Brazil: Introduction to International Expansion

Brazil: An Introduction to International Expansion

Jeff Burney

Shorter College
Brazil: Introduction to International Expansion
2

Abstract

This paper will discuss the prospect of opening business operations in Brazil. The paper

will review several different areas that will help make a final decision on foreign operations

within Brazil. We will review the governmental atmosphere, labor conditions, and education in

Brazil. In governmental atmosphere, the topics of political stabilization and culture will be

reviewed. Ethics and religions will be discussed under culture. Labor conditions will deal with

the laborer’s work environment and labor unions. Education will discuss how it affects income,

how the education system is provided and how it affects politics. These areas will be used to

make a final decision on moving forward with foreign operations.

Brazil: Introduction to International Expansion
3

Introduction

Brazil is a very diverse country. It has a diverse background when considering it’s

demographics, culture, politics etc. It is the 5th largest country in the world behind Russia,

Canada, China, & the US with a land area of 8,514,876 km2. Most of the country has a tropical

climate and includes the Amazon Rainforest. Brazil is home to diversified habitats. They have

a wide variety of wildlife, natural environments, and extensive natural resources.

Brazil has the 10th largest economy in the world and has the largest economy in South

America. It has a GDP per capita of $10,200. They are a major exporter of aircraft, electrical

equipment, automobiles, iron ore, coffee, etc. Their currency is currently tied to the US dollar.

Brazil has a population of 190,000,000 people. The population is mostly mixed among

two different races. The population is approximately 48% white and 44% brown or multiracial.

The illiteracy rate is around 12% and only 1.74% among the population between 15 and 19 years

of age. The predominant religion in Brazil is Roman Catholic, with 74% of the population

identifying itself as such and 15%-20% identifying itself as protestant. The number identifying

itself with Catholicism makes it the largest Catholic nation in the world.

Brazil is the largest country in Latin America and is the only Portuguese-speaking

country. Brazil gained its independence from Portugal in 1822 as the Brazilian Empire and

became a republic in 1889. Brazil has been plagued with multiple governmental changes since

1889. It has changed from a democratic republic to military dictatorship multiple times. In

1974, General Ernesto Geisel became the president and started the country on its current path of

re-democratization. This has been done through a very purposeful and slow process. A civilian

government has been in control since 1985 and is one of the longest spans of democratic control

in the past 120 years. Brazil’s government has three parts much like the United States. They
Brazil: Introduction to International Expansion
4

have the Executive, Legislative and Judicial. Brazil is currently a Democratic Republic with a

Presidential system that allows for two four year terms for the elected president. The National

Congress consists of two parts, the Chamber of Deputies and the Federal Senate. Judiciary

authorities have virtually full control of the legal system of Brazil, with the highest court being

the Supreme Federal Tribunal. The country has four main political parties: the Workers’ Party

(PT), Brazilian Social Democrat Party (PSDB), Brazilian Democratic Movement Party (PMDB)

& Democrats (DEM). Brazil is made up of 26 states and 1 Federal District, Brasilia the capital

of Brazil. Brazil has a three prong military consisting of the Brazilian Army, the Brazilian Navy,

and the Brazilian Air Force. It has the largest military in Latin America.

In Hill’s textbook, he tells us that “International business is much more complicated than

domestic business because countries differ in many ways.” To help understand these

complicated differences and to try to solve and/or be better prepared for them up front, we will

focus on a few points with opening up our business operations in Brazil. Influential aspects are

the governmental atmosphere towards business, education and labor. We will be looking at how

each of these items would affect opening our operations in Brazil.

The governmental atmosphere can cover a wide range of areas. We will be focusing on

the market and culture of Brazil. Within culture, we will see how it affected by ethics, religion,

and politics. We will look to see how both the market and cultural issues affect the opening of a

new international business.

Labor conditions in any international market are very important. We will look to see how

the labor conditions may affect our company in Brazil. The paper will discuss work conditions,

labor unions and child labor. We will review how this may impact the company in the future and

how to be prepared for issues ahead of time.

