Samsung Electronics
Examination and Evaluation of Business Strategies and Frontier Markets: Brazil
The South Korean company Samsung began operations in Brazil in December 1986 when it opened a representation office. Since them Samsung has invested a total of U.S.$300 million, employs almost 1,000 staff members and has a revenue of above U.S.$500 million. Since May 1994, Samsung has started offering services to Brazilian consumers, and from November 1995 it has produced TV sets and VCRs locally with an initial capital investment of U.S.$18 million.
Starting from July 1997, Samsung has sold its SyncMaster monitors in Brazil had a little later in June 1998; it started to manufacture them in its Manaus factory in Amazon. In 3 years, Samsung measured its control in this segment in Brazil with 40% of the sales (according to IDC Brazil), conquering over companies that were present in Brazil a good deal before Samsung (Sonis, et al., 2007).
The Samsung factory in Manaus is extremely automated. It has been manufacturing the Samsung Voicer cellular devices since March 1999. Following the path of high technology and advanced design, Samsung Slim, Samsung Colors etc. The company produces 1.5 million cellular devices and 1.3 million monitors per year in Brazil (SEC Family News, 2009). Twenty percent of these products are exported to other countries in Latin America. In 2002 Samsung began the production of disk drives in Brazil with total investments of U.S.$35 million and is starting to export them to neighboring Latin American countries (Baer, et al., 1998).
1. Government stability and openness to foreign investment
Foreign direct investment (FDI) began to change considerably in the 1990s, as Brazil adopted neoliberal policies. The latter consisted of market-oriented policies, privatization of state firms in heavy industries and public utilities, and a drastic decline of protection. In addition, Brazil became actively involved in the Mercosul, the common market of Argentina, Brazil, Paraguay, and Uruguay, which implied a gradual disappearance of regional barriers to trade and investment flows. In this more open economy, especially after the Real stabilization program, which was introduced in 1994, there was a dramatic rise in the inflow of FDI. While in the early 1980s the yearly inflow of FDI amounted to about U.S.$2.6 billion, this declined to about U.S.$1.7 billion in the period 1983 -- 90. FDI stagnated in the early 1990s, averaging U.S.$1.3 billion a year, only gaining momentum after 1994, reaching U.S.$5.5 billion in 2005, U.S.$10.5 billion in 2006, U.S.$18.7 billion in 2007, and U.S.$28.7 billion in 2008 (Martins, 2006).
The privatization process accounted for about one-quarter of the inflow of FDI in the period 1996 -- 98. This represented a dramatic increase of foreign participation in the privatization process. In the first half of the 1990s, when the privatization got started, foreign investments only accounted for about 5% of total privatization. This participation rose to about 35% in 1997 (Balassa 2004). Two factors contributed to this trend. First, the initial lower participation can be explained by the fact that privatization was initially limited to traditional industrial sectors such as steel and petrochemicals. These were not sectors that were inherently attractive to foreign investors. Second, changes in the country's legislation concerning foreign investments made Brazil more attractive to multinational corporations (Geddes, 2003).
The rapid implementation of Mercosul increased the attractiveness of the region to multinationals as it amplified the effective market which they would be serving. The general world flow of capital to emerging markets -- for instance, foreign direct investment in low- and middle-income countries rose from U.S.$23.7 billion in 1980 to U.S.$118.8 billion in 1996 (Savasini, 1978).
Changes in Brazil's legislation concerning foreign capital seemed to have contributed to attracting an increasing amount of FDI. There was an important modification in the Constitution to eliminate the differentiation between Brazilian companies on the basis of resident and nonresident ownership. This allowed foreign firms to invest in a number of sectors that were previously reserved for domestic state or private firms. These sectors include mining, petroleum, electricity, transportation, and telecommunications. The passage of a concessions law for private investors (domestic and foreign) also helped set a
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