Brand Country Market Assessment and
Analysis
Juliette Kenny
Justyna Kuczaj
Allison Iciek
Benedikt Ibing
Andrew Gallo
Evan Taylor
February 14, 2005
Brazil (1st) (6.71)
Brazil is an extremely appealing market for many more reasons than its mere size. The
domestic economy outgrows that of all other Latin American countries combined. With
184 million inhabitants, Brazil certainly represents the largest possible customer base out
of all the countries under consideration. Followed by Mexico with 105 million people,
Brazil still holds a major advantage over Mexico in that only 22% of its population lives
in poverty compared to a daunting 40% in Mexico. This is extremely significant for
selling toothpaste since those in total poverty will not regard brushing their teeth as a top
priority if they do it at all. Compared to Brazil, the potential Mexican consumers are thus
less than half. In addition, a market with less poverty of such size as Brazil’s allows for
more SKUs and better profit margins overall.
While the GDP is virtually not changing in Brazil, the economy has stabilized
substantially over the last three years according to the CIA World Fact Book of 2004.
Inflation is an overall issue that must be closely monitored in the future. A 14% inflation
rate can be a burden on the pricing structure and the actual customer over time and its
development will be crucial to building a stable customer base.
Brazil’s population is largely urban with almost 80% and is thus relatively easy to reach
by conventional distribution methods while also showing a stable growth at 1.11%
annually. Interestingly enough, the segmentation of the population for determining SKUs
is relatively clear and promising. More than 25% of all Brazilians are younger than 15
years of age, while 65% fall into the group of those between 15 and 65 years. This makes
it extremely attractive to market several SKUs to children and at the same time
aggressively market to families as a whole.
The market for toothpaste in Brazil is by far the largest in South America, being more
than double the size of the second largest, Mexico, and totaling $405 million this year.
While the growth rate is not the best of all, the actual nominal increase of almost $100
million last year represents the largest leap and certainly leaves plenty of room for new
entrants and provides ample market to be divided up freshly. The market is also almost
evenly divided amongst five major players, which speaks for a somewhat segmented
industry that is not dominated by one major player. This fact makes the Brazilian market
somewhat more attractive for an entry because one can grab market share from several
competitors rather than being up against one giant in the marketplace.
Shipping costs from the US plant are not optimal, however they represent a standard of
$.03 per medium sized unit based on 20’ containers. This value is representative for all
other countries as well except for Mexico. Because Brazil does not have a free trade
agreement with the United States, the tariffs are the second highest within the Latin
American Market at 21% of CIF. However, a Latin American plant in Chile, Argentina or
Brazil itself will reduce this to 0% within one period.
The channels of distribution are pretty clear because a total of 50% shop in traditional
retail outlets such as the corner store and almost 40% buy their toothpaste in
Hypermarkets. It will thus be relatively clear to target the traditional outlets with sales
people probably mostly through wholesalers while the Hypermarkets can be serviced
directly, leaving a much higher profit margin for All Star Brands. The Hypermarket
sector of retail is also growing at a steady and strong 10% annually, which makes these
strategic partners in the game. The percentage of direct sales to these outlets is a strong
63%, a number that All Star Brands is planning to maximize over time to ensure a highly
profitable trade through these mass marketers.
The cost of sales personnel is about average in Brazil and no reason for concern because
the country after all is almost as large as the United States. The sheer size and population
of the country also explain the higher advertising costs as well as the high budgets of
competitors for promotion and sales force.
In the overall rating that can be seen in the appendix, Brazil comes out as the winner
considering all factors that we have found important and their respective weights. We are
very confident that our assessment is to the best of knowledge and thus follow the result
of the spreadsheet as well as the above analysis and will enter the Brazilian market first
as a strong platform to generate sustainable future profits and serve as launch pad for new
market entries.
