Market entry strategy for management consulting companies into the Brazilian market with focus on the LEAN consulting business

Market entry strategy for management consulting companies into the Brazilian market with focus on the LEAN consulting business

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Inhaltsangabe:Introduction: Brazil is rich: rich in natural resources, rich in fertile soil, and rich in people . Although the country still shows deficits in different areas, the Brazilian market has attracted large investors and companies especially in the past decade. The country s potential has been the focus of many analysts and researchers by renowned economic institutes. After years of high inflation and slow growth especially in the eighties and early nineties Brazil was able to recover and get back into game with the other global players. From a historic perspective it is to say that the country has gone through large transition periods in the last century. Emerging from being a major coffee exporter until the early 20th century, Brazil now belongs to one of the most industrialized countries in Latin America. Although it is the largest country in the region in terms of population figures and geographical size, its GDP share in Latin America or annual growth rate offer a different conclusion. Nevertheless, the consulting market in Brazil has been growing, in particular during the last ten years. Many European and North American consulting companies have invested into the country, built branch offices and bought local firms. Although the market is still very young, its future potential has clearly been discovered. When thinking of Brazil, the words that tend to enter people s minds are positive sounding ones such as Samba, Carneval and beautiful beaches which radiate joy and energy. On the other side issues like criminality, poverty and high social inequality are often associated with Brazil as well. Either way, it is almost certain that one will have heard of Brazil. The country manifested itself in the mind of people and has made front page news more than once. Objective, relevance and research questions: The objective of the thesis is neither to conduct a market evaluation nor to point out the importance and future relevance of Brazil in the world economy. In fact this work is an empirical study on a market entry strategy which can serve as a reference for management consulting companies that want to enter the Brazilian consulting market. Furthermore, the work attempts to deliver a comprehensive picture of this market, with the intention of elaborating on whether it is wise to invest in Brazil, or whether there may be another more suitable Latin American country. Yet, the focus lies on the framework for strategy formulation and the proposals that will be made thereupon. In order to accomplish this, both a classical and an empirical approach were chosen whose outcomes will be compared to one another in the last chapter. LEAN Management is a booming term in the consulting business. Everybody wants to learn the LEAN-Thinking and apply the method to his/her own company. Since the late 1990s LEAN Management is experiencing an upward trend and the word has spread all over the globe to reach Brazil. Consequently, there is a growing demand for LEAN in this country, as evidenced by the number of consulting companies already present in the market and the excellent prospects it shows. The aim of the thesis is to propose which geographical regions and economic sectors in Brazil may yield attractive prospects for management consulting companies. The information is then used to formulate a market entry strategy for LEAN Consulting in the Brazilian market. In addition, proposals will be made and future scenarios presented to the reader which are augmented by emprircal findings. Based on the introduction and the objective of the topic giving a perspective of the situation in Brazil the following two research questions are being raised. Is the LEAN market in Brazil a suitable market for a LEAN consulting company to invest in? Which recommendations for an entry strategy can be given when entering the Brazilian LEAN market? Out of these research questions, a sub-question is derived. Can Brazil serve as an entry port to Latin America for LEAN consulting businesses? The analysis of these questions will be conducted through a theoretical as well as an empirical approach. Structure of the topic: After having presented the objective and relevance of the topic as well as the research questions, the author will introduce the structure of the thesis. Accordingly, to strengthen the arguments that will be highlighted in the conclusion, the thesis is divided into three parts. The first part consists of theoretical results selected from secondary research. Based on the theory, an empirical study is conducted, involving