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Hero Motocorp

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Pestle Analysis of the Brazil –
Political Analysis –
Brazil is currently a country with a stable, proactive government and there is virtually no political instability at the moment. However, things can easily change, as they did throughout the modern history of Brazil. Political conditions can become volatile, and this threat remains from election to election. Business conditions that change rapidly and social extremes that exist don't add to country's attractiveness.
Corruption is still a big issue in Brazil. Opening an operation in Brazil may require additional payments to government officials, which can present a big obstacle to entering a market. According to Transparency International, Brazil holds 70th place in level of corruption among 180 countries, higher then such economies as Cuba, Turkey and Bulgaria.
Economic Environment –
Due to large population and inflow of FDI, Brazil has extremely high potential for growth. The gap between rich and poor is decreasing gradually, and there is a significant trend of growing middle class. Good news is that Central bank has inflation under control and the risk of domestic currency devaluation is low. Brazil's currency, the real, was introduced in 1994, and is largely seen as a success. Currently, it is considered to be overvalued against the dollar, which hurts exports and helps imports.
Government is clear when it states that it has equal treatment for both foreign and domestic enterprises. There is abundance of unskilled and semi-skilled workers, but labour costs on the global level are quite low. When it comes to import duties, there is a system in place which gradually reduces the tariff according to the number of years of successfully importing. Federal government doesn't offer any help, but local state governments have a right to offer incentives for investing, almost the same set of incentives as it does to domestic enterprises. Corporate tax is 15% and there are no clear incentives for leaving the profit in the country. The tax rate is quite high compared to some economies like Ireland, Portugal or Greece. Price Water Coopers, consultant agency, highly recommends that exporters seek assistance from local trade and tax consultants before shipping any goods.
Social Environment –
There is economic inequality with the population as around 20% of the population lives under the poverty line. Looking at the class distribution, there are a considerable number of wealthy citizens and a huge segment of people with minimal incomes. The middle class is growing. However, there is still time for it to establish. This tells as that there is large consumer population (18 million) of quite rich individuals that could be successfully targeted with our product.

Brazilians are up-to-date in the fashion world and are considered modern, as they are aware of big brands and are keen to buy expensive and luxurious products. The country hosted the FIFA World Cup 2014 and a majority of the population has a keen interest in football. South and southeast region are the most developed parts of the country and hold the best standard of living. These areas are the most-densely populated and account for the biggest portion of GDP per head. Southeast is the home to cities of Rio de Janeiro and Sao Paolo, where the largest part of population is located.
Technological Analysis –
Compared to countries like the US and Russia, Brazil possesses a weaker technological infrastructure, as well as investment, but there are efforts being made to push the development of technology centers all over the country. However, IT is a sector in which Brazil has been constantly improving and it currently ranks 53rd in the world.
Legal environment -
Unfortunately, Brazil is highly bureaucratic country. Opening any sort of business in Brazil involves large amounts of paperwork, there are still numerous regulations and it is a lengthy process. Brazil, represented by Sao Paulo as the largest business centre, ranks 119 out of 155 in ease of doing business. This is behind other major emerging markets. For example, South Africa ranks 29, Mexico 73, Russia 79, and India 116. In Latin America, only Venezuela and Haiti regulate business more heavily than Brazil.
Starting a business is easiest in the states of Minas Gerais and Rio Grande do Sul. It is most difficult in Sao Paulo, Ceara, and Maranhao. The time to start a business varies widely across states-from 19 days in Minas Gerais to 152 days in Sao Paulo. It takes 19 different steps to start a business in Ceara, and 18 in Maranhao and Santa Catarina.
Government is showing effort in providing help to investors by providing manuals and lists of necessary bureaucratic instruments needed to start a business in Brazil. These manuals are quite complicated but accompanied with details, often with described step-by-step process for obtaining necessary licences. Brazil has signed a bilateral agreement on avoiding double taxation with most countries, including Denmark.
There are specific laws regulating pricing models, where we need to take care, especially while eventually promoting sales. Also, every enterprise is required to pay extra (13th bonus) salary to its employees.
Environment Analysis –
Brazil's environment is one of the richest in the world. Brazil’s natural wealth includes not only the dense tropical rainforests of the Amazon, but also the important biomes of the savannah-like Cerrado20, the arid scrublands of the Caatinga, the Atlantic Forest, the grasslands of the Pampa and the wetlands of the Pantanal. Much of Brazil’s fauna and flora is found nowhere else on earth, its ecosystems contains more than 15% of the plant and animal species known to science21. Brazil also holds 12% of the world’s available freshwater. According to the Ministry of the Environment, the value of environmental services rendered by Brazil's ecosystems (in terms of mega-biodiversity conservation and carbon sequestration) is several trillion euros per year. Therefore Brazil has a key and strategic role to play on a global scale, a role which the country has assumed since it is party to a number of international conventions on environmental issues (biodiversity, climate change/Kyoto Protocol, desertification, endangered species, etc.) and participates actively in international conferences on the environment.

