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Country Analysis For International Business

by Suleman
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Table of Contents

  • Executive Summary
  • Introduction
  • Product Profile
  • Country Analysis of Mexico
    • Socio-political environment of Mexico
    • Population Profile
    • Economic and Business Environment of Mexico
    • GDP Growth Rate
    • Treaties with Mexico
    • Mexican Exchange Rate
  • Country Analysis of Brazil
    • Socio-political environment of Brazil
    • Geography
    • Employment
    • Economic and Business Environment of Brazil
    • Tourist Attractions
    • The North East Coast
    • Ecotourism
    • Brazil’s Tourism Industry
  • Country Choice
  • Mode of Entry
  • Conclusion

Executive Summary

Our Company, a chain of hotels, has been seeking for a place for expansion, preferably a country where there is an influx of tourists and where the building of a new investment or business in that particular country may not encounter much problems from the political and economic points. 

There were two choices for this study and they were Mexico and Brazil. At first there were a number of choices, but we narrowed this down to the two because of their showing of good political and economic climate. We gave a study on the two countries, sought the help of good advisers in these two places and started the researches. It was a collaboration with objective analysis and the review of this business that we ended up with such specific decisions.

Country Analysis For International Business

Mexico is a good choice for tourists. As it shares a boundary with that economic force, visitors will come from the USA. Brazil still has an economic and political history that is secure. Politically and economically, these are stable, so we have to provide a discrete study and review on these two.

During recent surveys, our analysis centred on the political, economic and market conditions of the two countries in areas such as GDP and GNP, political history and stability and economic upturn or decline. An objective think tank supported primary analysis, but our very own business did not lose time searching the web for potential hints and further evidence from guide books, periodicals and other data outlets.

We came up with the most thorough review and this was Mexico’s option. Our next investment destination for our hotel chain is Mexico.

1.0 Introduction

This research analyses the socio-political and economic climate of Brazil and Mexico, and the prospects for the hotel industry to develop commercially. The rationale for an extension of the hotel chain would be derived from this report. Brazil and Mexico have been selected to develop since the two countries have demonstrated GDP development in recent years.

1.1. Product Profile

By 2008, our hotel company plans to grow and has considered Mexico or Brazil to be the two places where our business will be extended. Our studies revolve around the viewpoints of both countries on the socio-political, economic and market climate. We also concluded that by the year, there would be only one nation as a location for expansion, so that as a consequence of this analysis, only one can be picked. It’ll be either Mexico or Brazil.

The research centred on the expense of transport and tourism within the country and the migration of visitors, hotel accommodation and travel prices, customer-specific foreign travellers, and sales spending.

2.0 Country Analysis of Mexico

  • 2.1 Socio Political Environment of Mexico

Mexico, just outside the top 20 in terms of spending, is a significant tourism producer, but it is also a ‘one-destination’ region. Nine out of ten outbound travellers go to the USA, approximately.

A fifth of the country resides in severe poverty, although more than one third of the overall household wealth is enjoyed by the wealthiest 10 percent and more than half by the richest 20 percent. According to the World Bank, in terms of GDP per capita and a market to look forward to the future, Mexico ranks about 75th in the world. There was a catastrophe for outbound travel in 1995, when the peso lost almost half its value. Gross propensity to travel abroad, which was then over 13.2%, fell sharply and was still only 10.6% in 1999. The old level should be regained by 2003, establishing a new base from which to go forward.

Former President Ernesto Zedillo (Institutional Revolutionary Party or PRI) pursued a policy of privatization, incorporating railways, communications and airports and the number of state-owned enterprises fell from 1,000 in 1982 to 200 in 1998. When President Zedillo was defeated in July 2000, Vicente Fox became the first opposition party candidate to attain the Presidency of the Republic for his party, the Partido Acción Nacional (PAN), ending over 70 years of PRI dominance.

Mr. Fox’s appointment has strengthened US ties and the former President of Coca Cola for Mexico has already started to replace government bureaucrats with key business people and is known to favor a more European Union-style common market for North America. However, with the PRI remaining the single largest party in the Chamber of Deputies, and holding a four-seat advantage in the Senate, Mr. Fox is left heavily reliant on the left-wing Partido de la Revolucion Democratica (PRD) for support. Mexico’s relationship with the USA has its price however and the predictions of a boom are undergoing a revision in light of the economic slowdown north of the border. Growth estimates for 2001 have been pared down accordingly from 4.5% to 2.5% as a deterioration in the international environment weakens the peso.