a group of experts who will elaborate on their personal experiences and opinions with regards to the topic. The empirical findings deduced from the study are compared with the theoretical results in order to verify, if there exist a consensus among theory and empiricism. This comparison is then used to build up the third part of the thesis the conclusion. Methodology: In order to create a solid basis for the strategy formulation chapters two and three provide a brief overview of the economic situation in Brazil in a Latin American context from the earliest settlement in the 14th century until today. Furthermore, an evaluation of the market, its productivity and its growth potential, completes the picture. Recent political changes have brought an upwind into the descending system. Since the implementation of the Real Plan in 1994 the country has experienced low inflation, trade liberalization, substantial privatization, increases in import penetration and the expansion of FDI. Thus, Brazil has reason to hope for future in prosperity. The information drawn for this section consists of secondary research, covering literature as well as various online resources and online libraries, to provide an adequate framework. The literature is primarily in English and partly in German or Portuguese language. The term LEAN Consulting is explained in detail in chapter four, in order to understand the impact and relevance of the term in this context. The literature for this part is provided by a consulting company that is working according to the LEAN principles. It consists entirely of secondary research with books and magazines as main sources. The LEAN Consulting market in Brazil has a special importance for the topic and the sources are given by the same consulting company. After having applied the theoretical framework of the thesis, chapter five provides the framework for the strategy formulation. The basis to this approach is the Five-Forces-Model by Michael E. Porter. Since the topic market entry strategy is a rather practical issue, the main part consists of empirical findings deducted from a Delphi Study. It is based on expert interviews that were held with a group of initially nine experts from the consulting business in two stages. In the first stage, these experts were confronted with two questionnaires consisting of open and closed questions which they had to answer based on their personal experience and opinion. The questionnaire in the second round was based on the summarized answers of the first one, raising new thoughts to the topic. The questionnaires were submitted in German, since all of the participants were either native German speakers or had sufficient knowledge of the German language to understand the questions. The aim of this Delphi Study was to gain opinions and experiences that can neither be found in books nor in any other relevant literature. Usually, Delphi Studies are used for business forecasting. The author receives new viewpoints that are based on personal experience of the experts by living in Brazil and working in the consulting business during the last decades. The last part of the thesis draws the conclusion, comparing the classical market entry approach to the empirical findings of the Delphi Study. This then gives a profound basis for constructing strategic recommendations and provides a future outlook. It is interesting to see how the experts of the Delphi Study view the future prospect of the consulting business in the country and what should be done to boost economic growth in this area. The thesis concludes by summarizing all important findings under consideration of the background layed out in the first part of the thesis. Inhaltsverzeichnis:Table of Contents: ABSTRACT IN ENGLISH LANGUAGEIII ABSTRACT AUF DEUTSCHIV 1.INTRODUCTION1 1.1OBJECTIVE, RELEVANCE AND RESEARCH QUESTIONS1 1.2STRUCTURE OF THE TOPIC2 1.3METHODOLOGY5 2.ECONOMIC OVERVIEW AND BACKGROUND OF BRAZIL7 2.1MERCOSUR7 2.1.1History8 2.1.2Foundation8 2.1.3Economic role of the Mercosur9 2.2THE COUNTRY BRAZIL10 2.2.1Political and economic history11 2.2.2Economic environment13 2.2.3Political environment14 2.2.4Macroeconomic data15 2.2.5Social inequality17 2.2.6Level of corruption and governance indicators19 3.MARKET EVALUATION22 3.1THE THREE-SECTOR-THEORY OF BRAZIL22 3.2PRODUCTIVITY24 3.3POTENTIAL MARKETS FOR MANAGEMENT CONSULTING COMPANIES25 3.3.1Major Brazilian companies26 3.3.2Strongest regions in Brazil31 3.3.3Most promising branches34 3.4CONCLUSION35 4.LEAN CONSULTING37 4.1DEFINITION AND PHILOSOPHY OF LEAN37 4.2TYPICAL PRACTICES APPLIED39 4.3DIFFERENCES OF LEAN MANAGEMENT TOWARDS OTHER METHODS42 4.4MANAGEMENT CONSULTING COMPANIES IN BRAZIL44 4.4.1LEAN consulting companies in Brazil45 4.4.2The IBCO47 4.5REASONS TO CHOOSE AN EXTERNAL CONSULTANCY47 4.5.1Criteria to choose consulting services48 4.5.2Average