Expansion and revenue growth are primary business objectives. They enable firms to reach more customers and thus generate higher revenues. Our beverage manufacturer is based in Oregon and operates in the United States (US). Our flagship product is the Nova energy drink, and we are contemplating introducing the product to the South American Market. The product’s tagline, “We will get you there,” is inseparable from the product and is expected to help us drive our South American Campaign. We are a green company that values community responsibility, and we hope to maintain the same model in the new markets. This discussion proposes expansion into Brazil and Mexico, some of the region’s largest markets. It will evaluate the demographics using Hofstede’s cultural dimensions, barriers to entry, corporate social responsibility (CSR), effects of currency on penetration into the new markets, and management infrastructure requirements as we explore South America.
Demographic Analysis Using Hofstede’s Cultural Dimensions
Hofstede’s cultural dimensions provide a framework for understanding the cultural differences between countries. This tool recognizes that cultures across nations vary. As such, organizations must tailor their operations to fit these unique cultural contexts to enhance their chances of success. It has six elements, which are outlined in the following section.
Power Distance- This dimension evaluates how inequality and power are accepted in a society. A high power distance indicates that a community accepts inequitable power distribution bureaucracy and has high respect for authority. Brazil (69) and Mexico (81) have a higher power distance than the US (40) (Carvalho, 2023; Cortés, 2018). The implication is that lower-ranking employees will have less initiative in the two countries. They will also be less willing to participate in decision-making because of their respect for authority. As such, the company’s management must focus on vertical communication and assume the sole decision-making responsibility since working will require constant guidance and direction.
Individualism vs. Collectivism– This index evaluates the degree to which a culture is individualistic or collective. Individualistic societies prioritize personal achievement, while collective ones value the well-being and success of the community as a whole. The US is an individualistic society with a score of 91, while Brazil and Mexico value collectivism (Carvalho, 2023). Brazil has an individualism score of 38, and Mexico has 30 (Cortés, 2018). For our company, we can leverage the collectivism in the two countries to increase team productivity and a positive organizational culture.
Masculinity vs. Femininity– This dimension assesses the values associated with gender roles in a nation. Masculine societies value assertiveness and material success, while feminine ones prioritize cooperation and quality of life (Tehrani et al., 2021). The US has a masculinity score of 62, Brazil has 49, and Mexico has 69 (Carvalho, 2023; Cortés, 2018). This implies that Mexico’s competition levels are high but moderate in Brazil. Nova Energy can leverage this competitive nature to penetrate markets in the country and beat the competition.
Uncertainty Avoidance– As the title suggests, this index evaluates the risk tolerance levels in a nation. Cultures that score highly in this dimension are risk-averse. This means that people avoid situations that can lead to ambiguous outcomes. Uncertainty avoidance in the US is moderate at 46; however, it is high in Brazil and Mexico as the countries score 76 and 82, respectively (Carvalho, 2023; Cortés, 2018). This suggests that the company will encounter challenges in driving change and adopting risky strategies. As such, the parent company must work to change employees’ mindsets to enable us to penetrate markets quickly.
Long-Term Orientation vs. Short-Term Orientation– This dimension measures a nation’s orientation toward the past, present, and future. Long-term-oriented cultures prioritize the future outcomes and are willing to forego immediate success for the future. Short-term-oriented communities have a strong focus on the present instead of the future. Brazil has a future orientation score of 44, while Mexico has only 24 (Carvalho, 2023; Cortés, 2018). This suggests that Nova Energy can pursue future goals in Brazil but will face difficulty in Mexico due to the country’s conservative nature.
Indulgence vs. Restraint– This index considers a society’s approach to fulfilling its desires. Indulgent nations prioritize having fun, while restrained ones suppress gratification through social norms. The US has a score of 68, Brazil 59, and Mexico 97 (Carvalho, 2023; Cortés, 2018). The high scores in the countries mean that the company will encounter challenges in employee turnover as workers prefer personal freedom and space. It also means that people will consume the drink as it will help them pursue gratification.
Barriers to Entry
As a company, we expect bottlenecks as we enter these new markets. This section highlights potential barriers and suggests strategies for overcoming them:
Brazil
Regulatory- One of the greatest regulatory hurdles in this country is a complicated tax system. The International Trade Administration (2023) ranks Brazil 184 out of 190 countries in terms of ease of paying taxes. We will tackle this challenge by consulting professionals in Brazil’s tax system. This will enable us to avoid penalties for non-compliance and allow the management to focus on operational issues.
Cultural– Marketing language and preferences. Consumers in the Brazilian market are late adopters of new products (Scroope, 2018). They first interrogate its usefulness and observe how others perceive it. This can lead to slow market penetration and low sales for Nova Energy. To overcome this challenge, we will develop culturally sensitive advertising that resonates with the local market.
Mexico
Regulatory– Mexico has a complex licensing system for foreign-owned businesses. National and local government processes are bureaucratic and expensive for firms. We will cultivate positive relationships with licensing officials and regulatory bodies to facilitate communication and expedite the licensing process.
Cultural– Brand Loyalty. Mexicans are loyal to existing brands; they prefer consuming traditional brands, as evidenced by the high uncertainty avoidance score. Consequently, it may be difficult for Nova Energy Drink to gain market share. The firm must invest in aggressive marketing campaigns and promotional offers to attract new customers.
