Introduction
Internationalisation of businesses has become a major need in the current times as it allows businesses to beat competition and ensures betterment in terms of facilitation of better chances of growth and development.
As a whole, companies can expand into new countries and markets to avoid any kind of market saturation and to avoid stunting of business growth and development. Brazil is one of the top-most emerging economies and is seeing major transitions but there are still certain issues that are being faced by the economy of the country, which makes it the best choice for a detailed study.
Apart from this, the study has focused on the expansion of Tesla into the markets of Brazil. An understanding of the Brazilian economy and business environments has clearly indicated the fact that there are major challenges in doing business in the country. This can be seen as a critical area that can impact the overall ability of the country to attract a big business like Tesla
. The economy is in a period of moderate growth as the expected growth rate of 2023 is 1.2% only (tmf-group, 2023). Nevertheless, the country is seeing a rejuvenated growth of its economy, largely due to the rising global demand for commodities like soybeans and iron ore. Tesla is one of the most successful EV businesses in the world and therefore, its inclusion in the economic growth of Brazil can be beneficial for the country.
Background information on the economy
Information on the economic system
As per the information presented by the World Bank, Brazil’s economy has improved by a huge rate in 2021 and 2022 after the negative growth recognised during the Covid-19 pandemic. From the year 2001 to 2014, the average GDP of Brazil was 3.3% which was not highly profitable for the country (Worldbank, 2023). Due to the political turmoil, commodity prices and unaddressed structure issues, economic recession has expanded in Brazil.
After 2014, the GDP rate constant decreased by an average of -0.3% till 2019 and in 2020, Covid-19 pandemic led to massive GDP fall of -3.3% (Worldbank, 2023). From this economic crisis situation, the government of Brazil has been able to rebound its economic ability and its GDP in 2021 and 2022. The growth of GDP in 2021 was 5% and in 2022 was 2.9% (Worldbank, 2023).
The strong fiscal stimulus, the favourable market for commodities, and the need for various services including healthcare and so on have helped improve the cash flow in the country which has helped to develop its economic system in recent years.
The government of Brazil has played a huge role in improving the economic system in recent times. Government consumption has decreased in Brazil in 2022 and 2023 compared to 2020 and 2021. The low government consumption has helped in reducing the inflation rate to 4.6% (State, 2023).
Even though this inflation rate is also high for the companies, it is manageable as the companies have government support to expand their business in the country and increase their revenue. Along with that, according to Jayme Jr (2020), the government of Brazil has focused on including tax exemptions and low-cost financing for foreign businesses (Guarnieri et al. 2020).
Additionally, the government of Brazil has developed its policy for foreign direct investment so that numerous organisations are able to invest a high amount in Brazil. The US foreign direct investment amount in Brazil was 29.1% in 2021 which is an amount of 191.6 billion USD (State, 2023).
The high return on investment provided by the government of Brazil has allowed the country to expand the potential number of foreign direct investors in the country which is highly beneficial. In this regard, Tesla can directly invest in the country and develop its branches in numerous locations. On that basis, a high return on investment can be earned by Tesla and the organisation will be able to stabilise its profitability rate in the country.
The Brazilian Trade and Investment Promotion Agency has a mandate to simplify FDI in the country to attract more MNCs such as Tesla in Brazil (Apexbrasil, 2023).
Even though the country can be seen to be a growing economy and is transitioning as well, there are certain major issues that can be noticed in the case of the Brazilian economy (tmf-group, 2023).
The taxation system of Brazil is an extremely complex one and there is a prevalence of a high amount of taxes that is generally faced within the country. Foreign businesses, especially, businesses that are importing in the country have to face heavy tax barriers, which can be seen as a cause of concern overall. Besides, there is a need to understand that the overall domain of corruption within the country is also high and bureaucracy is a major issue as well.
All these dominant areas impact the chances of foreign players entering the markets as well. The unemployment rate of the country at present is also high, as the growth rate of the GDP has slowed down. The projected growth rate is as low as 1.2% in 2023, which is indicating the major issues that the country and its economy is facing (tmf-group, 2023).
Information about the company
The company that has been selected here is Tesla, one of the largest Electric Vehicle and technology companies in the world. Tesla is an American organisation that works in the automotive and clean energy sectors. It was founded in the year 2003 and has seen a large amount of growth in a short span of time (Carlier, 2023).
The organisation at present is a key player in the EV market and is well-known for the innovations that it has been able to generate over time. Besides, it is one of the most significant companies when it comes to the facilitation of appropriate research and development in the domain of clean energy.
