Discuss whether the U.S. parent company want to FDI to Brazil or not?
Since 2003, Brazil has improved its macroeconomic stability. It has also taken significant steps in building up its foreign reserves. Its economy is stronger compared to all the other South American countries. It has begun expanding its presence in the world market because of its well developed agricultural, mining, manufacturing and service sectors. Brazil’s high interest rates make it an attractive destination for foreign investors (CIA 2012). Over the last few decades, the World Economic Forum’s annual Global Competitiveness Report has identified the factors that influence national competitiveness. From the year 2005, the World Economic Forum has based the competitive analysis on the GCI (Global Competitiveness Index. It has come up with twelve pillars that influence competitiveness. These pillars are will be used to gauge the global competitiveness of Brazil. The twelve pillars of competitiveness are:
Health and Primary Education
Higher education and training
Goods market efficiency
Labor market efficiency
financial market development
Brazil’s Market Overview
Brazil is the fifth largest country in the world in terms of land mass. It has got a population of 193 million people. Brazil’s economy is the 7th largest economy in the world. Recently, Brazil has had or has seen a sharp and surging growth of the middle class which has come with increasing demands (Irene 2009). Over the last decade, the nation has been able to maintain strong macroeconomic policies which have been able to tackle and control inflation without necessarily harming the economy growth (Klaus 2011-2012). This approach helped Brazil keep the inflation rate at 5.9% in 2010, and also saw the unemployment rate at 7.1%. The Central Bank of Brazil saw to it that the interest rate was at 10.75%. As far as imports are concerned, Brazil was the largest import supplier. In 2010, Fitch gave Brazil an investment grade rating which brought it in line with rankings from Standard &Poor and Moody’s Investor Services. The Brazilian currency also strengthened against the dollar by 34%. Brazil encourages foreign investments. In 2009, as a result of a decline in the global financial sector, its direct investment was estimated to grow to $33 billion in 2010. Brazil is also the largest FDI (Foreign Direct Investment) recipient in Latin America. Foreign investment has had a major impact in Brazil’s privatization programs (U.S Commercial Service 2011). Before Lula’s (35th President of Brazil) administration –in 2003- there was a slowdown in the privatization sector. However, when Lula took office in 2003, he worked on reviving foreign investment. The State bank of Maranhao privatization was the first step he undertook. Secondly, the State bank of Ceara was privatized in 2005, and thirdly in 2006, the Paulista Electric Energy Transmission Company was privatized. In 2007n and 2008, large infrastructure projects were auctioned too (these included: federal highways, high speed rails and airports). In line with the pillars of competitiveness, Brazil has made tremendous steps in ensuring that the country is competitive on a global scale. The investment opportunities, although sometimes short term, are visible and attainable.
Medical Devices, What are they?
A medical device is any instrument, apparatus, appliance, equipment, material, or other articles used in the healthcare delivery process. Medical devices are the engine or the driving force behind proper delivery and advancement of healthcare. Concentrating on medical devices is important because as mentioned they are the backbone of a proper healthcare. Furthermore, concentrating on medical devices, gives a chance to focus on reduced costs. Reduced costs come as a result of innovation in trying to prevent, to detect, diagnose, treat, and rehabilitate patients with certain conditions. Concentrating on medical devices helps in job creation in improving the current technology or production of new medical technologies. The economical impact of medical devices is profound. It helps in sustenance of market growth, economic diversification, employment expansion, and global export market.
Current medical devices and technology industry
Brazilian constitution guarantees all its citizens access to free medical services both in the private and public health care systems compensated by the government(Library of Congress Country Studies 1997) The emerging markets have become important and lucrative for growth in the medical devices. In the developed world, the market for medical devices has reached saturation. Mostly, due to the outcome of the economic recession that hit the financial scene. The recession has contributed a lot in restricting the growth in these countries over the last couple of years. This has left the developing economies or countries as the most lucrative spots for investment in as far as medical devices are concerned. The continued health awareness by the citizens of these countries has helped in the increased purchase of medical devices. Multinational medical device companies also find these countries very lucrative in offshore investments. Increasing expenditures on healthcare in the developing world has been influenced by the construction hospitals, establishment of public and private healthcare insurance which has prompted –as earlier on stated- a demand for medical devices. Amongst the leading countries –demanding for medical devices- Brazil is amongst them. It has become one of the target points by Europe which is the largest regional export for medical devices due to the high income capita in the European countries and a favorable regulatory environment (Report Buyer 2012).
As an emerging market, Brazil’s healthcare market has got room for growth. The country still gas got a large gap in its social strata, however, the growing middle-class can afford good healthcare. The government of Brazil has taken two strategic steps which it hopes will help stem the ever increasing medical bills. It has started by decentralizing the healthcare management. Secondly, it has encouraged the participation of the private sector in healthcare provision. The Brazilian market has got great growth potential for the healthcare system which goes in tandem with medical device purchase, 9% of the Brazilian population is over sixty years (a segment that consumes more healthcare services than other groups).
