Entering the Brazil Wind Electricity Market

Contents Introduction 1 Product – Wind Power 1 Company Introduction 1 Brazil 2 Economic Factor 2 Political and Legal Factor 2 Technological Factor 3 Social and Culture Factor 3 Infrastructure Factor 4 Markets 4 Competitors 5 Entry Mode Selection 5 Future International Strategy 5 Conclusion 6 Word Count: 2006 6 Appendix 7 Reference 13

Introduction
The purpose of this essay is that offering the whole picture of overall business environment and its attractiveness and several negative points in Brazil by analyzing wind power, company, economic factor, political and legal factor, technological factor, social and culture factor, infrastructure factor, markets and competitors, then selecting the best mode for entering the Brazil wind power generation market and choosing the relevant future strategy.
Product – Wind Power
The wind is no pollution energy sources and it is inexhaustible. For those lack of water, lack of fuel and inaccessible coastal islands, grassland pastoral, mountainous and highlands, according to local conditions, wind power can be extraordinary fit and promising.
With the development of the global of economy, people pay more and more attention to the environment they live. As one kind of clean energy, wind power is able to meet the need of beautifying the environment. In fact, the amount of wind power reserves is incredibly huge. The global wind energy is about 2.74×109 MW, which can make use of wind energy for 2×107 MW. It’s hard to image that wind energy is 10 times larger than the total development and utilization of water energy on earth (Wind Power Generation 2013).
Company Introduction
Repower is the leading supplier of electricity in southeastern Switzerland, and it has been a pioneering force in the Swiss green power business (Repower 2013). Only in 2011, Repower sold 18.9 terawatt hours of electricity. Due to its successful business mode in Switzerland, Repower has already opened up its own foreign European markets such as France, Belgium, the UK, Sweden, Poland, Italy, Portugal and Spain as well as on promising overseas markets such as China, Canada, the USA or Australia (Repower Systems 2012).
Repower Systems SE, a Suzlon group company, is one of the most famous international manufacturers of offshore and onshore wind turbines. In addition, Repower offers client oriented solutions in the areas of wind farm engineering, service and maintenance, transport and installation as well as foundation (Repower Systems 2012).
As can be seen that international businesses are a major part of Repower’s growth strategy, it is a wise choice of using the wind turbines in the untapped South America country of Brazil.

