Good McDonalds Success In A Developed Country: Brazil Report Example

Type of paper: Report

Topic: Business, Brazil, Politics, Market, Commerce, Investment, Finance, Economics

Pages: 10

Words: 2750

Published: 2020/12/10

Introduction

Newly Industrialized Countries (NICs) are those countries with the national economy that is moving towards being primarily based on production of goods. Thus, they are marked industries such as construction mining and manufacturing away from agricultural based industries. The countries are increasingly trading with developed countries, and they have higher living standards than the developing countries. However, they have not reached economically advanced level of the developed countries such as Unites States, Japan and regions like Western Europe. On the other hand, McDonald’ began its operations in 1955 and has been serving the world with its favorite food through bits drive through restaurants, college credits, Chicken McNuggets and Hamburger U models. (McDonalds, 2015c)

Objective of the report

The objective of the analysis is to evaluate McDonald’s success in a NIC. That is achieved by analyzing the country factors and the business strategies. In addition, the analysis seeks to evaluate the strategies that are applicable for an American franchise in fast food business in a NIC country with reference to Brazil market. The main factor being analyzed is the adaptability of the business to the market culture. The study does involve an analysis of Brazil’s market characteristics and structure as well as the businesses entry strategy.
Thus, the analysis is aimed at defining American companies and their sustainability strategies as Franchisees in Brazil. The skills needed and abilities to franchise in other countries are very different to those applicable for domestic franchise. Given the NIC’s market growth, opening up and size in recent times, the cultural and business practices study is also necessary for a better understanding of businesses success within the environment.

Findings

Definition, classification and characteristics of a NIC
There are some features that are common and are shared by NIC’s. They are mainly marked by greater civil rights with market liberalization as well as having political and economic reforms. Further, they have strengthened economic and legal environment to deal with increased competition and privatization of industries they. Finally, in almost all NIC’s, economic growth and increased trade are lead by industrialization together with participation in trading blocks. That leads to increased investment from foreigners mostly from developed countries. The countries also have a high population growth rate compared to others as well as having a wide gap in wealth and income between the low and the high-income classes. Further, people are attracted by high wages in urban centers hence increased urbanization. Finally, he countries have limited infrastructures as well as a high dependence on few export items. (UNDP, 2013)

NIC characteristics and international business

In view of their characteristics, NICs provides opportunities for international businesses owing to their better performance that enhances demand. In hat view, businesses seek to utilize the emerging markets opportunities by venturing through various entry strategies. Some of the benefits for international businesses in such markets include less competition, untapped markets as well as relatively better business environment. (Keller, 2013)
Thus given that the NICs are moving towards stronger and freer markets, they have increasing economic freedoms, transition onwards service and manufacturing as well as increased personal liberties. Increasing urbanization also marks the countries with centers resulting from increased migration from the rural areas.
The greater civil rights with market liberalization have an effect on businesses in terms of increased competition; that can be demonstrated by the increasing international businesses entry in markets such as Brazil. An example is the Brazil’s Fast food market increased competition and rising number of foreign franchises.
Political and economic reforms such as the Brazilian increase in free trade policies have an effect on attracting more foreign investors and businesses.
Strengthened economic and legal environment means o protect local businesses presents some challenges o international businesses, as they have o, meet he specified requirements. (Keller, 2013)

Analysis

3.1 Analysis Brazil in term of NIC

Investment policies and restrictions

NICs are more likely to have policies that protect local businesses as well as those seeking to attract foreign investments; both being means of enhancing economic growth. Countries such as Brazil have a conducive environment for foreign investments with macro factors such as regulations being favorable to investors. However, there are some laws restricting foreign investors as a means of protecting local businesses and investors.
According to the country’s law 4.131 articles 1; foreign investments are referred as the goods, equipments and machinery that enter the country with an intention of production of goods and services. Thus, in some cases, foreign investments are dispensed to same legal requirements as the national and local investments. (US Department, 2013)
In addition, the country does not have special taxation on foreign capital and investments even with repatriation of funds being exempted from withholding tax.
However, there are some policies that restrict foreign investors operations such as the need to appoint legal representatives from Brazil. In addition, there is also a requirement for businesses to enroll with the Brazilian securities exchange commission as well as select a Brazilian Bank for purposes of foreign exchange. (US Department, 2013)
Other restrictions entail control of ownership in various areas such as companies located in the border areas as well as other key operations such as healthcare and shipping business. The restrictions are a means for protecting foreigners’ acquisition of land in key frontier areas as well as restricting acquisition and control of local companies by foreigners.
In addition, foreign investments are required to register with the Central Bank of Brazil for them to be allowed to remit funds abroad as well as for purposes of reinvesting heir funds.
In addition, foreign loans must be approved by the Central Bank for the purpose of ensuring that they are compatible with local financial terms and conditions. (US Department, 2013)
In addition, the national and local government’s policy issues for consideration include the federal governments, as well as the states, support for free trade, and enterprise. The foreign investments are also welcome in Brazil as long as they provide benefits to citizens and Brazil, in general. Thus, the current investment policies favor lessening of the bureaucratic interference as well as deregulation except for the infrastructure related businesses such as energy utilities, telecommunications, and healthcare that are subject to regulatory oversight. (PWC, 2010)
However, the country has some restrictive trade policies such as high tariffs on imports. That is a factor for consideration by a business seeking to venture into the market and which relies on import of raw materials. Further, registration requirement for foreign investments varies with states, and the registration with a central bank is a condition for capital repatriation and remittance of profits and dividends. Finally, the country has relatively high payroll taxes and charges compared to other economies. (PWC, 2010)

