Country Analysis Report

Two Country analysis- Cuba & Brazil

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Question :

Assume that you are a project officer in a medium sized firm (approx 100 employees) located in  U.A.E and producing a range of goods. Your firm is currently a exporter only but you are looking to expand sales and production) into one or more countries in Latin America . After an initial scan of all potential markets, your firm has narrowed your choice to two countries in Latin America , and decided to try out investing in only one foreign market first before attempting to expand further . Your manager requested you to analyze the characteristics of the two countries and write a report justifying which is a better choice for your firm.

Answer:

Introduction

Today, with increased globalization and with advent of new technologies, several companies are looking for market expansion in the entire world. They not only want to improve their profitability but also want to increase their market share in the developing economies of the world (Brouthers, 2013).

Recently, as per the World Bank reports, it is now necessary for the developed nations to increase their trade relations with the developing economies. It will not only assist the developing economies to get the best products but will also initiate a new trading relation between two nations.

However, it is more important for a given company to first analyze the market conditions, determine their strengths, overcome their weaknesses in the international working environment, and subsequently capture key opportunities (Brouthers, 2013). It will thereby allow them to achieve desired objectives of expansion in a given environment.

This report will thereby consider the example of one of the top companies in the Oil and Gas industry of UAE. The economy of UAE is considered to be the second largest in the Middle East with a net GDP of around US $407.52 billion as per the 2017 governmental reports.

Abu Dhabi National Oil Company will be the company that will be taken into consideration for this given case study. Also, the countries selected for expansion will be Brazil and Cuba. The nations will thereby be analyzed from the perspectives of expansion. Hence, the report will analyze the demographics, political, legal, economic, and other such factors that will allow the company to set their strategies accordingly in a given market environment (Brouthers, 2013). It will accordingly provide the recommended modes of entry in a given nation.

However, the company needs to make sure that they are able to provide best quality goods and services in these nations to capture the desired market share in a given environment. Only then it will ensure development of better trade relations in a given working environment (Brouthers, 2013). The role of the governments will also be equally important in such cases as they need to look after important legal aspects and other regulations to strengthen their trade relations in a given environment.

Company Background

Abu Dhabi National Oil Company is a government-owned company operating in the UAW. As per the research reports, the UAE are already holding the seventh largest oil researchers of the world and it is around 97.8 billion barrels.

Majority of these researchers are located in Abu Dhabi and this company is considered to be 12th largest oil production company of the world. It is producing around 3.1 million barrels per day and thus is considered to be the largest company of UAE. As per the financial reports of 2014, the total revenues of the company were around US $60 billion.

The total company strength was approximately 55,000 employees as per the 2015 company report. Sultan Ahmed Al Jaber is the CEO of the company and is leading the company from the front (Shaver, 2013). The company has already multiple subsidiaries working in different petroleum and gas fields.

However, the company is planning to expand their operations in other nations of the world. It is noted that in the recent times, the economic aspects of Brazil and Cuba have changed a lot and they have also proposed easy trade norms for the purpose of inviting international companies in their nation (Shaver, 2013). Thus, the management team of Abu Dhabi National Oil Company is planning to expand their operations in these two nations of the world.

Types of Goods Manufactured

The company is into extraction of petroleum and gas products from different oil and gas reserved both on land and in water. The company evaluates the performance between the wellbore and reservoir and accordingly focuses on the extraction of the petroleum products. The company is aiming toward developing and implementing strategies to maximize their return on assets in a given working environment (Perez-Saiz, 2015).

They are also monitoring their products from the perspectives of different performance mechanisms; it thereby allows them to monitor the current progress, identify the major gaps, and accordingly manage the day-to-day operations through their network of retailers and resellers.

They are also deploying technological mediums for the purpose of forecasting future sales operations; it thereby allows the management team of the company to conduct proper management of the production and distribution departments in a given environment (Perez-Saiz, 2015). However, considering the rising need of expansion, the team is now focusing to analyze the different market environments and capture new opportunities available in the global market scenario.

