Globalisation And International Business Of Cosan In Brazil Economics Essay
Brazil a regional ace power in Latin America emerged in to a constitutional member of BRIC ‘S the group of emerging economic system states due to impacts of globalization. Industrial development and trade has been the engines of Brazils Globalisation procedure while trade liberalization and market deregulating were facilitators of globalization. Advantages like dining economic system, FDI growing and productiveness far outweigh the of import societal and environmental jobs which can non be ignored.
Brazil is a major exporter of agro industrial trade goods. A paradigm displacement in trade forms of Brazil is observed with increased exports in other industries like IT, fabrication and service sectors lending to a major portion of GDP. Alarm over planetary heating and ruinous impact of oil crises on states growing is examining a hunt for a possible replacements hiking up Bio-fuel demand. Brazil ‘s efficient low cost ethyl alcohol produced from sugar cane is the best available Bio-fuel at the minute and when made a trade good to be trade freely will assist companies like Cosan runing in that sector to derive entree to markets. Porter ‘s competitory advantage theory is used to exemplify Brazil ‘s planetary leader place in Agri trade including efficient Bio-fuel production.
Brazilian Government enterprise to advance ethanol ingestion and production helped companies like Cosan to increase production functioning domestic market and subsequently export globally. New Companies come ining this market or joint ventures being formed to derive synergisms resulted in immense inflow of FDI ensuing in increased productiveness through engineering transportation.
Globalization is regarded as a planetary procedure of increasing cross-border flows of merchandises, services, capital, people, information, and civilization ( Held et al. , 1999: 16 ) 1. Brazil experienced enormous economic growing over the past three decennaries ( Exhibit 1 ) 2due to assorted globalization impacts on its economic system. Brazil ‘s economic globalisation has been promoted by major economic, institutional and financial reforms taking to market deregulating and trade liberalisation during late 1980 ‘s.
1.1 Globalisation and Impacts
Globalisation has an equivocal impact on Brazil as it gained from the bettering economic public presentation and confronting menace to indegineous industries, societal inequalities and environmental jobs on the other side.
1.2 Major affects are reported
Brazils debt ridden economic system during 1980 ‘s was put back on wheels because of Brazils disposed response to globalization forces encashing chances.
Internationalization of Brazil Firms
Privatizationa started in 1991. Since so, 148 governmental endeavors underachieving were privatized4, pulling MNC ‘S to put in sectors where FDI was non allowed earlier. This resulted in immense inflow of FDI in to Brazilian economic system
Exhibit 2: Share of amalgamations and acquisitions in entire FDI
Productivity and fight of Brazilian houses on the planetary forepart increased with the efficient direction patterns and engineering transportations from MNC ‘s ensuing improved efficiency and competitory advantage.
Exhibit 35: Development in Productivity in Transformation Industry.
Impact on Exchange Rate
Inflation was tamed bracing existent to be low during 1990 ‘s boosted exports while existent grasp by 110 % in the past 8 old ages ( Le Monde, Bilan du monde 2011 ) is impacting its exports fight.
Service sector employment increaseda while Industrial employment did non increase, and agricultural employment fell aggressively because of addition in productiveness and engineering developments in those sectors. Formal sectoral occupations with addition in rewards and loss of informal occupations lead to immense economic and societal inequalities in brazila taking to heavy migration to metropoliss deteriorating life criterions.
Developed Southeast urban society
Undeveloped North and rural society
Well financed universities.
Organized working category.
Well paid civil retainers.
Assured retirement and wellness attention.
Agribusiness and excavation sectors.
Primary instruction centres
Agricultural and fabrication labors
No populace services
Little or no societal protection
Poor life and wellness conditions.
Exhibit 4 Regional Inequalities
Table compiled from Ref 4,5 & A ; 6
Affect on Environment
Federative republic of brazils addition in agribusiness and mineral exports have resulted in extended agribusiness, excavation, and logging in the Amazon forest part have resulted
in terrible deforestation, H2O pollution, and the invasion of autochthonal
Impact of globalization on trade and trade forms are farther discussed.
