Brazil An Emerging Market for processed foods

Institutional analysis of the political, economic and socio-cultural environment of Brazil as an Emerging Market for processed foods
Justification for the selection of Brazil as a potential market for a Mexican based canned/processed foods manufacturing company
Overview
Brazil has a population of approximately 200 million persons (UN Data 2018), thus it is a rich market for products and services. Over the years, the processed foods industry in the country has been on a steady increase, from 2009 to 2017 (Machado et al. 2018). However, this progressive and continued growth was interrupted by the political and financial challenges that hit the country in 2017. Even in the face of the 2017 challenges, the country was able to post a reasonable performance of processed foods except for some categories e.g. dairy products and snacks. The primary reason for the decline in the performance of these products, specifically yogurt, ice cream, and confectionaries being that consumers considered them non-essential, particularly at the height of the financial challenges (Valdes 2006). However, at the moment, the processed foods industry in Brazil has picked and it is resumed the increasingly increasing growth (Euromonitor International, 2017). This section of the paper seeks to justify why Brazil would be a potential market for a Mexican based canned/processed foods manufacturing company by critically analyzing the institutional environment, identifying opportunities and institutional voids.
Political
Brazil is a very mature democracy that has a federal government and state governments. It has three arms of government which are independent; the executive, the judicial, and the legislative. Any political issues are solved through due process and the country is politically stable. In the recent past, due to the strong political standing of the country, there has been an impeachment of a sitting president, and former president has been sent to jail for corruption-related crimes (Johnson 2018). Because of the strong political standing, and the independent functioning of the three arms of government, any controversies are solved through due process, even though corruption is rampant. State governments have jurisdiction in their states, even though the federal government has overriding power over states.
Economic
Brazil is an upper middle-income country with a GDP of about USD2.5 trillion. The country is ranked seventh on the size of its economy, and it is the most influential in Latin America. The country has and relies on monetary policy. The processed food industry has retail sales of USD5.53 billion as per 2017 statistics (Statistica 2018). Both foreign and domestic enterprises are treated equally by the federal government, but state governments offer incentives for foreign companies to invest in the respective state. There is an abundance of labor – both skilled and unskilled – and even though it is considerably expensive, at the global level, it is comparatively cheap in the country.
Social-cultural
There is a huge economic inequality among the Brazilian population with about 19% of the population living under the poverty line. However, over the recent years, this inequality has been decreasing. The huge fraction of the population is in the low-income portion of class distribution, but there are still a significant number of wealthy individuals. The middle class is increasing and there are about 20 million individuals who can be targeted with the luxury products including processed food (Monteiro and Cannon 2012). The south and southeast regions of the country are the most developed, they are densely populated e.g. Sao Paolo and Rio de Janeiro.
Due to the largely bureaucratic system within the country, a unique feature of the social culture of Brazil is Jeitinho – a little way. Jeitinho is a way of bypassing the formal way of doing things and it used by all, from the richest to the poorest (Kolisnychenko & Franke 2017). The formal way of doing things leans majorly to the colonial way of doing things, where the Portuguese had set up very complex and complicated processes so as to avert theft. This complex and bureaucratic way of the formal requirements is mainly what promotes the rampant corruption in the country. In addition to a bureaucratic system, the country has lots of red tape. Specifically, to a business, the process for registration is very challenging characterized by burdensome, excessive approval requirements, licenses, and paperwork.
Institutional Voids
Opening a new business in Brazil is a tiresome affair. The process is extremely complex, and the requirements for the same are challenging. To successfully register a business in the country takes up to 119 days compared to 9 days in neighboring Mexico (Kolisnychenko & Franke 2017). The other significant challenge that entrepreneurs face is the lack of information. For foreign businesses, there is no any form of guide e.g. a book that explains the requirements or the processes for importing, taxes involved, or the regulations to be satisfied. There is also significant inefficiency and depersonalizations. The formal environment is highly standardized and thus, relationships are often detached.
Opportunities
One of the opportunities that a business will find useful is the informal networks to overcome the challenges above. Informal networks are founded on trust, past experiences, and shared values. These are seen as the mechanism for governance and they are used to overcome red tape and the lack of information (Kolisnychenko & Franke 2017). For new foreign businesses with no access to the informal networks, then the formal networks play a crucial role in facilitating complex processes. Formal networks include despachate or agents who, have the knowledge of the system, how it works, and they have experience in the process thus, they obtain government licenses on behalf of their clients.
Conclusion
Brazil is an emerging economy and thus, it presents a significant opportunity for a business venture as well as business startups. The country is a vast population, with a significantly large fraction of the population being the upper and middle class thus, potential consumers for processed foods. Colonization gave rise to a very bureaucratic formal institutional environment in Brazil that it formalistic and legalistic. Entrepreneurs face red-tape and lack of information, which has motivated the rise of Jeitinho and despachate, a way to by-pass the formal system and agent who obtain formal licenses for clients respectively. The informal institutions are faced with inefficiency and depersonalization. For new companies without informal networks, then formal networks are the best option as it also helps to do away with the need to support the informal ties.
References
EUROMONITOR International, 2017. Packaged Food in Brazil. Accessed 3 July 2018 < http://www.euromonitor.com/packaged-food-in-brazil/report
Johnson, J.J., 2018. Political change in Latin America: the emergence of the middle sectors. In Promise Of Development (pp. 88-99). Routledge.
Kolisnychenko, H.O. & Franke, P. 2017. Navigating small firms through Brazil’s Institutional Environment: Network Mechanisms and Internationalization. Special CBDS Working Paper Series, Working Paper based on Excellent Student Thesis Working Paper Nr. 3, 2017. Center for Business and Development Studies.
Machado, P.P., Claro, R.M., Martins, A.P.B., Costa, J.C. and Levy, R.B., 2018. Is food store type associated with the consumption of ultra-processed food and drink products in Brazil? Public health nutrition, 21(1), pp.201-209.
Monteiro, C.A. and Cannon, G., 2012. The impact of transnational “big food” companies on the South: a view from Brazil. PLoS medicine, 9(7), p.e1001252.
Statistica, 2018. Retail sales of frozen processed food in Brazil from 2009 to 2018 (in billion U.S. dollars). Accessed 3 July 2018 < https://www.statista.com/statistics/496591/frozen-processed-food-retail-sales-brazil/>
UN Data, 2018. Statistics. Accessed 3 July 2018 < http://data.un.org/Data.aspx?d=POP&f=tableCode%3A22 >
Valdes, C., 2006. Brazil’s booming agriculture faces obstacles. Amber Waves, 4(5), pp.28-35.