Need for Expansion

There are several benefits identified by the researchers of expanding the business operations in a given market .First, they will be able to reach new markets and thereby target new customers in a given environment. It will thereby allow them to increase the total revenues of the company and subsequently achieve the objective of increasing profitability of the organization (Perez-Saiz, 2015).

The new expanded operations will allow the company to increase the value of their brand in the international market scenario. It will also assist the management team to reduce their external risks such as competition, market aspects, and even technology changes (Perez-Saiz, 2015). Instead, they will be able to lead the market scenario from the front and thereby achieve a range of objectives for the company.

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The company will further be able to expand in other parts of the world based on this success story. Even, the employees of the organization will get an opportunity to work in new overseas conditions and thereby get promoted in the organization. The overall job satisfaction scenario among the employees will boost the morale of the Human Resources (HR) department as well (Perez-Saiz, 2015). Thus, for any given company, there will be huge benefits to expand in other parts of the world.

Question 1. Conduct a detailed analysis of the commercial environment of these countries i.e. their demographic, economic, political, legal and physical characteristics (relevant to the product) - and then argue (based on relevant theory) the choice you eventually make between them. (For this assignment you are not required to undertake a competitor analysis.)

Answer:

Detailed analysis of the commercial environment

Case of Brazil

Demographics

Brazil at present is considered to be eighth largest economy of the entire world. The nation has so far recorded strong growth from different perspectives and hence the total GDP of the nation was around US $2055.14 billion in 2017. It is expected to increase further considering the favorable economic conditions.

The total population of the nation as per 2019 estimates is around 210,147,125. Now, it is noted that 48.43% of the total population comprised of the Whites where as 43.80% of the total population comprised of people known as Pardo, followed by 6.84% of Blacks and 0.58% of the Asian communities.

The Brazilian society is more divided by social class lines; however, there is also high income disparity observed between the different race groups. Further, majority of the people follow Roman Catholicism followed by Protestantism. Some of them are also following Spiritism. However, with the recent focus on Infrastructure and Technology, the government has ensured that they are more interested in the growth aspects of the nation (Anil, Tatoglu, &Ozkasap, 2014).

Economic

It is now important to analyze some of the economic aspects of the nation that will allow the management team of Abu Dhabi National Oil Company to take better decision in this direction. Brazil is the largest national economy of Latin America and also has the eight largest purchasing power parity indexes as per the 2017 reports. However, it has a mixed economy with abundant natural resources.

The country is expanding its presence in international financial and commodities markets that will allow them to boost their economy; it is due to these reasons that they are also one of the members of the BRIC nations. As per the government reports, Brazil's diversified economy includes agriculture, industry, and a wide range of services (Anil, Tatoglu, &Ozkasap, 2014).

The country is also considered to be the world's tenth largest energy consumer with much of its energy coming from renewable sources. They have thereby also established multiple hydroelectric projects for this purpose (Anil, Tatoglu, &Ozkasap, 2014). Hence, it will be a perfect opportunity for Abu Dhabi National Oil Company to start their trade operations with this nation.

Political

It is now important to analyze the perspective of government so that the company can first essentially file for the Memorandum of Association and later develop the trade relations with the nation. The form of Brazilian government is a democratic federative republic with a presidential system.

The president is considered to be the head of state and head of government of the Union. However, it is noticed that the reform of the laws and regulations for running a new business in Brazil has not adapted at the rate as per the expectations. Brazil is ranked 125th out of 190 countries in the World Bank's report that evaluates the ease of starting a business, registering property, dealing with permits, and also on paying taxes (Anil, Tatoglu, &Ozkasap, 2014).

Also, the government is facing serious challenges of corruption in the working environment. It is thereby necessary for the companies to make sure of following ethical values and principles while operating in Brazil. The government of Brazil on the other hand is making efforts to overcome this issue by initiating a new integrity program (Anil, Tatoglu, &Ozkasap, 2014).

