PPT+Report

Argentina and Brazil: Market Attractiveness of the Food Industry in Latin America

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Table of Contents

Cover page …………………………………………………………………………………………..1

Executive summary ………………………………………………………………………………... 2

Introduction ……………………………………………………………………………………....... 3

Acceptable political, economic, legal and ethical environments …………………………….….. 3

Infrastructure ……………………………………………………………………………………….6

Cultural environment ……………………………………………………………………….……...7

Recommendations…………………………………………………………………………………..12

Table…………………………………………………………………………………..……………...8

Conclusion …………………………………………………………………………………….........12

References …………………………………………………………………………………….........13

Executive summary

An in-depth analysis of the profiles of Argentina and Brazil yields which country would be the better business venture for multinational enterprises.
Argentina has a history of immense financial distress. Excessive spending beyond means was a main culprit. It is now considered one of the riskiest markets to enter for MNE’s.
Brazil has an equally formidable financial history. Due to total economic reform, however, there has been stabilization and Brazil is now considered one of the largest economies in the world.
Presidential transition in both countries has had an overall positive impact on the foreign market. Increased production and exportation are projected.
Market attractiveness of these countries is high. Argentina and Brazil are actively working to better its international presence. There is an increased foreign and domestic demand for food products in both countries.
Railways are the preferred method of transportation, and the infrastructure in both countries is flat land with extensive road networks.
Both cultures place a strong importance on familial relationships. Argentinians tend to be very blunt and direct in business dealings. Brazil places hierarchy in high regard.
Based on the information at hand, Argentina is the recommended business venture for the MNE’s food product industry.

Introduction

Despite their differences, both Argentina and Brazil could have potential success in the food product industry. Past financial and political instability of both countries would have greatly disturbed overall market attractiveness to any Multinational Enterprise. Luckily, the future of foreign trade policy in both countries looks promising due to recent political modification. Properly assessing the opportunities and risks of these markets is essential when business decisions are prospect. Quality infrastructure is another aspect which should be thoroughly researched in both Argentina and Brazil, as advancements in transportation are highly desired. Cultural diversity is prevalent in every country, and MNEs should assess the cultural normative in both. All of these factors are vital when deciphering which country is best suited for the MNE.

Part A - Do the countries have acceptable economic, political, ethical and legal environments?

Historical background of the organic market in Argentina

Argentina and Brazil are both developing countries that have each had their share of economic and political turmoil. While recent efforts suggest the countries are pursuing more free and open foreign trade policies, it would be prudent for any MNE to base market attractiveness on more than just current events. The 2016 Index of Economic Freedom, which measures economic freedom, prosperity, and opportunity, ranks both countries below the world average (The Heritage Foundation, 2016). While the circumstances behind such low ratings are unique to each country, current and past conditions identified in the index can shed light on potential risks and opportunities of conducting business within the food product industry.

Argentina

Argentina is currently plagued by a history of fiscal irresponsibility and questionable economic policies. Since 1980, the country has defaulted on its sovereign debt four times; with the most recent being in 2014 (Thomas & Cachanosky, 2016). For a brief period after Argentina’s 2001 crisis, in which it defaulted on $100 billion in debt, Argentina saw GDP grow approximately 8% annually and saw unemployment drop from 16% to 8.5% (Thomas & Cachanosky, 2016). These statistics showed a relatively quick recovery from a financial crisis of that magnitude. However, by 2007, it became apparent that government estimates had been manipulated to show slower inflation rates and exaggerate growth.

Despite changes in government administrations who promised tax and fiscal reform, Argentina continued to spend beyond its available resources and implement tax policies that did more harm to the economy than good. Argentina was still suffering from residual impacts of the 2001 default settlement that restructured payments to bondholders. The payments led to consistent capital outflows and only addressed 93% of bondholders that agreed to the restructuring. Argentina refused to pay the 7% of bondholders that refused the settlement and defaulted on its debt after court rulings required them to repay $29 billion to creditors.

Questionable tax policies and mismanagement of debt has led to Argentina’s reputation as one of the riskiest emerging markets for MNE’s (Teles & Leme, 2010). This could have significant risk for the food industry as Argentina has implemented policies that have strained international trade relations in the past. Adjustable tariffs for certain agricultural products and an historical misrepresentation of economic data could yield this country as being a slightly higher risk for foreign investment.

