Brazil's Quality Coffee or Capabilities?

A few years back I went to Managua in Nicaragua one of the poorest countries on this side of the world torn through a revolution and war 20 years ago during the Reagan administration. Currently anybody can go and you wouldn't think anything like that happened there. It's peaceful and the political stability is good. Once there I noticed two things; poverty, and how agriculture was one of their biggest industries in the rural locations. Many Americans and International investors were going to Nicaragua for one thing "Coffee Beans". Coffee is the second most traded product in the world after petroleum. Nicaragua hosts one of the cleanest and purest tasting coffees in the world and it's due to the numerous volcanoes in the regions and is very similar to Hawaii's world re-known coffee taste. Colombia is considered the richest tasting coffee beans in the world and it's clearly due to the high elevation where they are being produced. The list of high quality beans extends to Ethiopia, Indonesia, India, Jamaica, Kenya, etc. In quality, the perfect bean is based upon the combination of soil quality, climate, and the higher the altitude, the better the quality.

For the first time I drank real coffee from Nicaragua and let me tell you, it gives you a lasting impression. As I headed north into the county I noticed the higher elevations and I started noticing the fields of coffee and the companies. Once, a truck was full of coffee was ready to be shipped to Costa Rica. It seems like Starbucks was only buying from Costa Rica and not Nicaragua. I was told that it was being sent to the U.S. with the label that said “produced in Costa Rica.”

Currently, Brazil grows roughly a third of the world's coffee and exports it through the ports of Santos, while re-known coffee from Colombia only produces 12%. Below is a map of the top coffee country producers in the world.

I was surprised to see Brazil at number one but after awhile you notice that it's cheaper and easier to get it from Brazil because of the mass production of coffee, great infrastructure, great branding, the ease of doing business in terms of exporting, and the supply chain to the U.S. was direct. Keep in mind, the top coffee consumers in the western hemisphere are the U.S. and Brazil, so it wasn't a shock to see that Brazil was a top producer of coffee.

Although Colombia and Nicaragua are better in quality and closer to the U.S., their economy is poor and their infrastructure is underdeveloped, which makes transporting to the coffee processing plants a difficult task. In addition, Nicaraguan coffee was not imported into the United States because of the political differences between the U.S. and Nicaraguan governments, but just recently U.S. allowed the importation of coffee from Nicaragua, which is the reason for the large number of international investors who are going to Nicaragua and buying land.

Three things I learned from this trip: the taste of real coffee, the advantage of a country with a sound infrastructure, and how Brazil leverages all its capabilities to brand its coffee as one of the best in the world.

China Vs India: The Behemoth

Although both China and India are both developing countries that does that mean that the most developed is the best country to expand to. Let's take a close look at both countries.

China

Currently China hosts a population of 1.35 billion at a growth of 0.47 and a GDP of $5,878 and growth of 10.3, which marks the economic distance to be low (Good indicator) compared that of US GDP of 14,582. The Ease of doing business is 79th in the World as it has a fast acting Government that helps support the quickly developing country. The infrastructure is superior, trading across border ranked 50 (Above average in the world), and geographic distance to U.S. is moderate. They provide better access to consumers especially the wealthy that are located in the East Cost. Intellectual property security is high and corruption perception index is low ranked at 33rd (Low corruption), and Enforcing contracts is superior. This is all due to the countries quick and general enforcement of laws and trials. It has one of the largest R&D (Research and Development) in the world (Estimated at 1,000) making it a country of innovation. They are also known for their extensive and efficient manufacturing.

The disadvantages are that the culture distance is high, western culture is not fully accepted, population growth rate is declining currently at 0.47, demographics shows an old population, which means a decrease in productivity and decrease in the market segment, and political stability has been decreasing (Current score is a 4.8).

In all, China has a bright future but indicators show an eventual slow down in their economy based on their demographics.

India

Currently India hosts a population of 1.2 billion at a growth of 1.41 and a GDP of $1,729  and growth of 10.365, which marks the economic distance to be moderate (medium indicator) compared that of US GDP of 14,582. The Ease of Doing Business ranked 134 in the World and is the reason of for most of their disadvantages, which will be explained why this is. The infrastructure is moderate, population growth is large, trading across the border is ranked 100 (Average in the world), and geographic distance to U.S. is moderate. Culture Distance is low due to Western influence based on British colonization early in the century (English speaking and similar democratic government setup). Huge growing middle class shows a diamond shape instead of pyramid Shape in wealth in the next 5 years. Demographics show a young population peaking in 10 years, showing great productivity in the next 20 years. As a result, growth in India is much more sustainable and promising. There is also an immense talent in India as Bill Gates articulated on "Human and Intellectual Capital". In other words, there is low cost and educated labor force available in India. Other advantages are a democratic government, getting credit is very good, protecting investors is very good, high end (R&D) Research and Development at low cost (Estimated at 800) making it place for innovation. Rural access to consumers and India's wealthiest cities are spread around the country (Hard access but could reduce competitors). Finally, political stability is at a 4.5 Score, but every since 2001 most countries corruption score has risen but India along with a few other countries have remained stable.

