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wage rates. Opinion varies between a 54% and 102% addition to payroll - the key point being that this compares to an average of 20% in neighbouring countries. High operating costs for telephone services, energy, and transport will make business costly for several more years. Fiscal and trade policy is volatile and businesses are at times subjected to sudden changes and surprise tax and tariff hikes (The Economist Intelligence Unit, 1998a).

While AG Barr should be aware of "custo Brazil" in considering market entry it should also be aware that in spite of "custo Brazil" foreign direct investment (FDI) has already been pouring into Brazil - a clear indication of investor confidence. Brazil is the largest recipient of foreign direct investment in Latin America. A record $9.2bn in foreign direct investment entered the country in 1996 and $12-17bn was projected for 1997. It is anticipated that due to its economic opening Brazil will occupy a larger proportion of multi-national companies' investment portfolios in years ahead (The Economist Intelligence Unit Limited 1998a).

Mercosur (currently Argentina, Brazil, Paraguay and Uruguay with Chile and Bolivia as associates) is a market with a population of about 200 million people and a total gross national product of approximately US$1,200 billion (KPMG 1998). AG Barr should consider this fact when it is considering its market entry strategy.

The Micro-Economic Environment

Private consumption per head is growing. In 1997 private consumption was $3,180 per head forecast to increase to $3,470 by 2000 (The Economist Intelligence Unit, 1998a). This suggests potential for a growing market in soft drinks.

Consumption of carbonated and concentrated drinks in Brazil increased from 4,754 million litres to 9,875 million litres between 1991 and 1996. Over the same period, their share of the soft drinks market increased from 83% to 85%. Spending on carbonated and concentrated drinks in Brazil has also demonstrated an upwards trend from US$4,426 million in 1991 to US$6,824 million in 1996 (Euromonitor, 1998).

With strong demand and low costs, the consumer goods sector in Brazil has been the best performer among the manufacturing industries. The beverages sector expanded at above average rates between 1990 and 1995. (The Economist Intelligence Unit, 1998a).

Brazil experiences a highly skewed income structure with 52.5% of all households belonging to the D and E economic strata (The Economist Intelligence Unit, 1998a). The region's richer households are found in geographical concentrations, almost all in urban areas. Brazil has 14 major population centres where population is predicted to grow from 163 million in 1997 to just under 190 million by 2010 (Euromonitor, 1998). An overwhelming proportion of the national purchasing power is found in a few urbanised markets. These compact markets which exist in Latin America present ideal conditions for many retailers (Euromonitor, 1998).

Brazil's retail market expanded rapidly since the introduction of the Real in 1994. Since then a levelling-off in the purchasing power of low income groups, as well as rising levels of household indebtedness and default, have caused the market to stagnate. However, there is evidence of foreign companies such as Wal-Mart being attracted by the size of the Brazilian market and the prospect of price stability. Price stability is likely to further strengthen two established trends in the retail sector - expansion in the number of shopping centres and the growth of supermarkets (The Economist Intelligence Unit, 1998b). This suggests a ready distribution network for AG Barr.