Franchise policies and restrictions

Franchise operations are governed by Law 8,955/94, and franchise agreements should be registered with INPI for purposes of enforcing against third parties. However, in 2012, the Ministry of trade regulation No 53/M-DAG/PER/8/8/12 that relates to the organization on of franchises was issued hence revoking the previous Franchise businesses regulation. (Ganie, 2012) The new regulation imposed a number of restrictions that businesses need to consider when venturing into Brazil market.
Requirement for domestic sourcing of 80% of the business raw materials. Merchandise and equipments from within Indonesia.
Restriction on the permitted business activities with a requirement that only 10% of the franchise products can deviate from the franchise’s licensed purpose.
In respect to engagement with SMEs, Franchisors are required to be willing o engage with local medium and small enterprises as suppliers and franchisees as long as they can meet the franchise requirements. (Ganie, 2012)

Domestic Sourcing

In respect o sourcing revision, the requirement is not clear as o how he 80% is to be calculated. For the franchisees that may find the requirement difficult to meet it, such as those dealing with specialized imports, they have an opportunity to apply for exception from the ministry of trade that can issue exemptions on ad-hoc basis. (PWC, 2010)

Local Engagement of SMEs

The requirement is open and provides an opportunity for the business to engage other businesses if the local franchisees and suppliers do not meet their requirements.

Restriction to Licensed Business Activities 

The restriction challenges the businesses that operate across sectors including retailers and mini markets as they provide retail and restaurant services. Thus, there is a challenge in how to calculate the 10% allowed deviation. (Ganie, 2012)
3.1.1 General profile: population, geography, living standard, resources

Population

Source: (Indexmundi, 2015)
Source: (Indexmundi, 2015)
The data shows increasing population that is good for businesses given the increase in demand that is expected. (Lawrence & Weber, 2008)
Living standards
The country has had improvement in quality of life with a track record in poverty reduction and inclusive growth increase. Thus, the country ranks and performs well compared to the other countries in terms of life index. The following data shows the trend in some of the aspects marking the livings standards.

Source: (0ECD, 2013)

Source: (OECD, 2015)
Urbanization
Brazil’s urbanization is marked by a population of 87% of the total population in 2010 with the rate of urbanization is changing at 1.1% annually. The major urban areas are San Paulo with19.96 mills, Rio De Janeiro 11.836 mill, Belo Horizonte 5.736 mill and Porto Alegre 4.034 mill by 2011 estimates. (CIA, 2015)
3.1.2 Economic

Economic overview

Well-developed mining, manufacturing, agricultural and service sectors characterizes the Brazilian market. The economy outdoes other South American countries, and its presence is being felt in the world market. Since 2003, it has improved steadily by improving its macroeconomic stability and building foreign reserves that reduce its foreign debts by moving them to domestic institutions. In 2008, the country became and external creditor, and two rating agencies awarded its debts to investment status grade. (Bureau, 2015)
However, the country experienced two-quarter's recession in 2008 after it had strong growth in 2007 and a part of 2008. That was because the demand for its export based commodities went down with external credit drying up although its emerging market was the first to recover. In the 2010 investors, confidence and the consumers got growth of 7.5; the highest in 25 years. Inflation rise lead to the government measures to stabilize the economy and this actions as well as worsening international economy slowed growth to 2.7% and 1.3 in2011 and 2012 respectively. (OECD, 2015)
On the other hand, the unemployment level hit its lowest level in 2009, but the high-income inequality has declined for every year in the last14 years. The high-interest rate has lead to it being attractive to investors and the high capital inflow for several years as the country’s currency appreciated affected its local manufacturers and businesses’ competitiveness and their capital inflow. (OECD, 2015)

