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Investment Opportunities in Brazil

Seminararbeit 2010 13 Seiten

Zusammenfassung

1. Brazil today
In the mainstream European media world Brazil´s economy is rarely a topic though experts consider Brazil as the country with the best chances among the emerging BRIC (Brazil, Russia, India, China) states. The presidents Cardoso and his successor Lula de Silva have stabilized the country and led it into bright and better future – due their reforms inflation rates have slowed to around 5% in the recent years from dizzying 15% in 2003 and since then the currency very much stabilized, economical growth maximised to a status of which western nations only can dream of (an average of around 5% each year since 2004) and brought more people than ever for the first time into the consumer market by growing formal jobs. Furthermore credit laws have changed in a way which boosts & encourages the banking sector to become active on the consumer mass market.
All these facts function like an admission ticket to the modern economy, but the big question is: Where are the exact chances for good business investments in the near future.
But before actually looking into the investment opportunities linked to the further development of Brazil, first let´s take a look at the demographics:
When comparing population figures from the Brazilian statistical office quoted by the German statistical office (Destatis 2006, n.p.) directly with western countries one can clearly see that the majority of the Brazilians (65%+) are in the working age between 15 and 64. Only around 5% of the population is in the age of 65+. Having a look at Germany for example, this age group forms approximately 20% of the whole German population.
The GDP per capita is at the moment at roughly 8.000 $ with an increase each year since 2002 according to the Deutsche Bank (Busch 2009, p.250). Only in the recent credit crunch crisis, which had its origin in the USA, Brazil was not able to manage a growth (like no country else in the world). However Brazil was/is much lesser affected by the crisis as other countries, due to the fact that it is mainly autonomous in its resources and that trade connections with the USA are the minority.
So overall one can say by only looking at these outlines of Brazilian economy & demographics that Brazil as a country, the Brazilians as a population and the businesses in this country have a lot of potential for future development.

2. Investing in the next billion consumers
3. Future development & investment in infrastructure and the energy sector
4. ...

Leseprobe

Brazil today:

In the mainstream European media world Brazil´s economy is rarely a topic though experts consider Brazil as the country with the best chances among the emerging BRIC (Brazil, Russia, India, China) states. The presidents Cardoso and his successor Lula de Silva have stabilized the country and led it into bright and better future – due their reforms inflation rates have slowed to around 5% in the recent years from dizzying 15% in 2003 and since then the currency very much stabilized, economical growth maximised to a status of which western nations only can dream of (an average of around 5% each year since 2004) and brought more people than ever for the first time into the consumer market by growing formal jobs. Furthermore credit laws have changed in a way which boosts & encourages the banking sector to become active on the consumer mass market.

All these facts function like an admission ticket to the modern economy, but the big question is: Where are the exact chances for good business investments in the near future.

But before actually looking into the investment opportunities linked to the further development of Brazil, first let´s take a look at the demographics:

When comparing population figures from the Brazilian statistical office quoted by the German statistical office (Destatis 2006, n.p.) directly with western countries one can clearly see that the majority of the Brazilians (65%+) are in the working age between 15 and 64. Only around 5% of the population is in the age of 65+. Having a look at Germany for example, this age group forms approximately 20% of the whole German population.

The GDP per capita is at the moment at roughly 8.000 $ with an increase each year since 2002 according to the Deutsche Bank (Busch 2009, p.250). Only in the recent credit crunch crisis, which had its origin in the USA, Brazil was not able to manage a growth (like no country else in the world). However Brazil was/is much lesser affected by the crisis as other countries, due to the fact that it is mainly autonomous in its resources and that trade connections with the USA are the minority.

So overall one can say by only looking at these outlines of Brazilian economy & demographics that Brazil as a country, the Brazilians as a population and the businesses in this country have a lot of potential for future development.

Investing in the next billion consumers

The income of the BRIC countries´ populations is growing at the moment even faster than that of their economies according to the Boston Consulting Group (BCG) (2007, p.2) and their total spending sum over a year is higher than 1 trillion dollar.

