Burberry is an internationally recognized brand of luxury products with a long history of service and an international distribution network. The company is looking to expand into new markets, and has retained this firm to research and provide an in-depth country report on several countries that are under consideration for development. The purpose of this report is to provide Burberry management with specific information and consultative recommendations regarding Brazil, in consideration of a possible business expansion in that region. After a general summary of basic information, this report will focus on the economic conditions that might have bearing on management’s decision, the social environment in which management will have to conduct its operations, and the political landscape with which Burberry will have to navigate for successful entry into the market.
The CIA Factbook (Central Intelligence Agency 2009) provides the basic country information as the context for framing this report: Brazil is the largest and most populous country in South America and, after gaining independence from Portugal in 1822, by 1889 was ruled as a republic by its military. After decades of populist and military governments, the country was placed under civilian rule. Brazil, possessing abundant natural resources and a large pool of labor, is South America’s leading economic power, and is continuing the pursuit of industrial and agricultural growth. In light of this pursuit, and Burberry management’s options within the region, the economic, social, and political conditions within Brazil are of special interest.
Economy: Brazil’s economy possesses four large, well-developed market sectors; agricultural products, mining, manufacturing, and service (Economist 2009). In terms of the macro-economic view, Brazil is not unlike other nations that depend heavily on commodities and natural resources; a global economic downturn has the ability to negatively affect the national economy.
In Brazil’s case, this is certainly true as a country with significant emerging economic strength in the 21st century—until 2008. At that point, the Brazilian currency and it’s stock market (Bovespa) suffered the loss of significant value; a negative 41% for Bovespa for the year ending 30 December 2008 (Economist 2009). In spite of this, many analysts consider that the worst of the global financial downturn has not impacted Brazil as much as other countries, and that the Brazilian economy is not in crisis but expected to flatten for 2009 and begin strong growth in the next year.
This is confirmed by Siddiqi (2006), who states that “research suggests that the so-called BRIC countries (Brazil, Russia, India and China) will have boosted their capacity to become economic heavyweights on a level with industrialised countries by 2025. In fact, the big four could rank among the world’s top six economies by the middle of the century” (p. 50).
For Burberry, this environment holds both risk and reward. Expanding into the shrinking economy of a nation that is strongly agricultural and industrial with a luxury line of products has significant risk. If, however, management were confident in both the forecasted economic improvement and Burberry’s ability to take a long-term approach to the expansion by not requiring immediate profits, the move would make sense. As the Brazilian economy expands, its workers will have more disposable income and be more prone to purchase. Also, given Brazil’s unique geography and natural resources, the company’s related product lines could be expected to do well.
Society: There are numerous social issues in Brazil, a few of which actually have bearing on any expansion anticipated by the management of Burberry. There is a significant criminal element in the country, primarily involved in the drug trade, as Brazil is the second largest consumer of cocaine in the world (Central Intelligence Agency 2009). While security is a vital part of Burberry operations, this has less of an impact on any planned expansion into Brazil than other matters.
Brazil has been reported as having a very unequal income distribution, with mean monthly incomes between those perceived as wealthy and the very poor. On its face, management might be tempted to use this fact as a reason for not considering the initiation of retail outlets in Brazil; but this could be a mistake. Studies have shown that the wage inequality in Brazil is due “more to the existence of an extended upper middle class in the urban areas,” as a result of wage differentials between education levels and the disparity between urban and rural work (Schvartzman, 2000, p.29). Management should seriously consider this fact before discarding consideration of expansion into this market. Burberry is not the type of retail outlet with rural presence; its natural demographic is an urban area. If there is, indeed, an extended upper middle class in the urban areas, management must recognize one of its key demographics. Accordingly, in spite of regional poverty or possible exploitation, Burberry could well have a ready-made market of urbanites with the disposable income required to make a retail outlets in major metropolitan areas of Brazil a true profit center.
Political: As Bethell (2000) notes, Brazil is an “independent state, a fully fledged democracy, with regular free, fair, and competitive elections for both the executive and legislative branches of the government…” (p. 1). As a developing country with significant economic potential, governmental regulation of free trade and enterprise is not a major consideration for Burberry. While Brazil may be prone to the official corruption prevalent in other parts of South America, this will not have a dramatic affect on management’s operations should it decide to open a retail outlet in a metropolitan area. It is axiomatic that democracy and a free market system—at least in terms of Burberry’s needs—lends stability to all aspects of the political system. This stability is a positive factor for Burberry, particularly given the nature of the company’s anticipated investment in expansion. In this case, this firm sees no significant risk of political turmoil or unrest, nor is there an indicated presence of regulatory corruption that would rise to the level of dissuading management from expanding into the country if other key performance metrics can be achieved.
As Burberry management considers expansion, the firm recommends that it take a closer look at Brazil and consider the economic opportunity the country represents. With an economy that is less negatively impacted by current global issues and poised for growth, along with a strong social demographic for the company’s products and a stable political environment, Brazil should be elevated to a higher level of consideration and Burberry management should task a portion of its research resources to a deeper investigation of the opportunity presented herein. Thank you for your attention to this report and, should you have any questions regarding the foregoing, please do not hesitate to contact the firm.
References
Bethell, L. (2000), Politics in Brazil: From Elections without Democracy to Democracy without Citizenship, Daedalus, 129, 2, 1.
Central Intelligence Agency (2009), The World Factbook: Brazil. Web.
Economist, The (2009), The Americas: Brazil’s economy–Reaping the rewards of indolence. Web.
Schvartzman, S. (2000), Brazil: The Social Agenda, Daedalus, 129, 2, 29.
Siddiqi, M. (2006), Dawn of a New Economic Order? The Western Dominance of the Worlds Economy Is Being Challenged by a Small but Powerful Collection of Emerging Markets Led by China, Brazil and India, African Business, 319, 48-52.