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Tutorial Date & Time: Thursday, 12 – 1pm Date: 2nd September 2018 Word Count: 1630 BSD119 TP2/2018

Market Potential for Argentina and Brazil For UNIQLO Assessment 2: Country Analysis Report 2018

TABLE OF CONTENTS 1.0 Introduction..............................................................................1 2.0 Socio - Economic Environment............................................1 2.1 Macroeconomic Environment............................................1 2.1.1 Economic Performance.............................................1 2.1.2 Economic Stability......................................................2 2.2 Population Distribution..................................................3 2.2.1 Income.........................................................................3 2.2.2 Location.......................................................................4 3.0 Political - Legal Environment...............................................5 3.1 Political System.............................................................5 3.2 Political Risks.................................................................6 4.0 Business Environment...........................................................7 4.1 Ease of Doing Business...............................................7 4.2 Market Potential.............................................................8 5.0 Analysis....................................................................................9 6.0 Recommendation.................................................................10 7.0 References............................................................................11

1.0

Introduction

Uniqlo is a Japanese owned apparel company that offers causal clothing’s and accessories for women, men and children. This firm being very successful in Japan has become an international brand in countries such as Australia, UK and more (Uniqlo, 2018). The company is now looking to expand their business to two countries; Argentina or Brazil. This report will analyze potential market in Argentina and Brazil, investigating the socio – economic, political and business environments for set – up of UNIQLO in either two countries in South America.

2.0 Socio - Economic Environment To establish an appropriate market, Marco – factors are essential for the competence in a large economic scale. The overview of the country’s economy, GDP growth rate, inflation and disposal income demonstrations opportunity for each market (Hill, Hult & Wickramasekera, 2016).

2.1 Macroeconomic Environment 2.1.1 Economic Performance % of Change in GDP per annum for Argentina and Brazil 4

Percentage (%)

3 2 1 0 2014 -1

2015

2016

2017

2018

2019

2020

2021

2022

-2 -3 -4

Years Argentina

Brazil

Figure 1: % Change in GDP per annum in Argentina and Brazil. Source: EIU 2018

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2023

Figure 1 illustrates the annual rate of comparative growth in Argentina and Brazil from 2014 - 2023. Argentina had as unstable growth from 2014 to 2015, mainly caused by high inflation rates and negative trade and investments. By 2016 the government took over putting policies and changes. In 2018 there seems to be steady growth, GDP rose by 2.5% by more investments (The World Bank, 2018). However, it would be difficult for competitions such has high trade barriers. On the other hand, Brazil’s GDP decreased in 2014 – 2015, due to political crisis. There was a rapid growth by 2016 that rose by 1.0% each year, as a result to stronger bond with exporters, improving labor market and low interest rates. Small changes in the GDP Growth forecast which is stable for each country (Global Competitive Index, 2018). These developing countries have a slow pace in the economic growth, the profitability for businesses are more likely to be successful in Brazil.

2.1.2 Economic Stability % of Change in Inflation and Consumer Price Index For Argentina and Brazil 45 40 % Change of CPI

35 30 25 20 15 10 5 0 2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

Years ARGENTINA

BRAZIL

Figure 2: % Change in Inflation and CPI (period Average). Source: EIU 2018

Figure 2 shows the percentage change of inflation using the consumer price index. The inflation rate for Argentina notably fluctuated due to expansion of fiscal policies to recover from the economic recovery meaning high costs for importing and exporting. Argentina’s unemployment rate in 2017 was at 8.3%

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which will fall in 2018 to 7.7%, it should fall as the economy improves while Brazil’s unemployment rate in 2017 was 13.3%, 2018 rates will fall to 12.3% (EIU, 2018). Brazil’s inflation rate is quite steady with in the 10%, low inflation rate encourages consumers in spending whereas, high inflation rate negatively impacts the economy increasing prices, lowers demand (Passport, 2018)

2.2 Population Distribution 2.2.1 Income Real Personal Disposable Income (% change pa) for Argentina and Brazil 5 4

Percentage (%)

3 2 1 0 2014 -1

2015

2016

2017

2018

2019

2020

2021

2022

2023

-2 -3 -4 -5

Years Argentina

Brazil

Figure 3: Real Personal Disposable Income for Argentina and Brazil. Source: EIU 2018

The graph above displays the household disposable income. Argentina’s disposable income fluctuates significantly at the rate of 3.8% increasing due to rise in consumer spending (EIU, 2018). However, Brazil had a decline in 2014 – 2016, 2016 and onwards there can be seen an increase, which can be from less tax, increase wage (EIU, 2018). Also noting the GDP per capita for Argentina is US $12,502.80 and Brazil’s is US $8726.90 (The World Bank, 2018). While Brazil has a lower GDP per capita than Argentina, the country has a more stable disposable income.

