Target: Expanding into Brazil's Market - Challenges and Recommendations

This report discusses the challenges and recommendations for Target, an Australian company, to expand into Brazil's market. It covers the political, economic, social, and legal environment in Brazil and the international human resource management practices. It also provides insights on production and logistics factors for Target to consider.

Running head: TARGET 1
Target
Student’s Name
Institution Affiliation
Date

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Executive summary
Globalization has made it possible for firms to venture foreign markets. Target an
Australian company has vested interest in Brazil. Brazil is seen as a viable country due to a
stable economic climate and political stability which provides the company with a conducive
business environment. However, the main challenge is corruption and high levels of bureaucracy
when it comes to establishing a new business in some cities in Brazil. The large population
provides cheap workforce and a ready market for the products produced by Target. Target has to
consider the modes of entry in Brazil such as the use of franchise and joint ventures more so in
the case of a bureaucratic country such as Brazil that makes it hard to start a business. The
international human resource management practices are important in ensuring that Target
complies with standards set in Brazil. As such the company should employ a polycentric staffing
approach since Brazil is a highly diversified nation.

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Introduction
Target takes pride in being part of more than 300 communities across Australia and has
stores that are conveniently located in cities and local regions (Target Australia, 2017). Target
provides its customers a wide variety of products that entail women’s, children’s and men’s attire
that is fashionable. Target also offers cosmetics and accessories with latest designs in
homewares.
The journey of Target began in 1926, following two men that are Lindsay and McKenzie
establishing drapery store in Victoria.
The opening of the store was after signing a partnership. The store specialized in selling
dress fabrics, furnishings, and Manchester. Lindsay’s business strategy involved selling half the
profit, and it is after the acquisition of the first store from Lindsay that Geoff Betts, Wade, and
his team expanded and developed from Lindsay’s discount retail strategy from a unit store base
in Victoria to a multistore business. Lindsay and McKenzie Pty Ltd had developed from 14
stores in Victoria by 1968. It is this growth that led to Myer Emporium Ltd to recognize the
ability of the company to grow and thus bought the enterprise and the enterprise was branded as
Lindsay’s Target Pty Ltd. However, as of 1973, the company became known as Target Australia
Pty Ltd. The Target segment provides job opportunities for more than 10000 employees in
Australia as well as commodity sourcing in Asia.
Brazil is a country that is strategically located in the Eastern region of South America and
is bordered on the East by the Atlantic Ocean and the Andes Mountains on the West we have the
Andes Mountains. The equator passes through the country. Brazil gained its independence back
in 1822 after having been colonized by the Portuguese for more than three centuries where the

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slave trade was rampant and was abolished later in 1822. Brazil has been ranked as the largest
country in South America and the Latin territory. Brazil is also the fifth largest nation in the
world in both size and the number of people. It is estimated to have more than 190 million
individuals. Brazil is made up of one federal district which harbors the capital city of Brasilia
and other states (Schneider, 2018). The primary language used for communication is Portuguese
though there are other indigenous languages and local dialects and this makes Brazil a nation of
blended races with a diverse culture and a distinctive heritage (Hofstede, Garibaldi de Hilal,
Malvezzi, Tanure, & Vinken, 2010).
In the past few decades, Brazil has been reported to achieve tremendous economic
prosperity making it one of the fastest developing economies in the world (Rohter, 2012). It is
due to the commercial upgrades from being a less developed nation to a thoroughly
industrialized country that has made Brazil become recognized as a popular hub for foreign
investments in sectors such as tourism, property and energy segment.
Political environment
Currently, Brazil is rated as one of the countries in South America with a stable and a
proactive system of power and situations of political instability are not present at the moment.
However, the political climate in Brazil is not something that can be predicted. Political
conditions are volatile, and such a threat remains eminent from one election to another election.
Corruption is still a thorn in the Brazilian economy. The establishment of a new business
enterprise in Brazil requires additional costs as the government official are bribed, and this is a
challenge when it comes to entering new markets. According to a report by Transparency
International, Brazil is said to hold the 70th position in corruption rankings among the 180

