Hospitality Industry

Taj Group entering

Brazil
Why Brazil?
• Major Upcoming Global Events
• FIFA World Cup in 2014
• 2016 Summer Olympic games in Rio de Janeiro

• Brazilian government expects to invest $ 106 billion in the preparation of the

major events
• Increased spending by tourists, growth in employment, construction
• Major infrastructure will be through Public-Private Partnerships under Brazil’s
Growth Acceleration Program

• Past events in Brazil:

• Hosted World Military Games & Pan American Meccabi games in 2011
• FDI in Brazil surpassed US$ 70 billion in 2012, becoming 4th major global FDI destination after US,
China & Hong Kong
• Rio+20 Global Environmental Sustainability Conference in 2012
• Hosted World Papal Day & World Youth Day in 2013
Why Hospitality?

Outdated
Large-scale hotel “Brazilian
REVPAR
international infrastructure hotel industry
Increased (revenue per
events set to & facilities is undergoing
tourism & available
happen; need to be very positive
promising room)
resulting in refurbished in development”
business increasing
higher order to live – Brazilian
growth rate YoY since
demand for up to the Tourism
2005
hospitality required Ministry
standards
Historical factors of Brazil

From 1930
to 1945 the
country was
Brazil was Declared its subject to
discovered independen civilian Democracy
by ce from dictatorship was
Europeans Portugal in of Getúlio restored in
in 1500 1822 Vargas 1985

Became a A federal In 1964, new

Portuguese republic administration was
established by
colony and was military;
remained proclaimed considerable
so for over in 1889 economic growth
300 years and development
was achieved
during the next 20
years
Favorable past Factors

Brazil overcame international economic crisis in 2008-9 ; emerged as a stronger

and attractive business destination

First Latin American country to have emerged from the international recession

Prompt reaction by government to crisis , by implementing anti-cyclical

measures to sustain the consumption of durable goods and the flow of credit

Highly diversified economy and diverse trading partners, as well as a solid

financial system

Successful long-term joint public and private growth initiatives in Brazil

Geographic factors
• World’s fifth largest country, occupying an area of 3,287,000 square miles
• Borders all South American countries except Chile and Ecuador
• Comprises 26 states and the Federal District of Brasilia, the capital city
• Five main geographical regions:
o North (Mainly Amazon basin)
o Northeast (East from 46 west Longitude & north from 16 south latitude)
o Southeast (Coastal states south of the Northeast region)
o South (State of Paraná southwards)
o Central-West (States of Mato Grosso do Sul, Goiás & the Federal District

• Over half of Brazil’s landmass lies at about 650 feet above sea level, but only a
fraction of that rises above 3,000 feet
Climate & Regional Trends
Climate in Brazil
• South - experiences occasional below zero temperatures
• North - hot, humid and rainy
• Central Plateau - the higher altitude keeps temperatures down

Brazil does not suffer from earthquakes and hurricanes, but rainstorms, drought and frost do occasionally
cause considerable damage
The country boasts some spectacular scenic beauty, particularly along the coastline

Regional trends in Brazil

• Brazil is experiencing investments in the hotel sector in all regions.

• Hotel investment projects Primarily focus on the North-eastern part of Brazil, accounts for 48. 2% of new
investment projects and 83.3 % of the invested capital
o Large volume of public and private investment and increase in hotel demand
o More than 40,000 rooms required to satisfy the demand during 2016 Olympics
o Sao Paulo’s current market situation is favourable for investors and owners of hotel units in the city
o Growing secondary market for condo-hotel rooms; lucrative way to invest in the city’s industry during the
next few years
Favourable Cultural Factors

Mixed background
Majority of of Portuguese, Restaurant entertainment Giving a gift is not required
Brazilians are Italian, German, prevails over home at a first business meeting;
Japanese, East
of European or European and entertainment instead, buy lunch or dinner
African descent African
immigrants

Moderately Leisure and recreational

male- activities take place
Major cities mainly outdoors, taking
dominated;
support cultural
Gender advantage of favorable
institutions
inequality is a climate ; many clubs offer
major concern
extensive sports and
social facilities