Legal

Considering the other aspects, it is now important to analyze the legal environment of Brazil. Brazilian law is based on the civil law legal system. As of April 2007, there were nearly 53 amendments that people were required to follow in their daily routines. Brazilian's tax regime is also complex and hence is found to be hindering companies to start their branches in Brazil.

More than 90 taxes, duties, and contributions are charged by the Brazilian government and thus it becomes difficult for the companies to follow it. In addition, Brazil's Ministry of Labor and Employment has developed new system that will ensure developing of better relations between the company and the employees working in it (Boyen&Ogasavara, 2013).

Thus, from this perspective, it will be challenging for the management team of Abu Dhabi National Oil Company to start their operations in Brazil. However, once they get adjusted in the new working environment, it will make sure of following the different legal norms and other instructions in a given environment. The government on the other hand will ensure of providing extended support in such cases.

Relations between UAE and Brazil

As per the recent reports of 2016, it was found that both the countries are developing new trade relations that will allow them to boost their respective economies in a given environment. The UAE was the second biggest market for Brazilian exports as it exported products worth US $2.5 billion. On the other hand, the total exports from UAE to Brazil were around US $114.64 million in 2017.

Thus, both the countries are working together for different joint ventures. In addition, the Arab-Brazilian Chamber of Commerce has announced that the Brazilian imports from Arab countries will register significant growth in the near future. They are also working on technologies, healthcare, agriculture, pharmaceuticals, construction and engineering to ensure that they develop better trade relations for the future (Boyen&Ogasavara, 2013).

However, considering the case of Abu Dhabi National Oil Company, it will be important for the Arabian staff to change their leadership styles, managerial approach, and communication ways to develop better working relations with the employees of Brazil. Only then they will be able to sustain in the markets of Brazil and achieve desired objectives of expansion in a given working environment (Boyen&Ogasavara, 2013).

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Case of Cuba

Demographics

Cuba is country comprising of the Island of Cuba and is located in the northern Caribbean. The total population of Cuba is around 11, 22,060 as per the 2017 census reports. In addition, the total GDP of the nation as per 2015 reports is around US $254.865 billion. Now, as far as demographics are considered, 72% of the population is Europeans, followed by 20% Africans, and 8% Indigenous.

Also, 60% of the total population follows Roman Catholic, followed by 5% Protestant, and 17% follow folk religion. The official language of Cuba is Spanish owing to vast people coming from Spain and settling down in Cuba. Thus, the first important challenge for the UAE companies that will be expanding their operations in Cuba will be the local cultural, religious, and language barriers (Martin, 2013).

In addition, it is important to note that Cuba is still under the effect of embargo imposed but the United States. The economy of the nation is thereby largely impacted and it thereby becomes necessary for the local government to ease on their trade norms in a given environment.

Economic

As per the 2017 economic reports of the government, the economic growth rate of Cuba was around 1.6%. The country claims to following to the socialist principles in a given state-controlled planned economy. The major industries that are contributing to the tourism of Cuba include - tourism, transportation, agriculture, construction, and hospitality. The country also faced recession in 2016 and then in 2018, wherein the economic growth lowered and impacted on the several factors of the nation.

Hence, despite tourism, mining, agriculture, and other such sectors being the strengths of the nation, the vulnerability to external factors will pose a major threat to the companies. In one of the research reports, it was found that the country is not functioning properly in the public sector (Martin, 2013).

The commodity prices and the Venezuelan aid are adding more burden to the current administrative system of the nation. Also, the limited access to external finance and lack of statistical transparency are adding more pressures and challenging for the government. The companies like Abu Dhabi National Oil Company thereby need to remain more careful and prepare their risk management plan as well as contingency plan so that they can deploy them as and when required (Martin, 2013).

Political and Legal

The Republic of Cuba is considered to be one of the world's last remaining socialist countries that are still following the Marxist-Leninist ideology. The Constituting of 1976 defines the Republic of Cuba as a socialist republic and thereby have the Communist Part as the leading force of the society and of the entire country (Martin, 2013).

