Global Expansion in Brazil: Corn Farming

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Global Expansion
[ Corn Farming in Brazil ]

Table of Contents
1Executive Summary3
1.1Recommendation3
1.2Criteria3
2Political Factors4
3Economic Factors5
3.1Agriculture Economics5
4Cultural Factors7
5Location Selection8
6Appendix A – End Notes9

Executive Summary
BIOTek, a large U.S. based corporation, hired our company to create a strategic report on establishing a corn farming operation in Brazil. For many decades, BIOTek has been researching and manufacturing alternative fuels. By expanding operations to include corn farming, they feel they can further their alternative fuels research. An Executive Summary was provided to examine the cultural, political, and macroeconomic environment in Brazil. Based on these considerations, our company provided an executive recommendation on how to proceed – this document provides deeper details. Recommendation

The recommendation of the assessment council was to proceed with starting operations in Brazil; more specifically, to create a joint-venture with an existing company in Parana, Brazil to expand operations. While there are many bureaucratic hurdles, leveraging the experience and the structure of an existing company, these hurdles can be handled easier. The joint-venture also provides benefit to the local economy, without having to have a solely direct investment. Criteria

There are 3 areas that were researched to determine the above outcome: * Political Factors
* Economic Factors
* Cultural Factors
Each of these examined the costs and risks versus benefits.
Political Factors
The relationship with Brazil is a very long history with periods of positive and negative. In 1988 democracy returned to Brazil and the relationship improved. In fact, both Presidents Bush and Obama have met with leaders in Brazil to continue further relationship building. Both countries work together on social concerns, such as, trade issues, HIV/AIDS efforts, regional concerns, and peacekeeping in Haiti. In 2010, the U.S. was Brazil’s largest import supplier followed by China, Argentina, and Germany. The U.S. holds a positive trade balance with U.S. goods exports to Brazil at $35 billion, and imports from Brazil at $25 billion. The major push for Brazil-United States interests came in 2007 when Presidents Bush and Lula signed an agreement to promote and increase the worldwide trade in ethanoli. The United States and Brazil represent 70% of the world’s ethanol production, with Brazil being the world’s second-largest producers after the U.S. This agreement has created a great deal of turmoil in Brazil, the U.S. and other areas in the world. But political feelings, much like the diversity amongst the states, fluctuate from region to region, and in the suggested location of Parana, the people tend to be more favorable on ethanol as their economy is quite dependent upon it. However, more than just political tension between the United States and Brazil, there is an apprehension with the ethanol industry as stocks are lethargic. Media is scrutinizing the industry as many analysts argue that ethanol is partially responsible for the higher corn prices. David Zilberman, a professor of agriculture and resource economics, speculates that the rise in food prices can actually be reduced (even eliminated) by “reducing the unreasonable restrictions on the application of agricultural biotechnology on food crops.” Despite the dissention, the United States is committed to increasing ethanol consumption from 8 billion gallons in 2008 rising to 36 billion gallons by 2022.

Economic Factors
U.S. companies face tariff barriers, a difficult customs system, a heavy and unpredictable tax burden, and a legal system that is overloaded and often incapable of enforcing business law or intellectual property rights effectively. Nevertheless, many companies find that the opportunities outweigh the risks. With a GDP of $2.172 trillion, the Brazilian...
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