Running head: INTERNATIONAL INVESTMENT REPORT

INTERNATIONAL INVESTMENT REPORT

Name of Student

Institution Affiliation
INTERNATIONAL INVESTMENT REPORT 2

EXPANSION OF GILLIES COFFEE COMPANY TO BRAZIL

Abstract

Bordered by all South American countries apart from Ecuador and Chile, The Federal Republic

of Brazil is the fifth largest nation in the world and the largest in South America. The country is

famous for its dense forests such as the Amazon Forest which is the world's largest jungle and

the dry grasslands commonly referred to as Pampas. At the same time, Brazil is the world’s

leading producer and exporter of coffee creating a favorable environment for Gillies Coffee

Company, a United States company involved in the distribution of coffee to expand its operations

to make more sales and revenue by accessing more untapped markets and a pool of potential

workers with unique talents and skills. This will be achieved through a joint venture with the

local Brazilian Cooxupe coffee company by providing them with knowledge of the Brazilian

market and allowing them to share costs and establish a joint establishment.
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TABLE OF CONTENT

Abstract............................................................................................................................................2

Introduction......................................................................................................................................2

Country evaluation...........................................................................................................................3

Economic structure..........................................................................................................................3

Financial structure..........................................................................................................................5

Political structure............................................................................................................................6

Resources.........................................................................................................................................7

Industry evaluation..........................................................................................................................9

Regulatory structure......................................................................................................................10

Competition- major and minor competitors..................................................................................11

Local financing options.................................................................................................................12

Overall attractiveness....................................................................................................................12

Entry strategy.................................................................................................................................12

Mode of entry.................................................................................................................................12

Business relationships...................................................................................................................13

Recommendations..........................................................................................................................13

References......................................................................................................................................13
INTERNATIONAL INVESTMENT REPORT 4

Introduction

Brazil has a federal government system with a judiciary, a National Congress, and a president

(Dwyer, 2017). The wide range of soils and climates has enabled Brazil to be the best agricultural

and industrialized nation in South America, exporting; sugarcane, cocoa, soybeans, rice, coffee,

tropical fruits, and cotton.

Gillies Coffee Company is the United States’ oldest coffee distributors of the best quality coffee.

Gillies Coffee, supplies custom blends and hand-tended whole beans, serves fresh coffee direct

to coffee bars, fine restaurants, private clubs, and retail outlets throughout the United States.

Established in 1840, its artisan specialties include espresso, origin and estate coffees, fair trade,

decaffeinated, and over 200 made-to-order flavored blends (Canh et al 2020). This study focuses

on researching a possible expansion of Gillies Coffee Company to Brazil.

The expansion of Gillies Coffee Company is mainly aimed at increasing sales and earn more

revenue. Considering that Gillies Coffee has been successful in the United States, there is a need

to take its operations abroad. With access to a new market, Gillies Coffee will have the potential

to build a new customer base. Additionally, expanding the business beyond the borders will

provide access to more untapped markets quickly. Since Brazil is among the leading producers

of coffee globally, expanding Gillies Coffee Company to their territory will give the business

access to a pool of potential workers with unique skills which will give the business an edge

over its competitors.

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Country evaluation

Economic structure

Brazil has a growing mixed economy and it’s among the world giants of manufacturing, mining,

and agriculture, and at the same time, it has a strong service sector growing rapidly. Brazil is the

largest producer of host minerals including tin, manganese, iron ore, bauxite, quartz, diamonds,

gold among other gems, and it exports huge quantities of automobiles, steel, automobiles,

consumer goods, and electronics. Even though Brazil is the world’s main source of oranges,

coffee, and cassava, sugar, beef, and soy, the relative significance of its agriculture has been

deteriorating since the mid-20th century, when Brazil started to urbanize and rapidly exploit its

industries, minerals, and its hydroelectric potential (Couturier & Sola,2010). In particular, the

city of Sao Paulo has become among the world’s key commercial and industrial centers.

The Gross Domestic Product (GDP) annual growth rate in Brazil averaged 2.34% from 1991 to

2020, reaching an all-time high of 10.10 % in the 1st quarter of 1995 and a low record 0f -10.90%

in the 2nd quarter of 2020. In 2019, the Gross Domestic Product (GDP) of Brazil was 1839.76

billion US dollars representing 1.53% of the world economy. In 2020, the economy shrank 3.9%

year-on-year in the third quarter of the year, due to the downwardly revised 10.9% drop in the

previous period and extending the decline for a 3rd straight quarter because of the Covid-19

crisis.