The key concept of competitive advantage refers to the factors that allow the company to produce goods and services better or more cheaply than its rivals (Carlier, 2023). The organisation has been known to be able to harness clean energy and this has ensured better results for the business in the long run and has allowed it a greater competitive advantage in the markets in comparison to other businesses and competitors.
Figure 1: Revenue of Tesla
(Source: Carlier, 2023)
Tesla Inc has shown tremendous growth in the past ten years and this is reflected in the overall revenue that the company has been able to generate. The revenue of the company grew exponentially from 53823 million USD to 81462 million USD between 2021 and 2022 (Carlier, 2023). Apart from that, the company saw its revenue growth intact even amidst the high uncertainties of the COVID-19 pandemic.
This reflects the success that the organisation has been able to facilitate in the current times and the overall worth of the company for the global economy. In 2022, Tesla’s net income stood at 12556 million USD, which is solely attributable to the shareholders of the company (Carlier, 2023).
Information about the sector
The sector that Tesla primarily operates in is the automotive sector, but it is also a part of the clean energy sector as well. Tesla is known for its EVs and the manner it allows the use of alternative fuels to engender better sustainability associated with the business. Therefore, this is a major area that must be considered here and the organisation is working in a sector that has gained high amounts of popularity in recent times.
The EV sector is one of the fastest growing sectors in the world and is projected to reach a revenue of 561.3 billion USD in 2023 (Statista, 2023). This is indicating the high rise in popularity of the sector and the high acceptance of EVs that has been facilitated in recent times.
This is a crucial area that can be considered as critical and can be seen to be having major implications on the overall automotive sector as a whole as well. The annual growth rate of revenue of EV is projected to be 10.7%, which is projected to reach a market volume of 906.7 billion USD by 2028 (Statista, 2023).
There is a rise in competition in the EV markets of the world, as all major automotive brands have come up with their own EVs. Big players in the markets like Toyota, Volkswagen and others have all launched their own EVs and therefore, this can be seen as a major increase in the overall competition that is being faced by Tesla (Statista, 2023).
Previously, Tesla was a major player and had a monopoly in the markets of Europe and America, but with all major automobile companies taking up the production and sale of EVs and the high stress on the overall domain of enhancements in features through appropriate research and development, there is a major challenge for Tesla to stay competitive.
Analysis of key trade issues
An organisation expanding into a new country can be seen to be extremely dependent on the market conditions that prevail. In the words of Xu et al. (2020), the existing market scenarios that can be associated with any new market can have significant implications on the business. The success of an organisation in any new market is dependent on its strategies, which are a direct response to the prevailing scenarios.
Therefore, ensuring appropriate understanding of the key trade issues that exist in Brazil can allow Tesla to ensure better strategies to mitigate the challenges that are generally faced by foreign organisations in operating in the country and expanding into the country.
As per the opinions of Janssens et al. (2020), appropriate strategies that govern a business is a major requirement in countries, where organisations need to face high competition. Besides, there is a need to understand the main issues that are to be faced by a new business in an emerging market by Brazil and then come up with appropriate strategies based on the same.
One major trade issue of challenge that can be associated with the markets of Brazil is the aspect of globalisation. In the opinions of Ortiz et al. (2021), globalisation refers to the interlinking of the world through the use of effective trade and technology.
The aspect of globalisation has had its positive and negative impacts on the economies and businesses across the world. It has been identified here that the use of appropriate levels of globalisation has resulted in a clear problem of higher interdependence of economies (Kerr, 2020). This holds true for the developing economies of the world as well, as they are also interdependent for better growth.
An economy that tends to seclude itself from the overall picture of globalisation is bound to face severe negative implications overall. However, with an appropriate harnessing of the potential of globalisation, the economies can see a more appropriate growth and development (Nguyen, 2020). Besides, the use of appropriate levels of globalisation can ensure better inflow of foreign direct investments into the country, which can enhance the economic output of the country as well.
Using the Yips model of internationalisation, it can be stated that there are major factors that can drive the internationalisation efforts of Tesla. As per Azmeh et al. (2020), engendering appropriate understanding of the key drivers that can be associated with the internationalisation efforts of businesses can help in determining the most important aspects of the new markets that an organisation is seeking. The concept of comparative advantage includes an economy which is able to produce goods and services at a lower opportunity cost compared to its trading rivals (Liang et al. 2021).
Thus, ensuring better comparative advantage can be seen as a critical factor and can help in generating better results for the business as well (Liang et al. 2021). The main idea here is to facilitate an appropriate understanding of the major areas that are available in the economy of Brazil and that sets it apart from others.