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nations listed, and such levels indicate that corruption levels in Brazil are higher compared to
Cuba and Turkey among other countries.
Economic environment
The large population and inflow of FDI have made Brazil exhibit huge potential for
growth and development for investment decisions. The gap that existed between the rich and the
poor has also decreased gradually, and as such, there is a substantial trend of increasing middle
class (Rasella, Aquino, & Barreto, 2013). The incredible news is that the Central Bank controls
inflation and the risk associated with the devaluation of domestic currency is low in Brazil. The
money used in Brazil, the reals has been described as a success. Though presently such currency
has been overvalued against the dollar, and this has hurt the exports while boosting the imports.
The state is open and transparent when it implies that there has to be equal treatment for
both the foreign and domestic ventures. Brazil is characterized by its abundance in both the
skilled and semi-skilled employees and the cost of labor in Brazil compared to the global
standards is low. Also, concerning duties associated with imports, there is a system in place that
situates that rates of tariff reduced based on the success of years in importing. Local governments
provide incentives and subsidies for investing and the same category extended to domestic firms
is also accorded to foreign firms. The corporate tax is set at 15%, and there is no clear guideline
for leaving such a profit in Brazil. The tax rate in Mexico is quite compared to other developed
nations such as Ireland and Greece. The consultant agency from PWC recommends that it is
important for any firm wishing to venture into Mexican markets should seek help from local
traders and tax consultant before having their products shipped in the country.
Social environment

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Brazil exhibits huge disparities in incomes among its populations, and only 19% of
citizens have been reported to live in poverty. However, it is crucial not to forget that the people
of Brazil is approximately more than 180 million individuals and this makes Brazil the fifth
largest country in the world (Brainard & Martinez-Diaz, 2009). The distribution class in Brazil is
composed of a large proportion of people with low incomes, and also at the same time, there is a
substantial number of affluent citizens. However, there are positive signs that have shown middle
class growing. This explains why there is a large consumer population approximately 18 million
people of rich people and can be a ready market for products such as cloth lines and apparel. The
Brazilian population has been associated with keeping up with modern trends in fashion across
the globe. The population is well versed with luxury brands and are able and willing to purchase
such expensive products.
The south and south East areas in Brazil have been associated with the development and such
areas have been termed as having the best standards of living. Such regions are also said to be
densely populated and contribute the largest proportion to Brazil’s GDP. South East is also
known for harboring popular cities such as Rio de Janeiro and Sao Paolo where a big part of the
population is situated.
Legal environment
Brazil is regarded as one of the countries that have high levels with regards to
bureaucracy. Establishing a business in Brazil entails huge amounts of paperwork, there are
many regulations, and the process is lengthy. Sao Paolo has been described as the largest
business park and ranks 118 out of 155 with regards to the ease of conducting business. The ease
of starting a business in some states such as Minas Gerais and the Rio Grande do Sul is easiest in
such states. On the other hand, it is most difficult in cities such as Sao Paulo and Maranhao.

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The period to start an enterprise widely varies across different states and ranges from 19
days in places such as Minas Gerais to more than 150 days in Sao Paulo. Brazil has entered into
bilateral agreements to help avoid the double taxation that is associated with most nations such
as Denmark. Brazil has special laws that regulate the pricing models, and as such, there is need
to take care in the case of promoting sales. Also, it is said that every enterprise has to pay
bonuses to employees in addition to the monthly salary.
International Human Resource Management
Human resource management with regards to international practices is a sophisticated
affair for businesses considering going global due to the huge variations that exist between
nations with regards to legal systems, labor markets, and economic frameworks (Hill, Cronk, &
Wickramasekera, 2014). It is not possible to have the practices of HRM transferred directly from
domestic countries to foreign markets. The practices of HRM are normally highly localized. For
instance, practices associated with compensation and labor policies vary across nations. The
approach of international HRM entails staffing, performance evaluation and labor relations and
deals with both the locals and expatriates.
Ethnocentric policy
This approach entails important management positions being filled by the locals or the
nationals. As such Target that happens to establish itself in Brazil will be able to overcome some
of the hurdles associated with lack of skilled managers in Brazil. This approach will also help in
providing a same corporate culture that helps in transferring core competencies for the global
firm, in this case, Target Australia. However, the main problem with this approach is that there
may be increased resentment to Target’s operations by the nationals of Brazil since it limits
opportunities for progress and development for the Brazilian nationals. This can translate to low