  • 2.2 Population Profile

Mexico’s population is still growing very rapidly, one of the highest rates in this survey. In 2000 there were over four times more births than deaths and during the 1990s the annual average increase was 1.7%. Even for 2040 – 2050 the rate of increase is still forecast to be 0.4%, taking the population from around 100.4 million now to more than 153.1 million and overtaking the declining Japanese population by 2020.

Mexico has a population profile very different to most other countries in this survey because of its extraordinary population growth. The largest population group is aged 0 – 4 years (11.4 million) and each succeeding age group is smaller than the one before. Only some 4.3% of the population is aged 65 and over, and even by 2025 this will be a mere 8.6%. On the other hand, almost 44.5% of the population is aged 19 or less. Mexico’s ‘burden’, then, is not its retired people but its youngsters.

  • 2.3 Economic and Business Environment of Mexico

Mintel Reports say that the Mexican economy has proven robust and economic growth during 1998 was just under 5%. Mexico ranked 15th in the world in terms of total GNP, according to the World Bank, but only 75th in terms of GNP per capita, which was put at US$3,840.

  • 2.4 GDP Growth Rate

The Instituto Nacional de Estadistica Geografia e Informatica (INEGI) recorded Mexico’s GDP for 2000 at US$574,445 million, fuelled by strong quarterly increases of between 5% and 7% on 1999’s results, and it expects it to maintain this rate of increase during the next three years.

For 1999, GDP growth is put at 2.8% by the Mexican Bulletin of Statistical Information and at 3.7% by the OECD. The World Bank provisionally calculated Mexican GNP for 1999 at US$469,904 million, but the Mexican government eventually measured it at US$429,600.

  • 2.5 Treaties with Mexico

Mexico maintains a close relationship with the USA, and Mintel says that this is the key to the Mexican economy.  Mexico shares a 2,000 mile border with the USA. 

Mexico is one of the three partners in the North American Free Trade Agreement (NAFTA), together with the USA and Canada. Since its creation in 1994, exports have more than doubled, to US$135.9 billion in 1999. In 1998, 88% of Mexico’s exports were to the USA and 74% of imports were from the USA. Outbound tourism is even more closely tied to the USA. Free trade arrangements with Chile, Costa Rica, Bolivia, Colombia and Venezuela are also in force for Mexico and talks are underway with other countries and for the European Union.

  • 2.6 Exchange rates

Europe is becoming significantly cheaper for Mexican travelers and this should start to show up in arrivals figures. There was an average peso10.2:e1 in 1999, but at June 2000 the figure stood at only peso8.84:e1 and at peso8.05: e1 in August 2001. France is the most important destination in Europe and during the 1990s had been getting steadily more expensive for Mexicans, except for 1997 when the currency strengthened for a time against the Franc.

3.0 Country Analysis of Brazil

  • 3.1 Socio-political Environment of Brazil

As of July 2006, Brazil has a population of 188,078,227 and is situated in eastern South America, bordering the Atlantic Ocean. It’s the world’s largest economy for travel and tourism, second only to Mexico in the Latin American area.

After three decades of Portuguese control, Brazil gained independence in 1822 and became a republic in 1889. Civilian authorities were granted authority in 1985, following more than 50 years of military dictatorship. It is the leading economic power of South America today, with extensive natural resources and a strong population, while income inequality remains a concern. According to the 2000 census, Brazil has the highest Afro-population outside of Africa, 10.5 million, and is also home to around 1.5 million residents, the largest Japanese group outside Japan. In the last two decades, other refugee immigrants have included those from Italy, Spain, Germany and Poland.