However, in the case of Brazil, there are major issues that are generally seen in the case of the country (Al-masaeed et al. 2021). The main issue however, is the issue of bureaucracy, which is extremely complex within the country. This is a major issue that limits the overall entry of new businesses into the country and forms a barrier to the development of appropriate business operations.
As per the Yips model, government drivers have an extremely important role to play in the generation of adequate interest of new businesses in the markets (ThiHoa et al. 2021). In this regard, there is a clear lack of appropriate positive impacts of the same in the case of Brazil, the bureaucracy and tax complexity are rampant in the Brazilian markets, which can be seen as an issue that can hamper the growth of a new business in the country.
Therefore, this can be a major issue overall and can limit the chances of growth of the business in the long run as well. Besides, as Albertoni and Wise (2021) suggests, it can limit the overall organisation and its capabilities to a large extent and can lead to problems pertaining to the facilitation of the correct results as well.
It can limit the profitability of the business and this is a major issue altogether that can lead to businesses from entering the markets as well (Erenstein et al. 2022). Therefore, this can be seen as a major issue of globalisation and comparative advantage that can be faced in the markets of Brazil and can limit the capabilities of businesses entering the same.
As per the ideas of Bontempi et al. (2021), trade protectionism is a major issue that is generally faced in the case of businesses of foreign countries. Trade protectionism refers to the imposition of heavy tariffs and barriers on businesses of foreign origins.
The key concept of trade protectionism includes the policies implemented by the government to restrict international trading activities to help the domestic companies (Bontempi et al. 2021). This is a major area that can impact the performance of foreign businesses within a country as with a higher tax rate, there is a high chance that the overall domain of profitability is strongly hampered (Uwizeye et al. 2020).
In 2023, businesses in Brazil are facing major issues due to import barriers that have been imposed by the government of the country. A crucial trade policy issue is the complicated tax policy of the Brazil government as there is no free trade agreement between Brazil and the United States.
Therefore, the overall taxes are expanded due to consideration of local tax, state tax and federal tax charges implied (Trade, 2023). As Khan and Ahmad (2021) suggests, the imposition of trade barriers is largely done to ensure that local businesses are growing and betterment in this regard is being generated. However, this can have massive issues for the economy of the business as it can lead to a decline in the FDI rates of the business as well.
Even though trade protectionism can be seen to be a beneficial way of nurturing local businesses and their impacts on the economies of the country, there is a significant impact that it can have on the overall domain of foreign businesses entering the markets. In the words of Baldwin and Freeman (2020), with a higher amount of globalisation taking place across the globe, there is a need to understand that the overall levels of trade protectionism within the country can lead to significant negative impacts on the overall economic prosperity of a country (Kimani et al. 2020).
The economic growth of a country at present, is dependent on the ability of the business to foster betterment through the facilitation of appropriate linkages with other countries. In this regard, the imposition of trade protectionism, can be seen as a critical issue that can lead to massive problems for the business.
Brazil has been noted to impose heavy taxes on foreign countries and the processes involved in the country are extremely complex. This is another key area that must be considered in the case of new businesses entering the markets of the country (Keller and Utar, 2023).
Another issue that can be noted in the case of Brazil and is related to the other two issues that have been outlined here is the aspect of foreign direct investment and foreign capital markets. In the opinions of Amjath-Babu et al. (2020), foreign direct investment refers to the inflow of investments into the market of a country from companies that belong to other countries.
A higher level of FDI is known to be extremely crucial in the generation of appropriate results for the business and can help in attaining better outcomes as well (Ahlstrom et al. 2020). Besides, it can be beneficial in ensuring a higher growth of the economy of the country and can allow better consolidation of the economic scenarios that prevail in the country as well.
Nevertheless, as Ozili and Arun (2023) suggests, a greater amount of FDI into a country can again be harmful, given the fact that it can limit the chances of growth of the home markets of any country. It can lead to significant challenges for domestic and small businesses and can limit their chances of growth and success. This is a major issue of FDI and foreign capital markets.
However, in Brazil, FDI is an area that can be difficult to access due to the prevailing investment and trade issues. It has already been identified above that there is a clear lack of simple systems for investments in the country and bureaucracy is an extremely crucial issue (Liu et al. 2020). Even, there is also a massive issue pertaining to the overall domain of high taxes, lack of technological support and skilled labour and issues pertaining to trade unions.
Besides, as per the Yips model, the cost drivers are also negative in the case of Brazil, which means that FDI is a major issue in the country (Sharma et al. 2020). Therefore, there is a need to foster better regulatory enhancements to ensure betterment in this regard, and this can help in better nurturing of the business as well. The demand for electric cars has expanded in Brazil due to the forbidding entry of fossil fuel in the country in 2022.
