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Emerging Market: Brazil

An Introduction to our Emerging Markets Series

As you may know, there are different key characteristics that countries must have to be considered an emerging market. Two examples of those characteristics are having a lower-to-middle per capita income, or having some sort of regulatory body as well as a market exchange for investment and common currency. The Morgan Stanley Capital International Emerging Market Index (MSCI Index) is the governing power that categorizes and reports out on new emerging markets. 

The term “emerging markets” is exciting for businesses, as it insinuates higher growth rates and higher opportunity in comparison to developed countries. That being said, emerging markets all see an increased climate for sociopolitical instability and volatility. Every emerging market is plagued by one or more of the following: military unease, social upheaval, natural disasters, price shocks, and other causes that create high volatility.

Now that we have laid out the “science,” we are thrilled to introduce you to our “Emerging Markets” blog series! We will use this series to educate on the strengths, weaknesses, opportunities and threats of the present day emerging markets. We will dive into the year so far, the political climate, risks and rewards and finally - the biggest areas of opportunity.

For our very first in the series we are featuring the largest country in South America, Brazil. Brazil is ranked the eighth largest economy in the world by GDP, and has recently shown strong growth in fixed investment, construction and industrial production in 2019. 


An (almost) Year in Review 

The year is still young, but so far the real USDBRL, -0.0481%  has gained 3.8% against the U.S. dollar, while the popular Bovespa stock index BVSP, -0.04%  has rallied more than 9%. In dollar terms, the Bovespa is up 12.4% so far this month, versus a 6.6% rise for the S&P 500 SPX, -0.49%, according to FactSet.

As reported by Reuters, “Gross domestic product (GDP) will grow by 0.6% this year compared to last year, assuming growth remains steady at the second-quarter level for the remainder of the year, according to Economy Ministry estimates in a presentation released on Thursday.”

In the upcoming weeks, Brazil’s pension reform bill will finally be approved by the Senate. This pension reform bill rewrites the rules on how and when public employees can retire. This is a crucial component of Brazil’s continuous status as an emerging market because the Brazilian budget has a heavy investment in public pensions. The move also increases hope for future tax reform, specifically the lessening and unification of taxes in Brazil.


Government 

The President: Jair Bolsonaro 

Brazil’s recently-elected president, Jair Bolsonaro, despite discourse, has a high approval rating. Bolsonaro is considered a market friendly president, notwithstanding his right-leaning social and environmental policy stances and controversial comments during his campaign. Although, his campaign stances helped boost confidence and foreign direct investment, there is a disconnect between the president and Congress, which could slow initiatives.


Weighing Risks and Rewards 

Political Unrest

Brazil’s most recent and contentious presidential election sparked worries about the much needed structural reforms to shore up the country’s fiscal health. Specifically, the impeachment of President Dilma Rousseff in 2015, and the conviction of former president, Luiz Inácio Lula da Silva curved potential investor enthusiasm. In recent years, however, President Jair Bolsonaro has taken many important steps towards regaining the economic potential of Brazil. Backlash from Bolsonaro’s efforts come each day, with the most recent caused by his son. 

Carlos Bolsonaro, son and close aide to his father and municipal councilor in Rio de Janeiro, tweeted, “The transformation that Brazil wants will not happen at the speed we are aiming for in democratic ways.” This tweet incited outrage that the current presidency is attacking democracy.


Sustained growth

In an article on Forbes published by Kenneth Rapoza, a 20-year senior Brazil-based Wall Street Journal report, he explains how Brazil has sustained growth on its own over the past 15 years. “Brazil’s economy is moving in the right direction, on its own. In the last 15 years, Brazil’s economic growth boomed thanks to the external factors of a commodity super cycle. A government-credit bonanza targeting everything from affordable housing to Amazon hydroelectric dams and shipping ports in Cuba also fueled Brazil’s GDP growth.”

In addition, Brazil is continuing to boost infrastructure projects and reduce barriers to foreign investment. This is an important step towards future growth in the country, as many external businesses find it difficult to run a business in Brazil. The economic reform in Brazil comes at a crucial time in global trade history, as the US moves forward with the trade wars in China.


High Barriers to Entry 

Brazil, as many US and global companies know, is an incredibly tough market to access. Brazil’s barriers make it difficult for any external brands to build and expand within the country. Brazil wants to promote manufacturing within, which actually opens an opportunity to companies willing to establish their business in Brazil and hire Brazilian employees.

