Brazil Market Entry Paper
Brazil is by far the largest and most populous country in South America. The country gained its independence in 1822, maintaining a monarchical system of government until the abolition of slavery in 1888 and the subsequent proclamation of a republic by the military in 1889. For more than a half a century a military government ruled Brazil. However, in 1985 the military regime peacefully relinquished power to civilian rulers. Brazil has the largest economy in South America because of its vast natural resources and a large labor pool.
In January 2010, Brazil assumed a nonpermanent seat on the United Nations Security Council for the 2010-11 term. In this report the goal of our team is analyze the Brazilian gaming market and to present a successful market entry strategy for the M-Box. Challenges One of the challenges within the demographics of Brazil for the M-box is the $10,100 GDP per capita of the country (CIA-World Fact Book, 2010). Brazil is a highly populated country ranking fifth in the world, but the people are not typically independently wealthy. The M-box Corporation has to keep the low GDP per capita in mind, to make an affordable console for Brazil.
The government within Brazil poses the challenge of offering limited support in the form of grants for edutainment games and simulations. Without government funding the M-Box Corporation will have to seek other form of funding. A challenge within the physical infrastructure of Brazil is in the water off the shore of the country. The International Maritime Bureau reports the territorial and offshore waters of Brazil in the Atlantic Ocean as a significant risk for piracy and armed robbery against ships; numerous commercial vessels have been attacked and hijacked both at anchor and while underway; crews have been robbed and cargoes stolen.
The major economic challenge the M-Box faces in Brazil is the extremely high tax rate. Brazil has a sales tax of twenty percent. Games which are six months old in the US are being sold through legitimate vendors at R$250, or around $140 US dollars. The M-Box Corporation has to be able to provide affordable games for the consumers in Brazil. A challenge within the communications infrastructure in Brazil is that only 5% of the population has access to broadband. With this low of a percentage of the population not having access to broadband, it will make the online gaming aspect of the M-Box not as attractive to the Brazilian market.
Target Market Of Brazil’s 190 million people, more than 50% are under the age of 29, with 28% being between the ages of 15 and 29, and an estimated 15% being between the ages of 7 and 14. In past years, game console sales have been estimated at around 600,000 annually, a number which has been on the rise. The current market in Brazil is considered to have unlimited opportunities for growth and development. We feel the market would easily lend itself to targeting no fewer than 350,000 households—a number which does depend on how many members reside in each.
The main competition would be from consoles to which the M-Box is most similar— the Nintendo Wii, the Microsoft X-Box 360, and the Sony Playstation 3. However, our plans for manufacture and distribution could give us a competitive advantage over those consoles due to the planned lower costs of the M-Box. The middle class is also an important factor in the target market, as those who are a part of the middle class or higher are more likely to be able to afford luxury items, and depending on a family’s income, the M-Box may or may not be considered such an item.
The middle class in Brazil is made up of about 91 million people, or about 49. % of the total population, and has experienced consistent growth over the past decade. Projected Sales Factors taken into consideration when projecting sales of the M-Box include the past annual sales of all game consoles (individual data for each individual system was unavailable), the percent of the population that makes up the target market, and the size of the middle class. Based on the average 600,000-plus consoles sold annually over the past few years, the M-Box could gain an advantage with its low-cost alternative to systems such as the Wii, X-Box 360, and Playstation 3.
As most Brazilians likely own separate DVD players already, due to the high television ownership rate, it was decided that in order to appeal to a broader base of users, the M-Box would use Blu-Ray technology, and that the Blu-Ray technology would be built into the M-Box, similar to the Playstation 3, in order to reduce outside costs to the consumer. Operations When dealing with the local sales of the M-Box console there are some challenges in Brazil with regards to distribution.
The Brazilian gaming market lacks a dominant national retail chain devoted exclusively to games. This means the distribution of the M-Box console and games could possibly be distributed in lots of smaller stores that are owned individually. Undertaking local manufacturing operations in Brazil is a good option for the M-Box. If the M-Box was manufactured in Brazil, this could cut costs dramatically on the production of the M-Box console and games. We believe that manufacturing within Brazil will be the only way for our company to be successful in the Brazilian gaming market.
This will eliminate all import and shipping costs on the company. We believe this will give us a competitive advantage over the X-Box 360 and PS3 because the price of the M-Box will be more affordable to the Brazilian consumer. The management would be primarily made up of personnel from the United States. The reason for this is that the gaming industry in the United States is far superior to that of Brazil. The Brazilian gaming industry is still in the infant stage of creation, where the United States is fully mature.