The continuously high rates of inflation in the late 20th century impacted all sectors of the

Brazilian economy. The high rates of inflation came as a result of the government's subsidizing

business loans, heavy financing of industrial expansion, and policies of deficit spending as well
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as the culture among individual citizens of procuring loans from foreign banks when domestic

was restricted in Brazil. Early 21st century, the Brazilian economy faced serious problems that

were intensified by political uncertainties. Financial instability, unem0ployment,

underemployment, and inflation remained constant threats, and financial and political scandals

continuously erupted thought the country. Nevertheless, by 2004 the rate of inflation had

decreased and that was the first time Brazil issued a bond in its own currency, the real, in place

of the dollar. Up to date, Brazil is among the countries with a lopsided distribution of wealth,

whereby 10% of the Brazilians receives almost 50% of the country’s income, whereas the

poorest 40% of the Brazilians brings in less than 10% of the total income. At the same time, land

ownership patterns continue to be grossly uneven, just as they were during the colonial period.

Financial structure

The financial sector regulatory structure of Brazil is made up of four specific regulators:

Securities (CVM), prudential and financial institution supervision (Central Bank), insurance

(SUSEP), and pension (PREVIC) (Leite, 2019). All the four financial regulators operate under

the National Monetary Council, composed of the Mister of Planning, Minister of Finance, The

Governor of Central Bank, and the minister of budget and management. The Council gives

general guidelines that apply to the whole financial services in Brazil.

The CVM is expected to strictly adhere to them and its interpretations and regulations should not

in any way conflict with the National Monetary Council policies. The Central Bank and the

CVM share regulations over the financial intermediaries, both of them have a licensing authority.

The CVM is normally in charge of market regulation and business conduct of intermediaries and

the other secondary equity, markets, non-governmental debts, and derivatives. At the same time,
INTERNATIONAL INVESTMENT REPORT 7

CVM lacks regulatory powers to protect investors from any form of fraudulent sales and

practices carried out by market intermediaries relating to government securities.

Capital market intermediaries in Brazil are considered banks, the same term applied to financial

institutions. The Central Bank of Brazil is in charge of prudential surveillance, oversight of the

government debt market, currency market, and principally capital adequacy. Central Bank laws

and regulations apply equally to all financial institutions, which include capital market and bank

intermediaries. The Securities Law offers CVM with powers, such as powers of surveillance of

issuers, market intermediaries, and markets. At the same time, CVM may get information on

institutions, markets, financial products, parties, and customers engaged in securities

transactions, impose sanctions, conduct investigations, prohibit improper market behavior and

suspend trading of securities. Additionally, CVM is empowered to share information with

foreign and domestic regulatory authorities.

Many Brazilian states have their own government banks among which the bank of Sao Paulo is

the most crucial. A small percentage of commercial banking in Brazil is controlled by private

banks, which also offers saving accounts and short-term loans. In the 1990s state and federal

governments privatized closed or privatized several initially state-owned banks and gave

permission to foreign investors to control more financial institutions. Brazil's main stock market

is situated in Sao Paulo.

Political structure

During his election campaign, the current Brazil President Jair Bolsonaro promised the fight

against corruption, economic recovery, and an iron hand against violent crime. However, current,
INTERNATIONAL INVESTMENT REPORT 8

these tasks represent the weak spots of his leadership, with the current Covid-19 epidemic and

the chaotic crisis management which have brought about serious negative economic, social, and

health consequences for the Brazilians. This political crisis is altering the demand and supply on

the national and international levels. Both the political leadership and the epidemic have negative

economic consequences. For instance, the prevention measures put in place by the government

greatly prevent people from taking part in the labor and consumer market.

The Brazilian political class is tainted. Currently, Brazil is seething. Brazilians are angry and

disillusioned at the same time, politicians don’t have any legitimacy. Even the courts of law that

were once trusted to represent justice, have become politicized since, the leading Lava Jato

judge, Sergio Moro allowed himself to be seen as an agent of the opposition party PSDB, via

injudicious public appearance with their leaders. If the government tries to push ahead with

unpopular reforms in the current febrile environment, Brazil is then about to witness huge,

potentially violent protests possibly triggered by predictable issues (Watson et al 2018) such as

pension reforms, or less predictable issues such as racism.