However, most marketers consider serving these low income groups with an average earning of less than 1500$ per year as not profitable enough and too hard to serve. According to Weiland from Roland Berger Consulting, mainly because huge companies forgot how to make money with cheap products. Yet the interest for the “bottom of the pyramide” of the population is beginning to grow says to Prof. Prahalad (Busch 2009, p.31) – mainly because this group posses such an enormous purchasing power. “People at the BOP (base of the pyramid) remain beneath the radar of most conventional business models, often forced to rely on informal markets and substandard products. Companies that find new ways to overcome constraints and tap opportunities can gain insights, market share and customer or supplier loyalty, and will secure a strong position in this growing market.” (World Economic Forum 2009)

Da Silva´s social program “Bolsa Familia” (family stipend/granting) helps developing this group which is mainly located in the north of the country. In this program, capital is brought to the low income population under the premise that children attend school and get healthcare – two other big exits for ending lasting poverty.

Considering this group of Brazilians, their key driver is to enhance their living standards and this is done in the first place by the fast moving consumer goods (FMCG) industry. This is mainly where long lasting investments can be made and where a return of investment, if done properly, is almost guaranteed.

Nestlé was the first corporation being interested in the Brazilian low income market in mid/late 90ies. They however found out that just offering their products at much lower price does not work as low income consumers in the emerging market function completely different from a marketer´s point of view. Other corporations also tried these markets and failed – they tried to win over the Brazilian customer with western stereotypes from a market that is already saturated with all kinds of products (cheap, expensive, low class, premium, hybrid etc.)

Aguiar et al (2008, pp.3-5) postulate six general differentiations of that group: They “are able to manage fluctuating incomes, can cope with domestic constraints, are smart shoppers, are unfamiliar with many products, look for trusted advice and they want to be treated with respect”. So there are a lot of challenging factors to consider in dealing with this group – which is mainly why FMCG marketers mainly neglected them until now, but the main chance lies in understanding their uniqueness and providing and designing exactly the right product with a fitting marketing.

An example for a success is the story of the Ala detergent: Unilever marketed their brand Omo in Brazil in 1kg packages to a price of around 6 to7Real (which is around 2,5pounds ) –which is almost the same price as in Europe and the same packaging size – again the well known & well used western stereotypes which worked so many times where applicated. The product turned out to be a shelf warmer, basically because it was too expensive, but in the poorer northern areas of Brazil people do their laundry at the river with soap only. When finding out that a detergent is mainly used for social reasons i.e. perfuming the laundry, Unilever turned it´s strategy by 180 degrees. Smaller packages to a much cheaper price where sold under the new brand of Ala and a marketing campaign which used the new found habits, finally helped to establish the product in the Brazilian market.

This is exactly what Aguiar et al demand: understand & educate the consumers which are unfamiliar with a product in order to use their word of mouth to further convince new costumers and through this distribute your product. (2008, pp.6-8)

To conclude one can say that investing in the “next billion” consumers in Brazil will be rewarding as their income can only go one way, i.e. upwards. In addition the recent credit crisis also slowed the price increase on imported consumer products tremendously through the downgrading of the exchange rate Dollar vs. Real.

The mass of Brazilians, which through the new social politics and economic stability have now enough cash to enter the consumer market for the first time have to be served by the FMCG industry and hereby the first commandment of marketing applies: be the first mover (Günther 2009, n.p.). Günther postulates that only by being the first on the market in a specific category a company has the chance to establish a long lasting image on the consumer´s side. This perfectly matches BCG´s view “design and develop new products with functions and prices that compensate for small living spaces, unreliable utilities, limited budgets, and other constraints” (2007, pp.3-4)

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Details

Seiten
13
Jahr
2010
ISBN (eBook)
9783656368809
ISBN (Buch)
9783656369622
DOI
10.3239/9783656368809
Dateigröße
742 KB
Sprache
Englisch
Institution / Hochschule
European College of Business and Management (ECBM) London
Erscheinungsdatum
2013 (Februar)
Note
A15
Schlagworte
investment opportunities brazil

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Titel: Investment Opportunities in Brazil