Brazil and India business environment comparison Essay

The United States and Brazil entered into a common agreement targeting to improve democracy in the Western Hemisphere and to bring an accelerated growth in regional trade and development so that the governments of the region can ensure its citizens better scope for greater prosperity. (Common Goals and Challenges in Brazil-US’s Agenda) The prospects for conducting business in Brazil are tremendous in view of its 150 million possible consumers, a hugely diversified economy and a gross domestic product worth of US$447 billion. However, till the nation attains improved market and economic reforms, majority of the opportunities for US companies are prone to hover around particular sectors and projects. (Jennings, 14) The closed markets and heavy government interventions marked the economic development of Brazil during the last thirty years. During the 1960s and 1970s, such policies of import substitution and huge levels of international debt generated accelerated growth and industrialization however, giving rise to long term problems like long term economic difficulties, inclusive of high inflation, foreign debt difficulties and non-competitive industries. During the year 1990 the Government of Brazil initiated remarkable market liberalization measures including reduction of trade and investment barriers, declining import duties over 100% to a high of 35% inclusive of an average of 14%. Market liberalization also incorporated several tax and regulatory variations that have been of advantage to the foreign investors. The reduction of taxes on profit remittances and simplification of procedures and withdrawal of some of the disincentives to reinvest the profits have provided increasing scope for business activities in Brazil. As a result, the trend of the reaction of US companies was seen to be remarkable. (Jennings, 14) US companies exported goods of worth $6 billion enabling Brazil to be among the top 20 export markets of the world. The United States tends to maintain the position of being the single country supplier to Brazil constituting about one-third of the total of the Brazilian imports. The telecommunication and informatics market of Brazil extends fabulous prospective for US business, for the equipment manufacturers as well as for the service providers. The Telecommunication sector provides a market worth of $3 billion in Brazil. The US companies have presently extended limited involvement in the telecommunication sector and are exploiting the benefits of extending private networks as well as equipments. The energy sector in Brazil also entails good prospects for US technology as well as equipment. The current agreements and subsequent legislations at higher government levels and the private sectors assures for future prospects. The US equipment manufacturers are encouraged to actually take benefit of the opportunities that already prevail and are prone to expand with regard to the internal demand that promotes the expansion of this sector. (Jennings, 15) The Indian markets along with its over one billion population, provides profitable as well as diverse opportunities for US exporters with the right kind of products, services as well as commitment. Such opportunities are accelerated with the depreciation of dollar in the recent years in relation to its competitive currencies. The infrastructure, high-tech, energy, health care, environmental, transportation as well as defense sector are prone to surpass the tens of billions of dollars mark in the mid-term as the Indian economy tend to globalize as well as emerge stronger. In the year 2005, the total bilateral trade was $26. 77 billion. The US exports to India in 2005 was enhanced to $7. 96 billion, which was a 30. 3 percent growth in comparison to the previous year. (India – Market of the month) The potentiality of India for US companies is promising since India is the second largest small car market of the world; India is one among the three countries that manufactures its own supercomputers; India is the one among the six nations that is able to launch its own satellites and; India is having the second biggest group of software developers immediately after the US. The Indo-US relation is presently growing through a remarkable transition. The two nations which were having a gap between them in political and economic terms during the latter part of the 20th century, presently consider their national goals converging on several areas. (India – Market of the month) Indian tariffs have been decreased considerably since the early part of the 1990s. Irrespective of the fact that the tariff and poor infrastructure entails remarkable challenges for foreign investment and development, the infrastructure needs in India also entail trade and investment facilities for US companies. The best prospects for US firms and US exports on the basis of estimated Indian imports from the US has been earmarked to be â€Å"Airport & Ground Handling, Computer and Peripherals, Education Services, Electrical Power Generation, Transmission & Distribution Equipment, Food Processing & Cold Storage Equipment, Oil & Gas Field Machinery, Pollution Control Equipment, Safety and security equipment, Telecommunication equipment, Textile Machinery, water etc†. (India – Market of the month) Condoleezza Rice, Secretary of State for United States and Celso Amorim, Brazilian Foreign Minister in their meeting on 26th April, 2005 in Brazil had a discussion in relation to the common agenda of the two nations as well as that of the unique challenges which were confronting the entire hemisphere. (Common Goals and Challenges