Elements affecting expansion of global business

Private sector companies are motivated by the need to make profits in their fields of engagement in addition to bridging supply chain gaps. When the domestic market is constrained from growing due to problems including sluggish economic growth, regulatory obstacles, and market saturation, any possibility given by international markets for company endeavors to expand profitability serves as a significant boost. The necessity to utilize global markets, according to Mull, Takano, and Owing (2014), is one of the factors that influence business decisions to establish operations abroad. The current study seeks to present a consultancy report to the Chief Operations Officer (COO) of Rocky Mountain Chocolate Factory (RMCF) on the need for the business venture to exploit the Brazilian market in its expansion plan.

Factors to Affect RMCF’s Expansion into the Brazilian Market in a Positive Way

Availability of Raw Materials

Cocoa and sugar are considered to be the major ingredients of chocolate and chocolate products. According to Coslovsky (2017), Brazil is considered as the world’s largest producer of sugarcane with a yearly production rate of 0.74 billion metric tons. As a matter of fact, Sauer and Meszaros (2017) explain that the country harvests about 260,000 metric tons of cocoa and is the largest producer among all economies of the Americas.

RMCF will benefit from the readily available raw materials needed to facilitate its operations in the Brazilian market. According to Gull, (2014), raw materials produced within a country are cheaper since companies do not incur the additional costs of importation. As a result, the profit margins of the end products are higher in comparison to instances where raw materials need to be imported. On the other hand, it is important to put into consideration the fact that RMCF does not target premium customers for its products. Availability of cheap raw materials will play a significant role in lowering the costs of production and therefore, the profit margins.

Promising Market

Brazil is one of the largest consumers of chocolate globally. According to Coslovsky (2017), the Brazilian chocolate market grows by 10% annually with the revenue generated by this product hitting BRL 12 billion every year. The Brazilian Association of the Chocolate Industry (ABICAB) reports that about 70% of the population consumes chocolate. On the other hand, Gull (2014) explains that over 30% of the Brazilian population would prefer chocolate to food or beverages.

Presence of chocolate market in Brazil will play a significant role in allowing RMCF to build a strong customer base. Customers are the major stakeholders of any business. The fact that Brazilian populace loves chocolate will act as a major boost on the operations of RMCF in this market. Availability of chocolate consumer coupled with presence of cheap raw materials act as great enabling factors for RMCF to establish its ventures in Brazil.

Economic Stability

A larger percentage of Brazilians fall in the mid-income class. According to Sauer and Meszaros (2017), the mid income social class is the greatest contributor to a country’s economic growth based on the high levels of spending they depict. On the other hand, the rates of unemployment in Brazil are historically low. As a matter of fact, the Brazilian government has struggled to reduce the rates of unemployment to the present 8.2%. Further, the economy’s GDP has been on an upward trend since 2010 (Gull, 2014).

With more than 50% of Brazil’s 200 million people falling in the mid income social class, RMCF will greatly benefit from increased disposable income. This is attributed to the fact that this population will increase the magnitude of consumer market and therefore, the sales volume of RMCF. On the other hand, the promising GDP of Brazil is attributed to its economic stability which encourages business growth.

Infrastructure

Brazil’s road network is considered as one of the most efficient in the world. Historical events like the FIFA World Cup of 2014, the Summer Olympic Games and the Paralympic Games of 2016 made a significant contribution in pushing the government towards making infrastructural investments. On the other hand, the country is well networked with rail roads, inland waterways, ports, warehouses and airports (Sauer and Meszaros, 2017).

RMCF will have ease of access to raw materials like sugar and cocoa with high quality infrastructure. On the other hand, the costs of acquisition of supplies will be lowered with high quality infrastructure. Further, Coalovsky (2017) explains that inventory emanating from spoilage and inefficiency wile accessing the market is reduced with properly set infrastructure.

Negative Factors

Political Environment

While Brazil’s business environment is promising, its political scenario is not. The country has been a victim of mass protests and demonstration against the corrupt government (Sauer and Meszaros, 2017). In 2016, Brazil’s president was removed from office because of irregularities in the country’s fiscal affairs (Coslovky, 2017). The political situation in Brazil may hinder the expansion processes of MRCF because of the effects they pose on economic stability and the spending habits of the populace. To overcome this barrier, it is recommended that MRCF should partner with local business organizations to cushion its operations from possible insecurity emanating from the political situation.

Administrative Barriers

Brazilian labor laws are considered to be highly onerous. Foreign companies have to pay exorbitantly to invest in this economy. Unlike other countries, Brazil makes it a requirement that foreign investors should only own 50% of their ventures (Gull, 2014). Such obstacles present foreign investors with massive regulatory risks. To overcome the administrative barriers, it is recommended that MRCF should engage in a joint venture with business in Brazil for efficient exploitation of this market.

Conclusion

The Brazilian market presents a lot of investment opportunities for MRCF. Availability of key raw materials like sugar and cocoa, promising market, economic stability and well developed infrastructure will positively impact the growth of MRCF in this foreign market. However, the unstable political state and strict regulations may impede the firm’s expansion requirements. However, this report recommends that RMCF should partner with local businesses to spearhead its agenda.

References

Coslovsky, S. V. (2017). Employment and Development under Globalization: State and Economy in Brazil. Social Forces, 95(4), e27-e27.

Gill, N. (2014). Chocolate has new Latin king as Ecuador overtakes Brazil. Bloomberg Business.

Mull, R., Takano, K., & Owings, S. (2014). Rocky Mountain Chocolate Factory International. Journal of Case Studies, 32(2), 27-32.

Sauer, S., & Mészáros, G. (2017). The political economy of land struggle in Brazil under Workers’ Party governments. Journal of Agrarian Change, 17(2), 397-414.