Resources

Brazil has abundant natural resources both renewable and nonrenewable. Most of the country's

agriculturally productive land, proved mineral reserves, and other natural resources have been

exploited in the south and southeast, which is Brazil's economic heartland; nevertheless, other

regions in the country have been growing in prominence. An enhanced transport system has

made accessibility of these resources easy either for domestic use or export.
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There are many extremely rich mineral reserves in Brazil, which are partially exploited. These

minerals include; tin, iron ore, pyrochlore, copper, and bauxite. At the same time, there are

significant quantities of asbestos, granite, manganese, gold, gemstone, kaolin, tantalum, and

quartz. Most of the industrial minerals are found in Para and Minas Gerais, including bauxite,

gold, and iron ore. Brazil also has a deposit of many nonmetallic and metallic minerals, some of

which are its major exports. Additionally, Brazil has vast offshore reserves of natural gas and

petroleum, especially in the Southeast.

Stock raising and farming accounts for approximately one-fifth of the country's labor force and

about one-twelfth of the Gross Domestic Product. In terms of agriculture, Brazil is basically self-

sufficient in basic foodstuffs and is a leading exporter of many crops such as coffee, soybeans,

cassava, and oranges ( Sanches, 2018), which are mainly grown in the Southeast and south of the

country. Brazil, unlike other South American countries, has enhanced its agricultural production

by greatly enlarging its agricultural land since world war II, but this enhancement of agriculture

production has come at cost of environmental degradation in frontier regions.

Brazil is the leading producer of coffee globally, coffee was Brazil's most important single

export in the early and mid-20th century. Espirito Santo and Minas Gerais are the key coffee-

growing states, followed by Parana and Sao Paulo. In the 1990s soybeans and their products,

especially animal feeds, became a crucial source of income than coffee. Most of Brazil's

soybeans are grown in Ro Grande do Sul and Parana; Mato Grosso do Sul state has also joined

the list of key soybean-producing states because farmers there have greatly used machines and

fertilizer to work the savanna soils.

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Fishing, Brazil catches less fish as compared to Mexico and Argentina, even though the majority

of Brazilians reside near or on the Country’s extensive Atlantic Coastline. Brazil’s fishing

accounts for approximately two-thirds of saltwater fishing. They sail from the Southeastern and

Southern ports, partly because of their proximity to the market and also because of the warming

of coastal water by the southward-flowing Brazil current, which supports fewer fish as

compared to the colder water farther south. Most of the ocean fishing in the Northeast normally

focuses on shrimps and lobsters, which are mainly for export. Approximately 25% of fishing in

Brazil is freshwater fish, of which the majority comes from the Amazon River system. The

Northeast accounts for another large segment, greater of which comes from the government

reservoirs stocked with tilapia, a fast-growing fish introduced from East Africa.

Forestry, The South, and the Southeast account for the majority of Brazil’s wood production.

Roughly 50% of its plantation of eucalyptus trees introduced from Australia; Honduras Pine and

many other exotic species are also cultivated. The wood from the plantation is used in the

manufacture of paper and cellulose products. Brazilians burn vast tracts of rainforest annually to

create space for cultivation, grazing, and settlement; nevertheless, few trees destroyed in the

process are used for wood products and as fuel. Most of the wood harvested from the northeast is

used as fuel. The forests of eastern Minas Gerais produce the greatest share of Brazil's charcoal,

followed by those of western Maranhao, Tocantins, and Southern Bahia.

In terms of industries, whereas other South American countries export a greater portion of their

petroleum and mineral production, Brazil’s well-established manufacturing sector is a ready

market for the materials. The majority of the minerals produced are absorbed within. Brazil

produces the majority of its natural gas and petroleum, mainly from offshore fields along the
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continental shelf. Riling of petroleum is mainly confirmed to the Northeast, in the Bahia basin

just North of Salvador. More than two-thirds of the petroleum is extracted from the basin on the

continental shelf off Rio de Janeiro state. Brazil's Petrobras has developed some of the most

advanced deepwater drilling technology in the world.

Industry evaluation

Brazil produces over one-third of the world's coffee production. Originally coffee was introduced

in Brazil in 1727 from French Guiana and it spread to the mountainous Southeastern states from

the North. Coffee thrived very well in the southeastern states because of the heavy rainfall,

temperature, and a distinctive dry season which offered optimum conditions for its growth.