2 Brazil Trade
Brazil is agricultural powerhousea and largest exporter of agri merchandises. Brazil has immense militias of natural resources and a good developed agribusiness, fabricating excavation and service sectors. A clear displacement from agriculture and natural resources exports publicities to overall development has occurred taking to the exports of semi manufactured automobile goods, military arms, aircrafts and information services.
2.1 Trade Patterns of Brazil
In early 1960 ‘s Brazil followed a Mercantilist Trade Pattern keepings its exports more than its imports, by extended Import Substitution Industrialization [ ISI ] . Brazil exported to Europe and North America and imports continued to be concentrated in oil and intermediate and capital goods from Middle East.The oil crises in 1970 ‘s led to merchandise shortage coercing Brazil to minimise its imports. Interregional trade was promoted forming MERCOSURa. Brazil ‘s duties fell from an norm of 29 per centum in 1991 to zero in 1995 in assorted industries, ensuing exports of Brazil quadrupled during 1992 and 1996 while exports of the remainder of the universe increased by 60 % 6. However immense imports with a dip in duties resulted in trade shortage ( Exhibit 5 )
Exhibit 57 Trade Balance of Brazil 1987-2000
Brazil ‘s trade during this period can be explained by theory of comparative advantage of Ricardo. Brazil exported agri merchandises in which it was efficient at bring forthing while imported oil and excavation merchandises ( Exhibit 6 ) despite its immense natural resources. Brazils Comparative Advantage in agriculture sector can be explained by Ohlin Theory, which states that comparative advantage, arises from factor gifts ( land, labor ) and that form of international trade determined by differences in these factors.
Exhibit 68 Sector wise Importing
In less than 30 old ages Brazil has turned itself from a nutrient importer into one of the universe ‘s great breadbaskets. The addition in Brazil ‘s farm production has been singular. Between 1996 and 2006 the entire value of the state ‘s harvests rose from 23 billion reals to 108 billion reals, or 365 % 9. Brazil increased its beef exports tenfold in a decennary. It is besides the universe ‘s largest exporter of domestic fowl, java, sugar and ethyl alcohol ( Exhibit 7 ) 10. Brazil histories for about a 3rd of universe soyabean exports, on merely 6 % of the state ‘s cultivable land. Brazilian orange juice production histories for an amazing 60 per centum of the universe ‘s exports ( Ewing 39 ) 11.
In the recent yesteryear Imports of substructure related and oil boring equipments and other merchandises like chemicals, fabrics etc, have increased. Brazilian exports in the service sectors like IT and Manufacturing industries like aircraft, steel, military equipment and natural resources like petroleum oil, Fe ore and biofuels have massively increased. The increased demand in planetary market resulted in trade excess over the past few old ages ( Exhibit 8 ) .
Exhibit 813 Brazil ‘s Balance of Trade
Exhibit9: Illustrates Brazils major trading spouses. Asia being the largest finish of exports due to its increased exports to Chinaa.
Exhibit914: Brazilian trade by Area 2009
3 Brazil ‘s Competitive Advantage
Brazil ‘s laterality in agriculture sector which includes production of Biofuels can be explained utilizing Porter ‘s Diamond Competitive Advantage of Nations Theory ( Exhibit 10 ) . Abundant handiness of cultivable extremely fertile land with favorable climatic conditions and advanced machinery to reap and procedure, fostered by the proficient expertness lead to increased productiveness. Therefore giving Brazil competetitve advantage to bring forth high quality agri merchandises at low costs bringing a competitory advantage advantage for its exports in the planetary market.
Exhibit 10: Porter ‘S COMPETETIVE ADVANTAGE OF BRAZIL IN AGRIBUSINESS-BIOFUEL SECTOR.
Government -PROALCOOL – CENAL -PAP
– Huge militias of natural resources. – favorable Climatic conditions & A ; soil – Leader in agricultural research – Lead engineering and expertness in biofuel production
-increased demand in domestic and planetary market – irresistible impulse to increase productiveness to run into the turning demand
Firm Strategy, Structure and Rivalry:
– largely household owned – extremely competitory – economic systems of graduated table key for success
Related and Supporting Industries.