Social Structure Favourable factors

 Comparing Hofstede’s cultural
dimensions of Brazil and India

• Hierarchy is respected, decision-making process is fairly limited and done by select group of high-ranking
officials
• Collectivist society, while doing business in Brazil it is important to build up trustworthy and long lasting
relationships
• Moderately ambitious society, avoids conflict, consensus within parties important
• Adopts strict rules, laws, policies and regulations in order to avoid uncertainty unlike India
• Only non-Asian nation amongst the long-term oriented societies
General Thumb Rules for Doing Business
Be prepared to commit long term resources (both in time and money) toward
establishing strong relationships; This is the key to business success
Make appointments at least two weeks in advance; Avoid improvised calls to
business or government offices
Some regions have casualness about time and work; minor delays are
accepted
Business meetings normally begin with casual chatting; host decides when
it is time to talk business
Shake hands for hello and goodbye; use good eye contact; when leaving a
small group, be sure to shake hands with everyone present
First names used often, but titles are important
Music and long, animated conversation are favorite Brazilian habits;
Brazilians enjoy joking, informality, and friendships
Political and Legal Environment
Federal republic has three independent branches: executive, legislative and judicial

Federative republic has 26 states and a capital district; vigorous multi-party system with
20 parties represented in its Congress

Executive branch headed by President; oversees head of executive departments

Legislative power is exerted by a National Congress consisting of a Senate and a

House of Representatives

Judicial branch consists of a system of federal, state and local courts; headed by the
Federal Supreme Court

All corporations’ setup in Brazil is guided by civil law , which dates from 2002
Regulations for establishing business
All the properties located in coastal
area are subject to payment of
specific taxes called foro and
laudemio
Laudemio is paid when the right of
use of the property is transferred
and is levied on the rate of 5% over
the value of the property buildings
and improvements
Foro is an annual tax to the use of
the property and is levied on the rate
of 0.6% over the value of the right of
use
The National Monetary Council (Conselho
Monetário Nacional - CMN) is the
exchange control and foreign investment
authority; all the foreign investment
guidelines must be approved by it
Political Risk
• According to Transparency International in the 2013 Brazil ranks at 72 in
terms of corruption index throughout the world
• Brazil has faced high profile corruption charges which have led to delay in
infrastructure delay for football world cup of 2014
• FCPA compliance has been strictly enforced on any foreign companies
establishing their business in Brazil
• A new Brazil Clean Companies Act has been approved by the Brazilian
government in order to implement anti-bribery laws in a more stringent
ways and this new law will be applicable from January 29, 2014
Trade Barriers
• Ease of Doing Business Rank: 130 out of 183
• Import Tariffs
o Import Duty:-Federally mandated product specific tax levied on Cost, Insurance, Freight basis.
Ranges from (10 – 35) %
o Industrialized Product Tax:- Levied on domestic and imported manufactured
goods.Government levies IPT rate by determining how essential the product may be for the
Brazilian end-user.
o Merchandise and Service Circulation Tax:- value-added tax applicable to both imports and
domestic products. Tax is levied on both intrastate and interstate transactions and is assessed
on every transfer or movement of merchandise. The rate varies from 7% to 18%

• Import Requirements and Documentation:- Register with Foreign Trade Secretariat

Trade Barriers (Cont.)
• Since 2000,Government has made an allowance for temporary importation of products that are used
for a predetermined time period and then re-exported
• India signed a framework agreement with MERCOSUR17 in June 2003. The India Mercosur PTA
entered into force on 1st June 2009 under which 450 items from each side will have duty reductions
of 10% to 100%

Compliance Concerns
• Lacks “Place of Business”:- Brazil’s strict requirements stifle the establishment of ground teams or
pop-up operations
• Corporate Tax Filings:- different categories of indirect taxes, both federal and state
• Employment Law:- Complex national-to-foreign worker ratio requirements, unemployment insurance
regulations, social security taxes, termination restrictions and payroll laws
• FCPA Regulations:- Strict regulations to provide more security to investors and help avoid
reputational damage
Strategy to Enter the Country

Market Entry
Strategy: Strategic • Strategic partnership route to enter Brazil by Taj Group
wherein marketing alliance with big local players/developers in
partnership with key market would bring substantial value to the table.

local players

• JV as the preferred entry mode since it gives the opportunity to

establish a business operation in a foreign country where WOS is too
Reasons of expensive, risky or not feasible due to other reasons.
• By choosing a JV, companies can better overcome these challenges and
choosing reduce transaction costs (Zang and Wang, 2006).
• Lack of market information and communication system
 Advantages of mode of Entry

