Pizza Hut In Brazil Essay

2122 words - 8 pages

Pizza Hut in Brazil

Starting a business in a new country requires a lot of research. It is important to understand that country's political and economic system as well as cultural values. To establish business in Brazil, Pizza Hut had to study the complex history of Brazilian economy and politics.

It is important to remember that Brazil was a dictatorship for 20 years, from 1964 until 1984.1 During this period it was impossible to implement any kind of foreign business in Brazilian soil. After the authoritarian regime was over, Brazil had its first election in 1984. However, it was not democratic. The only ones allowed to vote were political leaders. It was a big step towards democracy, though. The elected president (Tancredo Neves) passed away right after election. His vice-president became the leader and ruled for four years. It was in 1988 that Pizza Hut implemented its first restaurant in Brazil. The economy was beginning to open up. It was only in 1990 that Brazil had its first democratic elections. In 1994 Fernando Henrique Cardoso was elected president. This president had been the minister of finance for the former government and he performed "miracles" in the Brazilian economy.

Brazil's economy has a lot of potential. Throughout Brazilian economic history, the government has had an economic policy based on import substitution and it was also trying to switch from agriculture to industry. To insentivate domestic industry, the government established protective tariffs and import quotas. Most of the enterprises were owned by State such as: steel, oil, infrastructure, and others. These firms also received subsidize "long-term credit expand." For these reasons it had been difficult to establish ventures in Brazil.

During the 60s and 70s the economy began to heat up and inflation began to rise reaching an average of 20% a year. Consequently, the government tried to slow down inflation by raising interest rates. However, "the large concentration of industrial power resulted in price inflexibility." The prices were high above costs. "Due to the protection, foreign trade remained a small percentage of the GDP."

In 1973 the first oil shock caused some problems for Brazil. Even though Brazil is very rich in natural resources, it depends on imported oil. The government had to borrow money, but 50% of foreign debt was done by state owned enterprises. By the end of 1970's inflation had risen to an average of 40% a year. Private sector began to show their discontentment with the "favoritism received by state owned enterprises."8 In 1979 the second oil shock caused interest rates to rise on foreign debt. In 1981 Brazil had recession, devaluation of the currency, rising interest rates, real wage reduction and a widening federal deficit. At this point Brazil was not very attractive for foreign investors.

From 1985 through 1990 the government "focused on foreign debt, inflation, and exchange rate policies." Over the 1980s, Real per...

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