Discuss about the Fundamentals of International Business.
All the commercial business deals that take place between more than two countries beyond their political boundaries are comprised by international business. International business deals are mostly undertaken by the private companies to earn profit. On the other hand, governments commence them to earn profit as well as for political causes. The studies of the multinational companies are often defined as international business. The report mainly deals with PaintCo Brasileira Ltda. The company had developed into a promising world player in the extremely competitive paint business (Dunning 2012).
The company has also become more and more apparent to management that the future global development of the company would have taken place in the promising markets of developing economies. PaintCo had also chosen Brazil as its first country to expand in South America for imperative strategic causes. PaintCo had modernized its manufacturing and supply process across the border with the help of free trade between Canada and the United States. In order to deal with key customers, the company found it essential to maintain a Canadian development (Wild, Wild and Han 2014).
There are several medical hazards that are associated with Paint Company. With major customers extended worldwide, the company developed in other countries. It was bound to look for development outside the United States as well as Europe. As a result, the potential profitable growth diminished for the company as there were various other foreign companies that entered the paint market. Hence, PaintCo Brasileira Ltda had to provide its international customers the same level of service that is provided to its local customers in order to survive in the global market. However, these technical risks were not new for the company. Occasional wildcat strikes by US East Coast is likely to pose risk for the company. Even though Brazil and South America will help the company to expand in the global market, PaintCo is likely to face a tough competition in other paint markets (Oiwa 2016).
Brazil also lacked clear legal protection for trade secrets, although a illegal statue against unfair trade practices can. This might also lead to risk for the company. On the other hand, limited investment laws as well as lack of managerial transparency and subjective application related to laws restricts the US service exports to Brazil. Another most serious risk that is likely to be faced by the company is potential expose to chemicals that are mainly present in the paint products. This might in turn will lead to enlarged risk of quite a few kinds of cancer that includes both lung and pancreas cancer. PaintCo is likely to get affected by both internal and external factors in diverse environment (Du Plessis 2012).
The board of directors of PaintCo that mainly comprises of the business enterprise capitalists is not likely to approve any large investments with uncertain prospects that is also likely to pose threat or risk to the company. This will also accept some risk for well-justified policies. It is also analyzed that the Brazilian distributors are likely to oppose larger volumes unless accompanied by augmented discounts to recompense for the extra costs attributable to higher volume imports. As a result, financing additional space as well as equipments will require a long-term contract with PaintCo.
There are various opportunities that are associated with PaintCo Brasileira Ltda that is mainly due to the fragmented market that will help the company to expand and augment its market share. As PaintCo chose Brazil as its first country to expand, it is likely that the company will expand, as Brazil is the largest country in Latin America. As a result, the country will offer the greatest customer market potential. Brazil is also considered as the most developed country in the region that is known to produce a broad range of manufactured commodities as well as chemicals and automobiles. As a result, this wide range of manufacturing and customer manufacturers symbolizes a large paint and coatings market. This in turn will provide PaintCo large opportunity to expand in the global markets (Johnson and Zinkhan 2015).
As Brazil is also considered as an imperative producer of chemicals and minerals, it became the supplier of various crucial and intermediate resources for the paint industry. In the year 1990, there were restraints on the availability of import licenses that were mainly used to control as well as restrict imports. This in turn served as a major barrier to imports from the United States. However, at present the company will find a broad range of opportunities as the import licenses are used mainly for statistical purposes. The large number of open market will represent an opportunity for effective global producers, both in terms of exports in Brazil as well as direct investment into the country. The company will be able to gain more profit by making more investment in the country as Brazil had removed 60 percent preservation tax that was applicable to foreign allowances of profits as well as dividends. The Central also provided the company an opportunity to expand in the country as it initiated regulation that allowed overseas enterprises to register reinvested profits as foreign capital at the rate of exchange (Alkaya and Demirer 2014).
