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SOFTWARE SALES IN BRAZIL.
Term Paper ID:28655
Essay Subject:
Reasons for Data Point choosing entry in Bralizian market. Legal systems , intellectual property rights, cultural factors, bribery & business, social structure. Implications for business (threats & opportunities). Foreign exchange system. 1 Chart.... More...
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Paper Abstract:
Reasons for Data Point choosing entry in Bralizian market. Legal systems , intellectual property rights, cultural factors, bribery & business, social structure. Implications for business (threats & opportunities). Foreign exchange system. 1 Chart.
Paper Introduction:
SOFTWARE SALES IN LATIN AMERICA
I. Basic Entry Decisions
a. Which markets
This is actually a dual decision, based on the necessity of narrowing the focus. Not only must the market be selected, but the type of software for that market. The market selected in Brazil, and the point of entry in that nation is Sao Paolo. And the software chosen is DataPoint, a software designed to enable businesses to quickly modify company Internet sites into Intranet sites and Extranet sites.
We will examine the reasons for choosing Brazil first.
Brazil’s GDP is the tenth largest in the world (1999 ext. $643 billion) and it has a population of 156 million. A founding member of Mercosur, Brazil also has an average per capita GDP of $4,823 and an ave
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Contract approval turns on only a few issues, most notably: the distributor cannot be exclusive (although there is no requirement to appoint a second distributor); and the price must not exceed the product's average international wholesale price (in practice pricing need only be within reasonable bounds). Leopold, G. .", 1998, Online). However, Brazil does subscribe to all worldpatent conventions. As you noticed, this is a party for all" (Peres, 1997, p. That exchange rate fluctuates greatly, however, because the nationstill hasn't developed a currency control board. "Brazil creste a noite" means "Brazil grows at night" and refers tothe belief that Brazil "will get by and grow, even if at night. Of interest to the computer software industry is the fact that of allthe Latin American countries, Brazil has the largest penetration of bothbusiness and personal computers. It is one of the world'slargest economies, yet has many problems that are almost "third world."Brazil is receptive to new products and there is strong consumerism in thenation, especially in the densely populated seashores. Microsoft expects 3 percent growth in Latin America despite crisesand piracy, (1999, March 23), InfoLatina S.A. Carl Bierbaum,a US Department of Commerce attache at the Brazilian Embassy in Washingtonexplained "I have never ever seen a Brazilian business (or anyorganization, or even some people) that didn't have a 'caixa 2' which means"Cash Account Number 2" and it is all money or assets that are kept off thebooks and official records. "Caixa 2". Latin Americaweathers the storm. The Law also made foreign companies' rights unambiguous regardingmarketing software in Brazil (previously only the few companies largeenough to bear the overhead of a murky legal environment dared enterBrazil's market). Brazil accepts loss (1998, June 13). The number of Internet users in theregion will grow from 4.8 million in 1998 to...19 million by 2 3...LatinAmerican Net users average 8.2 hours of online time a week, compared with7.1 hours in the U.S. Sales totaled $3.54 billion, making the region thesecond-fastest growing market for US software developers, after Asia.Sales are expected to rise 18% annually through 2 2, with tax revenuereaching $2.4 billion. These have proven effective: the courts have beenreceptive to search and seizure actions. . Legal Systems a. While software piracy is still a reality in Brazil, the principal userbase's respect for software rights is now second only to the best Europeancountries. The investment risk must be weighed againstthe benefits many American companies have found resulting from theirBrazilian investments. Social Structure The Brazilian social structure is baffling. (Commerce, 1996) Having selected Brazil, it is now essential to discuss why DataPointsoftware has been selected as the product of choice. This, of course, keeps it away from the greedyeyes of the tax authorities" (Bierbaum, 2 ).c. Peres, R. Of all the Latin American countries, Brazil has become the mostconnected to the Internet. Charles de Gaulle, former president ofFrance, is rumored to have said, "Brazil is the country of the future ...and will always be." The economy, which once was protected by large tariffs and tightimport quotas (until 1988, computers and cars were kept out completely) isnow undergoing major trade liberalization and an unprecedented welcoming offoreign investment. firms, many of them unknown herejust five years ago, have found a profit mecca in Brazil, sellingcomputers, cellular telephones, processed food, autos and trucks,insurance, disposable diapers and microwave ovens to newly