As a result, the political landscape is still dominated by one government that keeps control over all the resources of the nation. With the current ongoing globalization, it seems that Cuba has strengthened ties with China and Russia. Russia is already shipping large quantities of oil to Cuba and on the other hand China is exporting other necessity goods to the nation (Larimo&Arslan, 2013). Cuba is also found not to be transparent in the public accounts and hence even faces financial crisis.

Despite the focus of the government on the main sectors of the industry that will contribute to the GDP of the nation, the country is still found to be lacking in several aspects. Hence, it will be necessary for the Abu Dhabi National Oil Company management team to analyze the political scenario and accordingly take steps in the expansion program.

Relations between UAE and Brazil

Recently, in 2016, a federation of seven emirates visited Cuba for the purpose of strengthening their business ties and other developmental relations. The UAE Foreign Minister wanted to expand their operations in South America and thus wanted to look out for the nation that will provide them with all types of support.

The diplomatic relations between UAE and Cuba got officially finalized in 2015 and thus both the nations will now start their respective trade operations. The bilateral relations will thereby allow Cuba to not only overcome their political and economic issues but will also allow them to seek cooperation of UAE on other growth aspects as well (Ahlbrecht& Eckert, 2013).

The government of Cuba is aiming to seek cooperation from UAE in various industries that include - hospitality, tourism, healthcare, education, and infrastructure. However, they need to ensure providing of better environment that will streamline the business operations of Abu Dhabi National Oil Company in a given case scenario. The government of UAE, however, will be required to prepare an agreement and approve the Memorandum of Understanding (MoUs) between both the nations (Ahlbrecht& Eckert, 2013).

Question 2.  Indicate clearly the type of good (or the range of goods) that you produce. It may be a processed primary product or a light or heavy manufactured item (hi tech or low tech). For this project in 500 words or less you need to  justify the mode of entry.

Answer :

Mode of Entry

Before understanding and identifying modes of entry for Abu Dhabi National Oil Company in both Brazil and Cuba, it is more important for the management team to understand the key advantages of such expanding operations in these nations.

It will allow them to get exposed to relatively low financial pressure, will permit gradual market entry, will also acquire sound knowledge of the local market, and finally will avoid restrictions on foreign investment (Fujiwara, 2013). However, they might also face certain risk issues such as - vulnerabilities to different tariffs, logistical complexities, and potential conflicts with the distributors and resellers (Fujiwara, 2013).

Thus, the management team of Abu Dhabi National Oil Company needs to understand these two markets from different perspectives and thereby decide on the best mode of entry in a given environment. In both the cases, they need to consider the environmental factors, the total estimated demand for a given financial year in a given new market, the target country production factors, availability of company's resources to start the new operations, and also understand the motivation levels of the currently working employees (Gorynia et al., 2015).

They need to thereby make decisions based on - market segment, customer relationships, distributing services, and availability of technology, local support, and ease of starting the operations in a given environment. They also need to train their staff and managers on the aspects of - leadership, communication, conflict resolution, negotiations, decision making, motivating rest of the staff, and also on overall working approach in the organization.

It will thereby make sure of choosing the right mode of entry in a given environment. Now, since the company will plan for non-equity modes compared to equity mode, there will be two options left for Abu Dhabi National Oil Company. These include - export operations and contractual agreements (Banalieva&Dhanaraj, 2013).
Under direct exports, they will be selling their products in the local markets of Brazil and Cuba. On the other hand, under contractual agreements, they will be opting for licensing and thereby establish contracts with the local firms of Brazil and Cuba. Since, they will not be choosing either Joint Venture or Wholly-owned subsidiary operation mode, it will be important for Abu Dhabi National Oil Company to carefully choose the given mode of entry (Oehme&Bort, 2015).

However, the top-level management also needs to consider their expansion objectives, and thus, contractual agreements will work best for the present case scenario. It is recommended to the management team to choose for licensing and thereby establish contracts with the local firms. In addition, they will also place their team in both the nations to monitor the strategies, the current working scenario, the overall working approach, the demand of their products, and the market competition levels (Kroes, Chen, &Mangiameli, 2013).