The up-and-coming free trade area in the southern cone of South America is also likely to provide several opportunities to PaintCo. This is mainly because they are likely to offer more than 200 million customers to the paint company. All the opportunities are driving the customers of PaintCo such as automobiles as well as electrical device manufacturers to expand into Brazil. There are also prelude forecast for PaintCo sales in Brazil as well as other markets in South America. As far as investment is concerned, the alternative to institute a completely owned manufacturing subsidiary in Brazil will lead to expansion opportunity for the company. It can be concluded that the building of a local plant will capture the share of domestic purchasers. A new subsidiary will mainly emphasize the combination of global brand name of PaintCo as well as the domestic responsiveness (Ortlieb and Sieben 2014).
According to Team (2013), Pestle analysis is a vital business tool that is used to analyse the macro factors prevailing in the environment of an organization. It is quite useful in accessing valuable information regarding the factors that affect the surrounding of an organization, as based on these factors, an efficient strategic plan can be created. These strategic business plans would help the organization to successfully overcome their hurdles and reach strive for their objectives.
In this report, we are analysing the case study of a paint industry ,Paint Co Brasilia Ltda. With its aim of expanding their business worldwide, Paint Co Brasilia ltda has planned to spread its business at first to Brazil in South America. In order to understand the stability of the company in such a country, it is important to analyse the current micro factors that prevail in the country (Atighechian et al. 2016).
Political – Brazil is one of the most industrialized economy of south America, that produces a wide range of products. The country has a vibrant democratic environment. Earlier, it there was a restriction on the amount of imports that was done in the country. Nowadays , the import licenses are used as statistical records. Hence, they create an open market which provides an opportunity for the international producers, to import their products in Brazil. With a reduction in the with-holding tax by 60%, a flat rate of just 15% tax were to be paid by the foreign companies in order to sell their goods.
Legal – an emerging free trade area in the southern cone of South America, MERCOSUR, offers a market of about 200 million people that provides both problems and opportunities for the exporters. They provide an incentive to these foreign companies for direct investment , either being in joint ventures or wholly owned subsidiaries (Gillam and Siriwardena 2013). A good banking system exist in the economy and there is healthy market for initial public offerings. Few equity players are also active in the country locally.
Economic – the GDP rate of Brazil is quite promising for any foreign country, planning to extend its business in the country. With the scope of many foreign investments that could be done in the country, the country would show their own potential growth with the inclusion of foreign companies in their country. Financial processes allow the companies to stay in business rather than going out of business. Bankruptcy processes exist but are inefficient.
Socio-Cultural Environments – the socio cultural environment for the workers in Brazil is equivalent in various aspects to that in Europe. A good system of highways, roadways and railways exists in the economy (Seyedhosseini et al. 2015). The consumers of the country are accustomed to both local and international brands. Though compensation for the sales personnel and managerial were less than that of the Europe compensations paid, the employee benefits are equivalent. The location facilities offered by the country is one of the most important factor that is suited according to the needs of the Paint Co Brasilia Ltda.
Brazil is considered as the ninth largest economy is the world depending upon their GDP rate. The purchasing power of the people in the country is quite high, which keeps the country in the seventh position. Brazil has various industries that manufacture goods to be sold globally. They have high competitiveness value among the other countries of the world. It is into various associations with other fast growing economies of the world.
With a greater political stability and improvement in the economic conditions, the country’s growth scales are being positively affected. Minerals, agricultural products and other primary products constitute of more than fifty percent of the produce in Brazil. Brazil is considered as one of the leading producers of soy, sugar, meat, coffee, tobacco and orange juice. Their exports has quadrupled in the early years (Kolios and Read 2013).
The growth in the country’s exports has raised its financial status and helped the nation in order to survive the global crisis. As the economy’s growth is related to the exports made by the country, hence the revenue earned from the exports could be quite unpredictable in nature (Brambilla, Lederman and Porto 2012). When the prices are high, the export revenues generated are quite high, thereby raising the standard of the country. Whereas, when the prices are low, there is a sharp fall in the economic conditions of the country. Hence, there is quite less amount of economic stability.
Brazil has been able to provide only primary goods for export, whereas, the revenues generated from these primary goods export are not stable in nature. Hence, in order to sustain the revenue of the country from the exports, Brazil must start implementing various technologies that would help in producing high tech exports, that are vital for sustainable and equitable development of the country.