Brazil: Introduction to International Expansion
5

The education of a location is very important when looking to open new operations. We

will review how education has changed over time in Brazil. Also, the discussion of education

will include whether or not the country can sustain the type of workforce needed to produce a

certain product. We will look at how culture affects the type of education that is provided to the

citizens of Brazil.

Governmental Atmosphere

Brazil’s governmental atmosphere has been one of almost constant turmoil and upheaval.

Brazil has ranged from civilian democratic control to military dictatorships, through military

coups multiple times in the last 120 years. Since the mid 1980’s, the government has become

more stable and has had peaceful transitions of leadership through democratic elections. We will

review Brazil’s governmental atmosphere by looking at the recent history of Brazil’s market,

politics, and how Brazil’s culture affects it.

Brazil has suffered through some hard economic times over the past 20-30 years. During

the 1980’s when much of Latin America was suffering through a major debt crisis, Brazil

managed to survive. According to Armijo & Faucher (2002), “through export revenues, through

external capital flows attracted by high interest rates and debt refinancing, and at the cost of a

long period of low growth with high inflation—to weather the 1980s with neither adjustment nor

economic collapse.” In 2002, Brazil had to request and receive a rescue package from the

International Monetary Fund (IMF). Brazil received $30.4 billion in aid from the IMF in mid

2002, which at that time was a record amount. They were able to repay the package by 2005,

even though it was not due until 2006.

Culture can make a large difference when deciding where to open our new business.

Culture has a strong influence over the ethics of a country or even regions within a country. We
Brazil: Introduction to International Expansion
6

would need to review the idea of ethics for each area we look to do business. In Sims & Gegez

(2004) article on the Attitudes Toward Business Ethics, they claim “Attitudes toward business

ethics may vary so greatly even within one culture that trying to come to a consensus across

cultures can become nearly impossible.” One item that we would want to ensure that we review

is the differences in the subcultures of Brazil. We would not want to go into Brazil with a

general belief that one overarching cultural view would cover the whole country. We will

review how different cultures may affect our business operations in Brazil. Lenartowicz and

Roth (2001) list “four regional Brazilian subcultures: Mineiros from the Minas Gerais state,

Cariocas from the Greater Rio de Janeior, Paulistas from the Sao Paulo state, and Gauchos from

the Grande do Sul state.” Through our evaluation, it would be important to look at how this

would affect the opening of our business in any country. Also, we want to review how ethics

might be different within the Brazilian culture. Are there differences between the ethical

decision making in the United States and Brazil? According to Beekum, Stedham, and

Yamamura (2003) in a study of business ethics makes the claim that “Clearly, respondents from

Brazil and respondents from the United States differ in their assessment of the ethical content of

business decisions.” In addition, Beekum, Stedham, and Yamamura (2003) give a good

description of how to work with a Brazilian. They state that “A Brazilian individual judges

whether a proposed action may be ethical or not based on the consequences of the action for the

relevant in-group to which he/she belongs. Americans involved in business with Brazilians must

understand and consider this emphasis when trying to convince a Brazilian that a certain action is

ethical and the ‘way to go’”. This shows a strong lean towards collectivism, which is the

opposite of the individualistic tendencies we have in the United States. In a review of

Lenartowicz and Roth, Byles (2002) came to a very point blank conclusion that “Clearly,
Brazil: Introduction to International Expansion
7

companies are seeking ways to adapt their ability to understand the mysteries of culture and put

that understanding to good use in the marketplace.”

Religion can also affect the culture of a foreign market. With Brazil’s increase in

protestant population to approximately 20% of the population, the protestant Brazilians have

shown more inclination to politics than their catholic counterparts. Since the increase of the

protestant population, it has allowed for my protestant politicians to be elected on their own

religious platforms. According to Patterson (2005), “more than 50 Protestants were elected to

the national legislature in 2000”. A solid evaluation of the religious affiliations of the area we

are looking to operate in would be vital to our international operations.

The governmental atmosphere may be one of the most important topics we review as we

consider business in Brazil and any other foreign locations. These topics can make or break our

business ventures as we move forward with an international expansion.

Labor Conditions

In Logsdon & Wood’s (2005) article in the Journal of Business Ethics, they state “Labor

conditions and human rights, along with environmental practices, have assumed a place of

prominence for global stakeholders. These two areas of concern contain a vast number of

specific issues on which little or confusing guidance is available to multinational enterprises.

Even more powerful is the mounting pressure for global social justice in trade practices,

compounded by severe concerns about job loss and downward income pressures in developed

countries.” There can be a big difference between labor conditions in an international and

domestic business. Labor conditions can vary widely throughout the world. What we consider

poor working conditions in the United States may be considered ideal in other regions. When it

comes to working conditions, we as a company must decide who we want to deal with for our
Brazil: Introduction to International Expansion
8

transactions. If we are happy dealing with international businesses that have less than ideal

working conditions which allow us to make a bigger profit, that is a decision we must be

prepared to defend if we are ever attacked. The company must make a decision and decide how

we feel about working with these companies. Having regulations in place on how to deal with

this before it becomes an issue would be a good business decision.

A consideration of opening a business in Brazil will be Labor Unions. According to Arat

(2002), Brazil has a high union membership. Brazil has progressed to what Mark Riethof (2004)

calls new unionism. He says that this new unionism has four primary characteristics, “it focused

on internal democracy and the democratization of labor relations…,secondly the movement

emphasized autonomy from the state and a rejections of corporatist unionism…, thirdly the new

unionism maintained strong connections with social movements and, in the Brazilian case, a

strong relationship with a new left-wing party based on labor unions, the Workers’ Party…,

Fourthly, the unionism’s objectives, strategies, and membership were based on a broad view of

the meaning of representation that involved attempts to include and organize workers outside the

formal sector and to link the representation of workers’ interests with a wider political program

for democratization and socioeconomic change.” The new unionism has shown its power when

in 2002 the Workers’ Party was able to elect one of their own, Luiz Inacio Lula da Silva a former

metalworker was elected to the presidency of Brazil. Relocating or opening a new business

venture in any area of the world makes it vitally important the company understand how much

and what kind of influence labor unions demand.

One of the considerations that we will need to review will be child labor. In an article by

Zehara F. Arat (2002), he cites an interview with Oded Grajew. In the interview, it is mentioned

that there are 3-4 million children under the age of fourteen that are working in Brazil. He
Brazil: Introduction to International Expansion
9

believes that a payment should be made to the family of these children to help support them in

school. He believes, “the main reason children work is because the family needs money”.

Labor conditions are very important in making a final decision on moving to Brazil. We

need to consider what kind of labor conditions we are willing to have our products developed

and produced. We need to put rules and regulations in ahead of time, so we do not have to deal

with these issues as they pop-up.

Education

Education is another important factor that must be examined when looking to open

operations in a foreign market. Over the past several decades, education has started to take on a

more important role within Brazil. There are four levels to the Brazilian education system: the

primary level (elementary), lower secondary (middle school), upper secondary (high school) and

tertiary (university) with each level being completed after a graduation test. There are many

aspects of education that can be reviewed. How does the education of an international market

affect labor force’s income, the way that the schools are operated and participation in politics?

We will touch on each of these topics.

Education can have a large impact on business. Education, especially as it increases, will

normally cause an increase in pay. Brazil has seen this over the last few decades. Blom, Holm-

Nielsen, and Verner (2001) tell us, “The average Brazilian worker in 1998 had received more

years of schooling than comparable workers in 1982. During the same period, Brazil went

through a series of economic structural adjustment periods.” These adjustments have helped

with an overall increase in Brazilian education. Brazil is still suffering from a lack of educated

laborers. Blom, Holm-Nielsen, and Verner (2001) also tell us “Brazilian firms are increasingly

demanding workers with a university degree, but too few Brazilians are getting advanced
Brazil: Introduction to International Expansion
10

degrees. This shortage is making it increasingly attractive to obtain a university degree.” The

lack of university degrees has caused an increase in salaries for those who obtain a university

degree. The lack of university educated workers will need to be reviewed before making a final

decision on operations within Brazil.

