Brazil: Embracing Globalization Case Solution

2. Analysis

After the disastrous effects of the great depression on the Brazilian economy, the government implemented an import substitution strategy, protecting many of its key industries and sectors by making heavy investments and creating trade barriers. This strategy not only allowed the economy to grow by 7% for nearly three decades, but it also decreased the country’s dependence on the coffee alone. As the world markets got hit by the boom in oil prices and frequent recessions, countries around the world started accepting merits of globalization. The government of mid 90s took some bold decisions of deregulating the economy and lowering the trade barriers. Though, many local industries especially the manufacturing sector, was at a loss as they were not able to match the economies of scale of the developed countries. But this step made the economy more competitive and provided the agriculture producers a chance to tap the foreign market in an efficient manner. During this time, Brazil became part of Mercosur union, which provided greater export opportunities than ever before at a reduced tariff rate. The government continued to explore the North American and the European region, but very little was achieved in this regards. Brazil at this moment is in desperate need of a new trade policy to overcome the effects of Asian financial crisis. The following SWOT analysis will assist in formulating a new strategy as per the situation of the country.

i. SWOT Analysis

Strengths

Brazil is the largest exporter in the world of raw cane sugar, tobacco, orange juice, and coffee. It is the second largest exporter of soy and the third largest of chicken and beef. It is also among the top ten producers of tin, aluminum, and gold. It has iron reserves in excess of one-third of the entire world’s reserve. It is also the fifth largest agricultural country. In addition to all this, in recent decades, Brazil has taken huge strides in the manufacturing sector and now it is a major exporter of transportation equipment like autos and planes.

Weaknesses

During the last 80 years, Brazil’s economy has taken many downturns despite its much strength. Brazil exports more than two hundred items around the world, yet its imports are higher than its export. More than four-fifth of the oil used is imported, which is one of the major reasons of its high import bills. During the two oil shocks of 1973 and 1979, the government faced a serious crisis and was forced to devalue the currency in order to control the balance of payment issue. In addition to this, a huge percentage of the Brazilian population is illiterate, which is also the main reason of the rising inequality among the social classes. Moreover, high tax burden and poor infrastructure has been the main reason of low foreign investments. Furthermore, violent crimes have significantly impacted the tourism industry.

Opportunities

Because of its huge area, Brazil shares its border with ten out of twelve South American countries. This provides an opportunity to promote its products in the neighboring countries by making a strong hold in the region. In addition, every time Brazil has found itself in a financial crisis, it has managed to come out of it by some external and internal support. Following the recession era, the new period has always been of high growth for the country. Since, the government has managed to stabilize its economy after the recent crisis, it is expected that the country will witness reasonable growth. If the government manages to formulate a new trade strategy that is in the best interest of the country then it can certainly end many of the country’s economic issues. Lastly, if the government can manage to improve its infrastructure and make its economic policy more investor friendly, then it certainly has the chance of attracting high foreign investments.

Threats

If Brazilian Government fails to sign an agreement with the United States and the European Union, these markets will be grabbed by other countries that are in good terms with them. Secondly, high level of bureaucracy and constitution backed employee rights has slowed down the process of making changes in the legislation, which has continued to cost a high amount to the government.