brazil. The equal treatment of industries as well as developing, transport equipment and automobile manufacturing, sectors highly favors Holden. According to a report by the World Bank it takes an industry 150 to 411 days to get a construction permit in Brazil. This is after passing through eighteen rigorous procedures. However, the country offers strong financial and fiscal incentives for Greenfield Investment, cover tax-holiday, site preparation and infrastructure. The country also suffers from skilled labor shortage and its investments go hugely to education sector so as to increase the skilled personnel. The above factors put into consideration; Brazil is one of the best places to directly invest in.
Economic and financial
Holden needs to be very critical when taking economic and financial implications of their investment into consideration. Business expansion entails financial utilization for the industry to begin investing in Brazil. It means a work plan has to be tabled. The work plan is usually accompanied by a budget to support it. Economic factors have to be considered too. All of these considerations are aimed at reducing the risk of direct foreign investment in Brazil. If the business is too risky, then investment ceases.
Brazil has benefitted from effective macroeconomic framework that began around 1990. Its performance after the Global financial Crisis is remarkable. The current statistics, 2010, of Brazil indicate that the GDP growth for the country lies at 7.5 %. This is the highest ever in the past 20 years. The value dropped to 3.5% in 2012. The reason for the current economic growth is owed to the cuts in taxes levied on small cars and light commercial vehicles. Moreover, low interest rates have on the automobile industry has led to the growth of the sector. Research show that between 1995 and 2001, the amount of Australian organizations increased from five to twenty-five. This showcases the growth of Brazilian economy in that period. Oil production in the country has also increased in the recent past and this placed Brazil within the top ten countries of the world in oil reserves. Holden will benefit greatly from the growing oil industry.
Cultural and social
Culture can be termed as a set of practices and beliefs that people living or staying in a particular place profess. Some scholars put it as a mixture of knowledge, belief, art, morals, law, custom and much more. Moreover, culture has been defined as a system of ideas that define and give meaning to the way of living (Jaeger, 1964). Culture in this case is seen as a system of norms and values that that is consistent and occurring within a group or society.
For any form of business, culture of its customers, employees, competitors, suppliers and other stakeholders must be considered. Customer preferences must be prioritized. Holden will be greatly affected if it does not place culture among important things before embarking on the investment in Brazil. The main reason is because culture varies in the South American region and in order to maximize on the business market, culture must be carefully studied.
Brazil is a very populous country with approximately 205 million people. The population is comprised of people from diverse ethnic backgrounds. These people are of European, African, and Asian origins among others. Portuguese culture is much present in the country as the country was colonized by Portuguese. Germans followed Portuguese and settled in the Southern part of the country. Italians are mostly found in the South Eastern part of the country. The above few scenarios expose the diverse cultures that are present in Brazil. Cultural diversity has always been thought as a positive thing in terms of economic growth. Brazil, however, has developed a very strong caste system based on skin color. Darker skins colored people are associated with inferior caste systems. Despite all these, Portuguese remains the official language with businesses conducted mainly through Portuguese. The social culture of Brazil is based on the family concept. There is high unemployment in Brazil which has resulted in many cases of urban crime and corruption.
Holden has to consider all the cultural and social practices that are present in Brazil so as to augur well with its market dynamics.