The Brazil Import Requirements and Documentation explains that all US exporters and Brazilian importers must register with the Ministry of Economy. Pending the business line, additional documentation may be necessary. Products that affect the human body (pharmaceuticals, skin care, medical devices, etc.) can “only be imported and sold in Brazil if the foreign company establishes a local Brazilian manufacturing unit or local office, or the foreign company appoints a Brazilian distributor who is authorized by the Brazilian authorities to import and distribute medical products. Such products must be registered with ANVISA.”

Since Brazil is not a member of the World Trade Organization’s Government Procurement Agreement, US importers and exporters may find themselves at a disadvantage if they do not have a significant in-country presence. This presence could be found in established partnerships with Brazilian entities, subsidiaries, or financial resources.

Industries for expansion into Brazil 

Although there are many industries that can find opportunity in Brazil’s economy, there are a couple that stand out. 

“Agrobusiness” or “Agrotech” 

According to Establish Brazil, “Brazil is the second biggest food producer in the world (behind the USA). Approximately, 60% of the country’s territory is used to farm, 77% of the production is exported and the government incentives for agricultural production reached, in 2017, USD $175.5 billions. It's a great option for investment.”

As agriculture is a core pillar for Brazil’s economy, there is always a need for improvement. Innovative solutions that can offer consistency and sustainability, whilst still offering jobs to the Brazilian people are welcomed.


B2B Services 

With Brazil holding a population of over 200 million people, there is always going to be a need for new goods/services. Keeping the difficult barriers, Brazil isn’t the easiest for a foreign company to make way in. However, Brazil is a huge promoter of Brazilians. It is highly encouraged for Brazilian citizens to start their own businesses.

With this push, there is an influx of investor firms and financial service opportunities where Brazilian startups are finding help to foster their businesses. This offers the perfect climate for finance, brokers, and consulting.

If you are thinking about expanding to the emerging market of Brazil, we are here to help. As addressed above, there are many opportunities available in the largest South American country, but it can be hard to find them and successfully act.

We will be highlighting a new emerging market every month and we challenge you to think big for your business. If you’re interested in expanding globally or learning more about potential opportunities, please reach out to us via our contact page or email us at hello@castusglobal.com.

What is NOT going to change as a result of the US/China Trade War

You, along with the majority of American business owners, are wondering how the proclaimed “Trade War” between the U.S. and China will affect your business. Although the dynamics in the market are changing at the speed of light, we’re here to give you some peace of mind by explaining what WON’T change. 


Change is a Constant 

As cliche as it sounds, it still rings true - change is a constant in life, politics, business and beyond. And when it comes to the trade wars happening between the United States and China, it’s going to keep changing. Headlines are altering by the minute and the contents within the news articles are wavering. What IS true about the tariffs, despite the uncertainty of outcomes, is they ARE going to affect the economy. You have to be proactive.

Strategic planning is an important process for any business looking to enter a new market or sell a new product, but it doesn’t stop there. When potential threats to your company’s well-being arise, you need to act. This way, if the final outcome is not in your favor, you already have an actionable plan prepared to execute. 

If the trade war continues, your business may face increased costs for your products. If your sales are significantly impacted by the busy shopping season (back-to-school or holidays), you may see less foot traffic due to consumers having less disposable income after buying these affected but necessary goods. As recently reported in the New York Times, starting October 1st, the current products being imported from China will be taxed an additional 5% (from 25% to 30%). 

Small and large companies alike will be burdened with either hoping for the best with the China trade talks or finding a new manufacturer in the United States. If you choose to bring the manufacturing of a non-necessity to the US, you could find a decrease in sales due to the increase in the ultimate price for the consumer and the lack of inherent “need” for your product. 

We could go on about the potential outcomes, but it is important for your business to gather the right team, and start outlining potential threats and opportunities that arise with this specific conflict. In times of rapid change, you can never be too prepared.

Large Push Towards China’s Middle Class 

Even with the trade talks between China and the US heating up, China remains an emerging market and a powerful one at that. In September 2019 alone, Hong Kong shared the record best day in 10 months and the Chinese yuan gained a two-week high. Although discomfort remains about China’s global sales in response to the trade war, China’s middle class still holds an immense amount of consumer power. 

With over 400 million Chinese people classified as the middle class, this group exceeds the entire population of the United States. The untapped spending power of this demographic is enough to start asking yourself, “Does it make sense to expand my business to China?” Of course, we can help you with that question, but for now, we’ll outline some of the existing spending habits of China’s middle class. 