Corporate Social Responsibility
As noted above, we are a green company. This implies that we are cognizant of environmental issues and climate change. We endeavor to cause minimum damage to our surroundings by ensuring that our activities conserve the environment. We will replicate a similar model by ensuring we package our products in recyclable material. We will also ensure that we dispose manufacturing by-products responsibly to reduce pollution. Nova Energy is also committed to enhancing the welfare of bottom-of-the-pyramid consumers— the world’s poorest. In Brazil and Mexico, this demographic refers to millions of customers who cannot afford necessities. Nova Energy Drink will implement pricing strategies that make the product affordable to customers in this segment. We will partner with organizations to provide needy communities with clean drinking water and affordable healthcare.
Our approach is within the triple bottom line approach, which postulates that firms should focus more on sustainability. The firm will pursue the three Ps of the triple bottom line— profit, people, and planet. Our expansion into South America will create jobs, support local businesses, and boost the economy. The social responsibility initiatives will improve people’s lives in Brazil and Mexico (Tehrani et al., 2021). We seek to inject more funds into projects targeting poor and low-income earners. This way, we will reduce inequality in the countries. Importantly, our sustainable practices will reduce our environmental footprint and protect the planet.
Currency Exchange
Brazil and Mexico are South America’s largest economies. They have great potential to exceed some European nations, thus the decision for Nova Energy to enter the markets. The Brazilian Real is a relatively stable currency, exchanging at 5.20 units against the US dollar. It has gained against the American dollar and is expected to appreciate by 1.9% in the coming days as the economy expands (Burin, 2023). This is a positive factor that suggests that Nova Energy will not be exposed to currency fluctuations. Similarly, the Mexican Peso is relatively stable, exchanging at 17.25 units against the US dollar. It has appreciated significantly since 2020 and is expected to remain resilient as the Mexican Central Bank adopts expansionary measures (Aldaya, 2023). These stable exchange rates are encouraging for Nova Energy, and the firm should actualize its plans to expand in the region.
The costs of doing business vary between countries depending on labor costs, taxes, and transportation. Although the US is ranked above Brazil and Mexico at position 6 in terms of ease of doing business, the costs of doing business in Brazil and Mexico are lower than in the United States (World Bank Group, 2020). Labor costs are lower in Brazil and Mexico than in the United States. This will make it more affordable for Nova Energy to hire employees in these markets. Additionally, rents and leases are lower in Brazil and Mexico, suggesting that the firm will achieve considerable savings.
Company Management and Infrastructure
Entering the South American market will require changes to the management infrastructure. We will have an American top management to develop the overall company strategy and provide guidance to lower levels. The firm will require to mix American and Native managers at mid and lower levels of management because of the cultural factors discussed in previous sections. This is different from our US operations, where Americans occupy all levels of management. Native leadership will enable us to handle factors like power distance and uncertainty avoidance because they differ significantly from what the firm’s management is used to in Oregon. We will also establish a legal entity in the two countries to handle licensing and tax issues. This is a notable difference from our usual operations because we perform these functions in-house. Finally, we will adapt marketing materials and communication strategies to be culturally sensitive for Brazilian and Mexican audiences.
The proposed expansion to Brazil and Mexico is a good decision for Nova Energy. The two countries dominate the South American market and have unmatched potential. A cultural analysis shows notable differences between the American and local markets. Additionally, the firm will encounter cultural and regulatory barriers that can impede operations. As such, we propose changes to the management infrastructure to help us align the firm’s operations with the demands of the local markets. Nova Energy will retain the triple bottom-line framework to ensure environmental sustainability and community empowerment. The relatively stable exchange rates in the two countries encourage us to expand into the markets. Importantly, lower labor and leasing costs underscore our decision to expand and enhance our revenue streams.
References
Aldaya, E. S. S. (2023, August 31). Why is the Mexican Peso getting stronger in 2023? Bloomberg Línea.https://www.bloomberglinea.com/english/why-is-the-mexican-peso-getting-stronger-in-2023/#:~:text=Mexico%20City%20%E2%80%94%20The%20Mexican%20peso
Burin, G. (2023, March 3). Brazilian Real’s strength challenged as economy sours. Reuters. https://www.reuters.com/business/brazilian-reals-strength-challenged-economy-sours-2023-03-03/#:~:text=The%20currency%20has%20been%20relatively
Carvalho, F. (2023, June 21). Cultural optimization-building bridges. LinkedIn.https://www.linkedin.com/pulse/cultural-optimization-building-bridges-br-x-usa-fabricio-carvalho#:~:text=Brazil%20has%20a%20higher%20Power
Cortés, P. (2018, April 30). Hofstede Model in Mexico. LinkedIn.https://www.linkedin.com/pulse/hofstede-model-mexico-pablo-cort%C3%A9s
International Trade Administration. (2023, March 21). Brazil – Market Challenges. https://www.trade.gov/country-commercial-guides/brazil-market-challenges
Muñoz-Pascual, L., Curado, C., & Galende, J. (2019). The triple bottom line on sustainable product innovation performance in SMEs: A mixed methods approach. Sustainability, 11(6). https://doi.org/10.3390/su11061689
Scroope, C. (2018). Brazilian culture – business culture. Cultural Atlas. https://culturalatlas.sbs.com.au/brazilian-culture/brazilian-culture-business-culture
Tehrani, M., Rathgeber, A., Fulton, L., & Schmutz, B. (2021). Sustainability & CSR: The relationship with Hofstede Cultural Dimensions. Sustainability, 13(21). https://doi.org/10.3390/su132112052
World Bank Group. (2020). Economy Profile United States. https://www.doingbusiness.org/content/dam/doingBusiness/country/u/united-states/USA.pdf
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