consulting fees48 4.6CONCLUSION49 5.MARKET ENTRY STRATEGY51 5.1OVERVIEW OF THE CLASSICAL MARKET ENTRY STRATEGY51 5.1.1Methods for market entry52 agreements53 Venture54 5.1.2Influencing factors for the entry mode decision55 5.1.3Special characteristics of services56 5.2MARKET ENTRY STRATEGY INTO THE LEAN CONSULTING MARKET57 5.2.1Competition57 5.2.2Opportunities and threats62 5.2.3Framework for strategy formulation64 communication65 the business66 foreign workers67 a credit69 constraints70 5.2.4The Delphi Study71 to choose the Delphi method73 to the Delphi method74 round76 round78 summary of most important findings81 6.CONCLUSION83 6.1FINAL RESULTS AND RECOMMENDATIONS83 6.2DIRECT COMPARISON OF THEORY AND EMPIRICISM86 6.3FUTURE OUTLOOK88 6.4PROSPECT FOR FURTHER RESEARCH90 7.BIBLIOGRAPHY91 7.1BOOKS91 7.2ARTICLES/PUBLICATIONS92 7.3WEBSOURCES94 7.4FURTHER READING AND EXPERTS97 8.APPENDIX98 8.1DELPHI STUDY - SUMMARY OF FIRST ROUND98 8.2DELPHI STUDY - SUMMARY OF SECOND ROUND101 8.3CONCRETE STEPS FOR STARTING A BUSINESS IN BRAZIL105 8.4PAYING TAXES IN BRAZIL107 Textprobe:Text Sample: Chapter 3, Market Evaluation: Today s marketplace is very competitive. In order to successfully place a company or a product in a new market its potential needs to be assessed first. The market evaluation uses information given about the market and helps to determine feasibility of a potential market and the competitive landscape. The aim is to compare different regions and sectors to find the strongest opportunities. This will reveal a strategic roadmap to the market entry. The Brazilian market has an enormous potential and growth is foreseen in the country for the next years. This chapter will provide an overview of the regions and branches in Brazil, pointing out the ones with the highest capability to be the future market for a management consulting company. The industrial sector is the most important one in this country and the focus of the strategy will lie on the branches present in this sector. A market segmentation presenting the biggest companies measured by revenue will provide the benchmark for potential growth and allows us to focus on prospective customers. The three-sector-theory of Brazil: According to the three-sector-theory , developed by Jean FourastiAc, the economy can be categorised into three different sectors of economic activity: the agricultural sector the primary sector (commodity producing sector), the industry sector the secondary sector (or goods-producing sector), and the service sector the tertiary sector (or non-goods producing sector). The aim of this theory was to explain the transition from the agricultural to the industrial society and later on to the post-industrial service society in the 20th century. It is assumed that the three sectors have different opportunities to adapt to technological progress. Through the application of new technical procedures, the productivity in the primary and secondary sector increases while, at the same time, less manpower is needed and also the demand for these goods decreases with increased productivity. The excess manpower and demand, in turn, will be absorbed by the tertiary sector. The problem is that this theory assumes no influence by outside factors and therefore cannot be applied to any economy without precaution. In 2006, the agricultural sector accounted for 36% of the GDP worldwide, the industry sector for 22% and the service sector for 42%. In Brazil the distribution in the same year is considerably different, with the agricultural sector accounting for 5.5%, yielding coffee, soybeans, wheat and rice as the main products. The industry accounts for 28.7%, with its main products being textiles, shoes, chemicals, cement and iron ore. The services sector makes up 65.8% of total output. The GDP growth rate by sector in the years from 1997 to 2007 has been subject to fluctuation especially in the agricultural but also in the industry sector. The service sector has been rather stable during this period. The three-sector-theory is based on the assumption of above-average growth of demand and below-average growing productivity in the tertiary sector. The current situation in Brazil and in the global context shows a strong tertiary sector, followed by the secondary and the primary sector. This supports the three-sector-theory of the shift: agriculture g industry g service sector. Although the service sector is the strongest sector in the economy, both by total GDP and by year-over-year growth rate, it is a non-good producing sector, which makes it uninteresting for a management consulting company as they are concentrating on the industrial sector where production takes place. The theory does not explicitly state the distribution of the different branches among the three sectors. Therefore it can be assumed that some branches that are interesting for the