acquisitivecitizens," (Kraul, 1997, D1). Threats* Changes in technology that could make software obsolete* Piracy and cost of prosecution* Government regulation* Inability to find proper distributorsb. Katz, I. As ofFeb. . de C.V., 1. Brazil's GDP is the tenth largest in the world (1999 ext. Prior to distribution of foreign software in Brazil and remittance of payments, the contract must be approved by the Brazilian Government and the software must be found to have no domestic equivalent (must pass the so-called "similarity test") . Atypical story of the mythos of Brazil is revealed in this anecdote.Brazilians like to tell the story (true or not is not important) of anEnglishman who was visiting the nation and saw a vast group of peoplesinging and dancing in the streets who asked: "Why are they having a party just like that, in the middle of thestreet, in the middle of the day, for all to attend?" "You see sir, this is the way they party here. Basic Entry Decisionsa. U.S.-based software developers have learned thatBrazil, in addition to Chile, has a growing base of capable local softwaredevelopers ready to grab market share. Interest Rates Most analysts are concerned about Brazil's current account deficit,which averages 5% of GDP and has a great impact on interest rates becauseof the pressure on the BRR. Protection of Intellectual Property With its Software Law of December, 1987, Brazil was among the earliest"third world" countries to explicitly legislate copyright protection forsoftware. These three business slang terms are heard constantly in Brazil, andalthough not "proper, legal, or even factual, they express the art andscience of doing business in Brazil" (Bierbaum, 2 )"Custo Brasil" (broadly defined) is the extra cost of doing business inBrazil, above and beyond that which would be normal if it weren't forcorruption, government inefficiency, legal and bureaucratic complications,excessive taxation, and sub-standard infrastructure. (1997) Syncopated Flux: The common thread of BrazilianCulture. * In April, 2 , Globo Cabo, Brazil's largest cable- TV operatorwill launch its cable modem internet access done in conjunction withMicrosoft which has invested more than $126 million in the cable company. Foreign Exchange Systema. The concept is vague,but very real. TheConstitution and the legal system, however, are based on Roman law, insteadof Common or Civil law as in America and the nation does not acceptcompulsory ICJ jurisdiction. References Bierbaum, C. Brazil is the largest country in South America, both in population andalso in geographical territory. E-commerce sales are expected to soar from a mere$167 million in 1998 to $8 billion within five years" (Katz, 1999, 194).b. As Katz (1999) pointsout "Latin America is getting wired. Not only must the market be selected, but the type of softwarefor that market. Bribery to Do Business Although endemic in other South American economies, bribery, as such,does not exist in Brazil. 22, 48). PC makers in Brazil,software sales (both stand alone and bundled) are becoming a major trend inBrazil. Which markets This is actually a dual decision, based on the necessity of narrowingthe focus. 1), The Internet: Battle for the Latin AmericanNet, Business Week, 194. Cultural Differences a. The three conceptsare: 1. Religious or Cultural Differences In a nation that is facing economic disaster and an IMF bailout, theonly emotional event that has, recently at least, affected the millions ofpeople of Brazil was losing the World Soccer Cup. There has been a gradual breakdown in Brazil's social infrastructure,much of that based on the nation's incredible inflation rates. 5) Mercosur boasts strong short-term growth.Chemical Week. In Brazil, software sales totaled $1.76 billionand are forecast to reach $3.7 billion between 1998 and 2 2. In general, the formalities of business are much like theUnited States: contracts are respected and the courts enforce businessrights. "Custo Brasil" 2. Microsoft, Dell, Apple, Hewlett Packard,and IBM are all establishing operational presence in Brazil, joining suchnoted companies as Chase Manhattan Bank, Alcoa, GM, IBM, Caterpillar,Goodyear, Xerox, DuPont, GE, Westinghouse, Champion Papers, Dow Chemical,Johnson & Johnson, 3M. A recent study from PriceWaterhouseCoopers shows that the LatinAmerican software industry generated $1.24 billion in tax revenue and over134, jobs in 1998. 22), Phone Conversation, Economic Attache,Brazilian Embasssy, Washington, D.C. Associated Press Dispatch, Onlineat http://www.ap.org Katz, I.; Capell, K. Los Angeles Times. "Legions of U.S. As will be seen in the next section, a second reason for beginning thepenetration in Sao Paolo is the large number of attorneys practicing inthat city, essential for this particular business. Currency conversion Of real concern is the "real" the official currency of Brazil. Opportunities* Growing use of Internet* Growth of PCs (see chart)[pic]* Development of Brazilian partners* Chance to bundle software with local versions* Expected 2 percent penetration first year On March 23, 1999, Microsoft tipped its hat in the direction ofBrazil, saying that it expects at least 3 percent growth in Latin Americadespite the economic crises which are battering the region, and the highlevels of software piracy. The mainelements of Brazilian software business are: . Since 199 , the Brazilian government has beenprivatizing the Telebras telecommunications system in an effort to expandthe nation's communications network. 