Therefore, it is assumed that by 2028, 100% demand for electric cars will be recognised in Brazil (Sharma et al. 2020). The expansion of demand is beneficial for Tesla as it can sell a huge range of cars to the country. The main opponents of Tesla in Brazil are Brasinca, Chamonix, Emme and so on. In this respect to that, the organisation is forced to provide high-quality electric cars with suitable features to gather the attention of customers.
Recommendation
From the currently identified issues, it can be recommended that Tesla should focus on gathering government support in Brazil. The government of Brazil and the Tesla CEO can agree to a mutual decision for the benefit of the country and expand the electric vehicles in Brazil to provide tax benefits to Tesla. Therefore, carbon emissions from cars can be reduced in Brazil and air pollution can be mitigated. In addition, customer trends can be captured by Tesla so that it can gain a competitive advantage over its rivals.
Conclusion
Brazil is one of the world’s most prominent growing or emerging economies and there is a large amount of overall success that the country has been able to economically generate in recent times. However, the growth rate of the economy of the country has fallen sharply in the present times and is projected to be low in the coming years as well.
This can be a crucial concern for the country, which is transitioning and this can cause concerns for the businesses that are operating within the country as well. Nevertheless, the overall country is a growing economy, which attracts major foreign players and Tesla is one of the organisations that is not currently operating. Even though there is some presence of the company indirectly, there is no direct presence of the company in the markets of Brazil.
The issues of globalisation and comparative advantage can be faced by businesses in the current times, as it can positively impact the country and its chances of success. Even, the aspect of trade protectionism prevails in the country, which can be seen as a crucial concern as this leads to problems for new businesses that are entering the markets of the country.
The aspect of trade protectionism has been a major concern for the country, as it has led to the exit of businesses from the country. Besides, issues pertaining to FDI can also be seen to have a critical impact on the country as well.
References
Ahlstrom, D., Arregle, J.L., Hitt, M.A., Qian, G., Ma, X. and Faems, D. (2020). Managing technological, sociopolitical, and institutional change in the new normal. Journal of Management Studies, 57(3), pp.411-437.
Albertoni, N. and Wise, C. (2021). International trade norms in the age of Covid-19 nationalism on the rise?. Fudan Journal of the Humanities and Social Sciences, 14(1), pp.41-66.
Al-masaeed, S., ALSoud, A.R., Ab Yajid, M.S., Tham, J., Abdeljaber, O. and Khatibi, A. (2021). How the relationship between Information Technology, Entrepreneurship, and International Trade lead to the International Relations?. Croatian International Relations Review, 27(87), pp.32-62.
Amjath-Babu, T.S., Krupnik, T.J., Thilsted, S.H. and McDonald, A.J. (2020). Key indicators for monitoring food system disruptions caused by the COVID-19 pandemic: Insights from Bangladesh towards effective response. Food security, 12(4), pp.761-768.
Apexbrasil, (2023). Connect with Brazil through ApexBrasil [Online]. Available at: https://apexbrasil.com.br/br/en.html [Accessed on 15 November 2023]
Azmeh, S., Foster, C. and Echavarri, J. (2020). The international trade regime and the quest for free digital trade. International Studies Review, 22(3), pp.671-692.
Baldwin, R. and Freeman, R. (2020). Trade conflict in the age of Covid-19. VoxEU. org, 22.
Bontempi, E., Coccia, M., Vergalli, S. and Zanoletti, A. (2021). Can commercial trade represent the main indicator of the COVID-19 diffusion due to human-to-human interactions? A comparative analysis between Italy, France, and Spain. Environmental research, 201, p.111529.
Carlier, M. (2023). Tesla’s net income/loss from FY 2014 to FY 2022. Available at: https://www.statista.com/statistics/272130/net-loss-of-tesla/ [Accessed on: 15 November 2023].
Trade, (2023). Market Challenges. Available at: https://www.trade.gov/country-commercial-guides/brazil-market-challenges#:~:text=Complicated%20Tax%20System%3A%20Without%20a,of%20imported%20products%20in%20Brazil [Accessed on: 15 November 2023].
Carlier, M. (2023). Tesla’s revenue from FY 2008 to FY 2022. Available at: https://www.statista.com/statistics/272120/revenue-of-tesla/ [Accessed on: 15 November 2023].
Erenstein, O., Jaleta, M., Sonder, K., Mottaleb, K. and Prasanna, B.M. (2022). Global maize production, consumption and trade: Trends and R&D implications. Food Security, 14(5), pp.1295-1319.