Reference – http://eeas.europa.eu/brazil/csp/07_13_en.pdf http://pestleanalysis.com/pest-analysis-brazil-shows-high-potential-growth/ http://www.ukessays.com/essays/marketing/the-brazilian-macro-environment-pestle-analysis-marketing-essay.php SWOT Analysis –

Strength –
• Leading domestic market position
Hero MotoCorp has a strong domestic market position for its products. It has been the largest two-wheeler manufacturer in India in terms of unit volume sales in a calendar year by a single company for 12 years in succession with a market share of 36.4%. In FY2014, Hero MotoCorp's sales grew by 3.4% in the entry segment for domestic two-wheeler to 1.06 million units, resulting in a segment share of 56.8%. The company held a share of over 66% for the deluxe two-wheeler segment.The segment grew by 5.4% with volumes of 6.8 million units during FY2014.
• Emphasis on research and development
Hero MotoCorp has been focusing on research and development after snapping its partnership with Honda, which was its major technology provider. As a first step, the company started construction of its ‘Centre of Global Innovation and R&D’ in Kukas, near Jaipur, India which is expected to commence operations in 2015. In addition, the company partnered with Magneti Marelli (Magneti) to focus on development and manufacturing of next generation fuelling systems and fuel-efficient, environment-friendly modern engines for its customers. In addition, the company formed alliances with the US-based Erik Buell Racing (EBR) and Austria-based AVL to further enhance its in-house R&D capabilities and engine technologies. Furthermore, Hero MotoCorp formed collaboration with Italian two-wheeler design firm Engines Engineering for its next generation product line-up.
In addition, the company filed over 15 patents and 77 designs during FY2014. Hence, the company’s strong focus on R&D has enabled it to launch new technologies and products in the market. Focus on R&D has also strengthened the company’s competitiveness, and expanded market reach and customer base, thus enhancing its business performance.
• New product launches to enhance business performance
Hero MotoCorp is continuously enhancing its capability to develop new products. For instance, during FY2014, the company successfully launched the upgraded models of HF Dawn, HF Deluxe, HF Deluxe Eco, Passion Pro, Splendor Pro, Splendor Pro Long Seat, Super Splendor, Glamour, Glamour FI, I smart, Pleasure IBS and Pleasure Upgrade. The company unveiled 15 new offerings, with new-generation features including the all-new Splendor iSmart, Karizma R, ZMR, Xtreme and Pleasure.
Weakness –
• Labor disputes and unrest
Hero MotoCorp has been facing a number of labor disputes and unrest for last couple of years. For instance, during November 2014, there were incidents of labor unrest at the company’s Haridwar facility, forcing the management to close down the plant for three days.The plant had earlier witnessed a production stoppage last year due to protest against suspension of workers and the current unrest is a continuation of last year’s issue. Furthermore, workers at the company's Gurgaon unit agitated in 2013 for higher wages. While the employees had been demanding an increment of around INR15,000 ($249) in monthly salary for three years, the management was reluctant to increase wages beyond INR7,500 ($124.5)-INR9,000 ($149.4) in monthly settlement. Therefore, such labor disputes and unrest could disrupt operations of the company and tarnish its market image, impacting business performance. Further, the unjustified demands of the workforce could lead to impact cost structure of the company, impacting its financial performance.
• Absence in the premium bike segment except for Karizma.
• High imports for its spare parts i.e. over 30% imports.
• Recently the joint venture of Hero & Honda has been broken.
• Low on design and style.
Opportunities –
• Robust expansion of global motorcycle manufacturing industry
The global motorcycle manufacturing industry is expected to grow strongly in years to come. According to MarketLine (a unit of Informa), the global motorcycle manufacturing industry generated total revenues of $63,153.4 million in 2014, representing a growth of 2.7% over 2013. Furthermore, the market is expected to grow at a compound annual growth rate (CAGR) of 9% for the 2014-18 periods to reach a value of approximately $88,055.6 million in 2018.
Brazil is a part of famous acronym, BRICS, and is one of the major emerging economies in world. Brazil GDP by Nominal is expected to be 1.9 Trillion $ and 3.5 Trillion $ in terms of purchasing power parity. The size of two wheeler industry of Brazil is 2 million units. Brazil two wheeler’s industry is dominated by Honda, which constitutes 81% of market share of two wheeler industry. Brazilian automobile market is known to be different for its specially designed engine, flex technology which uses both ethanol and gasoline as fuel.
• Retail market for motorcycles to grow by 25% in Brazil in 2014-15.
• 150cc is the most popular segment.
• Loss of competitiveness in the domestic market.
• Customers losing interest in typical & old-fashioned bikes.
Threat –
• Target market of lot of prominent players.
• Need for specialized engines which run on ethanol blended petrol
• Honda has a monopolistic market share for decades
• Rank of Ease of doing business in Brazil is 116.

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