Country Feasibility Report

Licensing was the choice for mode of entry given the intangibility of the SWIM software, as Octahedron is selling a subscription service to Jeweler's that are set up in Brazil, as they are not setting up a business. It is recommended that Brazil should be chosen as according to research Brazil has more jeweler's than Mexico.

There are 15,000 Jeweler's in Brazil while there are only 12,000 in Mexico. Also Brazil Jewelry sector is booming, while making a profit of $6. 5 billion 2010. 1. 0 Introduction.

Octahedron and their SWIM software is a well established firm in the US and in the European markets.Currently, the firm is deciding to strengthen their presence by expanding to the Latin American markets. The two countries that will be analyzed in this report will be Brazil and Mexico. Analysis on the business, economic and political environment will be considered, as well as the three different modes of entry and thus the Justification of the most appropriate mode of entry will be established.

2. 0 Economic Environment. Brazil and Mexico has shown in the past decade that the development of these countries has been going in different directions on a global perception (World Crunch, 2011).IN per capita for Brazil in 2010 was about US $11,000 while Mexico is $13,245 (Brag. J, 2012). The important factor to consider is the heavy reliance on the US leading to a higher IN in Mexico.

Brazil still remains as a strong domestic market potential and will benefit from stable economic growth (Brag, J. 2012). Competitive labor costs will enhance its attractiveness to foreign investors compared to Mexico (The handbook of country risks, 2009-2010) . 2.

1 Income levels. Brazier's lowest 10% consists of 1. % of income while the highest 10% is 42. 5% according to The World Fact book; this outlines the large gap in income disparity.

This is however better than Mexico, whose lowest 10% is 1% and highest 10% is at 37%. Despite the lower income levels incurred, economists believe that the external demand for Mexican manufactured goods is projected to increase (Brag, J. 2012). The SWIM software, launched by Octahedron, will depend on the type of businesses that are in the country and people's disposable income to spend on goods.

2. Income Distribution. Income distribution in Mexico depends on the age level; the wider the gap in income disparity has led to inequalities within the country. Younger populations receive the east, while those in their mid 45 earn the most (The World Fact book, n. D).

Mexico is a free market economy, consisting of a mixture of industries and agriculture. Agricultural products produced include corn, wheat, soybean, coffee and many more. Along with other industries such as food and beverages, tobacco, iron and steel (The World Fact book, n. D).Compared to Mexico, much of Brazier's economic success was due to the country ability to diversify in its export sector. A large proportion of manufacturing goods such as cars and machinery are exported to China, who is currently the largest recipient of Brazilian goods (The gateway, 2012).

This suggests that Brazil remains strong on exports, leading to 17% employed in this sector. The service sector of Brazil makes up 56. 9% of the GAP, this meaner that Brazilian consumption of goods are among the highest in the world, thus this strong performance reflect on the steady growth in the income level of the country (Passport GIMP, 2011) 2. Government Budget The government budget shows how much the government has to spend in that financial year; the money can be gained from taxes and other meaner.

Brazier's budget is measures by using a rate against their GAP. The Trading Economist as a graph that shows the percentages from 1998 to 2010. The percentage rate for Brazil was quite high staying around 2. 3, the only time it had a bad percentage was in the 1st half of 2010, this may be because of the Global Financial Crisis that had affected it, but in the 2nd half it Jumped back up too surplus of 2.

2.Brazil has a good surplus, which meaner, it has more money to spend increase infrastructure and boosting the country economy. According the National Post in 2011 "Brazier's government said Wednesday it will cut 50-billion reads ($30-billion)" and they have done this because "said the "strong" cuts could remove government stimulus after the financial crisis of 2008-09 but would not hurt growth in Latin America's biggest economy. " Although there has been a decrease in the government budget but at least there is still a surplus, the government says that this move should not hurt the growth of Brazil.According the Trading Economist Mexico budget is in a deficit, the graph ranges from 1998 to 2010, and the percentage ranges from -1.

5 to -2. 3. This is bad because the Mexican government is spending more money than what they are receiving which create a big liability, which will make the economy worse and there is no none to help Mexico expand. 3.