23) Brazilian slowdown means shake-up in UnitedStates. Sissell, K. In Argentina, Brazil's loss was banner headline news. Insuring against foreign exchange risks The risk/reward ratio of investing in Brazil is extremely highcurrently, but it is also marked by volatile swings germane to anydeveloping industrial nation. (1999, Nov. With a recent long range financial plan that linked the real to thedollar, a certain amount of tracking ability, if not stability, has beenachieved (Sissell, 1997, Nov. D-1(2). With careful attention to choosing a distributor, a software developercan be comfortable about entering the Brazilian market. A few well-publicized raids haveled to hundreds of settlements by major corporation and government agenciesin response to demand letters based on evidence of pirated software. "Brazil Weeps" and "Rio is an ocean of tears," said the Buenos Aires daily Cronica. ("Brazil accepts. "Brazil left all its talent, ability and creativity in the locker room," wrote Jose Trajano of the sports daily Afinal. Thanks to the efforts of some leading U.S. . 22) Emerging markets. The implication of this is that the entry should be within the nextsix months to take advantage of the following scheduled and announcedevents. $643billion) and it has a population of 156 million. 22),Trouble in Brazil -- Will big drop incurrency hurt its booming electronics business?, Electronic Buyer News, 1. The principal elements might at first seem daunting, but someare now only residual formalities left from more protective times. ForDataPoint to thrive, it is essential to find a market that is just adaptingto the new rigors of Internet technololgy. Scale of entry Because DataPoint is business productivity software, all sales andmarketing thrusts will be made in the business-to-business venue. (1997, Sept. And the software chosen is DataPoint, a softwaredesigned to enable businesses to quickly modify company Internet sites intoIntranet sites and Extranet sites. * In June, 2 , the revamped "Netstream" which is Brazil's premierhigh speed Internet hookups for businesses will officially become an AT&Tcompany, having been bought for $3 million. Online athttp"//www.proweb.com/mprais/futebol/brasil/culture.html. Distributors' payments to be sent abroad will be reduced by 25% withheld as income tax on royalties. But these statistics do not reveal the real nature of Brazil. Today's rules for distributing software in Brazil are well-established. And governments and universities are only justbeginning to tap its potential for information and education" (Katz, 1999,194).c. (2 , Feb. "Brazil's millions of poor people--as well associal groups looked upon as expendable, such as indigenous peoples,homosexuals, landless peasants and street children--are subject tosystematic police violence" (Hecht, 1998, 32)IV. This privatization of the telecom industry has led to an increase inboth Internet providers and Internet subscribers. The best way to protectagainst a BRR hit is to follow the example that most MNCs are doing anddraft contracts for at least 5 percent of the payment in either US dollarsor Swiss Francs (although some drafting of contracts is being done inEuros)(Bierbaum, 2 ).b. Kraul, C. (1999, Oct. (1997, Nov. Implications for Businessa. Even though Internet connectivity is not commonplace in Brazil (only1 in 1 people in the region has a phone line, compared with 7 in 1 in theU.S.) the main benefits being cited by companies are that more connectivityto the "Net may slash costs and boost productivity for multinationals withoperations in the region. The percentage of people under 2 , however, declined to less than halfof the total population between the 197 s and the 198 s, while older agegroups increased. Female-headed households are about as likely as or morelikely than male-headed households to be wealthy ("Women Still..." 1997,143). Property Rights A 12-member Supreme Court presides over the Constitution. * A $2 million joint venture between AOL and Venezuela's CisnerosGroup will launch an online service in Brazil by July of 2 . What does exist, on the other hand, are threeconcepts unique to the Brazilian way of doing business. (1997, Nov. Those fears have prompted many regional fundmanagers to shift 5% to 1 % of their portfolios out of Brazil and intoMexico" (Katz, Capell, 1997, Sept. . "Brazil creste a noite" 3. In the European sectors of Brazil, among the older settlers, theconcept of the extended family is still apparent but not a strong socialforce. 199 inflation rate was 11.4%,considerably down from the 5, percent figure of 1993. 