International Marketing Project : Entering hospitality sector in brazil

Hospitality Industry Taj Group entering Brazil

• Major Upcoming Global Events• FIFA World Cup in 2014

• 2016 Summer Olympic games in Rio de Janeiro

• Brazilian government expects to invest $ 106 billion in the preparation of the major events

• Increased spending by tourists, growth in employment, construction

• Major infrastructure will be through Public-Private Partnerships under Brazil’s Growth Acceleration Program

• Past events in Brazil:• Hosted World Military Games & Pan American Meccabi games in 2011

• FDI in Brazil surpassed US$ 70 billion in 2012, becoming 4th major global FDI destination after US, China & Hong Kong

• Rio+20 Global Environmental Sustainability Conference in 2012

• Hosted World Papal Day & World Youth Day in 2013

Why Brazil?

Increased tourism & promising business

growth rate

Large-scale international events set to

happen; resulting in

higher demand for hospitality

REVPAR (revenue per

available room)

increasing YoY since

2005

Outdated hotel

infrastructure & facilities need to be refurbished in order to

live up to the required

standards

“Brazilian hotel industry is undergoing very positive development” – Brazilian

Tourism Ministry

Why Hospitality?

Brazil was discovere

d by Europeans

in 1500

Became a Portuguese colony

and remained so for over 300 years

Declared its

independence from

Portugal in 1822

A federal republic

was proclaimed in 1889

From 1930 to 1945

the country

was subject to

civilian dictatorshi

p of Getúlio Vargas

In 1964, new administration

was established by military;

considerable economic growth and development

was achieved during the next

20 years

Democracy was

restored in 1985

Historical factors of Brazil

Brazil overcame international economic crisis in 2008-9 ; emerged as a stronger and attractive business destination

First Latin American country to have emerged from the international recession

Prompt reaction by government to crisis , by implementing anti-cyclical measures to sustain the consumption of durable goods and the flow of credit

Highly diversified economy and diverse trading partners, as well as a solid financial system

Successful long-term joint public and private growth initiatives in Brazil

Favorable past Factors

Geographic factors• World’s fifth largest country, occupying an area of 3,287,000

square miles

• Borders all South American countries except Chile and Ecuador

• Comprises 26 states and the Federal District of Brasilia, the capital city

• Five main geographical regions: o North (Mainly Amazon basin)

o Northeast (East from 46° west Longitude & north from 16° south latitude)

o Southeast (Coastal states south of the Northeast region)

o South (State of Paraná southwards)

o Central-West (States of Mato Grosso do Sul, Goiás & the Federal District

• Over half of Brazil’s landmass lies at about 650 feet above sea level, but only a fraction of that rises above 3,000 feet

Climate in Brazil• South - experiences occasional below zero temperatures• North - hot, humid and rainy• Central Plateau - the higher altitude keeps temperatures down

Brazil does not suffer from earthquakes and hurricanes, but rainstorms, drought and frost do occasionally cause considerable damageThe country boasts some spectacular scenic beauty, particularly along the coastline

Regional trends in Brazil

• Brazil is experiencing investments in the hotel sector in all regions.

• Hotel investment projects Primarily focus on the North-eastern part of Brazil, accounts for 48. 2% of new investment projects and 83.3 % of the invested capital

o Large volume of public and private investment and increase in hotel demand

o More than 40,000 rooms required to satisfy the demand during 2016 Olympics

o Sao Paulo’s current market situation is favourable for investors and owners of hotel units in the city

o Growing secondary market for condo-hotel rooms; lucrative way to invest in the city’s industry during the next few years

Climate & Regional Trends

Majority of Brazilians

are of European or

African descent

Mixed background of Portuguese,

Italian, German,

Japanese, East European and

African immigrants

Major cities support cultural

institutions

Moderately male-

dominated; Gender

inequality is a major concern

Favourable Cultural Factors

Social Structure

Restaurant entertainment prevails

over home entertainment

Giving a gift is not required at a first business meeting;

instead, buy lunch or dinner

Leisure and recreational activities take place mainly

outdoors, taking advantage of favorable

climate ; many clubs offer extensive sports and social

facilities

Favourable factors

• Hierarchy is respected, decision-making process is fairly limited and done by select group of high-ranking officials