The majority of the current spending is coming from China’s upper middle class, who have more disposable income. This group spends its money on a variety of goods and services, but passenger vehicles have experienced the most consecutive growth. According to China Power, “...passenger vehicle sales in China have experienced growth for 26 straight years, with 28.9 million cars being sold in 2017. For reference, US consumers bought 17.5 million cars in 2016 and Brazilians purchased just 2.5 million automobiles.”

In addition to consumer products, the higher incomes in China’s population have offered more opportunities to be connected, both online and through travel. Internet use has skyrocketed since 2017, and the power of technology is only projected to intensify in the group. Traveling is at an all-time high. Annual spending on domestic trips increased by over 275% in the past 5 years, and international trips exceeding 2500%. 


Visual Media and E-commerce is the Future 

It’s no surprise that with increased internet usage comes increased connectivity. New and groundbreaking social media applications are notoriously nurtured in China and other Asian countries before they take over the United States. One example of that is the Generation Z forward short-form video platform, Tik Tok. Tik Tok, or the Chinese version Douyin, has been downloaded more than one billion times internationally. The Chinese tech company that owns the platform is valued as the world’s most valuable startup.

Weibo and WeChat are two apps that have taken China by storm, but have yet to capture the interest of the US market. Weibo is an entertainment platform that, “encompasses the features of Twitter, Pinterest, Instagram, Reddit, and Youtube.” In short, Weibo began as a microblogging site like Twitter and has skyrocketed in China. Due to more visually-rich opportunities on Weibo, the platform has tremendously exceeded usership over Twitter. Forecasts from eMarketer points to Weibo surpassing 400 million users in China by 2021.

Lastly, WeChat is a tool that offers mini programs and serves as an all-inclusive app store. Businesses who want their app to be on WeChat’s platform must pay a premium to be there. Users can interact and purchase within any “mini-app” without downloading anything additional to their devices. In 2017 alone, WeChat drove $50 billion into the Chinese economy.

We may have just thrown a ton of information your way, however, it is calming to know that with the ever-changing trade war between the US and China, constant variables still remain. Whether you need help identifying a strategy for the potential outcomes of the tariffs, or if you’re interested in learning more about the opportunities available for your business in China, we can help. Contact us via email (hello@castusglobal.com) or submit a form on our contact page.


3 Sustainable Initiatives your Business Needs to Take

As irreversible environmental tragedies continue to take place: the current fires in the Amazon, the melting of glaciers in Greenland, and the bleaching of Australia’s coral reef, sustainability development becomes less of a public relations tactic and more of an expected business practice.  

In 2014, it became mandatory for European companies with over 500 employees to report on environmental and sustainability issues by the end of 2016. In the present day, you can locate announcements and initiatives from every country on how they intend to regulate companies’ sustainability efforts. 

A study from Newsweek details that companies with an active sustainability strategy perform better. Nielsen data backs up this claim with statistics proving consumers are actively searching for publically-sustainable companies and products. These customers are choosing green-forward businesses over their less-transparent, often-times less expensive counterparts. 

So, there you have it. Three major reasons why your business NEEDS to think green: For the greater good, inevitable regulation changes, and consumer loyalty. Now that we’ve laid this out, and hopefully lit a fire under your feet, we want to give you 3 common initiatives that your company can implement to be proactive.


For the Environment: Implement Change

There are an infinite number of tactics that your company can adopt to become more sustainable. Some of those tactics include building a sustainable supply chain, striving for zero-waste, working with like-minded vendors, and reducing greenhouse gas emissions with renewable energy. Forbes has curated a list of 101 businesses committed to sustainability and the tactics they used to get there. 

What we really want to hone in on is that no company is “exempt” of being sustainable, despite the industry. Take, for example, Ford Motor Company. The automotive industry is known to be among the heaviest polluters [i.e. Volkswagen emissions scandal, or should we say “scandals”]. 

In the past ten years, Ford has integrated a ten-part environmental policy that encompasses their:

  • Move to sustainable fabrics in their vehicles

  • Recyclable vehicle parts in their Ford Focus and Ford Escape

  • Clean Diesel alternatives for pickup trucks 

  • Paint fumes repurposed as fuel 

The bottom line is, you have to make change. No one is free from sustainable development and any efforts can make a world of difference for your business. 


For the Policy: Be Strategic

On January 24th, 2019, the United Nations shared the first-ever environmental policies worldwide report. The report concludes that the entire world is flooded with environmental concerns, and the vast majority of countries have at least one environmental law or regulation in place. 

You may be wondering - what’s the problem then? 

Well, deforestation, rising global temperatures, and more environmental tragedies are still taking place. This, along with research completed by the Environmental Law Institute, lead us to conclude that policies are not being followed. 