0 Political Environment and Risk. According to Australia Department of Foreign Affairs and Trade (2012), both countries have democratic government which meaner bilateral relationship with Australia will not be hampered by differences in political ideology.Both Brazil and Mexico are members of WTFO and 620, the free trade policy of these organizations and encouragements of corporations with foreign countries from their own government highlight both countries commitment to global trade. 3. 1 Political Stability.

Political stability is the foundation of successful foreign trade. Balladic, Guppy and Matt (2012) state that politically unstable countries are less desirable as an export market. Mexico political climate has changed significantly over the past decade.In 2000, the political hegemony of the Institutional Revolutionary Party, which had endured in Mexico for 71 years, was broken by the election of President Vaccine Fox of the National Action Party (Australia Department of Foreign Affairs and Trade, 2012). Compared with Mexico, Brazil is more stable in political environment and according to the Corruption Perceptions Index published by Transparency International (201 1); Mexico is more corrupt than Brazil. 4.

0 Business and Cultural Environment. 4. 1 population The area of Brazil is 8,511,965 sq. Km.

(3,290,000 sq. I. ) and the area of the Mexico is 1 sq. Km.

(761,600 sq. Mi. ). Obviously, by comparing the two countries Brazil has the biggest area than the Mexico (State Department, 2011).

In addition, the population of Brazil is also greater than the Mexico which is 19 million and 11 million. Furthermore, the annual population growth rate for the Brazil is 1. 17 %. However, Mexico has only 1 . 102%. For the age structure, Brazil have higher % than Mexico in he age between 15-64 years old.

It proves that Brazil have more working labor than Mexico (Cia World Fact Book, 2011).Figure. 1 Appendix a. In addition, for the education level for Brazil the average schooling is 12 years and the Mexico only have average 11 schooling years (Canadian Foundation, 2011).

It can represent Brazil is a civilization country than Mexico. However, the Literacy level for the Mexico is 91. 4% and Brazil only has 90. 3 %. It proves that Mexico for the ability to read for knowledge about the written word is higher than Brazil. Furthermore, the life expectancy in Mexico is 76.

4 years and Brazil only has 73. Years (Library of Congress, 2011), it meaner the people in Mexico have a better health or better medical services. Eventually, the Infant mortality rate in Brazil is 22. 5/1 ,OHO.

And Mexico is 17. 29/1000. 4. 2 Economic Growth Rate.

The Gross Domestic Product in Brazil of the nominal exchange rate is $2. 5 trillion and for the GAP purchasing power parity is $2. 3 trillion (Trading Economics, 2011). In these two GAP rate Brazil are more than Mexico, Mexico only have 1. 04 trillion and %1.

459 trillion (State Department, 2011). However, the annual real growth for Mexico s 5. % and Brazil is 3. 5%.

It proves that Mexico have a better stable level of economic growth than Brazil. The Agriculture of Brazil and Mexico the products that those countries produces are Soybeans, coffee, corn, wheat, rice and fruit. The difference between two countries is Brazil produce tobacco and Mexico will produce daily product and wood products (State Department, 2011). On the other hand, the industry in both country the types of industry are steel and vehicles. However, Mexico is focusing on the food and beverage industry and Brazil is focusing on commercial aircraft and chemicals.

In addition, the mainly services that Brazil provide are mail, telecommunications, banking, energy, commerce, and computing. Furthermore, the types of services in Mexico are commerce and tourism, financial services, transportation and communications (State Department, 2011). In addition, for the per capita GAP (nominal exchange rate) in Brazil is $12,917 and Mexico is $9395. 4. 3 Financial Structures/Tax System Between Brazil and Mexico, the financial structures, exchange rates and tax system have advantages and disadvantages.Both financial structures in Mexico and Brazil have relied on a credit based system.

Australia exists in market based financial structure where as Brazil and Mexico run off a credit based system. (Levine, 1999) Both countries have looked towards a liberalized international trade market structures (Ernest, 2005). This insures a more efficient and more fluid international standard of trade. Liberalizing of international trade structures is seen as a requirement in both Mexico and Brazil in connection to their move towards a more efficient Free Trade Agreement. Mort, 2002) This would reduce internal problems associated with the distortion of non-trade inputs; (Hanson, 2010) the present credit yester is inadequate and non-regulated, which keeps the financial processing often dragging and asphyxiated amongst international trafficking (Detention, 2011).