We feel that bringing in a highly experienced and talented management crew in from the United States will help us penetrate the Brazilian gaming market. The estimated costs for a three night business trip to the capital of Brazil has an estimated cost of $1,452 for a two person team. This includes airfare and hotel accommodations at the Sonesta Hotel Brasilia. There are two options using FedEx for our company to ship a four foot square crate with a weight of 100 lbs. The first option is using FedEx International Priority, this option cost $1,452. 20.
The second option FedEx offers is FedEx International Economy, this option costs less but is not going to get there as fast. This option would cost $1,026. 30. Entry Modes In determining the proper entry mode for the M-Box in Brazil, one must look at the cost of other countries that currently distribute their products there. For example, in looking at the price at which one must legally acquire existing game systems such as the Playstation 3, Wii, and X-Box 360, one will immediately notice that the cost of these systems are much higher than in the United States.
This is because of a 60% tax rate on imports, which raises the cost of those systems and their games to exorbitant rates that the average Brazilians cannot always afford. Exporting has the advantage of fewer costs with regards to setting up shop in the country you’re planning to market your product in. However, the costs involved with distribution and marketing are a clear disadvantage in this case due to tariffs and duties involved with exports to Brazil. Counter trade is not common in the US as it involved trading goods for services.
There is no monetary gain in this, even against what red balance would be incurred. Turnkey project – this involves allowing existing people to set up our shop for us. We feel this would not be beneficial in the long run, due to the lack of development in Brazil’s system. Management contracts would not be prudent due to the lack of managerial experience among Brazil’s population. Licensing could work, as we would have less responsibility, but that responsibility is also something we don’t mind having. Franchising would take more resources than we may have for the M-Box.
Maybe in the future, this would be a more prudent approach, as we expand our product outreach. Joint venture is our preferred method of entering into the Brazilian market. With their lack of development in the gaming industry, we feel we could help them in developing their internal market as well as expanding our horizons to include the country of Brazil. It is this, along with the risks involved in most of the entry modes that has influenced our decision to go with a joint venture with regards to marketing and distributing the M-Box in Brazil.
It is our hope to enter into a joint venture with Tectoy, the manufacturer and distributor of the Zeebo game system and the former Brazilian manufacturer of all Sega game systems. Marketing Campaign The marketing campaign for the M-Box is going to be a low-budget high-impact marketing plan. The estimated budget we are going to set aside for marketing and advertising is going to be approximately 2% of the total sales revenue. The joint venture with Tectoy allows for the M-Box to get the most “bang for the buck” in advertising.
With Tectoy already being an established and reputable gaming company in Brazil, it allows for the M-Box to be advertised through their channel of networks. This lowers marketing costs significantly. By adding the M-Box to the Tectoy line of products, it will immediately be targeted at the gamer demographic of Brazil. Since Tectoy already has a devoted gamer demographic, by joining teams with them the M-Box smoothly and almost effortlessly will enter the Brazilian gaming market. The media we recommend for advertising the M-Box is TV commercials, billboards, radio, and in-store advertising.
The advertising will be focused at the target market of the M-Box which ranges from age seven to twenty-nine. This age group in Brazil represents a little over 40% of the population. Because we are trying to target such a large percentage of the population, the M-Box will have to rely heavily on television and radio commercials and also on billboards. It takes hearing or seeing a marketing message at least seven times to influence a buyer’s decision; because of this we believe that billboards and television and radio commercials will be the best choice of marketing media.
People drive the same routes on the roads everyday and watch and listen to the same programs on the TV and radio. This repetitive nature in humans is what leads us to believe these will effective marketing medias. Final Analysis After conducting adequate research on Brazil, we believe that we should enter the Brazilian gaming market at this time. We will enter the market by means of a joint venture with Tectoy. The joint venture will allow for us to manufacture and distribute within Brazil with minimum financial strains on our company.
It will also allow for us to provide a sophisticated gaming system for a very affordable price. Tectoy also already has a channel of distribution within Brazil, this is especially good because with the partnership of Tectoy the M-Box will be easily distributed. The gaming market in Brazil is almost untouched and in its infancy stages. Because of the lack of competition and the expensive price of other comparable consoles, we believe the M-Box will flourish for years to come in the country of Brazil.