Essential to the successful development of a market presence in Latin America is a solid
understanding of country dynamics. Mexico is deserving of extensive consideration for
possible introduction of Allstar Brand’s Allsmile. Despite lingering structural problems,
Mexico boasts the second largest GDP in Latin America, trailing behind Brazil’s 36%
rating by a mere 10 percentage points. This statistic, combined with Mexico’s hefty
population of 109 million inhabitants, suggests that Mexico may be worthy of future
economic investment. Emphasis on the development of a free market economy and the
recent strengthening of relationships with both the United States and Canada indicate
Mexico’s desire to improve its domestic situation and become more of a global
competitor. Mexico has further demonstrated a willingness to extend its interest overseas
through the completion of trade agreements with the European Union and Israel.
Mexico (2nd) (6.65)
Most noteworthy is Mexico’s active participation in trade agreements with the United
States and Canada. In early 1994, Mexico entered into the North American Free Trade
Agreement, otherwise known as NAFTA, with the two aforementioned nations. The
agreement was designed to reduce, and eventually eliminate, tariffs within a 15 year
period. Since NAFTA’s ratification, Mexico has witnessed and taken advantage of the
opening of several trade opportunities. The agreement has commanded attention from
numerous foreign investors who view duty-free access to Mexico’s market and the
country’s low cost of labor as key points of attraction. In regards to labor costs, the
average salesperson in Mexico receives the equivalent of $24.80, relative to the $35.70 in
Argentina, $35.10 in Chile, and $28.80 received in Brazil. An additional incentive for
investment includes Mexico’s offering of up 100% reduction of import duties on
manufacturing equipment to foreign companies seeking to build manufacturing facilities.
Although plants must be built in government-designated areas, the possibility of 100%
import duty reduction is very appealing to a firm such as ours. Any reduction in the
financial cost of expanding into a new market is viewed positively.
Despite the interest Mexico’s low-cost of labor creates amongst multi-national firms, the
nation’s employment levels are in need of adjustment. With 40% of the country’s
population living in poverty, inhabitants are struggling to find and hold onto adequate
sources of income. At present, unemployment is 3.3%. Although this figure is not
alarmingly high, the percentage of individuals characterized as “underemployed”, a
reported 25%, is a major cause for concern. Closely related is Mexico’s distribution of
income, which can be described as disproportionate at best. According to reports, 55% of
income is allocated amongst the top 20% of income earners. Such unequal distribution
and the lack of valuable employment opportunities raise several questions. In particular,
would the Mexican population view a product such as toothpaste as a necessity or as a
luxury item? How much appeal would the benefits of disease prevention and whiteness
have?
Today, Mexico possesses the second largest toothpaste market in South America, with
Brazil holding the position of market leader. Total toothpaste sales in Mexico reached
$182 million this past year. In addition, two key players can be identified as contributing
to Mexico’s manufacturing sales of over $188. These include Caremore and Driscol, who
captured respective market shares of $22.8 million and $38.1 million this year. Local
toothpaste providers accounted for the remaining share of the market. Given the limited
number of major players, if we were to pursue market entry, the competitive situation
appears to be one we could easily capitalize on.
Mexico’s current state does not warrant immediate market entry. However, there are
several elements which, if monitored, may entice our firm to conduct business within the
country’s borders. Of particular interest is the low-labor cost, the possibility of a
reduction in import duties on manufacturing equipment, and the lack of a threatening
competitive environment. Mexico’s keen interest in developing its free market economy
is also admirable. In addition, 74% of Mexico’s population is classified as “urban”. This
predominant classification may facilitate the creation of brand awareness and overall
product promotion. Also demanding further investigation are Mexico’s projected 20%
growth of hypermarkets and projected 10% growth of traditional outlets as means of
toothpaste distribution. The availability of toothpaste channels is definitely an attractive
feature of the Mexican market. As an organization, it is critical that we continue to
monitor the above elements and observe any changes that may increase Mexico’s
standing as a potential candidate for market entry.
Chile (3rd) (6.11)
Chile has ranked third in our Country Attractiveness Analysis, having only 0.6 points less
than Brazil. There were only few factors that made us decide to enter Brazil instead of
Chile. One of the most important ones was population. Chile has the smallest population
among the six Latin American countries that we were considering – only 15.8 millions
which is almost twelve times smaller than Brazil’s population. Moreover, it has a very
small population growth – only 1.01%. Chile also has the third smallest GDP - $155
billions – which is about 9 times smaller than Brazil’s GDP. Only these three statistics
indicate that our sales in this country would not be as large as in Brazil.