Guarnieri, P., Cerqueira-Streit, J.A. and Batista, L.C., (2020). Reverse logistics and the sectoral agreement of packaging industry in Brazil towards a transition to circular economy. Resources, conservation and recycling, 153, p.104541.
Janssens, C., Havlík, P., Krisztin, T., Baker, J., Frank, S., Hasegawa, T., Leclère, D., Ohrel, S., Ragnauth, S., Schmid, E. and Valin, H. (2020). Global hunger and climate change adaptation through international trade. Nature Climate Change, 10(9), pp.829-835.
Jayme Jr, F.G., (2020). Balance-of-payments-constrained economic growth in Brazil. Brazilian Journal of Political Economy, 23, pp.63-86.
Keller, W. and Utar, H. (2023). International trade and job polarization: Evidence at the worker level. Journal of International Economics, 145, p.103810.
Kerr, W.A. (2020). The COVID‐19 pandemic and agriculture: Short‐and long‐run implications for international trade relations. Canadian Journal of Agricultural Economics/Revue canadienne d’agroeconomie, 68(2), pp.225-229.
Khan, Y.A. and Ahmad, M. (2021). Investigating the impact of renewable energy, international trade, tourism, and foreign direct investment on carbon emission in developing as well as developed countries. Environmental Science and Pollution Research, 28, pp.31246-31255.
Kimani, D., Adams, K., Attah-Boakye, R., Ullah, S., Frecknall-Hughes, J. and Kim, J. (2020). Blockchain, business and the fourth industrial revolution: Whence, whither, wherefore and how?. Technological Forecasting and Social Change, 161, p.120254.
Liang, Y., Tan, Q., Song, Q. and Li, J. (2021). An analysis of the plastic waste trade and management in Asia. Waste Management, 119, pp.242-253.
Liu, Y., Lee, J.M. and Lee, C. (2020). The challenges and opportunities of a global health crisis: the management and business implications of COVID-19 from an Asian perspective. Asian Business & Management, 19, pp.277-297.
Nguyen, H.H. (2020). Impact of foreign direct investment and international trade on economic growth: Empirical study in Vietnam. The Journal of Asian Finance, Economics and Business, 7(3), pp.323-331.
Ortiz, A.M.D., Outhwaite, C.L., Dalin, C. and Newbold, T. (2021). A review of the interactions between biodiversity, agriculture, climate change, and international trade: research and policy priorities. One Earth, 4(1), pp.88-101.
Ozili, P.K. and Arun, T. (2023). Spillover of COVID-19: impact on the Global Economy. In Managing inflation and supply chain disruptions in the global economy (pp. 41-61). IGI Global.
Sharma, P., Leung, T.Y., Kingshott, R.P., Davcik, N.S. and Cardinali, S. (2020). Managing uncertainty during a global pandemic: An international business perspective. Journal of business research, 116, pp.188-192.
State, (2023). 2023 Investment Climate Statements: Brazil [Online]. Available at: https://www.state.gov/reports/2023-investment-climate-statements/brazil/#:~:text=GOB%20investment%20incentives%20include%20tax,%2C%20maritime%2C%20and%20insurance%20sectors. [Accessed on 15 November 2023]
Statista, (2023). Electric Vehicles – Worldwide. Available at: https://www.statista.com/outlook/mmo/electric-vehicles/worldwide [Accessed on: 15 November 2023].
ThiHoa, N., Hang, N.T., Giang, N.T. and Huy, D.T.N.
(2021). Human resource for schools of politics and for international relation during globalization and EVFTA. Elementary education online, 20(4), pp.2448-2452.
tmf-group, (2023). Top 10 challenges of doing business in Brazil in 2023. Available at: https://www.tmf-group.com/en/news-insights/articles/top-challenges/doing-business-in-brazil/#:~:text=These%20barriers%20can%20include%20high,competitive%20in%20the%20global%20market. [Accessed on: 15 November 2023].
Uwizeye, A., de Boer, I.J., Opio, C.I., Schulte, R.P., Falcucci, A., Tempio, G., Teillard, F., Casu, F., Rulli, M., Galloway, J.N. and Leip, A. (2020). Nitrogen emissions along global livestock supply chains. Nature Food, 1(7), pp.437-446.
Worldbank, (2023). The World Bank In Brazil [Online]. Available at: https://www.worldbank.org/en/country/brazil/overview [Accessed on 15 November 2023]
Xu, Z., Li, Y., Chau, S.N., Dietz, T., Li, C., Wan, L., Zhang, J., Zhang, L., Li, Y., Chung, M.G. and Liu, J. (2020). Impacts of international trade on global sustainable development. Nature Sustainability, 3(11), pp.964-971.
Know more about UniqueSubmission’s other writing services:
