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Textile Machinery in Brazil: A Strategic Reference, 2006
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Description: |
How to Strategically Evaluate Brazil
Perhaps the most efficient way of evaluating Brazil is to consider key dimensions which themselves are composites of multiple factors. Composite portfolio approaches have long been used by strategic planners. The biggest challenge in this approach is to choose the appropriate factors that are the most relevant to international planning. The two measures of greatest relevance to textile machinery are “latent demand” and “market accessibility”. The figure below summarizes the key dimensions and recommendations of such an approach. Using these two composites, one can prioritize all countries of the world. Countries of high latent demand and high relative accessibility (e.g. easier entry for one firm compared to other firms) are given highest priority. The figure below shows two different scenarios. Accessibility is defined as a firm’s ease of entering or supplying from or to a market (the “supply side”), and latent demand is an indicator of the potential in serving from or to the market (the “demand side”).
Framework for Prioritizing Countries
Demand/Market Potential Driven Firm
Relative Accessibility
Accessibility/Supply Averse Firm
In the top figure, the firm is driven by market potential, whereas the bottom figure represents a firm that is driven by costs or by an aversion to difficult markets. This report treats the reader as coming from a “generic firm” approaching the global market - neither a market-driven nor a cost-driven company. Planners must therefore augment this report with their own company-specific factors that might change the priorities (e.g. a Canadian firm may have higher accessibility in Canada than a German firm).
Latent Demand and Accessibility in Brazil
This report provides a detailed overview of factors driving latent demand and accessibility for textile machinery in Brazil. Latent demand is largely driven by economic fundamentals specific to textile machinery. This topic is discussed in Chapter 2 using work carried out in Brazil on behalf of American firms and authored by the United States government (typically commercial attachés or similar persons in local offices of the U.S. Department of State). I have included a number of edits to clarify the information provided. Latent demand only represents half of the picture. Chapter 2 also deals with micro-accessibility for textile machinery in Brazil. I use the term “micro” since the discussion is focused specifically on textile machinery.
Chapter 3 is also a stand-alone report that I have authored. It covers proxy pro-forma financial indicators of firms operating in Brazil. I use the word “proxy” because the provided figures only cover a “what if” scenario, based on actual operating results for firms in Brazil. The numbers are only indicative of an average firm whose primary activity is in Brazil. It covers a vertical analysis of the maximum likelihood balance sheet, income statement, and financial ratios of firms operating in Brazil. It does so for a particular Standard Industrial Classification (SIC) code. That code covers “textile mill products manufacturing”, as defined in Chapter 3. Again, while “textile mill products manufacturing” does not exactly equate to “textile machinery”, it nevertheless gives an indicator of how Brazil compares to other countries for a proxy adjacent category along various dimensions.
Chapter 4 deals with macro-accessibility and covers factors that go beyond textile machinery. A country may at first sight appear to be attractive due to a high latent demand, but it is often less attractive when one considers at the macro level how easy it might be to serve that entire potential and/or general business risks. While accessibility will always vary from one company to another for a given country, the following domains are typically considered when evaluating macro-accessibility in Brazil:
Openness to Trade in Brazil
Openness to Direct Investment in Brazil
Local Marketing and Entry Strategy Alternatives
Local Human Resources
Local Risks
Across these domains, a number of not-so-obvious factors can affect accessibility and risk. These are covered in the Chapter 4, which is a general overview of investment and business conditions in Brazil. Chapter 4 is also presented from the perspective of an American firm, though is equally applicable to most firms entering Brazil. This chapter is also authored by local offices of the U.S. government, as is Chapter 2. Likewise, I have included a number of edits to clarify the provided information as it relates to the general strategic framework mentioned earlier. |
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Contents: |
1 INTRODUCTION & METHODOLOGY 1
1.1 What Does This Report Cover? 1
1.2 How to Strategically Evaluate Brazil 1
1.3 Latent Demand and Accessibility in Brazil 3