Brazil Economic Data

Source: (PWC, 2010, OECD, 2013)
Data interpretation
In view of the economic data, is clear that Brazilian economy has been experiencing increased economic growth given the increasing GDP over the period from 2009 to 2013. However, the country is marked by mixed trends in other economic factors such as increasing interest rate, decreasing unemployment and increasing inflation.
3.1.3 Political and legal issue on foreign investment and franchising
The Brazilian government has a general policy that is to fight poverty by promoting overall economic growth. However over the years political situations, tough economic measures put in place to reduce inflation that include high-interest rates together with the problems of reducing and repaying foreign debts have affected the policy. (PWC, 2010)

The planning guide for both national and local government policies consideration and foreign investors is as follows.

Free trade and enterprises are supported by the state and the federal government.
The government has welcomed foreign investments which in return are required to benefit its citizens and Brazil in general in job and wealth creation.

Treatment by the government of both the local and foreign investors with equal measures.

The policies which are put in place favors delegation of businesses together with lessening of bureaucratic interference unless for business in infrastructures such as telecommunication, energy, water supply, healthcare and petroleum which the government have placed under extensive regulatory oversight (PWC, 2010)

Investment possibilities/restrictions

There is an open attitude by the government toward foreign investors.
In general terms, the government has allowed a 100% foreign.
Financial institutions have some restrictions on foreign ownership together with communication and other strategic sectors and rural land.
Joint venture partnership with the locals is favored but is not essential (PWC 2010)
Culture and social status
Brazil’s social and cultural life has a mixed background of the immigrants from all over the World thus offering a broad range of cultural and social status varying from one region to another. Most of the major cities features lifestyles marked by cultural institutions, recreation and leisure activities that are mainly outdoors and taking the advantage of the good climate. The country’s culture and social status can also be defined by its ethnic composition, religion and languages as follows.

Ethnic groups

According to the 2000 census, the white who makes up 53.7%, those who are the mixer of black and white 38.5%, the blacks 6,2% and others who includes Japanese, Arab and the Amerindians 0.9% and those unspecified 0.7%. (CIA, 2015)

Languages

Portuguese is the Brazilian official language and the most widely spoken. There are other fewer common languages such Spanish, Italian, Japanese, English and a number of minor Amerindian languages. (CIA, 2015)

Religions

The Roman Catholic, who are the nominal 73.6%, Protestants who makes up 15.4% the Spiritualist who are 1.3% Bantu or the Voodoo 0.3% Those in the religions that fall under the others category1.8%The unspecified 0.1%and those with no religion by 2000 census. (CIA, 2015)

McDonalds

Company characteristics
McDonald continues to be the world’s most recognized premier franchise. The company is marked by a brand that prides on its inspiring model with a value-added services, as well as a model of cleanliness and quality. (McDonalds, 2015a) The business has global operations serving more than 69 million customers in over 100 countries.

McDonald background, how it entered to Brazil, resources, and management style

Entry of McDonald in Brazil was in1979 as a joint venture with Reo De Janeiro entrepreneur Peter Rodenbeck and Reo being where the first store was opened. The second store was opened in1981 with the partnership with a businessman based in San Paulo in a JV Gregory James Ryan (Ryan). McDonald set its first franchise store in 1987 in Brasilia as the first two were set up as Joint Ventures. McDonald’s franchise operation in Brazil toke sometimes as they wanted to provide Brazil with interesting packages. (McDonalds, 2015a)

Localization

There has been some adaptation to the foods by McDonald on its menu. For instance; there was only coffee for its breakfast and light roll in its Brazilian outlet. This was a different menu from the western style McDonald, and there was a note that orange juice was served as daily beverage and not as a breakfast as in America the same as soda. Brazilians were used to taking fruit juice they started offering fresh fruit juice of high quality. They too served apples and apples in combo with cereals, yogurt, and orange juice and also they started serving guarana, maracuja, tropical fruit juice and other national drinks. (Euro Monitor, 2015)

Competition

Informal sector of dining in Brazil the year 2001 was worth U.S $1.75 billion with 25% of the market in Brazil being captured by McDonald’s. The greatest competitor for McDonald being Habib’s and Bob’s shared 15% of the dining market with the remaining 60% was shared between bakeries, cafeterias, hot dog vans and the informal eateries. (Euromonitor, 2014)

The road ahead

As per the McDonald’s, Brazil market was its main in South American region as it accounted for bigger portion of its revenues. In the first half of 2011 52% of the revenues recorded by Arcos were from McDonald Brazil. Some analysis of the market showed that with growing middle and lower class population served as the main entry point for the first food market, and McDonald noted that Brazil was its growth driver in the future.