5, S3)) The best way to monitor risks is tofollow the currencies market, and the number of valid stock actionreporting services on the internet.c. This enhancement enables network users to double upload and downloadof data without sacrificing bandwidth, an important consideration. We will examine the reasons for choosing Brazil first. The top Non-U.S investors are: Volkswagen, Shell,Nestle, British American Tobacco, Fiat, and Mercedes Benz. Compliance with the legal standards can be certified by Brazilianlawyers, while the similarity test is essentially a formality which yourdistributor will generally take care of.b. Once software was copyrightable, with criminal penalties available forinfringement, various major foreign publishers in concert with the SPA andcorresponding Brazilian associations launched major anti-piracy campaignsand enforcement efforts. The increasing number of single family households suggest thatparental roles are changing. The Internet is also helping to level the playingfield for companies by reducing corruption in the granting of public-andprivate-sector contracts. In a wrap up story, theAssociated Press quoted several South American newspapers that captured themood. Timing of entry DataPoint, which is a browser add-on to Microsoft NT has the addedbenefit of being able to function as a stand alone product easily convertedto the Windows platform, a fact which is essential for Brazilianpenetration. In simple terms, DataPoint is able to "piggyback" packets ofinformation so that a single buss cache of 128 kb is doubled to 256 and soon. Distribution contracts cannot be exclusive and cannot provide for prices greater than the international average. The cost of goods and the intangible value of the software shall be invoiced separately, with import duties only on the former. A seriesof civil and criminal courts are spread throughout the nation. A founding member ofMercosur, Brazil also has an average per capita GDP of $4,823 and anaverage annual growth rate of 3.9 percent. Business Week, 3345, 48. Anybody can join inanytime. 22, 2 , the exchange rate was 1.76 Brazilian Real (BRR) for 1 USdollar. Software/hardware configurations oriented toward multimedia are inparticularly high demand. "Currency stability is the centerpiece of the so-called Real Plan[thenation's fiscal reform package]That stability, along with the availabilityof consumer credit and the opening of Brazil's economy to competition fromforeign companies, has been credited with Brazil's dramatic economic growthof 3% to 6% annually since 1993," (Kraul, 1997, D-1). The ideahere is that during the day, the government machinery stifles economicgrowth, but when the bureaucrats sleep, real progress occurs. Because of that flexibility, there is no need to wait untilthe country's estimated 5,4 , Internet users choose to network or adoptthe NT platform. 159 S3(4). The modernization of society has equally been a factorin the increase in life expectancy and a lowering of the birth rate, alongwith a general lowering of the population Women head at least one in 1 households and overall, women who headhouseholds are more likely than other women to be widowed and to beemployed; they are also likely to be older, to be less educated and to havemore children. DataPoint is asoftware that enhances the connectivity of computers to the Internet, or toeach other. Moreover,legislation now before the Brazilian Congress will remove uselessformalities as well as make other improvements in the law of software, sothe legal environment of Brazil will soon be even more receptive to foreignvendors.III. This is alsothe idea behind the concept of 'jeitinho', in which a person always finds'a little way' around rules and regulations" (Bierbaum, 2 ). Richtmyer, R., (1999, Feb. "Caixa 2" refers to the idea of a second set of books. The company said that if "piracy can be reducedby two or threepercentage points, to 55 or 56 percent of software sales, growth will beeven more rapid" ("Microsoft expects", 1999, 1).V. The market selected in Brazil, and the point of entry inthat nation is Sao Paolo. SOFTWARE SALES IN LATIN AMERICAI. At the same time,there are strong cultural divisions among the diverse population. 1).b. The downsideof the study is that 6 out of 1 software applications in Latin America in1998 were illegal copies (Leopold, 1999, 33).II. With acurrent price of $495 per establishment and $75 per additional in housesite, it is planned to introduce the software in Sao Paolo instead ofBrasilia, the capitol, where most new products are introduced. 11), Racks up $3.5B in software sales; e-commerce to drive growth Latin America sold on SW, Electronic EngineeringTimes, 33. As in mostdeveloping nations, Brazil's population is young, accounting for the factthat Brazil has more Internet users per capita than any other LatinAmerican nation. According to a well-known trade magazine, "The service providerswithin Brazil that have won licenses are under contractual obligation withthe Brazilian government to build out a certain portion of the wirelessinfrastructure...And the contracts ...are in dollars and call for a certainamount of product over a specified period of time" (Richtmyer, 1999, 1).
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