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productivity levels and increased turnover more so when the expatriates are paid higher wages
compared to the indoor nationals. It can also be expensive for Target to maintain expatriates in
Brazil.
Polycentric approach
This is the case where all positions ranging from those considered to be low-level
positions to high ranking positions such as those of the executives being occupied by the
nationals (Dunning, 2013). Though some of the positions that are considered key to the company
are held by the nationals of the parent company. The primary approach to this strategy is that it
helps alleviate cultural myopia, cheap when it comes to implementation and assists in
transferring key competencies. However, the main disadvantage of this approach is that for
instance, Target would limit Australian nationals from gaining experience in Brazil. Also, a gap
between operations in the home and host country can begin without controls.
Geocentric approach
With a geocentric strategy, the company seeks to hire the best employees irrespective of
their nationality. It is relevant and suits global firms such as Target since it better equipped to
manage the large scale of IHRM required. The benefits associated with this policy is that it will
enable Target Australia to make the best use of its human resources and will equip Target’s
executives to work in multiple cultures in Brazil and this will assist in constructing a culture that
is unified and a network of informal management. One obstacle to this approach is the Brazilian
immigration policies can impede the full implementation of this approach. However, some of the
disadvantages associated with geocentrism are that it will make Target Australia incur high
implementation costs due to the training and relocation issues and also the framework of
compensation.

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Recommendation regarding production
The operational managers in international firms are often faced with several dilemmas.
For instance, the trade-off between a global and a multinational perspective. From the global
perspective, managers give due considerations to the availability of resources and their costs
across the globe in choosing the best sites for their operations. On the other hand, from the
multinational perspective, managers have to customize their operations to match the unique
components of various regions and adapt the operations of the firm to fit the specific components
of various locations and fit the operations of the company to fit local requirements. The
production here entails the location and management of facilities. On the other hand,
procurement entails making decisions about the source and ways of obtaining the needed
outputs. The international supply chain of management entails getting the finished product to the
consumer.
Target have to consider the production location in Brazil with regards to the macro
environmental elements such as technology levels, legal and political constraints and the national
culture in Brazil. In establishing its premises and retail stores in Brazil, Target has to produce
products and inputs are necessary with regards to labor, raw materials. In case that Target
considers outsourcing, then it has to determine ways of getting the inputs and the timing needed
in acquiring such products. As such it is important for Target to consider establishing strategic
alliances with Brazilian suppliers to ensure that it has a constant supply. The primary objective
here is to ensure that Target obtains the best inputs from Brazil that it can use in producing
efficiently. As such, the managers of Target have to adjust their objective with regards to the
different political and cultural climates.
Logistic factors

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The system of delivery logistics is one of the means through which raw materials reach
production site and the commodity produced reaches the consumer (Capgemini, 2010). As such
it covers both aspects of procurement and delivery. The utilized logistics network can vary from
simple to sophisticated models. If inputs are close to the market, that is Target gets inputs from
Brazil; then, production should take place in the Brazilian market and such a case logistics is said
to be simpler. On the other hand, when Target’s production facilities are located in Australia,
then there will be complications with regards to time complications, transport problems,
fluctuation of foreign exchange currency and security issues. A company such as Target
Australia should use the just-in-time supply chain management framework due to its large size
making Target cut down costs associated with warehouse and inventory (Hill, Cronk, &
Wickramasekera, 2010).
International market entry mode
Firms decide to penetrate global markets for many assumed reasons. One of the primary
reasons is due to stiff competition that such companies face from overseas companies in
domestic markets (Hill 2008). Also, the home markets may be saturated, and this makes
companies seek other alternatives in domestic markets. Such companies may also be looking to
gain from the economies of scale exhibited in foreign markets. One impediment to expanding in
foreign markets is lack of complete knowledge about the operation of foreign markets. In a
nutshell, the suitability of global markets depends on their profit capabilities in the long-run.
The relevant and crucial market mode of entry will be focused on some components such
as the level of a firm’s experience in international expansion, the traits that are exhibited by
international markets and the availability of disposable resources. However, there are some