• Collectivist society, while doing business in Brazil it is important to build up trustworthy and long lasting relationships

• Moderately ambitious society, avoids conflict, consensus within parties important

• Adopts strict rules, laws, policies and regulations in order to avoid uncertainty unlike India

• Only non-Asian nation amongst the long-term oriented societies

Comparing Hofstede’s cultural dimensions of Brazil and India

General Thumb Rules for Doing Business

Be prepared to commit long term resources (both in time and money) toward establishing strong relationships; This is the key to business successMake appointments at least two weeks in advance; Avoid improvised calls to business or government offices

Some regions have casualness about time and work; minor delays are accepted Business meetings normally begin with casual chatting; host decides when it is time to talk business

Shake hands for hello and goodbye; use good eye contact; when leaving a small group, be sure to shake hands with everyone present First names used often, but titles are important

Music and long, animated conversation are favorite Brazilian habits; Brazilians enjoy joking, informality, and friendships

Federal republic has three independent branches: executive, legislative and judicial

Federative republic has 26 states and a capital district; vigorous multi-party system with 20 parties represented in its Congress

Executive branch headed by President; oversees head of executive departments

Legislative power is exerted by a National Congress consisting of a Senate and a House of Representatives

Judicial branch consists of a system of federal, state and local courts; headed by the Federal Supreme Court

All corporations’ setup in Brazil is guided by civil law , which dates from 2002

Political and Legal Environment

All the properties located in coastal area are subject to payment of specific taxes called foro and laudemio

Foro is an annual tax to the use of the property and is levied on the rate of 0.6% over the value of the right of use

Laudemio is paid when the right of use of the property is transferred and is levied on the rate of 5% over the value of the property buildings and improvements

The National Monetary Council (Conselho Monetário Nacional - CMN) is the exchange control and foreign investment authority; all the foreign investment guidelines must be approved by it

Regulations for establishing business

• According to Transparency International in the 2013 Brazil ranks at 72 in terms of corruption index throughout the world

• Brazil has faced high profile corruption charges which have led to delay in infrastructure delay for football world cup of 2014

• FCPA compliance has been strictly enforced on any foreign companies establishing their business in Brazil

• A new Brazil Clean Companies Act has been approved by the Brazilian government in order to implement anti-bribery laws in a more stringent ways and this new law will be applicable from January 29, 2014

Political Risk

• Ease of Doing Business Rank: 130 out of 183

• Import Tariffso Import Duty:-Federally mandated product specific tax levied on Cost, Insurance,

Freight basis. Ranges from (10 – 35) %

o Industrialized Product Tax:- Levied on domestic and imported manufactured goods.Government levies IPT rate by determining how essential the product may be for the Brazilian end-user.

o Merchandise and Service Circulation Tax:- value-added tax applicable to both imports and domestic products. Tax is levied on both intrastate and interstate transactions and is assessed on every transfer or movement of merchandise. The rate varies from 7% to 18%

• Import Requirements and Documentation:- Register with Foreign Trade Secretariat

Trade Barriers

• Since 2000,Government has made an allowance for temporary importation of products that are used for a predetermined time period and then re-exported

• India signed a framework agreement with MERCOSUR17 in June 2003. The India Mercosur PTA entered into force on 1st June 2009 under which 450 items from each side will have duty reductions of 10% to 100%

Compliance Concerns

• Lacks “Place of Business”:- Brazil’s strict requirements stifle the establishment of ground teams or pop-up operations

• Corporate Tax Filings:- different categories of indirect taxes, both federal and state

• Employment Law:- Complex national-to-foreign worker ratio requirements, unemployment insurance regulations, social security taxes, termination restrictions and payroll laws

• FCPA Regulations:- Strict regulations to provide more security to investors and help avoid reputational damage

Trade Barriers (Cont.)

• Strategic partnership route to enter Brazil by Taj Group wherein marketing alliance with big local players/developers in key market would bring substantial value to the table.

Market Entry Strategy: Strategic

partnership with local players

• JV as the preferred entry mode since it gives the opportunity to establish a business operation in a foreign country where WOS is too expensive, risky or not feasible due to other reasons.