Undertake
Undertake Co-host Have
food
Reach out certain certain events reciprocal Have overall
promotions
their marketing at trade fairs reservation exchange of
and talent ideas and
customers in activities and and other services and
exchanges information
their market conduct road international loyalty
with each
shows forums programmes
other
 Details of Mode of Entry

Selectively enter key gateway

Sign a strategic marketing
cities around Brazil (Sao Paulo, Several partnerships with
alliance with renowned hotel
Rio de Janero, Salvador etc.) and international and domestic
group likes of Atlantica Hotels
look at opportunity only in high airlines for cross promotions with
International (Brazil) or Carlson
end of the market, under the Taj key customers and package tours
Rezidor Hotel Group
Exotica Resort and Spa Brand.

To diversify its presence in the

hospitality business, venturing
Assist JV partner in exchanging
into airline catering, operating
sales leads and conducting
private jets and yachts, service
roadshows across India and
apartments, spas and wildlife
Brazil.
lodges in Brazil in future course
of time.
Market Research: Objectives
Location in Brazil? Why?

Stakeholder Information(partners, competitors etc.)

Naming of the hotel for Brazil

No. of rooms while 2016 Olympics

Proper mix of Marketing? Which dimension should be focused more?

Other facilities needed in hotel

Availability of manpower
Information Gathering
General Information about
the country: 2 or more data
sources for secondary data
to avoid dependency
Legal Information: Various
laws will be available to us
from cited secondary
sources
Competitive Information:
From various researches,
the exact industry situation
can be found
Secondary Data
In-house: Sending
higher management staff
to Brazil for hands-on
experience; main
purpose is to interact
with local experts and
gather information from
their experience
Outsourcing:
information about the
ultimate consumers will
be outsourced to local
research agencies which
can conduct research
based on our
requirements
Primary Data
Methodology

2. Micro “bottom-
• Investigating industry in up” approach: • Converging macro and
India and extrapolating micro data points to assess
to Brazil’s industry the markets’ real
• Future demand is opportunities over the next
• Estimate reasonable calculated with the help decade which will be helpful
magnitude and broad of specific research on in decision making
overview of the industry. micro elements

1. Macro “top- 3. Reconcile

down” approach: output:
Entry Into Neighboring Countries
 Brazil
is surrounded by 10 countries: Argentina, Bolivia, Colombia, French Guiana,
Guyana, Paraguay, Peru, Suriname, Uruguay, and Venezuela

 Best mode of entry; Foreign Direct Investment

 Good foreign investment prospects: Peru, Colombia and Argentina

 In comparison, countries like Bolivia, French Guiana, Guyana, Paraguay,

Suriname, Uruguay, and Venezuela do not have good prospects for foreign
investment
Favorable Conditions
Pent-Up Demand - decades of
unsatisfied demand for real
estate, along with falling cost of
capital, rising incomes, increased
corporate activity and travel
Economic Catch-Up -
globalization, technology
diffusion, instantaneous capital
flows, and political changes have
reduced the economic
development cycle times
Real Estate Upheaval - relative
lack of long-term commercial
debt financing constraints lead to
recycling of functionally obsolete
real estate, including hotels
Uneven Growth - emerging
regions in these countries are
experiencing double digit growth
rates, while more industrialized
regions are similar to the global
trends
Emerging Market Growth -
aggregate growth expected to be
more than thrice that of mature
markets like USA, leading to an
estimated inversion of balance in
economic power from 30% today to
70% by 2050
Explosion of Consumer Class -
GDP generated by the consumer
class within the regions is
expected to grow by over 7%,
more than double from $2.4
trillion to $5.2 trillion by 2022
Unfavorable Conditions

Government • Relatively stricter government rules & regulations

as compared to Brazil regarding foreign investment
Restrictions like French Guiana, Suriname

Stagnant • Tourism industry and hospitality industry are

interlinked; in these nations tourism is not as
Tourism thriving as compared to Brazil , thus affecting
Industry foreign investment

Lagging • Moderate economic growth in these countries; lot

Economic of scope to continue growing and ultimately
revitalize a healthy investment climate
Growth