Brazil

Brazil has also been a developing country plagued by a history of hyperinflation and economic instability. However, Brazil’s institutional and economic reforms can be a model for emerging economies (Afonso, Araújo, & Fajardo, 2016). In response to the country’s own economic crisis, under a temporary military dictatorship, the country underwent an extreme but effective series of economic reforms. While some were unpopular, the Brazilian government was able to control inflation and stabilized its economy. Afonso, Araújo, and Fajardo (2016) argue that, while controversial, the changes to Brazil’s tax, banking, and administrative systems laid the foundation for Brazil’s economy up to the present day.

According to the World Economic Forum, Brazil currently is the 7th largest economy in the world, but has recently seen a downward trend in growth and deteriorating trade policies (World Economic Forum, 2016). Its considerably large market size presents a unique opportunity for MNE’s. While the economy has slowed down, price stability and declining distribution of income shows its continued separation from the economic struggles of the past (Afonso, Araújo, & Fajardo, 2016).

Brazil scores a 56.5 on the economic freedom index; which is just over three points shy of the world average. The index cites bureaucratic hurdles and government interference as limiting economic growth for the country. In fact, a recent trade agreement between Brazil and Argentina outlined efforts to reduce these types of deterrents to free and open trade. The bilateral trade agreement is expected to decrease bureaucracy and reduce the time and costs of trade between the two countries (Alves, 2016). A newly appointed foreign relations minister, José Serra, has expressed his commitment to strengthening current partnerships and creating new ones. Argentina is currently Brazil’s third largest trading partner, after China and the United States (Alves, 2016).

Impacts of Foreign Policy on Food Production

Both Brazil and Argentina have undergone recent political transitions that have potentially positive impacts on foreign relationships. After the former Brazilian president was impeached in 2016, Michael Temer has pledged to bring back political stability and economic growth. Similar sentiments were expressed by Argentina’s new president, Mauricio Macri, who has stressed the importance of breaking free from questionable policies of the past and lift exchange controls and improve overall conditions for business (BBC, 2017).

It appears Mauricio Macri has made good on his campaign promises as taxes and quotas have been lifted on agricultural exports. Under the Macri’s administration, returns on several crops such as wheat, corn, soybeans, and soymeal have increased 50-80% (Terazono, 2016). This type of growth can be a good sign for the food product industry in Argentina. Reduction in trade restrictions and licenses are likely to reduce long periods of “under-investment” in agricultural and food product sectors (Terezano, 2016).

Brazil is also positioning itself for increased production and exports according to a 2016 United States Department of Agriculture (USDA) Livestock and Poultry: World Markets and Trade. Brazilian food production is expected to rise due to increased export demand for beef and veal (USDA, 2016). Stable domestic production, leading to price stability, has led to an increased shift towards imports from South America. Brazil’s trade relationships with China and the U.S, along with continued economic growth in this industry, has allowed it to surpass India and Australia as the world’s top global exporter.

Market Attractiveness

Political and economic instability can hurt developing countries’ market attractiveness for MNEs. Argentina has struggled to recover from bad fiscal policies that led the country to financial crisis and multiple defaults on the country’s debt. Brazil was able to recover from economic crisis through strict enforcement of national initiatives, but has seen corruption and government interference limit economic growth over the last few years. Despite this history and current trends, Brazil and Argentina are well positioned to increase international presence within the food industry (USDA, 2016). With new governments committed to improving international relationships, increased foreign and domestic demand for food products present an increasingly attractive environment for MNEs.

Part B - Do the countries have suitable infrastructure? Is one location in a country more suitable for the industry than another?

Argentina

The road network present in the country accounts for two hundred and fifteen thousand four and fifty kilometers this is a very small portion of the country since the country is immensely large. Four hundred and fifty-six miles from the total is the amount that express ways and highways take up on the map. It has ten thousand nine hundred and fifty kilometers of navigable rivers; however, many of the countries ports are located along the Atlantic Ocean (Foster & Garmendia, 2010). There is also an extensive railway network that accounts for carriage of freight and individuals it covers thirty-eight thousand three hundred and twenty-six kilometers. The capital city has extensive infrastructural developments with extensive system of public transportation that include; subways and buses but the railway network is mostly preferable by the population. For the most part the country enjoys internet coverage more than two thirds of the country is connected while mobile usage is growing rapidly.