• By choosing a JV, companies can better overcome these challenges and reduce transaction costs (Zang and Wang, 2006).

• Lack of market information and communication system

Reasons of choosing

Strategy to Enter the Country

Reach out their

customers in their market

Undertake certain

marketing activities and conduct road

shows

Co-host certain events at trade fairs

and other international

forums

Have reciprocal

reservation services and

loyalty programmes

Undertake food

promotions and talent exchanges with each

other

Have overall exchange of ideas and

information

Advantages of mode of Entry

Selectively enter key gateway cities around Brazil

(Sao Paulo, Rio de Janero, Salvador etc.) and look at

opportunity only in high end of the market, under the Taj

Exotica Resort and Spa Brand.

Sign a strategic marketing alliance with renowned

hotel group likes of Atlantica Hotels

International (Brazil) or Carlson Rezidor Hotel Group

Several partnerships with international and domestic

airlines for cross promotions with key

customers and package tours

Assist JV partner in exchanging sales leads and

conducting roadshows across India and Brazil.

To diversify its presence in the hospitality business,

venturing into airline catering, operating private

jets and yachts, service apartments, spas and

wildlife lodges in Brazil in future course of time.

Details of Mode of Entry

Location in Brazil? Why?

Stakeholder Information(partners, competitors etc.)

Naming of the hotel for Brazil

No. of rooms while 2016 Olympics

Proper mix of Marketing? Which dimension should be focused more?

Other facilities needed in hotel

Availability of manpower

Market Research: Objectives

General Information about the country: 2 or more data sources for secondary data to

avoid dependency

Legal Information: Various laws will be available to us

from cited secondary sources

Competitive Information: From various researches, the exact industry situation can

be found

Information Gathering

In-house: Sending higher management staff to Brazil for hands-on

experience; main purpose is to interact with local

experts and gather information from their

experience

Outsourcing: information about the ultimate consumers will be outsourced to local

research agencies which can conduct research

based on our requirements

Secondary Data Primary Data

• Investigating industry in India and extrapolating to Brazil’s industry

• Estimate reasonable magnitude and broad overview of the industry.

1. Macro “top-down”

approach:

• Future demand is calculated with the help of specific research on micro elements

2. Micro “bottom-up” approach:

• Converging macro and micro data points to assess the markets’ real opportunities over the next decade which will be helpful in decision making

3. Reconcile output:

Methodology

Brazil is surrounded by 10 countries: Argentina, Bolivia, Colombia, French Guiana, Guyana, Paraguay, Peru, Suriname, Uruguay, and Venezuela

Best mode of entry; Foreign Direct Investment

Good foreign investment prospects: Peru, Colombia and Argentina

In comparison, countries like Bolivia, French Guiana, Guyana, Paraguay, Suriname, Uruguay, and Venezuela do not have good prospects for foreign investment

Entry Into Neighboring Countries

Pent-Up Demand - decades of unsatisfied demand for

real estate, along with falling cost of capital, rising

incomes, increased corporate activity and travel

Real Estate Upheaval - relative lack of long-term

commercial debt financing constraints lead to recycling of functionally obsolete real

estate, including hotels

Emerging Market Growth - aggregate growth expected to

be more than thrice that of mature markets like USA, leading to an estimated inversion of balance in

economic power from 30% today to 70% by 2050

Economic Catch-Up - globalization, technology diffusion, instantaneous

capital flows, and political changes have reduced the

economic development cycle times

Uneven Growth - emerging regions in these countries

are experiencing double digit growth rates, while more industrialized regions are

similar to the global trends

Explosion of Consumer Class - GDP generated by the consumer class within the regions is expected to

grow by over 7%, more than double from $2.4 trillion to

$5.2 trillion by 2022

Favorable Conditions

Unfavorable Conditions

• Relatively stricter government rules & regulations as compared to Brazil regarding foreign investment like French Guiana, Suriname

Government Restrictions

• Tourism industry and hospitality industry are interlinked; in these nations tourism is not as thriving as compared to Brazil , thus affecting foreign investment

Stagnant Tourism Industry

• Moderate economic growth in these countries; lot of scope to continue growing and ultimately revitalize a healthy investment climate

Lagging Economic Growth