Venturing Into an Export Market

QUESTION

American Giant, an apparel manufacturing company from the U.S.A., wants to expand in South America by starting to export on some major markets there http://www.american-giant.com/why-were-here.html Their first targets are Argentina and Brazil.

• Analyze the company and its domestic market. Then select one of the two countries and analyze its main indicators of the macroenvironment.
• Write an overview regarding the main risks and opportunities of exporting in the country of your choice. What changes would you recommend them to make regarding their products or business strategy?
• Your assignment should be a paper two to three pages long, not including the required title and reference pages.
• Adhere to the CSU-Global Guide to Writing and APA.
• Include at least three scholarly sources (you may use the recommended readings) to support your answers. The CSU-Global Library is a good place to find these sources. Remember to use in-text citations as appropriate and to include your sources in your reference page.

ANSWER

Venturing Into an Export Market

American Giant

American Giant Company, an organization dealing in apparel manufacture is situated in the United States. The company specializes in modern, high-quality apparel making, by employing latest technology and engineering. The company is only based in the U.S, creating many job opportunities and supporting local industries. Sale of its products is localized, with no foreign market. The company, however, wishes to expand into the South American region, and export its commodities into the countries in South America. Brazil offers a good large market for apparel products. A study of the county’s business viability shall be helpful in the decision on whether to export commodities into the country.

An Analysis of Brazil’s Business Environment

Brazil is the largest and most populated (about 207,353,391 people) country in South America. Almost 45% of this large population comprises of young people between the age of 25 and 50 years. About 87% of the total Brazil population lives in urban areas, with well-developed infrastructure and facilities (Brainard, Martinez-Diaz, 2009). This group of individuals is the perfect market for apparel products, especially the fashionable and trendy wear manufactured by American Giant. The country’s large economy, even though currently recovering from a recession, is very favorable for investment. The government has also imposed economic reforms aimed at reducing barriers to foreign investors, and also reduce government spending. The economy is largely agricultural, producing coffee, wheat, rice, corn, cocoa, beef, and soybeans (Martinelli, Naylor, Vitousek, Moutinho, 2010).

The country’s GDP per capita was $15,500 in 2016 and 2017, with a GDP real growth rate of 0.7% in 2017. Brazil is also quite industrialized, producing shoes, cement, timber, textiles, tin, iron ore, motor vehicle, and aircraft parts. The country’s inflation has been quite high since 2015 but is on a downward stride from the last quarter of 2017 (Ravenhill, 2017). The country’s leading exports include iron ore, coffee, soybean and motor vehicle. Brazil mostly imports machinery, oil, chemicals, and electronics. 17% of the nation’s imports originate from the United States. This means that American Giant’s entry into the Brazilian market would be smooth and cost-efficient.

Recommendations

With the local currency having a low exchange rate against the US dollar (an average of 1:3), business transactions would be less hectic. The citizens of Brazil can afford American Giant’s products, priced in US dollars. This is very favorable for the business, as affordability of their products will determine the number of sales made. The Brazilian economy is characterized by well-developed and spread out communication and transport networks. By the year 2013, there were more than 4,000 airports and 29,000 kilometers of a railway (Moraes, Ferrer, 2010). Business undertakings in Brazil would, therefore, be seamless.

All the macroeconomic indicators show that a good opportunity exists for exportation of products into Brazil. However, risks and challenges also exist. The country has a high rate of crime, especially gang-related, due to a high narcotics usage. Brazil is ranked in world standards as a major player in cocaine production, trafficking, and consumption. It is also one of the major outlawed cannabis and other narcotics producers (Zaluar, 1999). There is also the rampant corruption and constantly fluctuating inflation rates. These pose a huge risk to businesses intending to enter the market. American Giant should invest in the country with care, and gradually. A large investment increases the chances of losses.

They should also invest in other advertisement media, besides the internet, to appeal to Brazilian consumers and reach the population not connected to the internet. I would also advise the management to come up with light apparel that will be appealing to the population, as most of the country is hot (being on the Atlantic shore), with a tropical climate. This type of climate experiences sunshine and quite high temperatures throughout the year. Only a small portion of Brazil experiences temperate climate (Alvares, Stape, Sentelhas, de Moraes, Leonardo, Sparovek, 2013). Light clothes and beachwear will be quite impressive to most of the people living in Brazil.

References

https://www.american-giant.com/home

The CIA WORLD FACTBOOK- Brazil

Brainard, L., & Martinez-Diaz, L. (Eds.). (2009). Brazil as an economic superpower?: understanding Brazil’s changing role in the global economy. Brookings Institution       Press.

Martinelli, L. A., Naylor, R., Vitousek, P. M., & Moutinho, P. (2010). Agriculture in Brazil: impacts, costs, and opportunities for a sustainable future. Current Opinion in Environmental Sustainability, 2(5-6), 431-438.

Ravenhill, J. (2017). Global political economy. Oxford University Press.

Moraes, T., & Ferrer, J. (2010). Brazil infrastructure. Working Papers The George Washington University, Washington, DC.

Zaluar, A. (1999). Violence Related to Illegal Drugs,” Easy Money” and Justice in Brazil: 1980-1995. Unesco-Management of Social Transformations Program.

Alvares, C. A., Stape, J. L., Sentelhas, P. C., de Moraes, G., Leonardo, J., & Sparovek, G. (2013). Köppen’s climate classification map for Brazil. Meteorologische Zeitschrift,  22(6), 711-728.