strategy could be assigned to the service sector, although in the following this sector will not be elaborated on. The importance of the industrial sector has been fully recognized by the development studies all over the world. The industrial sector through its linkages with other sectors plays a very important role in achieving rapid growth and development. Most modern and rich countries have a well developed industrial sector through their early industrial revolution. It is the most important driver of the economy and apart from the service sector the non-goods producing industry it constitutes the biggest sector and generates the largest profit share out of all. During the last years the industrial production in Brazil was subject to many changes due to the slow growth of the economy. The country has set up an agenda to become a competitive economy that is able to provide qualified goods in sufficient quantity and to create a greater number of high skilled jobs. Brazil is on its way to transform into an economy that is included in the knowledge society and recognized as one of the main platforms for the industry worldwide. Productivity: The level of productivity is a crucial part in the context of this thesis. It indicates the general market growth and its potential for the future. Since management consulting companies will focus on the industry it is important to know, if there is a need to enhance productivity. If so, then this need would likely translate into higher investments in this area and a greater demand for support services from the consulting industry. The level of labour productivity is the primary determinant on the nation s GDP per capita growth. Brazil s weak economic growth is due to the relatively slow increase of labour productivity. The latest performance study, conducted by the Conference Board, shows a labour productivity growth rate of 1.9% in 2007. Compared to the other BRIC countries, this is the poorest rate. Russia, India and China showed a much better performance with 6.3%, 6.7% and 9.8%, respectively. This can be ascribed to transitional reallocations of employees by large companies into emerging markets that consequently foster productivity growth in the respective country. Especially India and China play a determining role in this context, since wages in these countries are notably lower than in Brazil and also in Russia, hence companies are more likely to turn to the Asian countries to make new investments that lead to job creation. According to a study on barriers to growth in the Brazilian economy, conducted by McKinsey s SApo Paulo office in 2005, there are two major root causes that lead to the relatively slower productivity growth. The first one refers to the modest per capita income, which promotes consumption of the lower-priced products and services. An example is the automotive industry, which produces primarily small and inexpensive cars. For the higher-priced vehicle section it relies on imports from other countries. The second cause is related to the first one labour is cheaper than capital which inhibits investment in new machinery that, in turn, would improve productivity levels. These barriers, however, will naturally fade once the government is able to resolve the social and economic problems by a policy shift. Labour and tax laws, price controls, product regulations, trade barriers and subsidies, among others, are present obstacles that limit productivity. Also, the unemployment rate, the level of inequality, the state of the educational system, are all factors that influence productivity levels and play a role in the performance studies. Potential markets for management consulting companies: After having identified the target sector and the level of productivity in the country, the next important step to defining a suitable market entry strategy is to determine specific markets in Brazil that yield the best prospects. Three different variables will influence the decision-making. These are the major Brazilian companies, the strongest regions and the most promising branches that are interesting for a management consulting company. Consequently, this will then lead to the establishment of the target branches as well as companies for LEAN business in Brazil and serve as a basis to formulate the entry strategy.customer service, improved cash flow and enhanced profitabilitya┬Ç┬Ł (QAD, 2005, p. 6). ... Those six strategies embody sample solutions for the most important internal tasks of the organisation. Figure 21 ... However, for the sake of answering the research questions of this thesis other topics also need to be considered.

Title:Market entry strategy for management consulting companies into the Brazilian market with focus on the LEAN consulting business
Author:Kristina Erikson - 2009-06-10


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