This structure is vulnerable for future corruption and obstructs regulations from third parties; (Financial Supervision, 2008) however the governments in both Mexico and Brazil are making slow progress towards a market place reform (Deep. Of Foreign Affairs, 2011).Dismantling tariffs and internal factors will make international trade more viable in future years to come (Deutsche Bank Research, 2006). In context of Octahedron, Arlene talks about the software produced by SWIM in her transcripts, to handle any language, currency or tax system. If there is to be any venture of Octahedron trading in Brazil or Mexico, the SWIM program must adapt to the complex and arduous tax system that still exists in both countries. Considering any mode of entry will still require Octahedron to research and adapt to the heavy tax system that exists in both countries.

. 0 Market Potential As Swim is designed to assist the Jewelry industry, the market potential of Swim can be determined by the development of Jewelry industries in both countries. As the fifth largest country in size, Brazil is well endowed with natural resources. According to Wheat (201 1), Brazier's Jewelry sector represents 15,000 companies and nearly three quarters of the industry is comprised of small and medium sizes companies.

Sales for all gem and Jewelry sectors in 2010 totaled SIS$6. 5 billion ($2. Billion of which was retail), with exports totaling SIS$2. 2 billion, up from SIS$I .

7 billion in 2009. Although Jewelry is more expensive to make in Brazil than in countries with lower production costs such as China, India and Mexico, but their advantage is a higher laity of workmanship (Phillips, 2010). In 2008, Mexico ranked 16th in Jewelry and gifts exports in the world, only behind countries like the United States, Hong Kong and South Africa. All around the country, there are at least 12,000 Jewelry businesses and 1,500 of them are exporters.Some of the Mexican states with the largest Jewelry production are: Calico, Guerdon, Pueblo, Conjugate, Uneven Leon, District Federal and Estate De M©OIC. 5.

1 Mode of entry The 3 modes of Entry consists of Turnkey Projects, Licensing and Franchising. The Turnkey method is described as investing actual manufacturing and operation within he country alongside the employment of local employees. Licensing orientates around the rights associated with a material or intangible product within a time frame. In return of using the product, royalties are received from the business.Franchising, like licensing, embeds strict rules upon the product on how it should be sold. The problem behind the Turnkey method is the major infrastructure costs associated with development within a country.

Overhead costs and production costs are irrelevant given that Octahedron is selling software. It is unwise and pointless to construct within Brazil as there are no intangible products being exchanged. Franchising, like Turnkey, is the orientation around products and intangible services. This would be irrelevant towards the SWIM software as it tangible.The mode of entry chosen is the Licensing method, as Octahedron is selling software; this makes it an intangible asset and cannot be physically touched. Licensing agreement is where a party will grant access to the asset to another entity.

This method was chosen because Octahedron is not opening a business and project in the country, but what they are doing is selling a Jewelry program to Jeweler's to use help manage their clients. Therefore no other mode of entry can be chosen as it does to apply to this case, which makes the Licensing Agreement the best choice. 5. The Country of Choice The country that was chosen was Brazil; this was chosen for many factors. One of the factors was Brazil having a larger population than Mexico; Brazil population is 190 million while Mexico has a population of 110 million.

Brazil has the larger population which meaner there are more potential clients. Another factor is the IN of the two countries, Brazil IN for 2010 of $11,000 while Mexico was $13,245 for 2012, Although Mexico has a higher income than Brazil, the data was taken from two efferent years, which could mean that Brazier's IN could of increase since 2010.The Income distribution of these two countries is also another factor that was considered, the highest 10% for Brazil was 42. 5% while Mexico was 37%. This shows that Brazil has larger number of people with high income, which meaner there larger group of people with a disposable income. The last main factor was the market potential of the two countries, there are more Jewelry business in Brazil than Mexico, which meaner there are more potential clients that Mexico, also Brazier's Jewelry sector sold $6.

5 Billion worth of Jewelry. . 0 Conclusion.Brazil was the country chosen for Octahedron to launch their SWIM software; this was because Brazil has the most market potential.

It has a higher population, income levels and also Brazil has more Jeweler's than Mexico. If the SWIM software was launched in Brazil Octahedron would have more chance to gain a higher profit than it would in Mexico. The mode of entry that was chosen was the Licensing Agreement; this was because Octahedron is selling a program not a business to clients in Brazil. The only barrier that Octahedron has would be language; this is because the SWIM aerogram is written in English.