It will thereby also allow them to gain an easy mode of entry into these nations that will also help them overcome other barriers from the perspectives of political, legal, environmental, social, and technological. Contrary, it will make the task easy for the company and by following the agreement norms of the local government and of the local firm; they will be able to start the operations on immediate basis (Wang et al., 2014).

However, the team needs to deploy performance analysis mechanisms that will make sure of measuring the performance of different strategies and overcoming the gaps in the current market environment.

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Recommendations and Conclusion

Before expanding into any of the new nation, it will be necessary for any of the companies to consider multiple parameters. These include - economies of scale, product differentiation, capital requirements, switching costs, access to distribution channels, cost disadvantages, government policies, and working culture of the local staff (Fletcher, Harris, & Richey, 2013).

However, now comparing the performance of the two nations, it is found that the case of Brazil looks better for the company considering the future economic prospects of the nation. Also, it will be easy for the company to relocate their staff and look after other HR considerations in a given working environment. Now, the role ofmanagement team in the caseof Brazil will be first to understand the work environment, cultural and social values of the people, determine the needs among the target audience, and accordingly prepare the strategies to work in a given environment (Williams&Grégoire, 2015).

Now, consider the above table for Country Comparison Tool. It shows a direct comparison between two nations that include - Brazil and Cuba. There are three different variables considered base on which the selection for expansion can be made for a given organization. These variables are - acceptable and unacceptable factors, return from investments, and risk factors that could create challenges for the daily operations.

First, from the acceptable factors, it takes into account the type of ownership and the type of licensing that is allowed in the respective nation. Brazil is open to both the options whereas Cuba does not allow for 100% ownership option. Thus, the company might require finding out a local partner or opting for joint venture in such a case scenario.

Next, from the return perspective, the total score of Brazil is 19 and of Cuba is 16 out of 21. Thus, one can consider the case of Brazil for the purpose of expanding the business operations. The market environment is favorable considering a range of parameters such as - size of investments, direct costs that will incur, taxation rates of the local government, market size, and market share that the company can acquire in the future of next 3-10 years.

Now, from the perspective of risk factors as provided in the third section, the score for Brazil is 5 and for Cuba are 13. Thus, Cuba seems to be less unfavorable as there are issues of - exchange problems, political unrest, and even lack of certain business laws. On the other hand, it will be better for the organization to expand in Brazil as they will face lesser challenges on these aspects and instead will be able to focus more on their business strategies in a given working environment.

However, it is still recommended to conduct a proper market research and only then deploy the expansion plans of the organization. The role of the senior management in this case will be vital as they need to monitor these expansion strategies and suggest recommendations wherever required.

It is further recommended to the management team to remain more careful and deploy appropriate risk management frameworks that will allow them to overcome any of the risk issues found in the working environment of Brazil. They will also need to seek necessary approvals and other permission from the government to initiate their trading operations (Ciszewska-Mlinaric, Obloj, &Wasowska, 2016).

They also need to overcome cross-cultural barriers and instead focus on their decision making abilities to take vital decisions in another nations (Ciszewska-Mlinaric, Obloj, &Wasowska, 2016).

It is further recommended to deploy collaborative mode wherein the given company will be collaborating with any existing local firm of the foreign nation. It will provide an overview to the company regarding the local norms, the existing political and governmental policies for starting new business operations, the overall work approach in a new environment, and also adhere to the HR policies. It will thereby guide the organization to formulate new strategies accordingly in the present working environment for the organization. They can overcome the local challenges by accompanying with the local company and thereby ensure achieving the desired objectives in a given challenging work environment.

It will thereby allow them to adapt to the new culture and ensure proper working approach to time and priorities. However, the role of the HR team will be vital as they need to support employees in this transformation process. Only then they will be able to achieve desired objectives in a given working environment.

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