Brazil is facing strict competition from the fast developing countries like china, in comparison to the exports to be generated by the country. Brazil welcomes the companies that are planning to set up industries in their countries. This would strengthen the structure of the country, thereby promoting stability in growth of the economy (Canuto, Cavallari and Reis 2013).
A government plan has been generated in Brazil, which aims at opening mining, petroleum and telecommunication industries to be aided by foreign developments. The country has proposed the plan to raise the foreign direct investment in the country by sweeping constitutional reforms in order to attract the investments towards the country (Merlevede, Schoors and Spatareanu 2014). Though the proposal has threatened various other reforms, yet this proposal has been very well received by the officials who represent the country.
The government has initiated a package that includes investments for the undercapitalized state of oil monopoly. The proposal would promote both the field of oil drillers to get into risky contracts, whereas, other proposal would permit new joint ventures to eliminate the state of monopoly in the society. Various such proposals are designed in order to raise the productivity if the economy that is importing more than half of its daily requirements.
There is a lack in production of the basic needs due to the lack in the amount of investments needed. Most of the projects that were generated within the country have been half way through the process, due to the incapability of accumulating the required capital. Hence, the country is generating such packages, where state monopoly could be eliminated, foreign capital could be drawn towards the country, and promoting methods that would help in sustaining various state owned companies from going bankrupt (Lee, Biglaiser and Staats 2014).
With inflation prevailing in the country, there is a strong currency which has made the exports costlier and imports cheaper for the country, thereby , deteriorating the trade balance. The government is expected to shift the program’s emphasis, making higher interest rates , and helping to process anti inflation techniques for the country’s well being. In order to invite the beneficial deal of Paint Co Brasilia Ltda, Grossman has invited a deal with the company, where they are ready to give a51 % majority share to the company, as a sixth member of their 5 member team called Grossquimica (Conconi, Sapir and Zanardi 2016). The company would attain a capital of US$ 16.8 million from Paint Co Brasilia Ltda in return of 51 % shares.
Another agreement that was proposed by Brazil, to Paint Co Brasilia Ltda was that, PaintCo would issue license for all its products , and grossquimica would produce paints to serve the Brazilian economy and the rest of south American continent.
International business deals are mostly undertaken by the private companies to earn profit. On the other hand, governments commence them to earn profit as well as for political causes. The studies of the multinational companies are often defined as international business. The report mainly deals with PaintCo Brasileira Ltda. The company had developed into a promising world player in the extremely competitive paint business . PaintCo had also chosen Brazil as its first country to expand in South America for imperative strategic causes. PaintCo had modernized its manufacturing and supply process across the border with the help of free trade between Canada and the United States.
Alkaya, E. and Demirer, G.N., 2014. Improving resource efficiency in surface coating/painting industry: practical experiences from a small-sized enterprise. Clean Technologies and Environmental Policy, 16(8), pp.1565-1575.
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Brambilla, I., Lederman, D. and Porto, G., 2012. Exports, export destinations, and skills. The American Economic Review, 102(7), pp.3406-3438.
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Lee, H., Biglaiser, G. and Staats, J.L., 2014. The effects of political risk on different entry modes of foreign direct investment. International Interactions,40(5), pp.683-710.
Merlevede, B., Schoors, K. and Spatareanu, M., 2014. FDI spillovers and time since foreign entry. World Development, 56, pp.108-126.
Oiwa, O., 2016. Painting in the Age of Globalization. Asian Diasporic Visual Cultures and the Americas, 2(1-2), pp.122-124.
Ortlieb, R. and Sieben, B., 2014. The making of inclusion as structuration: empirical evidence of a multinational company. Equality, Diversity and Inclusion: An International Journal, 33(3), pp.235-248.
Seyedhosseini, S.M., Cyrus, K.M., Fahimi, K. and Badkoobehi, H., 2015. A new methodology to construct organization's strategies based on supply chain concept. International Journal of Engineering Science (2008-4870),26(2).
Team, F.M.E., 2013. ‘PESTLE Analysis. Strategy Skills.
Wild, J., Wild, K.L. and Han, J.C., 2014. International business. Pearson Education Limited.
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