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readily available options such as franchising and joint ventures through foreign direct investment
in the host nation with a company and a fully owned subsidiary.
Franchising
A franchise entails possessing a license that is specialized. The franchiser not only
accepts to sell the trademark but also commands the franchise to follow the code of conduct of
the new venture. In this case, Target Australia should enter deals with Brazilian firms where
Target issues licenses to the franchisee in the clothing line business (Persinger, Civi, & Vostina,
2007). The advantages that Target will get from franchising with Brazilian firms are that there
are low costs, and risk levels are low in entering the Brazilian market. Target will also incur
franchisees in Brazil fully cover fewer costs in establishing its premises as setting up costs. As
such, Target will be able to benefit from the incentives in Brazil to start a profitable business. It
is through franchising that Target will be better positioned to establish its presence in Brazilian
markets.
Joint venture
Joint venture here entails setting up a company that has ownership that is partly
comprising of two or more independent firms. Ownership, in this case, is defined and dictated by
particular ratios (Lopez-Duarte & Vidal-Suarez, 2010). In this case, Target enters into a joint
venture with a Brazilian firm and ownership here depends on the percentage of stakes that are
commanded by Target. Both Target and the Australian firm play the critical role of providing
managers who share the control of operations. In this context, Target would benefit by bringing a
unique set of skills that it deems core and the missing competencies are sourced from the
Brazilian partners. Thus, this has the effect of ensuring that the culture of Target Australia is
carried on even in foreign markets.

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Business strategy
The strategy adopted by the organization is one of the course actions that the managers
utilize in achieving the goals of the organization (Slangen & Van Tulder, 2009). To maximize
the value of the organization, managers use strategies that increase the profitability of the firm
and raise profit margins.
Value creation
Target has been associated with creating value for its products, and this has made
consumers prioritize the products sold by Target and as such Target can charge higher prices its
products. The same concept can be extended in the Brazilian market. As such Target can raise its
profits margins by adding value to its products such that the Brazilians will be willing to pay
more for Target’s products.
Locations economies
Target can benefit by establishing its value creation units in areas that are most conducive
to Target’s performance in Australia. If Target utilizes such a strategy, then it will be able to
enjoy location economies. One benefit associated with location economies is that Target will
experience low costs that are linked to value creation. Thus, Target will be able to differentiate
its products from the offerings of competitors.
Transnational strategy
The transnational strategy allows companies to simultaneously operate at low cost due to
location economies and economies of scale which make it possible for the firm to differentiate its
products in various markets. As such Target can use this strategy in Brazil since the country has
been associated with low operating costs.
International strategy

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The international strategy involves taking products that were originally produced for
domestic market and sold such products in international markets with just a little customization.
Target can use this approach in Brazil since there are low pressures regarding cost and demand
for local reaction.
Conclusion
Target an Australian firm may have numerous opportunities by venturing into foreign
markets such as Brazil. Brazil has been identified as one of the growing economies with a vast
population which offers labor supply and a ready market for its products. The entry of foreign
firms in a new market requires analysis of the market by examining political, economic and
technological factors. Target can enjoy the economies of scale and location economies in Brazil.
However, it is important for Target to develop ways of coping with high levels exhibited in
Brazil and the bureaucratic processes involved with starting a new business in Brazil. The strong
purchasing power of the consumers in Brazil is a good indicator of a healthy economy that
Target can take advantage by producing quality products. The use of joint ventures by Target in
Australia can be beneficial as the country has been reported as being highly bureaucratic and as
such makes it hectic in establishing new businesses. The government is supportive in providing
incentives needed in supporting business operations for foreign firms.
References