  • 3.2 Geography

Covering about 8.5 million square kilometres of large terrain, Brazil occupies half of South America’s landmass. It is one of the most biodiverse countries on earth, about the scale of the US (excluding Alaska). With much of its 188 million people based on the coast, the interior is characterised by wild nature. Brazil has the largest number of species of plants, primates, and amphibians of any country. There are 30,000 plant species, 2,000 species of fish, 1,000 species of animals, 300 rodents, 300 amphibians and 250 species of reptiles in the Amazon forest alone. There are over 350 national parks in Brazil, which account for 5 percent of the national territories.

  • 3.3 Employment

The work rate in Brazil’s travel and tourism economy is projected at 5,495,000 workers in 2006, 6.4% of total employment, or 1 out of 15.6 jobs. This could amount to 6,855,000 workers by 2016, 6.6 percent of overall employment, or 1 out of every 15.1 employees. In 2006, 2,337,000 workers in the travel and tourism sectors accounted for 2.7% of total employment and are expected to total 2,740,000 or 2.6% of total jobs by 2016.

  • 3.4 Economic and Business Environment of Brazil

Brazil is the 18th largest travel and tourism economy in the world, second only to Mexico in the Latin American region. Brazil’s tourism picture has changed significantly since the last report in 2002. A return of economic and political stability to the region has seen Brazil emerge as South America’s leading economic power. Stability in Argentina, Brazil’s main market for tourism, and a steady increase in arrivals from Europe (following the development of its sun and sand product on the north east coast) saw 2005 bring about a return to pre-2001 arrivals levels of 5.3 million, according to statistics from the tourism board. Although beset with capacity problems in 2006 following the collapse of VARIG (the international carrier), and with the World Cup and elections in December diverting both budget and attention, Brazil continues to perform well. Air capacity is due to be increased by the end of the year, allowing for further expansion.

  • 3.5 Tourist Attractions

The three most popular Brazilian attractions are the iconic city of Rio (with its colourful carnival and famous beaches), the Iguaçu Falls and the Amazon at Manaus. With 8,000km of Atlantic coastline, Brazil’s beautiful beaches are also a main selling point.

  • 3.6 The north east coast

With European investment and both scheduled and charter services to Bahia, Ceara and Natal, the north east is experiencing a boom in top-end tourism, with new properties and tourism services mushrooming in 2006. Many of the new resorts being built here are driven by strong domestic tourism to the region, served by low-cost airline Gol, whilst north eastern beaches offer winter sun to Europeans. New inexpensive packages from operators Thomas Cook and First Choice have introduced Natal and Salvador to the UK mass market.

  • 3.7 Ecotourism

With most of the population along the coast and only wild nature in the interior, Brazil is ripe for developing its ecotourism product. This has huge potential but is largely untapped. With most of the country inaccessible by road – including most of its 350 national parks, which do not have a particularly developed tourist infrastructure – much of the ecotourism (bird watching, fishing, trekking etc) is concentrated near the Iguaçu Falls. The unique Amazon Basin, which accounts for almost 50% of Brazil’s territory, is the other main centre, with accommodation ranging from farms to ecological resorts. The Pantanal region in the south has some of the richest animal and bird life in Latin America, with over 200 species of bird seen annually in March.

  • 3.8 Brazil’s Tourism Industry

The travel and tourism sector in Brazil is forecast to add 2.8% (BRL59.3 billion or US$25.3 billion) to GDP in 2006, rising to BRL125.1 billion or US$36.0 billion (according to the WTTC) by 2016. In the same era, the economic output from travel and tourism is expected to grow from 6.7 percent (BRL141.1 billion or US$60.1 billion) to 6.9 percent (BRL322.4 billion or US$92.9 billion).

4.0 Country Choice

4.1 Mexico is the choice for hotel expansion due to the following strong points:

  • According to Mentil Report, Brazil is only second to Mexico when it comes to travel and tourism economy (Mentil Report presents report of economies and industries throughout the world);
  • The Mexican economy has proven robust and economic growth during 1998 was just under 5%. Mexico ranked 15th in the world in terms of total GNP, according to the World Bank, but only 75th in terms of GNP per capita, which was put at US$3,840.
  • Mexico’s GDP for 2000 recorded at US$574,445 million, fuelled by strong quarterly increases of between 5% and 7% on 1999’s results, and it expects it to maintain this rate of increase during the next three years.
  • Due to political and economic stability since 2002, Brazil has emerged as South America’s leading economic power.

