Fernando Bez, Lisa OBrien

David Broderick & Michael de Korte

Emerging Market Entry

A Strategic Analysis of Brazil

Fernando Bez, Lisa OBrien David Broderick & Michael de Korte

Agenda
Brazils Market Assessment/Economic Profile SWOT Analysis Market Entry Strategy E-Commerce in Brazil / Competitors Risk Analysis Conclusion Recommendations

The Brazilian Market

Brazil is the 5th most populated and largest geographical country 200 Million people Brazil took over the United Kingdom in terms of GDP, now raking as the 5th position in the world During the past decade, 35 million people in Brazil have moved from the poverty to the middle class. There are 16 million people living in poverty which represents 8% of the country

Brazils Economic Profile

GDP Growth reached 7.5% in 2010, however GDP Growth fell to 2.5% in 2011 and it is predicted to reach 2.5% in 2012
Brazil GDP Growth
8% 7% 6% 5% 4% 3%

2%
1%

0%

2007
-1%

2008

2009

2010

2011

2012

Amazon.com 4 Smiles of Brazils Market Demand Attractiveness

Brazils Population

200 million
Population with Internet

78 million
Population buying online

32 million
Population with Smartphone

100 million (2015)

Amazon potential market

$12 billion

Brazils Growing Population and Demand

Population in Brazil (Millions) Population who has access to the internet Number of People who buy through the internet Number of People who has access to the internet but do not buy Number of People who do not buy through the internet because they do not trust in the payment Number of People who do not buy through the internet because they do not rely on the products they will receive Mobiles in Brazil in 2012 Mobiles in Brazil with internet access by 2015 200 78 32 46 Total % of population 100% 39% 16% 23%

32.2

16%

13.8 232 100 2010 2011 10

7% 116% 50% 2012 12.7

E-Commerce total Revenue in Brazil (Billions of Dollars)

8.4

Why Brazil?
Natural resources
Vast amount of natural resources No need to import large quantities, good local availability of key resources

Human resources
Labor market is relatively cheap & motivated Provision of training might be required Melting pot of cultures and people

Infrastructure and support industries

UPC and DHL well established in Brazil Urbanization of population Quality of the roads and transports

Amazon.com to Brazil SWOT Analysis

STRENGTHS Amazon has been named the 3rd most innovative company in the world by Forbes magazine 2012 list Fast Delivery & Customer Service Global Reputation Automatically identifiable to Brazilian Population THREATS Potential expensive operating costs Computer Hardware subject to high taxes Consumer growth has slowed Poor infrastructure difficult for distribution WEAKNESSES Difficulty in replicating current model with high labour costs and taxes

OPPORTUNITIES Retail market to grow by 25% in 2012 UPS announcement of expansion into Brazil Internet Usage to reach 77million in 2012

Market Entry Theory

Location costs, cultural factors such as trust and psychic distance, financial variables, market structure and competitive factors are all taken into account when choosing a market entry strategy Psychic Distance Why do some methods offer lower costs than others? Circumstances will prefer one method over another
Cost-based view: A company requires a compensating advantage to overcome the cost of foreignness = Firm specific advantages

Direct foreign investment is the most risky form of entry carries highest capital risk Joint venture is a preferred route initially Exporting and licensing dont allow for quick reaction to competitor moves

Market Entry Strategy

Direct Imports
From the world market place Creating a center of distribution in order to deliver world-wide products to South America

Direct Exports
Distribution to the whole of South America

Partnerships and Alliances

Strategic choices of key market players Building upon existing partnerships and alliances Increasing the market reach of existing relationships

E-Commerce in Brazil
14 12 10 8 12.7 6 8.4 4 2 0 6 10

2009

2010

2011

2012

E-Commerce total Revenue in Brazil (Billions of Dollars)

Competitors in Brazil E-Commerce

Market Leader in Brazil Turnover 4.4 Billion in 2010 5 Billion in 2011

Amazon.com Risk Analysis

POLITICAL RISKS

Shareholder Exposure Distribution Center Destruction

Employee Exposure Kidnapping Poverty

Operational Exposure Market disruption Shortages

ECONOMIC RISKS

COMPETITIVE RISKS 5 main competitors

Growth is slowing & volatile

Variability in the market Currency exchange rates Opportunity cost of not going Cost of distribution OPERATIONAL RISKS Infrastructure Transport Telecommunication Suppliers Regulations

Corruption
Networks and Cartels

Population national preferences Regulations constraints Taxes

Amazon.com Market & Industry Opportunities

MARKET Growth in GDP, Internet & Mobile users Population of 200 Million RESOURCES Customers are in maturing market Increase of middle class COMPETITION 5 main competitors Government, regulations, existing industry entry barriers Bargaining powers local suppliers Long-term profitability forecasted

Available skilled personnel

Rich in natural materials Need of distribution center Investment of Data Centers

UPC & DHL operating as support providers Strategic location in reaching Southern Americas countries INCENTIVES Creating of local jobs

Presence would increase competitiveness Reaching out to larger customer base

Recommendations
Pursue a Marketing strategy that allays the fears of the Brazilian population in terms of trust and reliability of their service Conduct in-depth interviews with key players in the market
Conduct comparative analysis with local competitors Do a feasibility study and research locations Verify if desk research corresponds reality in Brazil