Mng00723 Global Business Management- Risks Assessment Answers

Introduction

Global expansion for business organization allows them to explore the new markets along with increasing the customer base. In order to cope up with the demand of the customers, the rise in the companies of a particular sector is noticed. After few years, market saturation is common, as market demand decreases whereas the number of organizations increases. Therefore, the international business expansion allows the companies to expand their business in host countries by judging the demand of the product.

This report highlights the global business expansion of CHEERS, an Australian crafts beer company. In spite of addressing significant growth in the Australian market, the growth of the business stalled since the end of 2015. Therefore, the management of the company decided to evaluate overseas target markets and expand the business internationally either in India or Brazil.

Analysis of risks and opportunities in India and Brazil Market

Opportunities in Brazilian Market

Though Indian and China are the major choices for the companies for global expansion, Brazil also facilitates international business organizations and investors. As mentioned by Matos and Silvestre (2013), the political stability of Brazil highly attracts international investors and business organizations. The proactive and stable government makes the country a reliable country for foreign investors and business organizations. Brazil is the fifth most populous country with the seventh largest economy in the world (Didonet et al. 2012). Therefore, Brazil has a fantastic option for economic growth in the coming years. The Brazilian market can be easily distinguished from other emerging markets based on the growing and strong middle class that helps in flourishing the country. This has helped the country in establishing a strong trade relationship with the US over the years.

Economically, the huge population of the country influences high growth in the GDP of the country. Moreover, due to a strong and growing middle class, the gap between the rich and middle is decreasing drastically. The major opportunities for the foreign investors are strictly restricted in the crowded markets that have previously existing competition (Hargrave and kis-Kaatos 2013).  In addition to, the Central Bank has been able to reduce the risk of currency fluctuation thereby, controlling the rate of inflation successfully. In Brazil, both international and national investors are given equal opportunities. As a result, the cost of labor is Brazil is considerably low. Based on the rate of successful imports over the years, gradual decrement in the tariffs is noticed in Brazil. Additionally, the corporate tax set by Brazil is 15% that does not include the profits left in the country. Therefore, the rates of tax in other European countries are comparatively higher (Hopewell 2013).

Brazil has huge consumer population that signifies the prevalence of rich section of people n the society. Therefore, the foreign investors can easily target the rich section of people in the country. Moreover, the Brazilian people are considered extremely modern and keep themselves updated with the latest trends around the world. They are completely aware of the luxurious brands and are readily willing to pay for purchasing products (Serrano and Suma 2012). The technological sector of Brazil ranks 53^rd in the world and is constantly improving thereby, providing huge opportunities for the foreign investors. Moreover, the country is known for undertaking suitable business sustainability initiatives that are promoting the friendly business environment.

Risks in Brazilian Market

In spite of the potential opportunities for the foreign investors in the Brazil, the country has risk factors that hamper global business expansion. The country is politically stable but the political scenario heats up during election time thereby, making the political scenario unpredictable at times. During elections, the fight between the ruling and opposition parties hampers the business organizations in conducting business in the country (Hultman et al. 2012). Brazil is a large country that results in economic imbalance. As a result, the major opportunities for the foreign investors lie in the crowded markets that have previously existing competitors. Therefore, it is difficult for the foreign business organizations to attract new customers and establish themselves easily. As commented by Balan (2014), corruption is greatly noticed in the Brazil making it difficult for the business organizations. Therefore, at certain instances, opening a small business in Brazil is extremely difficult. This is because, in order to open a business, the local and foreign investors have to pay a huge amount of money to the government officials and representatives. According to reports, Brazil is ranked 72^nd out of 180 countries when it comes to the corruption that is even higher from countries such as Cuba, Turkey, and Bulgaria (Timmons and Garfias 2015).