Director of International Programs at the Environmental Law Institute, Carl Bruch, states in the Pacific Standard “It's not that we shouldn't develop more laws, but the emphasis needs to shift from development of policies and institutions to implementation and enforcement.” 

From this insight, we hope you will take strategic action and implement sustainable change sooner rather than later. Right now, corporate environmental moves are big. Big enough to make national or even international news. Wouldn’t you rather make positive change and reap the benefits of positive press than make change because the government is saying you have to? 

We’ll let you think on that. 



For the Economy: Spread the Word

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Julia Wilson, the VP of Global Responsibility and Sustainability at Nielsen can be quoted saying “Eighty percent of the public last year [2018] expected company CEOs to take a stance on social issues. We see more people taking action; almost eighty percent of the respondents have done something to support “just” companies, either buying from them or working for [them] or investing in [them] or taking some other form of action.”

Consumers are spending more time than ever researching companies before they make a purchase. Patterns show that conscious purchasing like this will impact change on its own. So, take this advice. Change your processes, increase your sustainability efforts, and tell the world! 

Share on your company’s LinkedIn, get a press release distributed through the newswire, and tell everyone you know of your company’s forward-thinking initiatives. Your brand loyalty will expand with your existing customers, and new customers will choose your company over your competitors. 

Need help convincing your team to commit to sustainability? Not sure where to start strategically? Reach out to us via email (hello@castusglobal.com) or through our contact form. We can help you navigate this shift in any market across the globe.

Important Lessons We Learned When Expanding to a Global Market

Expanding to new markets is an exciting venture for many entrepreneurs and CEOs. It pushes business owners to think about a broader market and opens the door to a larger footprint. Many businesses have managed to strategically launch in other countries, however, there were a number of lessons learned along the way. Here is some advice that business leaders wished they had known before taking their organization global. 

ON TIMING: 

Diego Caicedo, co-founder and CEO of OmniBnk, noted that this process can take a lot of time and resources, regardless of size. If your company does not have the time and team needed to be involved in global expansion, it may not be the right time. "Companies should evaluate whether or not expansion is indeed beneficial, or if it will only take away from their core business," Caicedo said. "It may be better to serve one country well than several countries poorly." 

ON LANGUAGE BARRIERS: 

A few businesses have learned that hiring bilingual staff is extremely helpful when it comes to translating. Barriers in languages not only happen in translations, but laws and terminology vary from coast to coast. According to Josh Robinson, vice president of franchising and development for Pearle Vision suggests hiring a lawyer and translator from the country you’re moving to. He also suggests getting a local person’s perspective to understand the culture and how your tiniest move could affect the market for some consumer goods and services outside the U.S. 

ON CURRENCY: 

In some instances, it is necessary to set up a separate foreign business entity and bank account when dealing with business overseas. Tax codes, business regulations, and even standards for packaging differ across the globe. Trevor Cox, chief financial officer for DataCloud International Inc. – which has offices in the U.S., Canada and Australia – said compliance was the biggest challenge DataCloud faced when expanding overseas. Additionally, foreign banks may not assist businesses due to the burden of working with a U.S.-based account, so you may have to set up a separate foreign business entity and bank account to make handling transactions worthwhile for the banks. "It took just as long to set up a local bank account, with many banks declining to work with us because we were too small," Cox said. "We had to switch to an international bank, which had offices in Australia." 

ON EMPLOYEE BUY-IN:

Whirlpool CEO David Whitwam said it takes time to get complete employee buy-in when scaling globally. Business owners should not expect the transition to happen overnight. “Bear in mind that we have many, many employees in our manufacturing plants and offices who have been with us for 25 or 30 years. They didn’t sign up to be part of a global experience… Suddenly we give them new things to think about and new people to work with. We tell people at all levels that the old way of doing business is too cumbersome.” Take time to build trust within your organization and work toward sharing your vision with your employees. Help them understand that the benefits of expansion include utilizing resources from international shareholders creates value to everyone - including them. There will always be lessons to learn along the way as you grow your business. We at Castus Global have been through global expansions for hundreds of organizations. We understand the critical data points, the markets, and everything in between when it comes to business development, and we are here to help so that the “advice you wish you knew” is covered from the very start. 

It’s Time. Go Global. 

There is no better time than now to consider global expansion. Our years of experience entering global markets can ensure you have the research to support the decision, along with a strategy to successfully implement. For more information on our global business development services, contact us via email (hello@castusglobal.com) or submit a form on our contact page.

Photo by Artem Beliaikin @belart84 from Pexels 

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