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2.2.2 Location Population distribution is vital as the concentration of the country’s population has cost benefits. Urban lifestyle has greater demand for goods and services due to higher levels of income than rural residents. The urban population in Argentina is 40,742639 million people in 2017 which is increase on an average of 2% each year. Compared to Brazil it is increasing by an average of 3% per year with a total of 180,347,895 million people in 2017 (The World Bank, 2018). The number of household is rising due to population growth, meaning consumer will be more willing to spend.

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2.0

Political - Legal Environment

Considering the political factors is important to establish a decision when entering a potential market (Hill, Hult & Wickramasekera, 2016).

3.1 Political System Argentina is a federal democratic republic. The country has a high corruption rate with rising levels of debt put the country at a complicated situation with increasing expenditure, such as former president faces charges in embezzlement. In 2016 the government taking over placing polices eliminating and repayments for overhead costs and restrictions and high trade barrier, tourism is the biggest earner in foreign trade as many luxury brands abandoned the market (Passport, 2018). Brazil is federal republic based on parliamentary democrat that gives most power to the government. The largest country in south America being one of the dangerous places. Brazil’s judicial system is dysfunctional and corrupted. The country runs on a surplus budget and it is forecasted that in 80 years Brazil will hit the worst recession, the government has passed law and policies to help stability the country (Passport, 2018).

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3.2 Political Risks Corruption Perception Index of Argentina and Brazil

Scoore of Out 100

50 45 40 35 30 25 20 15 10 5 0 2012

2013

2014

2015

2016

2017

Years Argentina

Brazil

Figure 4: Corruption Perception Index for Argentina and Brazil. Source: Transparency International 2018.

The graph above presents the corruption rate in Argentina and Brazil. The level of corruption should be investigated in the risk of the host country. The global corruption perception index 2017 for Argentina was 39% and increasing, compared to Brazil’s score of 37% which is declining (Transparency International, 2018). Hence, the Brazil’s government is more aware of corruption, benefiting business in the market. Both level is sufficiently controllable, this does impact the inflation rate as in reduce borrowing, legal system, foreign trade protection and government stability for low expense. Both countries have bribery and corruption with governance shortcoming, however there can be seen improvement and development for the future forecast (Passport, 2018)

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4.0 Business Environment The business environment is fundamental to determine the understandability of potential opportunity and threats entering into the country. (Hill, Hult & Wickramasekera, 2016).

4.1 Ease of Doing Business According to The World Bank Annual report 2018 measures business regulations and legalization between Argentina and Brazil from the data collected in 2018. Brazil is considerably more beneficial in doing business in relation to business operation set up and complying to pay less tax. As products are taxed on arrival, as less tax cost will improve profits (Marketline, 2018). Argentina’s business operations are similar, yet, the total tax on profit is lower than Brazil, other costs would still be high. This affects expenditures in retailing. In 2018, the overall ranking for Argentina was ranked 117th and Brazil 125th (The World Bank, 2018). Table 1 indicates relevant data to starting a business in Argentina and Brazil. Ease of Doing Business Rank Between Argentina and Brazil 2018

Overall Starting a Business Trading Across Borders Paying Tax - Payments (number per year) - Total tax and Contribution rate (% of profit) Registering Property

Argentina

Brazil

117 157 116 169 9 106 117

125 176 139 184 10 68 131

Table 1: Ease of doing Business in Argentina and Brazil. Source: The World Bank 2018

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4.2 Market Potential Retail Value for Apparel Market in Argentina and Brazil at Current Prices 45 40 35 30 25 20 15 10 5 0

2014

2015

2016

2017

2018

Argentina

2019

2020

2021

2022

Brazil

Figure 5: Retail Value for Apparel Market in Argentina and Brazil. Source: GMID Passport 2018.

This graph shows the retail value for apparel market in Argentina and Brazil. In Argentina the market for apparel wear is very low at an average of 10 million per year, however by 2019 the apparel market is expected to grow which the forecast in 2022 is US $28 Million (Passport, 2018). Sales are low which are a result of loss of purchase power, high inflation rates. In Contrast to Brazil, in 2014 retail value of apparel was the highest at US $39 Million, but since then there has been a significant decline in the retail value. There is a positive growth due to improved economic situations This is related to the household income in both countries, it should also be noted that the population of Brazil is greater than Argentina (Marketline, 2018).