Success

McDonald has had successes in quarter of its sale outside United States, and one of its expansion successes is in Brazil. That is because there is a high population concentration in urban areas with fifty millions middle class living there. McDonald accounts for more than a third of the Brazil’s fast food market hence the market leader in terms of market share. The brand has more than 1300 franchises in Brazil with most being owned by Arcos Dorado’s Holdings Inc that is the world’s leading franchise for McDonald. (Euromonitor, 2014)

Constraints

The company faces challenges such as the US labor unions pushing for higher wages for workers in retail and fast food businesses. Hat has been informed by other businesses such as Wall-Mart’s increase of minimum wages. (Douglas, 2015) The brand also faces legal challenges such as the Union’s filing suits against the restaurants for violation of labor laws in Brazil and Latin America. The unions accused Across Dorados of social dumping; a practice that sought to undercut competitors. The suit seeks to ban the business from opening other restaurants in Brazil until the issue is resolved. (Reuters, 2015)

Adapting McDonald to Brazilian market

Addressing the local concern
McDonald’s received criticism despite its successes from Brazils other quarter one of them being from franchises. They alleged that its rapid expansion in the country with new outlets being established cut on their sales and opening of its outlets was violation of franchises contract they had signed. (Douglas, 2015)

Marketing

When entering any market McDonald usually focuses on market adapting strategies thus avoided adopting products that were common with those in their U.S outlets menu unless for those countries with high cultural difference with U.S like India and Japan. Their marketing strategies focused on youth whom they felt were open minded to new products as opposed to traditional foods. (Keller, 2013)
The brand’s success in the country can be attributed to the aggressive expansion of the key and large cities as well as creative marketing strategies. A good example of the marketing strategy is the company’s sponsor for sports such as the FIFA world cup that enables its brand to appear on FIFA’s promotional materials website. (Bloomberg, 2015)

Conclusion / recommendation

In view of the analysis, NIC countries have better performance compared to developing countries but have not reached the level of the developed countries. In that respect, the economies present opportunities for international businesses and are mainly referred to as emerging markets. In that view, Brazil as a NIC presents opportunities for international businesses. That has been marked by the country’s favorable factors such as demographics that feature a significant population growth, better and improving living standards as well as youthful population that enhances demand. In addition, the country’s economic status has been found to be suitable for business operations given the trend in improving economic growth. However, the country [presents some challenges in terms of increasing inters hat raises borrowing cost, as well as increasing inflation that, could have an adverse effect on demand. Further, the country has a suitable political structure and environment that is accommodating of foreign investments hence an attraction to international businesses such as McDonalds. (Keller, 2013)
On the other hand, McDonald has been identified as a successful brand in the global marks with is Franchise model that reaches across 100 countries. The brands strategies have been successful in venturing into new markets given reliance on local entrepreneurs who have good local market understanding. The strategies include product positioning that suits the brand for local markets while introducing the western brand o the markets. However, the increasingly challenging and changing business world requires the business to enhance its operations through various strategies recommended as follows. (Fill, 2011)

Pricing

Owing o the increasingly challenging economic environment in the market, the business should enhance its pricing strategy by providing suitably priced products that deliver value to customers. That is given the rising youthful segment that could need low-cost products given they could be low-income segment. (Cateora, Graham & Gilly, 2012)

Advertising

Given the increasing adoption of the social media, the company should increase its use of the media o reach to the youthful segment that is becoming a significant market and which can be easily reached by he means. (Varley, 2002)

Packaging

As a means of enhancing its attraction to the youthful segment that is increasingly becoming a significant segment, the company should improve packaging to feature their tastes. In addition, packaging should be improved as a means of enhancing the business sustainability by addressing environmental issues. That could entail reducing the packaging materials as well as using recoverable packaging materials. (Hill, 2014)

Brand Location

Considering the increasing urbanization in the Brazilian market, he business should increase its presence in all strategic locations to serve he increasing urban population that accounts for significant demand given the on the move lifestyle. (Cateora, Graham & Gilly, 2012)

Sustainability

In addition o enhancing sustainability through the adoption of advanced packaging methods, the business should also seek to enhance its raw materials sourcing by ensuring ethical sourcing. (Sengupta, 2005)That would address the issue of increasing market awareness and focus on international businesses ethical conduct. The strategy would enhance the brand image hence attraction to the sensitive market. (McDonalds, 2015d)

Reference list

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