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Brainard, L., & Martinez-Diaz, L. (2009). Brazil as an economic superpower?: understanding
Brazil's changing role in the global economy (Eds ed.). Brookings Institutions Press.
Capgemini. (2010). Future Goods Forum: 2016 Future Supply Chain Study. Retrieved May 29,
2018, from http://www.futuresupplychain.com
Dunning, J. (2013). International Production and the Multinational Enterprise (RLE
International Business). Routledge.
Hill, C., Cronk, T., & Wickramasekera, R. (2010). International Production,Outsourcing and
Logistics. North Ryde: McGraw Hill.
Hill, C., Cronk, T., & Wickramasekera, R. (2014). Global Business Today: Asia Pacific Edition
(3rd ed.). North Ryde: McGraw Hill.
Hofstede, G., Garibaldi de Hilal, A., Malvezzi, S., Tanure, B., & Vinken, H. (2010). Comparing
regional cultures within a country: Lessons from Brazil. Journal of Cross Cultural
Psychology, 41(3), 336-352.
Lopez-Duarte, C., & Vidal-Suarez, M. (2010). External uncertainty and entry mode choice:
Cultural distance, political risk and language diversity. International Business Review,
19(6), 575-588.
Persinger, E., Civi, E., & Vostina, S. (2007). The Born Global Entrepreneur in emerging
economies. International Business & Economics Research Journal, 6(3), 73-84.
Rasella, D., Aquino, R., & Barreto, M. (2013). Impact of income inequality on life expectancy in
a highly unequal developing country: the case of Brazil. J Epidemiol Community Health,
jech-2012.

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Rohter, L. (2012). Brazil on the rise: The story of a country transformed. . St.Martin's Press.
Schneider, R. (2018). Brazil: culture and politics in a new industrial powerhouse. Routledge.
Slangen, A., & Van Tulder, R. (2009). Cultural distance, political risk, or governance quality?
Towards a more accurate conceptualization and measurement of external uncertainty in
foreign entry mode research. International Business Review,, 18(3), 276-291.
Target Australia. (2017). Target Online Shopping. Retrieved May 29, 2018, from
https://www.target.com.au/.
Appendix
Political environment

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The establishment of a new business enterprise in Brazil requires additional costs as the
government official are bribed, and this is a challenge when it comes to entering new markets.
According to a report by Transparency International, Brazil is said to hold the 70th position in
corruption rankings among the 180 nations listed, and such levels indicate that corruption levels
in Brazil are higher compared to Cuba and Turkey among other countries.
Economic environment
The state is open and transparent when it implies that there has to be equal treatment for
both the foreign and domestic ventures. Brazil is characterized by its abundance in both the
skilled and semi-skilled employees and the cost of labor in Brazil compared to the global
standards is low. Also, concerning duties associated with imports, there is a system in place that
situates that rates of tariff reduced based on the success of years in importing.
Social environment
The state is open and transparent when it implies that there has to be equal treatment for
both the foreign and domestic ventures. Brazil is characterized by its abundance in both the
skilled and semi-skilled employees and the cost of labor in Brazil compared to the global
standards is low. Also, concerning duties associated with imports, there is a system in place that
situates that rates of tariff reduced based on the success of years in importing.
Legal environment
The ease of starting a business in some states such as Minas Gerais and the Rio Grande
do Sul is easiest in such states. On the other hand, it is most difficult in cities such as Sao Paulo
and Maranhao.

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The period to start an enterprise widely varies across different states and ranges from 19
days in places such as Minas Gerais to more than 150 days in Sao Paulo. Brazil has entered into
bilateral agreements to help avoid the double taxation that is associated with most nations such
as Denmark.