2 TEXTILE MACHINERY IN BRAZIL 5
2.1 Latent Demand and Accessibility 5
2.2 Market Issues and Obstacles 5
2.2.1 Tariffs, Non-Tariff Barriers, and Import Taxes 5
2.2.2 Taxes and Fees 6
2.2.3 Import Duty (II) 6
2.2.4 Industrialized Product Tax (IPI) 6
2.2.5 Merchandise and Service Circulation Tax (ICMS) 7
2.2.6 Social Program Tax (Cofins) 7
2.2.7 Customs Regulations 7
2.2.8 Import Licenses 8
2.3 Market Data 9
2.4 Recommendations 11
2.4.1 Business Tips 11
2.4.2 Tariffs on Textile Machinery 11
3 FINANCIAL INDICATORS: TEXTILE MILL PRODUCTS MANUFACTURING 13
3.1 Overview 13
3.1.1 Financial Returns and Gaps in Brazil 14
3.1.2 Labor Productivity Gaps in Brazil 17
3.1.3 Limitations and Extensions 17
3.2 Financial Returns in Brazil: Asset Structure Ratios 18
3.2.1 Overview 18
3.2.2 Assets - Definitions of Terms 18
3.2.3 Asset Structure: Outlook 21
3.2.4 Large Variances: Assets 22
3.2.5 Key Percentiles and Rankings 25
3.3 Financial Returns in Brazil: Liability Structure Ratios 38
3.3.1 Overview 38
3.3.2 Liabilities and Equity - Definitions of Terms 38
3.3.3 Liability Structure: Outlook 40
3.3.4 Large Variances: Liabilities 41
3.3.5 Key Percentiles and Rankings 44
3.4 Financial Returns in Brazil: Income Structure Ratios 57
3.4.1 Overview 57
3.4.2 Income Statements - Definitions of Terms 57
3.4.3 Income Structure: Outlook 59
3.4.4 Large Variances: Income 60
3.4.5 Key Percentiles and Rankings 63
3.5 Financial Returns in Brazil: Profitability Ratios 78
3.5.1 Overview 78
3.5.2 Ratios - Definitions of Terms 78
3.5.3 Ratio Structure: Outlook 80
3.5.4 Large Variances: Ratios 81
3.5.5 Key Percentiles and Rankings 84
3.6 Productivity in Brazil: Asset-Labor Ratios 99
3.6.1 Overview 99
3.6.2 Asset to Labor: Outlook 100
3.6.3 Asset to Labor: International Gaps 101
3.6.4 Key Percentiles and Rankings 104
3.7 Productivity in Brazil: Liability-Labor Ratios 117
3.7.1 Overview 117
3.7.2 Liability to Labor: Outlook 118
3.7.3 Liability and Equity to Labor: International Gaps 119
3.7.4 Key Percentiles and Rankings 122
3.8 Productivity in Brazil: Income-Labor Ratios 135
3.8.1 Overview 135
3.8.2 Income to Labor: Outlook 136
3.8.3 Income to Labor: Gaps 137
3.8.4 Key Percentiles and Rankings 140
4 MACRO-ACCESSIBILITY IN BRAZIL 155
4.1 Executive Summary 155
4.1.1 Government Role in the Economy 155
4.1.2 Infrastructure 156
4.2 Political Risks 156
4.2.1 Economic Relationship with the United States 156
4.2.2 The Political System 156
4.3 Marketing Strategies 157
4.3.1 Distribution Channel Options 157
4.3.2 Agents and Distributors 157
4.3.3 Franchising 158
4.3.4 Direct Marketing Options 158
4.3.5 Joint Ventures and Licensing Options 159
4.3.6 Creating a Sales Office 160
4.3.7 Selling Factors and Techniques 160
4.3.8 Advertising and Trade Promotion 160
4.3.9 Pricing Issues 162
4.3.10 After Sales Service and Customer Support 162
4.3.11 Selling to the Government 162
4.3.12 Intellectual Property Risks 163
4.3.13 Hiring Local Counsel 168
4.3.14 Performing Due Diligence and Checking Bona Fides 169
4.4 Import and Export Regulation Risks 169
4.4.1 Taxes and Fees Assessed on Imports 170
4.4.2 Customs Regulations 173
4.4.3 Import Licenses 173
4.4.4 Export Controls 174
4.4.5 Documentation Required for Trade 174
4.4.6 Temporary Goods Entry Requirements 174
4.4.7 Labeling and Marking Requirements 175
4.4.8 Restrictions on Imports 176
4.4.9 Standards 176
4.4.10 Free Trade Zones and Warehouses 179
4.4.11 Membership in Free Trade Arrangements 181
4.5 Investment Climate 181
4.5.1 Openness to Foreign Investment 181
4.5.2 Conversion and Transfer Policies 182
4.5.3 Expropriation and Compensation 183
4.5.4 Dispute Settlement 183
4.5.5 Political Violence 183
4.5.6 Performance Requirements and Incentives 183
4.5.7 Right to Private Ownership and Establishment 184
4.5.8 Protection of Property Rights 184
4.5.9 Transparency of the Regulatory System 185
4.5.10 Bilateral Investment Agreements 185
4.5.11 OPIC and Other Investment Insurance Programs 186
4.5.12 Labor 186
4.5.13 Capital Outflow Policy 187
4.5.14 Major Foreign Investors 187
4.5.15 Efficient Capital Markets and Portfolio Investment 188
4.6 Trade and Project Financing 189
4.6.1 Banking System 189
4.6.2 Foreign Exchange Controls Affecting Trade 190
4.6.3 General Availability of Financing 190
4.6.4 How to Finance Exports and Methods of Payment 191
4.6.5 Availability of Project Financing 194
4.6.6 Banks with Correspondent Banking Arrangement 195
4.7 Travel Risks 196
4.7.1 Travel Advisory and Visas 196
4.7.2 Infrastructure for Conducting Business 197
4.7.3 Country Data 198
4.8 Key Contacts 198
4.8.1 Brazilian Government Contacts 198
4.8.2 Brazilian Trade Associations and Chambers of Commerce 204
4.8.3 Market Research Companies 229
4.8.4 Commercial Banks 233
4.8.5 U.S. Mission in Brazil 235
4.8.6 Attorneys in Brazil 236
4.8.7 U.S. Government Agencies 240
5 DISCLAIMERS, WARRANTEES, AND USER AGREEMENT PROVISIONS 244
5.1 Disclaimers & Safe Harbor 244
5.2 Icon Group International, Inc. User Agreement Provisions 245
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