Mode of Entry

The mode of entry chosen focuses on ownership advantages and location advantages. Mexico is strategically located and shares a border with the USA. Expansion for hotel is most recommended and preferred.  Also, there is an availability of labor and at low cost. Hispanic people are easy to train, and are well-versed in English. The USA is a source of customers, tourists, who are free to enter Mexico.

Conclusion

Mexico is a good investment destination.  An expansion of a chain of hotels in the Mexican land will make our company richer and grow bigger. The country is conducive to foreign business because of the present political and economic stability. As mentioned earlier, Mexico is an important tourism generator because of its proximity to the USA. Even if one fourth of the population live in extreme poverty, it still ranks 75th in the world in terms of GDP per capital.  It is a market to watch in the future.

According to reliable reports from the Mintel website, Mexican economy is robust and ranked 15th in the world in terms of total GNP, according to the World Bank. Its GDP for 2000 at US$574,445 million was because of quarterly increases.

Brazil is second to Mexico, our main reason for the choice. Although Brazil’s tourism picture has changed significantly since 2002 and a return to economic and political stability has been seen, Mexico is more stable politically and economically.

References;
  • Grihault, N. http://academic.mintel.com/index.html
  • Mexico Report, GDP per annual growth, can be found online at: http://globalis.gvu.unu.edu/indicator_detail.cfm?Country=MX&IndicatorID=19#row

Appendices

Appendix A:  Mid-year Population estimates for Mexico

Appendix B:  Exchange Rate against Mexican peso

Appendix C:  Brazil’s Tourism Receipt

Appendix D:  International Tourist Arrivals for Brazil 1990 – 2005

Appendix E:  Brazil Hotel and Room Capacity

Appendices 

Appendix A

Mid-year population estimates for Mexico, 1950 to 2050

Year Population Year Population Period Average annual % change
1950 28,485 1996 94,080 1950-1960 3.0
1960 38,579 1997 95,667 1960-1970 3.1
1970 52,775 1998 97,245 1970-1980 2.6
1980 68,686 1999 98,807 1980-1990 2.1
1990 84,446 2000 100,350 1990-2000 1.7
1991 86,055 2010 114,995 2000-2010 1.4
1992 87,667 2020 128,008 2010-2020 1.1
1993 89,280 2030 139,125 2020-2030 0.8
1994 90,888 2040 147,660 2030-2040 0.6
1995 92,488 2050 153,162 2040-2050 0.4

Appendix B:

Selected exchange rates against the Mexican peso, 1994-00

1994 1995 1996 1997 1998 1999 2000a
Peso1
US dollar (US$) 3.36 6.41 7.59 7.91 9.14 9.56 9.50
Euro (e) 10.20 8.84
French franc (FFr) 0.55 1.29 1.48 1.36 1.56 1.56 1.38

As at June 2000

Appendix C

Brazil’s Tourism Receipt

Receipts and Expenditure

Figure 1: Tourism receipts, 1990-2005*

Year Receipts (US$ million)
1990 1,492
1991 1,079
1992 1,066
1993 1,097
1994 1,051
1995 972
1996 840
1997 1,069
1998 1,586
1999 1,628
2000 1,810
2001 1,731
2002 1,998
2003 2,479
2004 3,222
2005 3,861

Appendix D:

International tourist arrivals in Brazil, 1990-2005*

Year Arrivals 000s
1990 1,091
1991 1,228
1992 1,692
1993 1,641
1994 1,853
1995 1,991
1996 2,666
1997 2,850
1998 4,818
1999 5,107
2000 5,313
2001 4,773
2002 3,785
2003 4,133
2004 4,794
2005 5,358

Note: *provisional

Appendix E

Brazil hotel and room capacity

Type of hotel 2003 2004 2005 2006*
Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms
Independent 4,883 200,883 4,925 202,600 6,430 255,889 6,494 258,488
Hotel and condo (national) 202 30,211 312 39,010 292 38,464 333 41,990
Hotel and condo (international) 270 46,198 272 47,866 281 49,183 305 53,615
Total 5,355 277,292 5,509 289,476 7,003 343,536 7,132 354,238

Note: *provisional

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