GROUP MINI-CASE 3.

2: BRAZIL

GROUP 3
1 Lê Duy Hoàng Nam 31211020032
2 Trần Bình Phương Linh 31211021077
3 Võ Khánh Linh 31211026839
4 Thân Nhật Kha 31211025214
5 Nguyễn Trần Minh Thắng 31211025052
6 Trần Tú Uyên 31211025463

Question: Based on this mini-case and your own research, sketch a business system analysis of
Brazil

OVERVIEW

Brazil is the largest country in both South America and Latin America, and the fifth-largest
country in the world by both land area and population. It has a diverse and vibrant culture, with
influences from indigenous, European, African, and Asian traditions. The country has a diverse
economy, with significant contributions from agriculture, mining, manufacturing, and services.
In the early 20th century, Brazil underwent significant industrialization and modernization, with
the country becoming a republic in 1889. Brazil is now an important player on the world stage,
with a rich cultural heritage and a diverse economy

BUSINESS SYSTEM ANALYSIS

1. Governance:
1.1. Ownership system
Instead of pure privatization, the Lula administration promoted public–private
partnerships (PPP). PPP companies are enterprises with the majority of their stock
owned by the government, but also having shares owned by the private sector and
usually traded on stock exchanges. The take-up of this scheme has been
disappointing and state-owned companies are still playing a dominant role in the
financing and construction of large infrastructure projects. In 2017, the
government is considering rule changes for the PPPs that could make them more
attractive. Banco do Brasil, Petrobras, Sabesp and Electrobras are examples of
mixed-economy companies. Other major companies such as Vale (mining) or
Embraer (aircraft manufacture) are former state-owned enterprises. The Brazilian
corporate landscape also includes family-owned conglomerates such as the
Odebrecht group.

Micro and small enterprises (MSEs) account for the overwhelming majority of the
total number of Brazilian enterprises (98.5%), contributing to 54.5% of formal
employment (2016), and to 30% of GDP. MSEs play an important role in creating
new formal registered jobs in the economy, according to data from the Brazilian
Ministry of Labor and Employment. Between 2007 and 2019, 12,4 million jobs
were created by MSE. In 2020, micro and small enterprises hired 293 200
employees, while larger firms dismissed 193 600 workers. With a relatively high
self-employment rate (32.9% in 2017), Brazilian policy makers have increasingly
 turned their focus to improving the business climate for SMEs and entrepreneurs
in recent years (OECD, 2017).

1.2. Networking system

Executives in Brazil are not well prepared to develop constructive, trust-based
relationships outside their country

According to a recent study on business relationships in Brazil, executives in the

country tend to encounter difficulties in developing positive relationships based
on trust with individuals and companies outside of Brazil. This may be due to
various factors, including cultural differences, language barriers, and a lack of
familiarity with the business practices and customs of other countries. As a result,
Brazilian executives may face challenges in establishing partnerships, negotiating
deals, or navigating complex business environments.

Challenges of Formal and Rigid Contractual Relationships in Brazil

The problem with contractual relationships in Brazil is that they often tend to be
too formal and rigid, which can pose a challenge for businesses seeking to build
trust-based relationships with external partners.
1.3. Management system
Brazil shifting from centralized hierarchies to entrepreneurial models

Traditionally, Brazil's organizational culture is considered a closed system with

centralized hierarchical structures and strong-willed leaders and patriarchal
models. However, since the early 2000s, Brazil's economy has gradually shifted
towards a more entrepreneurial model.

Career advancement in Brazil can depend on a variety of factors, and the relative
importance of each factor may vary depending on the specific organization,
industry, and job role. Here are some possible criteria that could influence career
advancement in Brazil: Performance, Loyalty, Education and credentials,
Networking and relationship building

2. Social Culture:
2.1. Rationality
Brazil has rather a long-term orientation than short-term (Concepts of
Leadership)

Brazil's focus on sustainability and responsible business practices is an example

of its long-term orientation. The country ranks 42nd out of 180 countries in the
Global Sustainable Competitiveness Index, indicating a relatively strong
performance in sustainability and competitiveness. Brazilian firms are adopting
sustainable practices and integrating ESG factors into their decision-making,
indicating a long-term perspective. The Brazilian Business Council for
Sustainable Development found that 95% of companies consider sustainability
important, and 63% have specific sustainability targets.
Brazil promotes long-term investment in its economy through the Growth
Acceleration Program (PAC), which invests in infrastructure projects. Since 2007,
 the program has invested over $329 billion USD in projects such as highways,
railways, and ports. The government also promotes the development of high-tech
industries and supports research capabilities in Brazilian universities.

Democratic is considered the appropriate process for reaching business

objectives

Brazil has seen a growing recognition of the importance of democratic processes

in business decision-making. A survey by Deloitte in 2018 found that 87% of
Brazilian executives believed involving employees in decision-making was
important for business success. Companies with more than 200 employees in
Brazil are also required by law to have a worker's council responsible for
negotiating with management on various issues.

Brazilian adopting stakeholders-centric approach for sustainability growth

Brazilian firms are adopting a broader value creation approach driven by changing
consumer expectations, regulatory requirements, and growing pressure from
investors and stakeholders for more sustainable and responsible business
practices.

A survey conducted by Deloitte in 2020 found that 71% of Brazilian executives

believe that their companies are already adopting a stakeholder-centric approach
to decision-making. In addition, a report by the Brazilian Business Council for
Sustainable Development (CEBDS) found that 80% of Brazilian companies have
policies in place for engaging with stakeholders, and 65% actively involve
stakeholders in decision-making processes.

2.2. Authority
Brazil's political system is based on a democratic federal republic, which means
that authority is distributed across different levels of government, including the
federal, state, and municipal levels. While Brazil has a democratic system of
government, it is not strictly based on either a hierarchy or an egalitarian
democracy. while there is a degree of hierarchy in Brazil's political system, the
country is ultimately governed by democratic principles, including the rule of
law, respect for individual rights, and the participation of citizens in the political
process.

2.3. Identity:
Brazilian culture tends to be more group-oriented and collectivist than
individualistic.

The Brazilian culture places a high value on social relationships and strong ties
with family, friends, and community. Brazilians tend to emphasize social harmony
and cooperation over individual goals and self-promotion. Family relationships
are highly valued, and there is a strong sense of loyalty and obligation to one's
family members.
 Furthermore, many cultural practices and traditions in Brazil emphasize the
importance of collective activities, such as celebrations and festivals, which are
often community events that involve the participation of many people.

3. Institutional fabric:
3.1. Financial capital
In Brazil, capital is allocated through a combination of mechanisms, including
banks, financial markets, planned economy, and informal channels.

Brazilian banks play a significant role in the allocation of capital in the country.
They provide a range of financial products and services, including loans, credit,
and investment opportunities. With more than 140 listed banking institutions, the
sector is still of a moderate size relative to the economy, with a credit-to-GDP
ratio of less than 50%. The mix of state-owned, private and foreign banks is highly
concentrated, with the five largest banks accounting for about 70% of sector
assets.
Brazil has a relatively developed financial market, including a stock exchange,
bond market, and currency market. These markets provide a way for companies
to raise capital through the issuance of stocks or bonds, and also offer investment
opportunities for individuals and institutions.
Overall, the allocation of capital in Brazil is a complex and multifaceted process
that involves a range of mechanisms and actors. The specific mix of mechanisms
used to allocate capital can vary depending on the industry, company size, and
other factors.

Foreign capital is welcomed in Brazil

Brazil has a liberal investment policy, allowing foreign investors to have a

majority share in the creation of their company.
In terms of FDI inflows, Brazil is the largest recipient in Latin America and the
Caribbean and the 11th largest country overall (6th the previous year). The
Netherlands, the US, France, Spain, and Canada are the top five investment
nations in Brazil. Investments are mainly oriented towards commerce, non-
metallic mineral products, chemical products, financial and auxiliary services, and
motor vehicles.
3.2. Human capital
On-the-job training and apprenticeships are encouraged in Brazil.

Similar to other apprenticeship initiatives around the world, the Brazilian program
trains young workers under special temporary contracts aiming to help them
successfully complete the transition from school to work. The program increases
the probability of employment in permanent jobs and decreases turnover rates and
formal labor market experience in 2-5-year horizons.

Union impact positively on profitability, productivity, wage and employment

"Unions affect Brazilian establishments' economic performance; too much

unionism can have negative effects. Union density has a concave relationship with
productivity, employment, and average wages, showing positive effects up to a
 certain density level. Profit-sharing schemes improved productivity and
profitability across all firms, but only increased average wages in more unionized
establishments. The union impact on profitability and productivity changed after
the early 1990s economic reforms, but their impact on wages and employment
remained stable over time.

The Role of Brazil's Informal Sector and Labor Laws in the Economy

The ‘informal’ sector is estimated to account for 40% of GDP (90% of workers in
agriculture and fishing are believed not to have formal work contracts). This
informal sector has long provided a social safety net for low earners amongst the
urban poor, and this group continues to account for the largest proportion of
workers employed in the informal sector.

The Brazilian labor law mandates employers to provide an additional month's

salary, called the 13th month salary. Furthermore, employees are entitled to a
vacation bonus equivalent to one-third of their monthly compensation and must
be paid two days before their vacation. The Brazilian labor law also mandates a
yearly holiday entitlement of 30 days.
3.3. Social capital
Interpersonal trust plays an important role when doing business in Brazil.

In Brazil, interpersonal trust between individuals as well as between businesses is

considered crucial for successful business operations as people tend to place a high
value on personal relationships and connections. In this sense, trust is often built
on social networks, family ties, and personal reputation.

3.4. Role of the state

Brazil business environment shifted from protectionism to liberalized regime

Brazil relies on government intervention to protect local industries and implement

measures such as quotas, tariffs, and localization rules, as well as reducing taxes
and subsidies to encourage demand for domestically produced goods. Business
environment in Brazil has gradually shifted from protectionist to a more
liberalized regime since the early 2000s. The profound changes in Brazil's
economy have gradually transformed the business environment from
protectionism and mercantilism to a free market, particularly in the economically
developed and industrialized southeastern region of the country.

Businesses in Brazil have a relatively low legal regulation control

The government in Brazil has a significant role in regulating the economy and
supporting local industries through interventions. Legal control over businesses in
Brazil is relatively limited, but there are laws and regulations in place, even though
enforcement can be weak or inconsistent due to corruption and resource
constraints.
4. Economy and demography:

Gross Domestic Product (GDP): The GDP of Brazil in 2021 is US$ 1,774 billion, making
it the ninth-largest economy globally However, Brazil's GDP per capita is relatively low
which reflects the lower productivity and income levels compared to developed
countries. Brazil has a population of 208 million, which makes it the fifth most populous
country globally with a median age of 33 years, indicating a large workforce. The
majority of the population resides in urban areas, with 85% of the total population living
in cities. The trend towards urbanization reflects Brazil's economic growth, as urban areas
provide more job opportunities and access to services. Brazil has a high Gini Index of
51.48, indicating significant income inequality, with a large income gap between the rich
and poor, as well as regional disparities. The unequal distribution of wealth and income
can hinder economic growth and social development, as it limits access to education,
healthcare, and other essential services.

5. Governance:

Overall, most of the indicator were negative showing that Brazil governance faced many
challenges in different areas. On the positive side, Voice and accountability was 0.41,
indicating that citizens had some degree of ability to participate in the political process
and express their opinions without fear of retribution. This is important for ensuring that
governments are responsive to the needs and desires of their citizens. However,
Government effectiveness accounted for -0.15 suggest that the government struggled to
deliver services and implement policies effectively. Furthermore, Regulatory quality and
rule of law were also negative at -0,07 and 0,08 indicating that the regulatory
environment may have been weak, which could have made it difficult for businesses to
operate and for individuals to access services and undermined trust in the justice system
and may have contributed to a perception of impunity for those who break the law.
Specially, the index for control of corruption is the lowest among the indices at -0.38
which suggests that corruption was a significant issue in the country.

6. Ease of doing business:

Brazil's rankings in “Protecting minority investors” and “Resolving insolvency” are
relatively strong ranking for 35 and 60, indicating that the country has made some
progress in improving certain aspects of its business regulation

However, it is important to note that, there were many challenges for doing business in
Brazil, there were 2 notable indicators: “Starting a business” and “Paying Taxes” ranked
for 160 and 175 out of 190, suggest that it was hard for a company to start a business and
be profitable due to the complicated business proceeding with 12.2 procedures and 86.6
days and high total tax rate up to 69%. There are also significant challenges, particularly
in areas such as “Registering property”, “Enforcing contracts”, and “Trading across
borders” may be obstacles for businesses in Brazil, particularly small and medium-sized
enterprises, and may hinder economic growth and development.

Addressing these challenges will require a combination of regulatory and policy reforms,
as well as investment in infrastructure and human capital. For example, streamlining the
process for starting a business and reducing the time and costs involved could encourage
more entrepreneurship and new business creation, while improving tax administration
and reducing the overall tax burden on businesses could make it easier and more
attractive to invest in Brazil. Addressing the challenges related to trading across borders
could help to increase international trade and make Brazil more competitive in the global
market.
 Improving the ease of doing business in Brazil could have significant benefits for the
country, including attracting more foreign investment, promoting economic growth and
development, and creating more job opportunities. However, achieving these
improvements will require sustained efforts from policymakers and stakeholders across
the country

SUMMARY

Brazil's business system is shaped by a range of factors, including its political, economic,
social, and cultural landscape. While state-owned enterprises still dominate the economy,
the Brazilian government is actively seeking to promote Public-Private Partnerships
(PPP) and Micro and Small Enterprises (MSEs). The country values entrepreneurship
and is committed to long-term sustainable development, driven by core values of
democracy, collectivism, and cohesion. Brazil welcomes foreign investment, providing
numerous opportunities for raising funds and expanding operations.

However, Brazil's business environment also face challenges. High taxes, complicated
contract enforcement, and difficult cross-border trading are just a few of the hurdles
businesses must navigate. Moreover, the country's large population, free-market
economy, and significant income inequality are tempered by a poorly functioning
government characterized by corruption, inefficient laws, and bureaucratic hurdles.

Despite these challenges, businesses that are prepared to navigate Brazil's complex and
dynamic business ecosystem can find success. Understanding the country's cultural
values and business attitudes is essential to building relationships and forging
partnerships with Brazilian companies. By leveraging Brazil's commitment to
sustainability and entrepreneurship, businesses can contribute to the country's long-term
growth while also generating value for their stakeholders.

RECOMMENDATIONS
Government:
Firstly, Corruption and poor governance are significant challenges for businesses
operating in Brazil. The government must take steps to address these issues by
implementing anti-corruption measures, strengthening institutions, and improving
transparency. Addressing corruption and improving governance will enhance the
country's reputation and create a more stable and predictable business environment that
is conducive to investment and growth.

Secondly, Brazil's complex regulatory environment and bureaucracy can be challenging

for businesses to navigate. Simplifying regulations and reducing bureaucracy can make
it easier for businesses to operate and attract more foreign investment. The government
should work to streamline the regulatory process and reduce the administrative burden
on businesses.
Business:
Firstly, investing in cultural awareness and sensitivity is essential for businesses looking
to establish a presence in Brazil. Brazilians place a high value on relationships, and
cultural norms can significantly impact business outcomes. Therefore, businesses should
invest in cultural awareness and sensitivity training to avoid miscommunication or
misunderstandings that may arise due to cultural differences.

Secondly, focusing on long-term sustainable development can help businesses align with
local values and preferences. Brazilians prefer sustainable development and long-term
planning. Therefore, companies should prioritize sustainability in their business practices
to align with local values and preferences.

Thirdly, Brazil's business environment presents many regulatory and bureaucratic

hurdles that can be challenging to navigate. Careful planning and strategic decision-
making can help businesses navigate these hurdles and achieve success in Brazil.
Businesses should invest in local expertise to navigate the regulatory and bureaucratic
environment effectively.

In conclusion, doing business in Brazil requires careful planning and strategic decision-
making to navigate the country's unique political, economic, social, and cultural
landscape. Businesses that invest in cultural awareness and sensitivity, explore PPP
opportunities, prioritize sustainable development, prioritize collaboration, navigate
regulatory and bureaucratic hurdles, and seek advice from local experts can maximize
their chances of success in Brazil.

REFERENCES
Group, U. L. (2017). Localization Strategy Guide: Cultural Dimensions of Brazil.

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https://www.unitedlanguagegroup.com/blog/localization-strategy-guide-

brazil#:~:text=Taking%20that%20into%20account%2C%20Brazil

Stantander. (2023). Foreign investment in Brazil. Retrieved from santandertrade.com

website: https://santandertrade.com/en/portal/establish-overseas/brazil/foreign-

investment#:~:text=Brazil%20is%20the%2011th%20largest

OECD Library. (2022). Financing SMEs and Entrepreneurs 2022: An OECD Scoreboard.

Retrieved February 27, 2023, from www.oecd-ilibrary.org website: https://www.oecd-

ilibrary.org/sites/91ccd722-en/index.html?itemId=/content/component/91ccd722-en

Global, I. (2017). IMF releases Fiscal Transparency Evaluation for Brazil. Retrieved

February 27, 2023, from IndraStra Global website: https://www.indrastra.com/2017/05/IMF-

Releases-Fiscal-Transparency-Evaluation-for-Brazil-003-05-2017-0009.html