Economic inequality is a potential risk for the foreign investors and business organizations. It is supposed that around 20% of the Brazilian population lives under the poverty line. A large number of people strive below the poverty line, it is difficult for them to live a luxurious life and spend on expensive products (Castilho, Menendez and Sztulman 2012). Therefore, the foreign investors have restricted target market and customers to attract towards their products. Moreover, the Brazilian economy is experiencing contraction in the GDP since 2014. Brazil consists of a weaker technological infrastructure compared to countries such as the US and Russia. The legal system of Brazil is based on the Federal constitution that has recently undergone a number of amendments in the past years. However, the legal system of Brazil encounters criticism due to the slow decision-making process. Issues might take several years to resolve thereby, making it difficult for the foreign investors. Environmental issue such as deforestation is largely noticed in Brazil due to modernization. As the country facilitates more foreign investors, they need to remove forests to make enough places for the foreign business organizations. Moreover, illegal wildlife trades along with water pollution are major environmental concerns of the country (Weinhold, Killick and Reis 2013).

Opportunities in Indian Market

The Indian market has huge potential for the foreign investors, as the country is undergoing a transformation in terms of investor perception of the market and the reality. The Indian economy is growing steadily over the years along with the economic fundamentals falling into places. Moreover, the Indian market is one of the fastest growing consumer markets (Goyal and Joshi 2012). Since India has undertaken economic liberalization policy from 1991, the GDP of the country has grown to $1.3 trillion. The rise of the GDP of the country is due to the agricultural sector along with a diversified industrial base and high consumer market. Therefore, the high annual GDP of the country is a major opportunity for the foreign investors. India has strong foreign exchange services that facilitate the growth of international investors and business organizations. Moreover, the country has low external debts compared to earnings and the repayment capacity. India has a stable democracy that has largely facilitated the establishment of foreign business organizations over the years (Kumaraswamy et al. 2012). India is the second most populous country in the world after China, with a population over 1.12 billion. This provides a huge opportunity for the foreign investors and business organizations, as they have a huge market to explore and high customers to target. Moreover, the middle class of India is expected to swell from the current level of 31.7 million to 5.3 million (Schuster and Holtbrugge 2012).

Recently, the Goods and Services Tax (GST) initiative undertaken and implemented by the government is one of the most significant opportunities provided to the foreign investors. India is one of the largest democracies in the world that has been greatly benefitted by the implementation of GST. The government has implemented GST to enhance the business environment along with attracting the foreign investors in the country. India is one of the most populous countries in the world provides huge market size for the foreign investors. Out of the entire population, over 40% comprises of the middle class that is continuously growing and expanding. The rapid growth is noticed as the poor sections of people are entering the middle class and the middle class is entering the higher class. Moreover, due to such a huge population, the labor cost of the country is comparatively lower than the western countries. Availability of cheap labors facilities the foreign investors. By 2020, India is expected to rank among the top three countries of growing economies and best option for foreign investors (Garg 2014).

Risks in Indian Market

In spite of the potential opportunities of the Indian market, there are some risks involved for the foreign investors and business organizations. The major risks for the international business organizations deciding to establish a business in India are lack of preparation. India prefers conducting business with countries that respect the Indian business culture that is different from the business culture of the western countries. Therefore, the foreign business organizations might find it difficult to understand the Indian culture of doing business. Moreover, the international business organization tends to confuse the business culture of India with countries like China and other Asian countries. Therefore, the working style of India is different from that of the rest of Asia. For example, the working culture of the Northern India is distinct from that of the Southern India (Witssoe 2012).

In spite of being one of the largest democracies in the world, India’s political system is not the best in the world. Reports suggest that more than 162 members of the parliament have criminal charges against them due to which investigation is conducted on them. Indian politics is corrupted and criminal activity is practiced within the political system. Due to this, the foreign investors have to provide monetary amounts to the government officials and representatives for establishing a business in the country. Briefly, Indian politics is dirty and tough making it difficult for the foreign investors. Indian legal structure and enforcement are weak resulting in huge corruption prevailing in the system. Due to this, justice in India is delayed and reduced. Additionally, the presence of multiple religious, ethnic and annual variations makes it difficult for the foreign investors to establish the business in the country (Shatkin 2014).