Another impact that has affected the education system of Brazil is a change in the way

the educational system is set-up. More control has been given to the local governments with less

supervision from the state and federal government. One example is mentioned by Alexander

(2001) when he discusses Minas Gerais. “In the Brazilian state of Minas Gerais, decentralization

shifted responsibility for decision making from the state capital to school boards headed by an

elected principal and composed of equal numbers of parent representatives and school staff.

Educational standards have improved, and dropout and repetition rates have dramatically

declined.”

Education can affect the political process as well. As Brazilian education increases,

citizens are taking more of an interest in political topics and elections. Patterson (2005)

discusses this in one of his papers. He states “Thus Brazilians who are the best educated are the

most likely to feel politically engaged.” As the more educated Brazilians continue to become

more involved in politics, it will continue to open doors for new politicians to enter the political

realm. It will allow for greater diversity of leaders within all levels of the government. It can

also cause changes within the laws that are in place to govern worker conditions, and we would

need to keep a close check on these changes.

Education will play a vital role in the opening of a new venture for our company in a

foreign market. Therefore, we must make sure that we play close attention to what kind of

unskilled or skilled workforce we will require.

Brazil: Introduction to International Expansion
11

Summary

In conclusion, we will summarize the topics presented in this paper to help decide

whether or not the company should move forward with opening operations in Brazil. The

summary will cover the main topics about the governmental atmosphere, labor conditions, and

education in Brazil.

The governmental atmosphere of Brazil is an important topic to review before

commencing with operations in Brazil. The government of Brazil has stabilized tremendously

over the last 30 years. The continuous change in governments leading up to the early to mid

1980’s would have made it very difficult to have done business in Brazil. The slow change from

a military dictatorship to democratic control seems to have helped Brazil stabilize itself under

democratically elected officials. This stabilization will help in making a decision in doing

business in Brazil.

In regard to the culture, there are a few topics that we need to consider. We would need

to review the individualism/collectivism tendencies of Brazil. Brazil shows a stronger tendency

towards collectivism. In a survey in Beekum, Stedham, and Yamamura (2003) article, it

mentions a survey that shows “Brazil scored low on individualism, and hence is considered a

collectivistic country; by contrast, the U.S. scored high on individualism and is considered an

individualistic country.” This would be a very important topic to discuss with our domestic

managers as they work with the leadership and employees that we would have in Brazil. If they

do not understand how to work with a collectivist society, it could be disastrous to operations in

Brazil.

The religion aspect of the culture of Brazil will also need to be considered. Religions

have made a large impact in the whole world. We would need to break it down and review the
Brazil: Introduction to International Expansion
12

local areas that we are looking to open foreign operations. With the increase in the protestant

population of Brazil, the company needs to understand what this can mean to the politics of

Brazil. The company needs to be prepared to deal with the increase in the protestant population.

In an article by Patterson (2005), he clearly states what the rise in protestant population means to

Brazil, “The increasing religious pluralism of the region may imply that Latin American

countries are becoming more open and tolerant-values that are fundamental for democracy to

thrive”. This would be another strong sign to the stability of the democratic government of

Brazil.

Labor conditions also need to be reviewed when summarizing the possibility of moving

opening operations in Brazil. There are two topics that we will need to discuss, labor conditions

and unions.

Labor conditions are a very important part of doing business in foreign markets. There

are a few ways of viewing the labor conditions of some areas. First, the company needs to

decide what kind of work environments are suitable conditions for their employees. Secondly,

the company needs to consider the possible public relations fiasco that could happen if the

company is associated with producers in foreign areas that are accused of operating sweat shops.

There are a few ways to counteract this problem. The company can do random surprise

inspections of the facilities that are producing our goods. In addition, it would probably be

beneficial to help out the local community with needs that are not always met. The company

could help with the public relations portion by advertising what the company is doing to help

these local poorer areas.

Labor unions are a strong consideration that needs to be discussed. With Brazil having a

strong labor union presence, it would need to be discussed ahead of time and how the company
Brazil: Introduction to International Expansion
13

would want to interact and negotiate with these unions. Being prepared ahead of time before

having to face the unions could be a strong advantage for our company.

Education is extremely important when deciding which foreign markets to move into.