Currently, the main coffee producing regions in Brazil are spread across 12 states. From the

previous surveys carried out, it is estimated that there are approximately 3000,000 coffee

plantations in Brazil, spread across 1,950 cities. Minas Gerais state alone produces roughly half

of Brazil’s total coffee. This has been attributed to its low land prices, an abundance of cheap

labor, the climate, and the mountainous topography which is ideal for coffee production.

There are two types of coffee produced in Brazil; Arabica and Robusta. The key difference

between the two types is growing conditions, price, and taste. Robusta generally is a bitter-

tasting, high-caffeine bean found in espressos and instant coffees. On the other hand, Arabica is

considered a higher quality coffee and accounts for approximately 70% of global coffee

production. The world demand for coffee is greatly attributed to the early phase of Brazil's

modern industrialization and economic expansion. Today Brazil exports the majority of its

coffee to Germany and the United States. Currently, the United States is the global largest single

buyer of coffee.
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Regulatory structure

After oil coffee is the second world’s most traded product and its global market is characterized

by a high level of competition. Coffee is labor-intensive, and about 70% of the global production

comes from small-scale farmers. The recent declining trade and continuous increase in coffee

prices have raised concerns among coffee producers globally. The global coffee supply chain is

basically controlled by three transnational companies ( Mondelez, Nestle, and D.E Master

Blenders)Hence the international well-established companies take advantage of their position to

come up with brands and to organize the supply chain globally better.

Competition- major and minor competitors

Brazil is a huge country with a great diversity in its coffee. Even though large amounts of very

low-grade coffee come from Brazil, also exceptional very high-quality coffees are also produced.

Currently, there are many large commercial companies that market and sell Brazilian coffee

brands. Brazilian coffee brands are very popular and well known. Several individual brands are

available in markets, large stores, and online platforms (Torres, 2016). There are many

companies specialized in coffee production and distribution that will greatly compete with

Gillies Coffee Company once it expands its operations to Brazil, and they include; Jacobs

Douwe Egberts Company which produces and distributes Café Pilao coffee brand, the no 1 and

the most popular coffee brand in Brazil. Café do Ponto company which harvests coffee from

infamous traditional estates of Minas Gerais and Sao Paulo to produce Café do Ponto coffee

brand which is branded with the best coffee varieties. Santa Clara Company which produces

100% certified organic coffee. This coffee is produced from a premium quality of coffee which
INTERNATIONAL INVESTMENT REPORT 13

is used to produce the regular coffee Americano or the espresso. Its coffee is roasted to achieve

the Brazilian taste and usually makes a rich and strong coffee with an outstanding flavor.

Cooxupe coffee company, which is the largest coffee cooperative globally with many coffee

plantations in Sao Paulo and Minas Gerais. Other minor competitors will include; Café Bom Dia,

Café Melitta, and Brazil Santos Coffee.

Local financing options

There are a number of financing options available that can facilitate the expansion of Gillies

Coffee Company to Brazing and they include; Credit card financing, which is one of the best

options to the company cash flow and finance its expansion. Financing from SBA Microloan

program is another available financing option, which is a very important program aiming at

entrepreneurs who need finances to extend their business. They will also be able to provide

technical assistance making it an option to be considered for finances. Accion, this is another

option that will be considered (Varella, 2017). Accion is one of the largest microfinance and

business finance lending network in the United States and it has operation offices in every state.

Angle investors will be another option to be considered, even though they are private individuals,

they will be able to invest in Gillies Coffee Company by making an equity purchase. They will

be able to offer finance, expertise, and guidance on how to expand the company. Getting the

angle investment will be easy considering that Gillies Coffee Company has a growth potential

which will make it possible for the investor to recover their invested resources and make profits.

Factoring financing will also be an option considering that, this type of company financing has

gained a lot of popularity in the recent past. Factoring will be able to offer a reliable source of

finances.
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Entry strategy

Mode of entry

Gillies Coffee Company will expand its operations to Brazil as a joint venture with Cooxupe

coffee company. The two companies will establish a jointly–owned company. Both Gillies

Coffee Company and Cooxupe coffee company will provide the new establishment with a

management team and they will share control of the joint establishment. Gillies Coffee Company

will benefit from this type of venture since it will be able to have knowledge of the Brazilian

market and allow them to share costs even though there will be issues such as how to invest and

share profits.