The disadvantages in moderate infrastructure provide issues in connecting to rural consumers and transporting to the major cities that are spread around the country, as a result will prove to be time-consuming and costly. Intellectual property is not enforced making it a heaven for stealing. Democratic Government is slow in making changes, which is the major reason why Ease of Doing business is moderate to low and leads to the slow development of the country. Corruption perception index is ranked 87th making it a moderate country compared to the world. They are the worst when it comes to dealing with construction permits and enforcing contracts. That is due to Indian's Culture on how they carry out contracts, which is more reserved to promises and open discussion to changes along the way. In many ways, it's considered a disadvantage to many countries but to Indian's it's considered an advantage for both sides to be able to equally and fairly balance profits and risks along the way.

In all, India also has a bright future because of their growing GDP, labor force, and population. They certainly have the ability to pass China in the next 20 years but their Ease of doing business and the government's democratic ways could lead to a giant's stunted growth.

In Conclusion, both countries have their points but what will mark the difference in going to China or India will be based on your businesses Strategic Importance and the particular Industry interest growth rate in each country.

One small step for Domestic, One giant leap for International

Just got back from Puerto Rico (PR) this last week and I noticed the number of American companies, subsidiaries, and chains that have moved into this small sized island. Puerto Rico has some advantages but what makes it more attractive is the low risk to implement and setup a business in a country that is considered part of the U.S. For small to mid-size businesses that do not have any international experience but want to go abroad for the first time, then PR is for you. I have worked for one of the largest retailers in Logistics and Distribution in the United States and their key sales was in selling pharmaceuticals. FYI...Each Prescription (Rx) unit priced at an average of $200 but because of healthcare U.S. citizens tend to only pay a small fraction of this.

The advantage of the pharmaceutical companies in the United States is that there are high regulations and standards to producing prescriptions and preventing counterfeits as well as strong enforcement of both. In many other countries around the world this is not the case, which is a high risk for the retail I worked for provided they wanted to move to any other country. Going north you have Canada who offered prescriptions at a lower price because the process to develop them is much easier and less regulated than in the U.S. Going south you have Mexico, very attractive in numbers but the risk goes through the roof since competition is brutal, counterfeits are not being enforced, and competition most likely has more effective drugs that are illegal in the U.S.

The price of prescriptions is high in the U.S. mostly due to the following: money is placed into research, marketing, labor, development of newer and more effective drugs and finally, recently developed drugs are patented and not available generically for a few years. So the 'Retail Giant' saw the potential and headed to PR to setup a distribution center and stores across the island. As a result, within a few years, the front-end and back-end sales were high and many of stores were making 2-3 times more than any store in the U.S.

Attractiveness vs Risk: Selecting the Target Region/Country

The company has made the choice to expand to another country. It could be because the market in the country is saturated, the product or service is highly sought after, or because strategic-wise you can get a step ahead of the competition in that particular RC (Region or Country). No matter what the need be, choose the RC that is most likely going to optimize and secure your company's future. I consider this the toughest decision a company has to make especially if there is competition out there and stockholders want to make money now and pressure management into what is called the attractiveness of a country without considering the risk you take. This is why a balance between attractiveness and risk must be fully accepted by the stockholders so that you are able to take the best decision; but for the stockholder to buy into it, that is another discussion. As a reminder, the stockholders have a valid and positive intention in this process. Stockholders are looking to make money fast while getting the largest ROI (Return on Interest).

First, you need to consider the factors of attractiveness of the RC. Those factors are: current demand, growth of demand, membership in trading bloc "expanding abilities from RC", strategic importance of that particular RC and Rate each factor from 1 to 10. Once completed you can weigh the importance of each and then multiple each by the rating you gave each factor. Accordingly, the same is done with the factors of risk of the RC. Those factors are: cultural distance, administrative and political distance, geographic distance, and economic distance. When both are completed and summed up these points can be plotted on an x and y-axis map to evaluate and prioritize your expansion strategy.

If stockholders are really pursuing for a change, leveraging the weigh scale and prioritizing to fit more of their needs can help in balancing the long-term goals of the company and the short-term goals of the stockholders.

Introduction to Global Expansion Strategy

Looking into the possibility of expanding your business internationally you need to take a step back and ask yourself. Am I open to changing how I do business? To learning from my failures along the way? If you answered yes to both then you have my blessings into your journey of expanding your business abroad. Doing business in country 'X' signifies that you'll need to not try to understand but analyze the country, culture, environment, and market. Trust me trying to understand is probably the biggest mistake anybody can make when expanding into a different country even if the culture is very similar. You'll need to know the flexibility of your current business plan in order to understand the advantages and disadvantages in doing business in country X. The idea that your business model works fine in your country doesn't mean it will work great in another country. So the solution here is to take your service/product and go through the following questions and rate 1 - 10 (1-low/Small, 5-average, 10-High/Big).

1) Is this a big idea or a small idea?
2) Is this a large market or a small market?
3) Is this market highly fragmented or low fragmentation?
4) Are barriers to entry high or low?
5) Is it difficult of doing business in this country?
6) What is the significant value of doing business in the country?
7) Problem or lack of service highly known or not known?

Once you rated all do the same for the current country and compare notes. You'll be able to quickly view these differences and provide you some insight into where your business plan might need to be changed.