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Political

While there have been significant improvements in the political environment, issues still exist which result in an on-going environment of economic risk. Given the issues surrounding policy implementation, the expectation of future benefits from the current policy pipeline must be managed with some caution.

It is recommended that AG Barr only consider the Brazilian market if they have a strong financial base, that could withstand the impact of potential economic risks and delays in positive policy implementation.

The Macro and Micro Economic Environments

While the macro-economic position has improved there are

clearly short-term issues 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 concentrated and carbonated drinks. If AG Barr can withstand short-term difficulties, it appears that the longer term economic outlook is good.

Environmental

While AG Barr should be aware of the current state of pollution, it seems unlikely that current environmental conditions will adversely impact on AG Barr's entry to the Brazilian market. Further work would be required to explore to what extent Brazil's sugar production might be an advantage to AG Barr.

Social

The current social environment is of interest to AG Barr from two perspectives: i) the potential consumer market and ii) the potential workforce.

The potential consumer market is large and growing. The youthfulness of the population is likely to be of particular benefit to soft drinks manufacturers, if UK consumption trends are mirrored in Brazil.

In terms of workforce, potential unskilled workers are readily available but skilled workers are in short supply, although it is possible to overcome this by importing foreign labour, if Brazilian nationals are not available. While labour costs are attractive, additions to basic wages and additional training needs must be considered.

Infrastructure and Technology

Brazil's deficient infrastructure "hampers the country's industrial competitiveness and development" and "is a constant operational headache for users" (The Economist Intelligence Unit, 1998a). While AG Barr should be aware of the current situation and consider its implications if they enter the Brazilian market, it appears that the situation should improve over a 5-10 year time horizon.