Chapter 3 - Pearson Learning Solutions

CHAPTER 3 • REGIONAL MARKET CHARACTERISTICS AND PREFERENTIAL TRADE AGREEMENTS 87BrazilAs the figures in Table 3-7 clearly show, Brazil is an economicpowerhouse in South America. Brazil has the largestgeographical territory and the largest population in the region.Between 1994 and 2004, Brazil’s exports grew at an annual rateof 8.78 percent; rapid economic growth has given policymakers,including President Lúiz Inácio Lula da Silva, a greater presenceon the global stage and more clout at global trade talks.One symbol of Brazil’s new role in the global economy:Embraer, a jet aircraft manufacturer (see Exhibit 3-3). Specializingin regional jets that seat fewer than 100 passengers, Embraer haswon orders from JetBlue, Air Canada, Saudi Arabian Airlines, andother carriers. Embraer shared the cost of developing new modelssuch as the E-170/175 with more than one dozen partners,including General Electric and Honeywell. In order to sell moreregional jets to China, Embraer has also established a $50 millionjoint venture with China Aviation Industry Corporation.Brazil’s agricultural sector is also a leading exporter. Brazil isthe world’s number one exporter of beef, coffee, orange juice(check the label on your orange juice carton), and sugar. Brazil israpidly gaining a reputation as a producer of sugar-basedethanol, which can serve as a sustainable substitute for expensivegasoline. Industry observers expect Brazil to double its sugar caneprocessing capacity by 2010. As Ermor Zambello, manager of theGrupo Farias sugar mill, notes, “Globalization has made us thinkmore about foreign markets. Now, we have more of a global outlook,and we are concerned about global production.”The central issue in the Doha Round is agriculture. Brazil andIndia are taking the lead of a so-called Group of 20 developingnations calling for agricultural sector reform. For example, theaverage tariff on Brazil’s exports to the 30 OECD nations is 27 percent.Government subsidies are also a key issue. In the EU, governmentspending accounts for about one-third of gross farmreceipts; in the United States, the government provides about onequarterof gross farm receipts. By contrast, Brazil’s spending onfarm support amounts to only about 3 percent of farm receipts.Moving forward, Brazil faces a number of other challenges.Steady appreciation of Brazil’s currency, the real, may requireexporters to raise prices. Embraer faces tough competition fromCanada’s Bombardier. The country’s infrastructure remainswoefully underdeveloped; significant investment is required toimprove highways, railroads, and ports. Businesspeople speakof “the Brazil cost,” a phrase that refers to delays related toexcessive red tape. Trade with China is presenting both opportunitiesand threats. From 1995 to 2005, Brazil’s total two-waytrade with China increased from $2.2 billion to $12.2 billion.China’s explosive economic growth has created great demandfor iron ore and other Brazilian commodity exports. However,Brazilian manufacturers in light-industry sectors such as toys,eyeglasses, and footwear are facing increased competition fromlow-priced Chinese imports.Sources: Antonia Regalado, “Soccer, Samba, and Outsourcing?” TheWall Street Journal (January 25, 2007), pp. B1, B8; David J. Lynch,“Brazil Hopes to Build On Its Ethanol Success,” USA Today (March 29,2006), pp. 1B, 2B; Lynch, “China’s Growing Pull Puts Brazil in a Bind,”USA Today (March 21, 2006), pp. 1B, 2B; Lynch, “Comeback KidEmbraer Has Hot New Jet, and Fiery CEO to Match,” USA Today (March 7,2006), pp. 1B, 2B; Lynch, “Brazil’s Agricultural Exports Cast LongShadow,” USA Today (March 10, 2006), pp. 1B, 2B.Exhibit 3-3: Embraer isthe world’s fourth-largestaircraft manufacturer;however, in the regionalaircraft sector, Embraer issecond only to Canada’sBombardier.Source: Alexandre Meneghini/AP Wide World Photos.000200010270740623Global Marketing, Sixth Edition, by Warren J. Keegan and Mark C. Green. Copyright © 2011 by Warren J. Keegan. Published by Prentice Hall.