Justifying the selecting Brazil

After analyzing the risks and opportunities of Brazil and India, Brazil has been selected as a better option for the Australian crafts beer company, CHEERS. This is because of the political stability of the country that facilitates and welcomes foreign investors and international business organizations. Moreover, the proactive involvement of the Brazilian government influences will be helpful for the Australian beer company to establish business and penetrate the market easily. The huge populations of the country along with the rapidly growing economy of the country will also facilitate the Australian company. Additionally, as Brazil provide equal opportunities for international and national organizations, the Australian beer company does not have to pay more in terms of tax. Paying less tax will help in gaining profit for the company initially.

The Australian beer company will have access to large consumer section due to a huge population of the country. This will provide an opportunity for CHEERS Company to target huge customers for the crafts beer. Moreover, the modernized culture and viewpoint of the Brazilian customers will make it easier for the company to market their product. The steadily growing middle-class customers along with significant numbers of high-class customers will make the crafts beer preferable for the Australian company. Due to the income of the people, they will be willing to pay any amount for the crafts beer.

Discussing and justifying the proposed mode of entering Brazilian market

Selecting the appropriate market entry strategy will help the Australian crafts beer company for entering the Brazilian market. The different market entry strategies include franchising, licensing, exporting, joint ventures and completely owned subsidiaries (Holtbrugge and Baron 2013).

Licensing is defined as a contractual relationship between the licensor and the licensee that grants right to intangible property. The licensee can use the intangible property within a particular geographic location for a specific period. During this period, the licensee is supposed to pay a royalty to the licensor. In this type of market entry mode, the licensor is obliged to provide required information and assistance to the licensee. On the other hand, the licensee is obliged to abide by the rights to the licensor and pay accordingly (Grunig and Morschett 2012).

Franchising is defined as the business strategy where different owners share s single brand name. The main company allows the franchisee to use their business strategies and trademarks in exchange for a certain amount of money. In this case, the franchisee has to pay the parent company some initial fees and royalties based on the revenues. On the other hand, the parent company also provides required support to the franchisee including advertising and training as a part of the agreement (Martorell, Mulet and Otero 2013).

The joint venture is defined as the temporary partnership between two or more companies as a part of the particular business venture. In this type of market entry, both the parties of the joint venture share profits and loss equally. A joint venture is temporary in nature, both the parties need to renew the partnership agreement after time. In the case of joint venture, the host company is able to use the resources and experiences of the host country thereby, making the business venture successful (Killing 2012).

Exporting is one of the most preferred entry mode used by the business organization, as the government of the country takes an active part for the ownership of the business. Due to this, both direct and indirect exporting is facilitated. The exporting methods help the business organizations in exporting products to the international customers. However, indirect exporting helps in selling the products and services to the domestic customers (Fabling and Sanderson 2013).

Completely owned subsidiaries are defined as the strategy that helps in providing complete control of the market and the administrative decisions of the international firms by acquiring subsidiaries in the domestic market. Therefore, before using this technique the companies need to analyze the viability and the potentiality of the market by evaluating the external factors that will fact the company (Brouthers 2013)

Based on the Brazilian market, the Australian beer company has selected franchising as the market entry strategy. This is because franchising is a faster and cheaper form of expansion for the international business organization. In this case, the CHEERS Company has to invest less when new stores are opened and operated by the franchisee. The use of this market entry strategy will the Australian crafts Beer Company in the rapid expansion without having to increase its labor force and operating cost thereby, investing less capital.

Conclusion

In this report, it can be concluded that the growth of the Australian crafts beer company has stalled since the end of 2015 due to which the management of the company has thought of global business expansion. Out the various potential markets, Brazil and India were selected to establishing the global venture. The risks and opportunities of India and Brazil have been conducted in order to analyze the various factors and judge the most suitable country for the global expansion. After analysis, Brazil was selected as the country for global expansion of the Australian crafts beer company. The proactive involvements of the Brazilian government along with rapidly and steadily growing middle-income class are the major reasons of selecting the country. Moreover, the huge consumer base, fewer taxations structure, and growing economy also influenced the decision. However, risks such as corruption along with people living in poverty and political instability are some of the reasons CHEERS Company needs to consider while establishing the global expansion. Based on the analysis, the most preferred market entry strategy for Brazil is franchising. This is because the Australian beer company has to invest less capital and the risk completely belongs to the franchise.

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