The company must ask itself multiple questions about the education of the area. A few of them

are how will income affect our operations, how the education system is build, and how politics

will affect it.

The main focus that we will look at in conclusion is how the increase in education is

affecting Brazil’s labor force. Blom, Holm-Nielsen, and Verner (2001) have done a lot of

research on how the change in the education system has affected Brazil. Some examples of an

increase in the education system are “By far the largest expansion in completed schooling has

taken place among the middle levels of education. The group of workers with completed lower

secondary education increased by 27%, and the share of workers with upper secondary education

expanded by a remark-able 68%.” This is an amazing increase in the education system of Brazil.

This increase in greater education has also caused an increased in income levels in Brazil. Blom,

Holm-Nielsen, and Verner (2001) completed a study on how Brazilian’s increasing their

education level affects their income, they state “In 1998, an average metropolitan worker earned

R$199 a week for an average work week of 41.9 hr.6 this implies an hourly wage of R$4.7.

Education is a key determinant of wage in Brazil. The largest difference between educational

groups is epitomized by the 814% difference between the monthly wage of a university graduate

and a worker with no degree” One of the most important factors that our company will have to

review when we are looking at new ventures is how the education system is doing in that

country. With the continuing higher education level of the Brazilian populace over the last 30
Brazil: Introduction to International Expansion
14

years, we will need to consider that the incomes we are paying our new employees in Brazil will

continue to rise for the foreseeable future.

Taking everything in to consideration in this paper, it would be my recommendation that

the company moves forward with opening operations in Brazil. The stabilization of the

government over the past 30 years has taken care of one of the main concerns of opening

operations in Brazil. The other points that the company will need to focus on are the differences

in culture between the United States and Brazil, how the company plans to deal with labor

conditions and labor unions in Brazil, and ensure that the right kind of skilled labor will be

available through the education system for the part of Brazil that we will be operating in.
Brazil: Introduction to International Expansion
15

References

Alexander, N.C. (2001). Paying for Education: How the World Bank and the International

Monetary Fund Influence Education in Developing Countries. Peabody Journal of

Education, 76, 285-338.

Armijo, L.E., Faucher, F. (2002) “We have a Consensus”: Explaining Political Support for

Market Reforms in Latin America. Latin America Politics and Society, 44, 1-40.

Arat, Z.F. (2002). Analyzing Child Labor as a Human Rights Issue: Its Causes, Aggravating

Policies, and Alternative Proposals. Human Rights Quarterly, 24, 177-204.

Beekun, R.I., Stedham, Y., Yamamura, J.H. (2003). Business Ethics in Brazil and the US: A

Comparative Investigation. Journal of Business Ethics, 42, 267-279.

Blom, A., Holm-Nielsen, L., Verner, D. (2001). Education, Earnings, and Inequality in Brazil,

1982-1998: Implications for Education Policy. Peabody Journal of Education, 76, 180-

221.

Byles, C.M. (2002). Brazil’s Distinct Subcultures: Do They Matter to Business Performance?.

The Academy of Management Executive, 16, 2.

Hill, C.W.L. (2009). Global Business Today (6th ed). New York: The McGraw-Hill

Companies, Inc.

Lenartowics, T., Roth, K. (2001) Does Subculture within a Country Matter? A Cross-Culture

Study of Motivational Domains and Business Performance in Brazil. Journal of

International Business Studies, 32, 305-325.

Logsdon, J.M., Wood, D.J. (2005) Global Business Citizenship and Voluntary Codes of

Ethical Conduct. Journal of Business ethic, 59, 55-67. doi: 10.1007/s1055i-005-

3411-2
Brazil: Introduction to International Expansion
16

Patterson, E. (2005). Religious Activity and Political Participation: The Brazilian and Chilean

Cases. Latin American Politics and Society, 47, 1-29.

Riethof, M. (2004) Changing Strategies of the Brazilian Labor Movement: From Opposition to

Participation. Latin America Perspective, 31, 31-47.

Sims, R.L., Gegez, A.E. (2004) Attitudes Towards Business Ethics: A Five Nation

Comparative Study. Journal of Business Ethics, 50, 253-265.