Brazil

Road network remains to be the primary means of transport around the country; the country boasts of eighty percent of the nation being covered by tarmac. However, the ever-increasing demand for this service renders its road infrastructure ineffective; thus, the country faces a lot of traffic jams and congestion. The country has a well-developed rail network which is divided into four; broad, narrow, dual and standard gauge (Frazzon, 2009). The air transport in the country is highly developed; the nation has a total of three hundred airports, fifty being major commercial ports and in turn twenty-one of them are to international standards. Most of their electricity is supplies by hydroelectric plants while other sources include; fossil fuel and nuclear energy. Telecommunications networks are well developed and organized in the country; it encompasses landlines, mobile phones, television and radio broadcasting, computer and readily available internet access. The nation is also endowed with big rivers that account for fifty thousand kilometers of navigable water ways.

Comparison and choice

Above is detailed explanation of the infrastructural structure of the country; from the information provided it is easy to decipher and know which the better option is. You may tend to think so, but it is however different since one is not comparing what he sees it is rather the culture of these two countries. Brazil is a nation that is endowed with many advantages and developments; the nation is rich and it well developed and organized (Frazzon, 2009). The infrastructure and telecommunication are state of the art and it serves the country justice; however, this is a major influence of culture, western influence and rapid growth. Argentina is a developing country where the population is more traditional and more rooted to their culture and the population has lived in such a structure for decades and they have adapted and liked to live that way. However, the country is underdeveloped and very large, if the country had good infrastructure it would be the best choice for this section.

PPT+Report 1

Part C - What cultural environment will the staff of the MNE encounter in the workplace of the two countries?

Argentina

As of July 2014 the population of the country was forty three million where ninety seven percent of the country is white mainly Italians and the Spanish, the rest of the population is mestizo, Amerindian and other colored people. The argentine way of life is centered on family and extended families still have great dominance; heads of powerful families command widespread respect and honor (Seymoure & Roberg, 2012). Christianity is the main religion in the country where most of the country is deeply rooted in the structure of worship from the Roman Catholic Church. The country mainly speaks Spanish but the people refer to it as Castilian language that symbolizes the exact place which it was birthed in Spain. Argentines are open, blunt and direct in their business negotiations but they are still able to maintain a tactful and diplomatic outlook. In addition there are close communicators physically therefore you will see a lot of touching and kissing in their encounters.

Brazil

The Brazilian culture is one of the most diverse on the planet due to the different nationalities present as a result of years of western domination and slavery that brought in hordes of people from different parts of the world. At the time the current population in Brazil was one hundred, and ninety millions of these sixty percent was white and forty percent was multi colored. Eighty percent of the population is catholic this is due to the intense previous Portuguese rule in the nation where they taught the religion, built churches and established traditions and customs that are followed up to this very day (Lohmann & Dredge, 2012). In the sixteenth, seventeenth and eighteenth centuries the country faced a lot of Portuguese settlement that made the official language to be the same. The population also shows deep entrenchment in family therefore you find large families that work on a common structure and values.

Recommendation and Conclusion

Argentina and Brazil both have numerous pros that would support entering their respective markets. It is also important to keep in mind all of the cons each country has and the potential negative impact they may have on the success of a food sector MNE.

Both countries boast extensive navigable waterways and railway networks, relatively large, educated working populations, and share many similarities in regards to religion and culture. Additionally, both countries share many of the same faults, specifically in terms of infrastructure and corruption. The long history of fiscal irresponsibility and questionable economic policies are of concern and a cause for pause. However, it is Brazil’s recent period under a military dictatorship and impeachment of their president that is troubling.

In contrast, each has struggled to recover from their past crises and Brazil has shown the most improvement. However, corruption and government interference have and most likely will continue to limit economic growth. Although there are many similarities, government and political stability poses the greatest threat towards the success of the MNE. Due to Argentina’s recent economic struggles and their government’s commitment to establishing and improving international relationships, a more favorable agreement could be reached. For this reason, it is our recommendation to select Argentina.

References

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