Challenges in the Medical Device Sector in Brazil
The immense opportunities in Brazil’s medical devices sector are hampered negatively by some issues that need urgent attention. Firstly, the lack of sufficient medical devices expertise and skill affects the medical device sector. Secondly, lack of sufficient investment both from the private and public sector are both other issues that negatively affect the medical device sector. Thirdly, the lack of harmonization (internal and external) with other jurisdictions is other factors. Fourthly, a lack of national priority and strategies for the medical device sector is also another factor (Medical Device Challenges and Opportunities 2011)
The health sector is as competitive as it should be. Consequently, there needs to be constant research on how a particular company is to remain competitive in a changing environment, especially one like the medical device sector.
To begin with, highly trained personnel are valuable. A range of specialized trained experts on medical device experts is inadequate in Brazil, and the attitude needs to change. A team of legal experts, intellectual property experts, marketing gurus and financial advisers are needed to streamline the sector(Library of Congress Country Studies,1997 Secondly, mechanisms should be put in place to identify clinical needs and direct funding to the identified needs. The expertise available to serve Brazil’s big population and its vast expanse is very limited. Therefore for a medical device company to fully benefit from the demand of medical devices there needs to be a number of well specified mechanisms to implement the targeted strategies. Furthermore, a comprehensive national approach becomes vital to be able to maximize and dominate the medical device market in Brazil.
Thirdly, increased investment both in the public and private sector should be encouraged. Structural changes should be encouraged in the health Sector in Brazil. Funding for medical device sector is limited; the politics involved in the healthcare department should be reduced if not eliminated to pave way for quicker release of funds for medical devices. A specific body dealing with medical devices should in fact be formed. This body would at least have the required expertise that expertise needed for the development of the medical device sector.
Medical devices are an expensive affair. Therefore, discussion with the Brazilian government to try and offer attractive incentives towards medical devices should be initiated. Generally a talk on reduction of taxes on medical devices is a good starting point. Incentives would most likely retain existing companies while at the same time attract new companies to invest in Brazil’s medical device market. The government of Brazil should try and be encouraged to make the incentives well known both by large and small companies alike. The incentives should be attractive enough and less cumbersome procedurally to allow medical devices companies invest in Brazil.
Maximizing profits, efficiency in operations, maintaining existing businesses and exploiting new opportunities, dealing with competition in the medical device sector and dealing with expansion related issues are all intertwined and interwoven together. One wrong move in either and a ‘Chernobyl’ kind of reaction are triggered. Proper government policies, sound business decisions and boldness become key ingredients set to bring the beautiful aroma of profits. As discussed above, these can not be achieved solely by the medical devices companies. The government of Brazil has to chip in and play a major role to ensure that the sector is well streamlined.
Whether American Companies can FDI in Brazil, will depend on the improvements discussed above being implemented. The net inflow of investment has got to achieve a management interest that will last. However, Brazil has formulated policies that are aimed at targeting increased FDI. The prime period to FDI for the medical devices sector is immediately before the market is flooded. This will ensure that the company makes significant steps ahead of its competitors. It will help the company realize profits from both the long term and short term capital. However, for full functionality, low corporate tax and infrastructure subsidies should be implemented.
Medical Devices Innovation Institute. Medical Devices Challenges and Opportunities, April 2011
<http://www.google.co.ke/url?sa=t&rct=j&q=health+industry+competitivenes+in+brazil &source=web&cd=26&ved=0CEkQFjAFOBQ&URL=http%3A%2F%2Fwww.medec.or g%2Fwebfm_send%2F1419&ei=O61VT8qLNIOEOuLSreII&usg=AFQjCNFj9TgiGqR3 XMGv0GGOa3PFb1oXbg&cad=rja>
Massachusetts Office of International Trade & Investment. Brazil Health Care System. June 2007.
<http://www.google.co.ke/url?sa=t&rct=j&q=health+industry+competitivenes+in+brazil &source=web&cd=4&ved=0CEYQFjAD&url=http%3A%2F%2Fwww.moiti.org%2Fpdf %2FBrazil%2520Health%2520Care%2520System.pdf&ei=qr5VT4ilPJHtOZf6uc4I&usg =AFQjCNGaj8O5YpVTSY 5QmiucrCDmOKjwng&cad=rja>
Irene, M et.al (Eds). Brazils Competitiveness report 2009. World Economic Forum.
Klaus Schwab. The Global Competitiveness Report 2011-2012. World Economic Forum
U.S Commercial Service. Doing Business in Brazil: 2011 Country Commercial Guide for U.S Companies.
CIA on the Internet. 2012. Central Intelligence Agency. 6 March 2012 <https://www.cia.gov/>
Library of Congress Country Studies on the Internet. 1997. 6 March 2012
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Fitchrating on the internet. 2012. 6 March 2012.
Report Buyer on the Internet. 2012. 6 March 2012. <http://www.reportbuyer.com/pharma_healthcare/medical_devices/medical_device_outlook_emerging_markets.html>
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