-advanced agribusiness machinery -highly efficient Millss and refineries -research establishments to develop new technological procedures and equipment
This portion of study inside informations assorted facets of biofuel -ethanol sector and Brazil ‘s ethyl alcohol industry, concentrating on Brazil ‘s biggest ethyl alcohol bring forthing company Cosan
4 Bio-fuels: Ethanol Sector
Global demand of oil and gas is being increased presenting a menace to handiness, monetary value and environment. Rush in oil monetary values consequence in rising prices impacting states economic system badly. Biofuel use is the demand of the hr. With many states declaration ( Exhibit11 ) to look for alternate Bio-fuels the planetary demand for ethyl alcohol is increasing looking for a possible replacement.
Exhibit1115: Public Policies for ethyl alcohol usage in assorted states.
4.1 Characteristic and range of ethyl alcohol market
Brazil is the universe ‘s largest exporter of ethyl alcohol. Brazil ‘s competitory advantage ( Exhibit10 ) is leveraged to bring forth most efficient a ( cost, productiveness, low C emanation ) ethyl alcohol from sugar cane. Brazils Ethanol production has been spread outing in recent old ages with addition in productiveness and efficient extraction techniques. 20 % of its production is exported to assorted markets ( Exhibit12 ) .
Exhibit1216: Brazils export portion in universe ‘s biofuel ingestion.
The growing chance of the universe ethyl alcohol sector for the period 2020-21, as projected by UNICA will increase three fold. Propeling demand and houses export opportunities17. This addition in demand propels the houses to travel planetary.
4.2 Cosan: Company Profile
Cosan was established in 1936 and presently the 2nd largest manufacturer of ethyl alcohol in the world.They have shown versatility in providing to the different demands of market by set uping a portfolio of services and merchandises designed to run into demands such as nutrient, agribusiness, fuel, sugar, ethyl alcohol, and logistics.Cosan has bit by bit grown into a market leader18.
Exhibit 1319: Cosan Portfolio
PORTFOLIO OF BUSINESSES AND SERVICES IN COSAN
Food- Cosan Alimentos
Energy Cooperation- Barra Bioenergia and Cosan Bioenergia
Sugar and Alcohol- Cosan Acucar vitamin E Alcool ( CAA )
Fuels and Lubricants- Cosan Combustiveis vitamin E Lubrificantes ( CCL )
Logisticss and transportation-Rumo Logistica
Agricultural Properties- RADA
Table Compiled utilizing Cosan ‘s Annual Report 2010
4.3 Government: A Catalyst
Governments finding to countervail the dependence on oil imports to hike trade balance and economic stableness leveraging on the potency of budding ethyl alcohol industry made Brazil a planetary exporter of ethyl alcohol which is widely being used as a Bio-fuel. Assorted support activities to advance ethanol production were launched. ( Exhibit14 )
Exhibit1420: Programs initiated by authorities
PROALCOOL ( 1970 ‘S )
Soft loans to mill and works proprietors.
Subsidies on sugar cane cultivations.
Purchase, storage and distribution to be done by petrobras.
Tax Incentives for makers and consumers of cars to utilize vehicles that are powered by ethyl alcohol.
Fostering R & A ; D activities through authorities establishments.
Intense selling run
CENAL ( 1980 ‘s )
Continuance of proalcool plan
Formed a closer web of assorted organic structures affecting in funding, research and production of ethyl alcohol.
Palno Agricola vitamin E percurio ( PAP ) ( 2000 ‘s )
Support to agribusiness industry
Subsidies for exporting
Table compiled utilizing informations from Ref 15, 16 & A ; 33.
4.4 Cosan ‘s growing:
Cosan started from its Costa Pinto works and bit by bit incorporated 3 more workss and installations within Brazil increasing production to function domestic demand. Cosan benefited by authoritiess inducements and expanded its operations domain by market consolidation by having more than 17 production workss and 23 Millss in Brazil and started exporting to planetary markets. It made strategic confederation with British sugar group Tate & A ; Lyle and shell in Japan to increase its market portion. It besides acquired companies like Esso and Mobil in Brazil to spread out its distribution of anhydrous ethyl alcohol. Cosan made strategic confederations with companies like Tereos and Sucden, Kuok group ( China ) , Nova America ( America ) , Crystalsev and Cargill to venture in to those markets. It improved its logistics by geting a interest in port of Santos terminal21.