in Brazil-US’s Agenda) Brazil as well as Argentina poses certain particular business challenges to be confronted by the US firms. For example, legal provisions with regard to importing technology materials require payment of duties, tariffs and a value added tax — VAT which is as much as 22 percent of the total cost in Brazil. The business is even more complex in Brazil due to the variation of importation laws from one province to another. The fluctuating currency exchange rates as well as local economic issues pose grave challenges for conducting business. (Business Spotlight: Arrow South America) Franklin L. Lavin, Under Secretary of Commerce for International Trade, American Chamber of Commerce, New Delhi on May 1st, 2006 remarked that the Indo-US relationship have improved on many fields and have great prospects in the sphere of trade. However, US face remarkable challenges as well. Irrespective of the fact that India has exhibited good trade statistics and the progress in the sphere of economic reforms and are opening markets during the last one and half decade there still need to be improvement in several spheres in order to reflect India’s important part in the world economy. The economic philosophies of Fabian socialism as well as third world nationalism are holding India hostage for many years. As a result of this it has been pointed out that even with 30 percent growth in US exports to India during the last year, India could constitute only 1 percent of all exports of US. The economic reforms in India is in relation to world reforms as a result of this the momentum of India is not impressive in the context of the competition for global attention. (Remarks by Franklin L. Lavin Under Secretary of Commerce for International Trade, American Chamber of Commerce, New Delhi) The annual US exports of $8 billion dollar is what the US ships to Canada within two weeks. In terms of the US foreign direct investment in India the cumulative figure is only $6. 2 billion at the end of 2004, US being the largest investor while the US FDI in Singapore remains amounts to be $56. 9 billion. Irrespective of the fact that tariff for non-agricultural products have significantly reduced, it still remains at 40% in case of agricultural products. The vibrant IPR regime is considered critical to the enhancement of a creative, technologically advanced economy. Irrespective of the fact that India has opened up a silver of its retail sector to foreign investment, presently, the sector is still considered to be closed to most of the American retailers. US companies required to obviate the aggressive competition exerted by the companies from Europe, Canada, Korea and Japan by knowing how to adapt their products as well as facilitate their activities in order to take advantage of the huge potential in India. (Remarks by Franklin L. Lavin Under Secretary of Commerce for International Trade, American Chamber of Commerce, New Delhi) The trading companies are generally prone to four types of risk such as strategic risk, operational risks, internal financial risks and compliance risks. (Sadgrove, 83) The trading risks in Brazil are considered substantially greater in comparison to the developed nations. The political risks like dismissal or appointment of a key government minister can exert influence on the value of the share of the company to have fluctuations. The purchase of shares of Brazilian companies is subject to increasing risks of fluctuations in the exchange rates that may exert considerable losses. Exchange rates also have a tremendous impact on the profitability. Inflationary trends also influence much on the profitability by making the services of the company more expensive. (Sands, 27) For US Government, for over several years Brazil has been a bastion of anti communism while the other states of South America seem to be leaning towards communistic. Moreover, the US companies in Brazil never desire to take the risk by means of their operations being disrupted by that of the shipping turmoil. (Fitzgerald, 20) The US companies engaged in outsourcing of their software development to India are prone to be hurt by the industrial espionage and poor intellectual property safeguards. However, India is seen to have a far outstanding cultural and legal climate for IP protection than many other nations offering offshore coding. (Pedraja; Toman, 164) References Business Spotlight: Arrow South America. Retrieved from http://www. arrow. com/media_center/news/BusinessSpotlightArrowSouthAmerica. htm Accessed 11 December, 2006 Common Goals and Challenges in Brazil-US’s Agenda. 27 April, 2005. Retrieved from http://www. brazzilmag. com/content/view/2207/ Accessed 10 December, 2006 Fitzgerald, Michael. Intellectual property protection. CIO Magazine. 15 November, 2003. pp: 18-21 India – Market of the month. US Commercial Service India. Retrieved from http://www. buyusa. gov/india/en/motm. html? print=1 Accessed 10 December, 2006 Jennings, Horace. Brazil: slowly emerging giant offers enormous potential. Business America. March, 1994. Vol: 115; No: 3; pp: 14-16. Pedraja, Rene de La; Toman, Rene De La Pedraja. Latin American Merchant Shipping in the Age of Global Competition. Greenwood Press. 1999. Remarks by Franklin L. Lavin Under Secretary of Commerce for International Trade, American Chamber of Commerce, New Delhi. 1 May, 2006. Retrieved from http://www. ita. doc. gov/press/speeches/lavin_050106. asp Accessed 11 December, 2006 Sadgrove, Kit. The Complete Guide to Business Risk Management. Gower Publishing, Ltd. 2005. Sands, Gary. The Risks and Rewards of Investing in Brazil. Brazzil Magazine. 23 March, 2005. pp: 27-30