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5.0 Analysis Argentina and Brazil are both different countries with varies advantages and disadvantages to Uniqlo as an international. The economic position is highly weighted on the macro – economic variables that give an insight to market stability and local consumption. While, Argentina and Brazil illustrate growth over time, higher inflation and unemployment create a risk for Uniqlo and the goods. The GDP for Brazil is better compared Argentina and it is predicted that the future growth is more consistent, as well as a low inflation and unemployment rate considering an increase in consumer income and spending. Brazil has a lower score than Argentina, thus presenting a more socio – economic stability for company. The political stability was the smallest ranking as neither Argentina and Brazil had different political situation as they face the similar social issues but remaining steady. Given that Argentina had slightly better political situation and effects in economic indicators; inflation and unemployment, the country would be ranked lower than Brazil. Nevertheless, this suggests that Brazil would be a better choice for Uniqlo in the marketplace. The business environment determines Uniqlo performance in operating in Argentina or Brazil. The ease of doing business in a foreign country is crucial considering opening an international company, changes in can impact or ease doing business in another country. Overall ranking Brazil would be the preferred option for Uniqlo as it is easier to start – up a company and taxations are lower than Argentina. The market potential in Brazil is higher than Argentina for the retail value for apparel market.

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6.0 Recommendation Based on the findings and data analysis comparing Argentina and Brazil for a better country for Uniqlo. Brazil represents itself as a more beneficial market for Uniqlo. Although Argentina has some strengths for the potential apparel market, the economic, political and business environment makes Brazil a more favorable opportunity. Uniqlo should take advantage of the country’s trading and good marketing strategies, with good growth in disposable income, urban living is some positive factors in high quality causal apparel wear for an improving market.

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7.0 References Euromonitor International. (2018). Argentina: Country Data. Retrieved from https://eiu-bvdinfo-com.ezp01.library.qut.edu.au/version201886/eiucountrydata/1/Series/AnalyticsTable/CreateAnalyticsTableData Euromonitor International. (2018). Brazil: Country Data. Retrieved from https://eiu-bvdinfo-com.ezp01.library.qut.edu.au/version201886/eiucountrydata/1/Series/AnalyticsTable/CreateAnalyticsTableData Global Competitiveness Index. (2018). Country/Economy Profiles: Argentina. Retrieved From http://reports.weforum.org/global-competitiveness-index2017-2018/countryeconomy-profiles/#economy=ARG Global Competitiveness Index. (2018). Country/Economy Profiles: Brazil. Retrieved From http://reports.weforum.org/global-competitiveness-index2017-2018/countryeconomy-profiles/#economy=BRA   % # & # # ## DB  D E>,6# !   #  $    C  $            B  "&'()+$  $#   % # & # # ## DB  D E>,6# !   Hill, C., Hult, T., & Wickramasekera, R. (2016). Global Business Today (4th ed., p. 320). North Ryde: McGraw-Hill Education. MarketLine. (2018a). PESTLE Country Analysis Report: Argentina. Retrieved From https://advantage-marketline-com.ezp01.library.qut.edu.au/Product? ptype=Countries&pid=MLER0014CNTRYOUTLK MarketLine. (2018a). PESTLE Country Analysis Report: Brazil. Retrieved From https://advantage-marketline-com.ezp01.library.qut.edu.au/Product? ptype=Countries&pid=MLER0020CNTRYOUTLK Passport. (2018). Apparel and Footwear in Argentina. Retrieved from http://www.portal.euromonitor.com.ezp01.library.qut.edu.au/portal/analysis/ tab

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Passport. (2018). Apparel and Footwear in Brazil. Retrieved from http://www.portal.euromonitor.com.ezp01.library.qut.edu.au/portal/analysis/ tab Passport. (2018). Country Profile in Argentina. Retrieved from http://www.portal.euromonitor.com.ezp01.library.qut.edu.au/portal/analysis/ tab - top Passport. (2018). Country Profile in Brazil. Retrieved from http://www.portal.euromonitor.com.ezp01.library.qut.edu.au/portal/analysis/ tab Transparency International (2018) Argentina: Corruption Perception Index. Retrieved from: https://www.transparency.org/news/feature/corruption_perceptions_index _2017#table Transparency International (2018) Brazil: Corruption Perception Index. Retrieved from: https://www.transparency.org/news/feature/corruption_perceptions_index _2017#table The World Bank. (2018). Doing Business in Argentina. Retrieved from http://www.doingbusiness.org/data/exploreeconomies/argentina#startinga-business The World Bank. (2018). Doing Business in Brazil. Retrieved from http://www.doingbusiness.org/data/exploreeconomies/brazil#starting-abusiness UNIQLO, FAST RETAILING CAREER OPPORTUNITIES. (2018). Retrieved from https://www.fastretailing.com/employment/en/uniqlo/business.html

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