4.5 Cosan & A ; Globalisation
With the institutional reforms and duty cuts on exports and improved logistics Cosan increased its export bases by making new planetary markets over the past decennaries prehending the demand of biofuels globally. Sweden, USA and Japan are major markets for Cosan. At the early phase of its globalization, Cosan planned a joint venture with Amyris, Inc. ( AMRS ) a California based company to set up worldwide development, production and commercialisation of renewable based fuels. The joint venture will enable Cosan to venture into big established markets and better Cosan ‘s growing potential.22
As a platform for international enlargement Cosan was incorporated in Bermuda as Cosan S.A and was listed on NYSE to entree finance to fund its growing and spread out its planetary range particularly USA. Both Cosan S.A and Cosan Ltd has better public presentations which appreciated their portion by 115 % in 2009/10. They have evolved into the first Brazilian controlled corporation with resources traded in the US stock exchange. It acquired the distribution resources from ExxonMobil in Brazil that now goes under the name of Cosan Combustiveise Lubrificantes ( CCL ) to better its distribution network23. With increased engineering transportation from its spouses its productiveness is being increased ex: Junior varsity with Shell.
Cosan is perforating Asian market with specific merchandise to function the specific demand of Nipponese a Hydrated Ethanol24 a which is of high quality and high deamnd in the Asian market. Cosan made a joint venture with Shell in Japan to better its distributional efficiency25. Cosan formed the Rumo Logista, a logistic company that incorporates railway, main road and waterway terminuss to back up its internationalisation plan to export to foreign markets. There by cutting down costs and bettering dependability.
4.6 Research and Development
Cosan ‘s committedness to put in R & A ; D to better its productiveness, reaping and extraction is huge. The company is besides fixated on agricultural geoprocessing engineering, and has advanced in developing sugar cane harvest orbiter monitoring package. The system is effectual in giving elaborate appraisals on production, with information on the worth of the sugar cane plantations.
4.7 Competitive Pressure
Sugar being a trade good subjected to volatile monetary values based on conditions conditions, supply demand and authorities policy therefore presenting high degree of uncertainity to cosans runing profits.Competitive competition among domestic houses like Petrobra ‘s, Copersucar is huge as all levarge on the same factors. On the international market ethyl alcohol produced from assorted beginnings is traded, However Cosan is a market leader sourcing bulk its natural stuffs from ain plantations and treating in ain Millss therefore extenuating hazards and exposure to planetary forces.
Unstable existent present a terrible menace to monetary value of exports therefore doing transactional and multinational FX hazards. Cosan operates with derived functions in order to counter those hazards.
4.8 Market consolidation
Cosan has the experience of geting companies and deriving synergisms. Over the past old ages, it has acquired many Millss to derive economic systems of graduated table to thrive and go a market leader. Cosan transfers its proficient accomplishments to subordinates bettering their efficiency in production and extraction.
4.9 Duty barriers
Cosan ‘s growing has been badly restricted by duty barriers as a consequence of protectionist steps of assorted authoritiess to back up local production of biofuels. USA and the EU enforce a 54-cent per gallon and 0.71 cent per gallon respectively27.
Exhibit 1628 – Ethanol Import Duties in Different States
4.10 Competitive Advantage:
Cosan is located in South-central Brazil therefore deriving competitory advantage leveraging on factor endownments etc discussed earlier Cosan 70 twelvemonth ‘s expertness and engineering know-how coupled with lower logistic costs gives an border over rivals busying 10 % 29of huge sugar domestic market.
4.11 Measurement of public presentation
This undermentioned exhibit will explicate the Gross saless that Cosan has managed to prolong in the twelvemonth 2010 taking into history the gross revenues per concern section. This gives an penetration of how efficaciously the different facets of their portfolio are working
SALES PER BUSINESS SECTOR 2010
APPRECIATION ( % )
Sugar and Alcohol- Cosan Acucar vitamin E Alcool ( CAA )
R $ 3.4 billion
R $ 92.4 million.
