Regional Barries

Entry and other barriers

Entry barriers for businesses and investors wanting to conduct business must be identified to effectively screen and analyze the political and legal forces within Brazil. Entry barriers into Brazil include the devaluation of the REAL, government control of certain sectors of the economy such as the telecommunications and electrical energy sectors, and the lack of competition. Other barriers such as: unemployment, political violence and crime also exist.

In 1999 there was a devaluation of the REAL brought on by deficits in the budget, which created problems within the Mercosur and the trading block for Brazil. Brazil then introduced emergency taxes to cut the national debt, which exceeded 50% of the GDP. Brazil was then on its way to recovery repaying a $41 billion dollar IMF loan and the debt began to decrease. (CultureGrams, 2003) In 2001 however, Argentina defaulted on its international debt, which led investors to feel uncertain about Brazil’s economy. A new US backed IMF loan of $30 billion dollars came as a result in 2002. President Lula in 2003, facing issues such as poverty, inflation, and unemployment has had to pull money from the Brazils social security program. (Countrywatch.com, 2003) Each US dollar is worth 3 Brazilian REAL, and companies contemplating entry into Brazil may see this as a barrier. The entry strategy must focus long-range future profits as opposed to immediate profits.

The government still maintains control of certain business sectors within Brazil such as the telecommunications, petroleum, and electrical energy sectors, which may be an entry barrier. Currently there is a deregulation of the energy industry but there are still segments where state owned companies still maintain a strong presence and there is little competition. It is difficult for Brazil to bring in private investors because there is a lack of an appropriate regulatory framework. (Emerging Markets online, 2001) As a result of the lack of investment the electricity supply was exhausted.

After the exhaustion of electricity foreign energy companies were allowed to compete for business on a limited basis. The government is now in the process of opening cell phone and traditional phone services to foreign companies. The privatization of the telecommunications sector has led to 35% of the stock being purchased by competing firms in other countries. Regulatory agencies for sectors such as telecommunications, energy and transportation are a relatively new phenomenon in Brazil. (Countrywatch.com, 2003) Because privatization and regulatory agencies are relatively new this can be a barrier for entry.

There is a lack of competition policies within Mercosur countries. The harmonization of competition policies has been on the agenda of the Southern Common Market (Mercosur) project since the signing of the AsunciÐ"Ñ-n Treaty in March 1991. According to its first article, that treaty involves "the coordination of macroeconomic and sectoral policies between the States Parties in the areas of foreign trade, agriculture, industry, fiscal and monetary matters, foreign exchange and capital, services, customs, transport and communications and any other areas that may be agreed upon, in order to ensure proper competition between the States Parties (Countrywatch, 2003) The lack of competition is a barrier for entry because companies are forced to pay higher prices and taxes.

Other barriers include political violence, advertising, management barriers and labor.

Significant but decreasing human rights violations continue to occur