Business relationships

The success or failure of Gillies Coffee Company in Brazil will greatly depend on the partners

with which Gillies Coffee Company will work with. Therefore the company will tend to have a

very close relationship with Brazilian financial institutions such as banks, export credit agencies,

individual traders, and trading organizations. Gillies Coffee Company's relationships with

relevant Brazilian financial institutions will be very critical since the institution can often give

referrals to other individuals and institutions that will help Gillies Coffee Company achieve its

goals. Relationships with Social networking sites for entrepreneurs will be crucial. Having good

relationships with online communities of entrepreneurs will be a good source of information

related to potential partners

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Recommendations

In summary, expanding Gillies Coffee Company to Brazil as a joint venture with Cooxupe coffee

company, with the main aim of increasing its sales and revenue is possible considering that

Gillies Coffee has been successful in the United States, there is a need to take its operations

abroad to tap the untapped markets beyond the borders. Brazil being the World’s leading

producer of Coffee will give Gillies Coffee Company an edge over its competitors.

Brazil is well endowed with many natural resources such as minerals including; tin, iron ore,

pyrochlore, copper, and bauxite. At the same time, there are significant quantities of asbestos,

granite, manganese, gold, gemstone, kaolin, tantalum, and quartz. Brazil also has abundant

natural forests were by the South, and the Southeast accounts for the majority of Brazil's wood

production. Roughly 50% of its plantation of eucalyptus trees introduced from Australia;

Honduras Pine and many other exotic species are also grown. However, the greater part of the

agriculturally productive land proved mineral reserves, and other natural resources have been

exploited easily because of the well-developed transport system which has made accessibility of

these resources easy either for domestic use or export.

There is a need to come up with a proper structure to regulate the production and processing of

coffee products, considering that oil coffee is the world’s second most traded product after oil

and its global market is characterized by a high level of competition. Once Gillies Coffee

Company extends its operations to Brazil, it will face a lot of competition from Brazilian coffee

companies, such as Jacobs Douwe Egberts Company which produces and distributes Café Pilao

coffee brand, the no 1 and the most popular coffee brand in Brazil. Café do Ponto company
INTERNATIONAL INVESTMENT REPORT 16

which harvests coffee from infamous traditional estates of Minas Gerais and Sao Paulo to

produce Café do Ponto coffee brand which is branded with the best coffee varieties.

I strongly recommend that a representative from Gillies Coffee Company should visit Brazil to

meet with the management of Cooxupe coffee company. The main aim of this visit will be to

come with a summary of all the required resources and how each company will invest in the new

establishment and how they will be sharing profits once the establishment becomes operational.

The visit will also expose Gillies Coffee Company to the knowledge of the Brazilian market

laying a strong foundation for a partnership with other business associations

/
INTERNATIONAL INVESTMENT REPORT 17

References

Brazil,COs political risk is very much alive. (2017). Euromoney.

Brazil sees FDI boost in 2019. (2020). Foreign Direct Investment, 24–.

Canh, N. P., Binh, N. T., Thanh, S. D., & Schinckus, C. (2020). Determinants of foreign direct

investment inflows: The role of economic policy uncertainty. International Economics, 161, 159-

172.

Coronavirus poses risks to political stability and democracy. (2020). Country Report. Brazil.

Couturier, J., & Sola, D. (2010). International market entry decisions: the role of local market

factors. Journal of General Management, 35(4), 45-64.

Dwyer, R. (2017). Politics mask Brazil’s economic risks. Euromoney.

 Leite, A. (2019). Is neighbourhood social deprivation in a Brazilian city associated with the

availability, variety, quality and price of food in supermarkets? Public Health Nutrition, 22(18),

3395–3404. https://t.co/hnIiSS5YDS  

 Sanches, S. (2018). Banking privatization and market structure in Brazil: a dynamic structural

analysis. The Rand Journal of Economics, 49(4), 936–963. https://t.co/MFAX7KbQWn

 TORRES, F. (2016). CDM PROJECTS IN BRAZIL: MARKET OPPORTUNITY FOR

COMPANIES AND NEW DESIGNATED OPERATIONAL ENTITIES. Ambiente &

Sociedade, 19(3), 199–212. https://t.co/nTN0ueYt5T

INTERNATIONAL INVESTMENT REPORT 18

Varella, F. (2017). Dynamic pricing and market segmentation responses to low-cost carrier entry.

Transportation Research. Part E, Logistics and Transportation Review, 98, 151–170.

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Watson IV, G. F., Weaven, S., Perkins, H., Sardana, D., & Palmatier, R. W. (2018). International market

entry strategies: Relational, digital, and hybrid approaches. Journal of International Marketing, 26(1), 30-

60.