Logisticss and transportation-Rumo Logistica
R $ 158.2 million.
Fuels and Lubricants- Cosan Combustiveis vitamin E Lubrificantes ( CCL )
R $ 10.1
R $ 9.4 billion
R $ 634 million
Consolidated Table from Cosan ‘s Annual Report 2010
FDI influxs and TNC ‘s function in the most dynamic sectors have been cardinal characteristics of Brazil industrialisation procedure. Exhibit 18 shows the alterations occurred in FDI influxs from 1990 to 2009 and Exhibit 19 shows the alterations in the sectoral composing of FDI influxs. MNC ‘s have stronger inducements to put in cost decrease and engineering modernisation, and to go more specialised and less vertically incorporate increasing their efficiency, productiveness, and fight in universe markets. Knowledge accumulated by MNC ‘s would slop over to national houses lending to modernization of economy31.
Exhibit 1832: Inflow OF FDI
TNC ‘s have been following schemes to decentralize R & A ; D activities to cut down their associated costs and proctor engineering promotions generated outside place state ( UNCTAD 2005 ) . In instance of Brazil, harmonizing to Araujo ( 2004 ) 34, MNC ‘s tend to present inventions more quickly than domestic companies and domestic companies tend to pass more on R & A ; D when foreign corporations in the same sector besides have high R & A ; D expenditures.
5.1 FDI in Bio-fuel Sector:
Desiring to derive entree to the monolithic chances represented by Brazil in this sector and levearage on Brazil ‘s natural resources, its expertness ( cultivation of sugar cane, the substructures to bring forth ethyl alcohol, ) , foreign companies invest in biofuel sector ( Exhibit ) . They portion their engineering, expertness and accomplishments with local houses and therefore both gain synergies.The function of BP in Brazil is good representative of this tendency: To increase its function in the state, in which it leads operations in the gas and oil industry, BP has implemented several technological undertakings which benefited the local companies in Brazil. For case, Butamax Advanced Biofuels, LLC, the biobutanol joint venture between BP and DuPont, has opened a biobutanol engineering research lab in Sao Paulo, which will assist to optimise the cane agitation process35
Exhibit 2036: FDI in Bio-fuel Sector
5.2 Cosan & A ; FDI
Cosan has foreign investors keeping major bets. Cosan late made a joint venture with Shell enabling common entree to engineering and invention. Harmonizing to the understanding, Shell would be lending $ 1.6bn in hard currency and extra engineering to the undertaking while Brazil ‘s Cosan will lend its bing two billion liters ( 528 million gallons ) of ethyl alcohol installations to the joint venture. This joint venture will enable Cosan to profit from Shell ‘s expertness, as explained on Shell ‘s web site: “ The inclusion of Shell’sA involvements in Iogen Energy and Codexis would enable the joint venture to deploy following coevals biofuels engineerings in the hereafter. ” Technology transportation from shell to cosan will assist to raise the quality of its ethyl alcohol and R & A ; D efforts37.
State of future has arrived
Brazil long being known has “ COUNTRY OF FUTURE ” eventually seems to acquire that name realised in close hereafter.
Exhibit38: GDP prognosis for selected states.
Past Decades of uninterrupted economic growing resulted Brazil ‘s GDP to be ranked 8th in the universe in 201038. Value of trade goods like agro merchandises, natural resources and excavation merchandises like Fe ore, oil and gas, and other minerals are increasing drastically due to lift of planetary demand. The monetary values are expected to be increasing throughout in future as there will ever be a supply slowdown. Brazil is abundant in these natural resources and therefore will hold strong fiscal militias by exporting them. Series of immense offshore oil militias were discovered by the state-owned energy company Petrobras late which may take Brazil to go a major exporter one time oil boring starts. Brazil has greatest proficient expertness to bring forth Bio-fuels. Its potency is non yet to the full explored with still big country of land available for sugar cane cultivation and increasing productiveness every twelvemonth. Thus the hereafter for Brazil economic growing, trade balance and Bio-fuels sector looks optimistic and profit Cosan farther to beef up its place in planetary Bio-fuel sector.