Brazil
Economic Factor
The global crisis happened in 2008 and 2012 affected the world’s economic environment, comparing to those in advanced economies, as an emerging economy entity, Brazil suffered lower intensity from these economic disasters (Brazilian Government 2012).
By the end of 2011, Brazil had become the sixth largest economy entity in the world. Brazil’s economy is the largest in Latin American nations and the second largest in the western hemisphere (Forbes 2010). Besides, Brazil is a member of diverse economic organizations, such as Mercosur, Unasul, G8+5, G20, WTO, and the Cairns Group. Moreover, Brazil has hundreds of trade partners, with 60 percent of manufactured or semi-manufactured goods (Brazilian Government 2010). All of the above advantages illustrate that Brazil has the enormous investment potential and attraction, and the industry they mainly focus on shows the need to electricity is huge.
In Brazil, the middle class has an expansion trend, from 45.6 millions of people in 1993 to 105.5 millions of people in 2011, accounts for 55 percent of the population (Chart 1). It can be seen from the chart 2 that the unemployment rate in Brazil labour market is extremely low, only 5% in the economy crisis year of 2012. Furthermore, Brazil’s economic growth has roughly doubled over the past 10 years, increasing from 2.0-2.5% a year to almost 4% (Chart 3). ALL evidences indicate the consumption power in Brazil is strong.
Owing to wind power was allowed to join a supervisory procurement procedures held by the Brazilian Mines and Energy, the auction greatly promoted the development of wind power since 2009. In Brazil, the annual wind power capacity additions has increased from 94 MW in 2008 to 1,970.2 MW in 2012, then will drop to 1,577 MW in 2013 (Graph 1).
In terms of the ranking of foreign direct investment flows, Brazil is the 49th in 2010 and the 67th in 2011, which is not brilliant enough (Chart 4).
Political and Legal Factor
Brazil is a democracy with presidential regime, and is quite stable from the political point. Like America, executive, legislative and judicial powers are separated, which provides the similarity of political environment. Besides, so far, Brazil has never suffered any big political traumatism or war in its history. In addition, unlike the Middle East area, the relationship between Brazil and neighbouring countries is excellent. Such a stable political environment leads to domestic business development and attracts foreign capital investment.
It’s an appeal reason to the renewable energy industry that successive governments in Brazil have concentrated on the long team goal. In recent years, Brazil government implements the expansive monetary policy, solid and anti-cyclical fiscal policy and makes the Brazilian real more competitive (Chart 5) due to promoting investments and consumption (Brazilian Government 2012). For drawing foreign capital’s attention, Brazil government set up a series of relevant policies especially reducing taxes and loan deals.
In 2002, Brazil government had passed the Alternative Energy Sources Incentive Programme (PROINFA), this project aims to increase the use of alternative energy power structure diversification and promote the development of wind power industry in Brazil.
Technological Factor
Brazil is the 17th in the ranking of scientific production in the world. Comparing to America, the budget spending in science is much lower, only accounts for only 1% of the total state budget in Sao Paulo (Brazilian Government 2012). This indicates foreign companies may have comparable competition advantages in technology field to indigenous enterprises.
Social and Culture Factor
As the largest country in South America in both population and area, Brazil is a country greatly shaped by its diverse culture and geography. The culture is a thriving fusion of Portuguese, African and indigenous Indian influences, all of which have left their mark on Brazilian society resulting in a rich, distinct culture. Brazilian culture is known for its hospitality, openness and national characteristics festival (Communicaid Group 2012). Living under this kind of background, Brazilian people is easy to accept new things.
As of the latest (2012) census, the Brazilian government estimates its population at 205.7 million. From chart 6 we can see the Brazil’s population increased rapidly from approximately 1940s to 2000, and still maintained the growth trend. One thing need to be noticed is that population distribution in Brazil is very uneven. The majority of Brazilians live within 300 kilometres of the coast (mainly in the east part of Brazil), while the interior in the Amazon Basin is almost empty. Chart 7 shows the very clear density of population in Brazil, which fully comply with the above description. In terms of wind power generation of the whole region of Brazil, the Northeast part is the one which most stands out. Wind maps developed by the Brazilian Centre for Wind Energy indicate that this area has one of the best resources in the world, having good wind speed, low turbulence and uniformity (Portal Brasil 2010). As we know, doing the electricity business also needs to consider the cost of power transmission. It is almost the same place between producing and consuming the wind power generation product, which is definitely reducing the transmission cost and increasing the availability and convenience.
There are two dominating negative aspects would happen when someone involving and doing business in Brazil. One is because Brazilian families tend to be large and close- knit, their members will often be found working for the same company. This tradition makes them take relationships seriously. If foreigners do business in Brazil, it is very important to them to bribe the counterparts to tackle problems. Another is punctuality and precise plans are not common in Brazil. Maybe foreign entrepreneurs should leave sufficient time to do business with Brazilian people (Communicaid Group 2012).
Infrastructure Factor
There are three prime stimulus develop Brazil’s infrastructure construction.
Firstly, a large infrastructure plan named Growth Acceleration Programme (PAC) had been launched by Brazil government. PAC is a strategic investment programme that combines management initiatives and public works by investing US$ 875 billion in public and private investments divided into two purchase stages over 2007 to 2014 (World Bank 2012). Secondly, the demand for electricity infrastructure in Brazil is widespread. Thirdly, the 2012 World Cup and the 2016 Olympics will be held in Brazil provide two additional opportunities for promoting the Brazil’s infrastructure construction.
Markets
Renewable energy accounted for more than 85.4% of the domestically produced electricity used in Brazil (Renewable Energy 2013). In fact, hydroelectricity is counted on for more than ¾ of Brazil’s whole electricity (Environment 2013). Wind energy’s greatest potential in Brazil is during the dry season, so it is thought to be a hedge against low rainfall and the geographical spread of existing hydro resources. For diversifying Brazil’s energy portfolio, Brazil held its first wind-only energy auction in 2009, which indicates wind power generation became an emerging industry coming into Brazil market and foreign companies scrambled to involve.
Competitors
In the wind power developers in Brazil in 2011, the main competitors are Renova, Energimp, Iberdrola, Martifer, Impsa, CPFL, CHESF, Gestarnp, Enerlin, CPE, Energio, DESA, Energisa, Contour and SM/JM (Chart 8). In terms of market share, Renova took the largest part, with 11%, comparing to the second and the third leading brand of 7%, Energimp and Iberdrola. Meanwhile, the rest of each brands above have mentioned only have the percentage range from 3 to 6. One thing should be noticed is that other brands above haven’t mentioned account for 25%, which means this market still has the space to entry and is still very competitive.
Entry Mode Selection
There are five main entry modes for entering foreign markets, which are exporting, turnkey projects, licensing (Franchising), joint ventures and wholly owned subsidiary. So, which one is the best for Repower Systems SE to enter Brazil market?
From the foreign investment history of Repower Systems SE, joint ventures and wholly owned subsidiary (Foreign direct investment) are the only two entry modes. Why Repower Systems SE eliminated other three modes. To exporting, wind power is a kind of energy could not export and needed to be produced in the local country. Turns to turnkey projects, the reason why don’t choose this one is that wind power generation is a long term business in the foreign country and the technology is one of the main reason that creating competitive advantage in this industry. In terms of licensing and franchising, the product quality is vital to wind power. Unlike Starbucks or McDonald’s, wind power generation can’t take over the world in a very short time, it builds up from its technology and product quality. Hence, for ensuring the product quality, this kind of entry mode should eliminate. Comparing joint ventures with FDI, which one is much more attractive? As a typical collectivism society, Brazilian people take relationship seriously. It’s very important to have an indigenous partner in Brazil who provides the knowledge of the local market, culture, language, political systems and business systems. The wind power generation industry is the emerging one in Brazil, so the risk is as much as the opportunity. For the safety purpose investing a business in such a country, control the cost in an appropriate way is feasible. In conclusion, joint ventures will be the best way to entry the Brazil market.
Future International Strategy
It can be seen from Chart 9 that the prediction of production of wind electricity in 2019 will only account for 3.6%, while the production of hydroelectricity will be about 69.8%, so the wind electricity market can be defined as a niche market. Therefore, the future strategy Repower System SE should deploy in Brazil is multi-domestic.
Conclusion
In conclusion, investment in wind power projects in Brazil is very promising, taking into account its domestic situation and market demand, and reduce the costs and risks in order to better achieve the purpose of profit. The strategy of multi-domestic is suitable for the future market development.
Word Count: 2006

Appendix
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Chart1
Chart2

Chart3
Source: Brazil: Fair economic prospects

Chart4

Chart5

Chart6

Chart7

Chart8

Chart 9

Explanation in English Source | 2019 | Hydroelectricity | 116,699 | Wind Power Generation | 6,041 | Total | 167,078 |

Graph 1

Reference
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