Furthermore, local and regional competitors together already have about 88% of the
market share. Therefore, establishing our foreign toothpaste brand in this market would
be very hard and would also require significant amount of investment in advertising and
promotion. In comparison, in Brazil, local and regional competitors have only about 42%
of the market share. Also, average salesperson costs in Chile, such as salaries,
commissions, expenses, hiring and training, are the highest in Latin America. This would
add additional unnecessary costs to our business.
However, Chile has many advantages which caused that it scored very high in our
analysis. One of the advantages is that it only has 21% of population below the poverty
line. It also has the highest retail toothpaste sales per capita among the six countries. Just
these two factors make Chile a very attractive market for high-end products which we
might offer in order to increase our profit margin.
Moreover, Chile has no tariffs, duties or fees from U.S., Argentina and Brazil plants and
very small ones from other countries. International shipping rates per unit are also one of
the smallest. Additionally, costs of advertising and promotion in Chile are the lowest in
Latin America and we already have an access to prepared Spanish ads. The above factors
would definitely help in decreasing costs of distribution and increasing our brand
awareness in this country.
In conclusion, our company believes that Chile is a country definitely worth entering.
However, because of a few factors, such as a very small population and GDP, large
market share taken by local and regional firms and some of the high operating costs, we
decided to enter Brazil. Nevertheless, we are currently considering opening a plant in
Chile due to low tariffs, duties and fees to the Brazilian market.
Argentina (4th) (4.23)
Argentina has a population that is highly literate (97.1%), located primarily in urban
areas and a size that falls in the middle of the six other countries being considered.
Argentina proves to be beneficial to any manufacturer looking to build a factory here
since there is an abundance of educated people in or near areas best suited for a factory.
The greater the population (and more centrally located), the more potential workers there
are. 63.6% of the Argentinean population is between the ages of 15 and 64 thus providing
stronger and more mature potential employees. The labor force is at 14.92 million which
provides plenty of potential factory workers. It also shows the amount of the population
bring in an income and being able to use that money to purchase toothpaste. Since the
vast majority of the population is literate, workers would learn the trade is a fast and
accurate manner thus taking away from time lost with employee training.
Economically, Argentina is very strong. The highest Gross Domestic Product (GDP) of
the six countries coupled with the lowest poverty rate makes the country shine brightly.
The real growth rate of the GDP is at 8.7% which adds to the already decent purchasing
power parity of $11,200. Factors such as inflation, debt and economic flight have plagued
the country in the past and can possibly reoccur in the near future. More than 50% of the
population is below the poverty line; even though it is the lowest amount out of the seven
countries, it is still a significant amount that cannot be overlooked. Argentina has an
external debt of $145.6 billion and only $10 billion worth of economic aid coming in
annually. This could pose a threat if economic conditions do not continue to improve for
Argentina. For the time being, Argentina has a positive economic structure, but a close
eye must be kept on it since the economic conditions of the past may resurface at any
given time.
Shipping costs are not at an optimal rate but are at the same level as five of the six other
countries. This has the potential for making Argentina not the ideal place for building a
factory even though they have a great selection of possible workers. Tariffs are going to
be extremely high when shipping from Argentina though it can be reduced throughout the
years.
Overall, Argentina poses to be a good option for building a factory, but it still possesses
unfavorable aspects. Argentina has a large part of its population either in the work force
or at the proper age to work. Its people are literate making for educated workers and thus
less time spent with training and better quality outputs from the factory. The country has
the lowest amount of poverty out of the other six countries but still a significant number
(over 50%) in financial distress. The country’s GDP is the highest of the other countries,
but the economy has had significant trouble in the past that can come back to hurt them.
The possibility of inflation, for example, will lead to higher transportation costs, selling
prices and so on which will hurt our company profit-wise. Presently, the good outweighs
the bad with placing a factory in Argentina, but there are still significant factors
(primarily economic) that are to be considered.
