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This report examines the current environment of interest to a soft drinks manufacturer in the market of relevance, Brazil. Having described the terms of reference and the methodology the report uses the framework of a PEST (political, economic, environmental, social and technological) analysis to highlight key issues of interest.

Political Issues

Whilst there have been significant improvements in the political environment, political wrangling still exists, and a fragmented congress means economic risks still remain.

Issues surrounding policy implementation mean that expected future benefits from current policies are uncertain.

Economic Issues

While the macro-economic position has improved, short-term issues exist in terms of the recession, the need for lasting economic reforms and restructuring and the elimination of "custo Brazil".

The micro-economic position appears favourable to a consumer goods company operating in the concentrated and carbonated drinks market.

Environmental Issues

It seems unlikely that current environmental conditions will adversely impact on market entry, although consumer perception may be an issue.

AG Barr should undertake further work, beyond the scope of this study, to clarify to what extent Brazil's sugar production might be an advantage to AG Barr.

Social Issues

The large and growing consumer market provides a strong basis for considering market entry.

The relative youthfulness of the population, which if UK trends are mirrored, will be advantageous to a carbonated drinks manufacturer.

It is unlikely that overall workforce availability will be an issue, given the option of using international labour if requirements cannot be met locally.

Labour costs are attractive but there are significant costs on top of basic wages and requirements for additional training.

Technological and Infrastructure Issues

Leading commentators believe the deficient infrastructure to be "a constant operational headache for users" (The Economist Intelligence Unit Limited, 1998a). However, in the context of a long-term investment this is unlikely to be an issue, given the privatisation programmes already underway.

Conclusions

There are no significant barriers to AG Barr entering the Brazilian market, particularly if it is considered as a long-term investment (10-15 years). Indeed, the long-term economic outlook is good.

AG Barr will need a strong financial base, as it may be necessary for other parts of the company to sustain the impact of potential economic risks and delays in favourable policy implementation.

The market size and growth potential of Brazil suggests it is a prime opportunity to be considered by AG Barr for expansion of its own business. Brazil is also an attractive platform for accessing the Mercosur trading bloc.

According to KPMG, a wide range of government incentives is available to start-up projects in Brazil. The use of these incentives is a significant feature of the Brazilian business environment. Generally there are no restrictions on foreign companies' ability to access state and municipal programmes and federal incentives.

Based on this favourable analysis of the current environment in Brazil for soft drinks manufacturers, it is recommended that a scenario planning exercise is conducted for AG Barr to explore possible future scenarios for the soft drinks industry in Brazil.