Peru (5th) (3.34)
According to our Country Attractiveness Analysis, Peru received a weighted average of
3.34 making it a distant fifth. There are many factors that contribute to the
unattractiveness of investing in Peru at the current time, and near future. In terms of
population, Peru is ranked 4th (amongst the listed countries) with 27.5 million people and
a GDP per capita of $5,100 (ranked 5th). This is an indication that the market is not as
large as its fellow Latin American countries and Peruvian spending is quite low, so that
the implementation of multiple SKUs may not be effective.
Another major problem that presents itself is retail sales of toothpaste in the country of
the past 5 years. During this time period, Peru has performed extremely poorly with a
ranking every year in either of the bottom two spots. The lack of a toothpaste market is
definitely present given that our company’s four major competitors have yet to enter
Peru, and the market depends largely on local suppliers (74.2% local, 25.8% regional).
Depending on our company’s growth this may eventually turn into a positive aspect for
investing in Peru, but as of now this is not the case.
Looking at Peru, other questions arise about how secure the market for toothpaste is
given some of the conditions that exist in their society. Despite a low level of inflation,
54 percent of Peruvians live below the poverty line. Their access to safe water must also
be taken into account, where their population has the least access to safe water for
activities such as dental hygiene. A possible problem that may also result is the location
of their population. Peru has the lowest urban population of all the areas, which may turn
into an advertising problem if we cannot make the population aware of our product.
As our company begins to invest in Latin America it is suggested that we do not initially
invest in Peru for the reasons listed above. However, as our country begins to increase
brand equity throughout the Latin American community, Peru might have potential,
given the fact Peru has yet to be penetrated by our main competitors, and is predicted to
grow in certain areas (GDP/capita and growth of sales).
Venezuela (6th) (2.76)
Venezuela is one of the least attractive of all the Latin American counties open to our
company. First taking a look at the demand criteria, we weighted population as being
very important (at 27%), since without sufficient customers, we will be unable to sell our
products in sufficient numbers to justify market entry into certain countries. Venezuela
received only 2 out of 10 in terms of overall population. In terms of population growth,
on the other hand, they fared better, better, at 9 out of 10, actually the highest of all
countries. But, regardless, this growth will not play an important role for many years to
come, and so is not terribly important, and so the importance weight of population growth
is only 7%.
GDP per capita is also extremely low in Venezuela. This makes the market unattractive,
because when people have little income, they tend to buy the things they absolutely need,
and avoid buying anything but necessities, and toothpaste would not qualify as a
necessity. In the GDP per capita category, Venezuela received 3 out of 10. We rated this
category as being rather unimportant, because it does not matter as much whether the
people of the company have income as much as if they spend it on toothpaste. Directly
linked to this is the “spending per capita on toothpaste”, and as predicted, Venezuela
scored quite low in this category as well, receiving 1 out of 10, since the average
Venezuelan has more important things to spend his/her money on that toothpaste. We
rated this criteria as being more important at (13%), since it matters more how much the
average citizen spends on toothpaste than what his/her GDP is. Clearly when money is
severely limited, toothpaste is one of the first things to go in Venezuela. For another of
our important poverty percentage (at 14% on the important scale), Venezuela received 2
out of 10, indicative of the poverty prevalent throughout the country. Venezuela’s
market is also rather stagnant and not growing, and in this category, Venezuela received a
0. The market at Venezuela is at a standstill, and should not be expected to change for
years to come. We have this as 10% importance.
Moving ahead to the supply criteria, the shipping costs from the US plant to Venezuela
were along the same lines as for the rest of the Latin American countries, and Venezuela
scored the usual 5 out of 10 in this category. Although the shipping costs category was
ranked at 10% importance, since almost all of the countries had the same result in this
category, is was not a major factor overall in the ratings. As far as tariffs are concerned,
Venezuela is very unfavorable. Their tariff rates are very high, which also makes them
an unfavorable market to enter when compared to some of the others. We had tariffs
ranked at 8% importance. The cost of sales people in Venezuela is also terribly high,
contributing to the unappealing nature of this country, and although this only was of 5%
importance, it still reflected negatively on the country. Overall, Venezuela only managed
to receive a 2.76 overall, and was the least favorable country of the six we have been
looking at.