Slide1: International Business April 20, 2004 Presented by: Brandon Moritz Adam Burrus Joe Menendez Josh Mahlandt


General Information: General Information -Largest country in South America -Comparable in size to the U.S. -Tropical Climate -Population: 182,032,604 -Official Language is Portuguese also speak Spanish, English, and French


Government: Government -Federative Republic -President Luiz Da Silva Elected January 1, 2003 -Three Branches: -Executive: President and V.P. serve 4 yr. terms -Legislative: Federal Senate and Chamber of Deputies -Judicial: Supreme Federal Tribunal


Economy Overview: Economy Overview -Free Enterprise with some state intervention -Large agricultural, mining, manufacturing, and service sectors -Outweighs that of all other S. American countries -Plagued with high inflation rates in past 20 yrs. Now steadily decreasing -Unemployment remains a major problem


The Brazilian Real: The Brazilian Real -Official Currency of Brazil -Formerly pegged to U.S. dollar -Now floats independently with respect to U.S. dollar. -Exchange Rate: 2.92 reals per U.S. dollar Brazilian Reals to 1 U.S. Dollar


Gross Domestic Product (GDP): Gross Domestic Product (GDP) -Purchasing Power Parity: $1.376 trillion Ranks 11th worldwide -PPP per capita: $7,600 -GDP Composition: *Agriculture 8% *Industry 36% *Services 56% GDP Growth 1995-2003


Brazilian Trade: Brazilian Trade -Trade Surplus! -Exports: -$59.4 billion -iron ore, soybeans, coffee, footwear, autos -Major Partners: U.S. 24% Argentina 9% -Imports -$46.2 billion -machinery, chemical products, oil -Major Partners: U.S. 23% Argentina 13%


Comparative Advantages: Comparative Advantages -Huge territorial extent with plenty of natural resources -Large population with a dynamic & fast growing consumer market -Economic integration with Mercosul -Developed industrial center with diversified exports -Stability of democratic political institutions


Brazilian Industrial Sectors: Brazilian Industrial Sectors -Petroleum and Petrochemicals -Ethanol -Power Generation -Aircraft and Aerospace


Embraer: Embraer -Fourth largest aircraft manufacturer in the world. -Close to overtaking third largest manufacturer, Bombardier. -Started in 1969 by Brazilian government. -Privatized in 1994. -Based in Sao Paulo, Brazil. -Started trading on NYSE on July 21, 2000.


Company Profile: Company Profile -Embraer manufactures commercial, military and corporate airplanes. -Provide aircraft that are economical to acquire and operate -Gained success by focusing on regional jets with 37-50 passenger capacity. -Known for aggressive management and marketing and for having competitive prices and services. -Gained market share by undercutting competitors’ prices in regional jet market.


Regional Aircraft Products: Regional Aircraft Products -Regional aircraft operations primarily involve the development, production, and marketing of commercial jet aircraft and providing related support services. -Largest customers include Continental Express and American Eagle. -Competitors include Bombardier, Boeing, and Airbus. -Products: -ERJ 135/140/145 -EMBRAER 170/175/190/195 -EMB 120 Brasília


Defense Aircraft: Defense Aircraft -Operations involve research, development, production, modification and support of military defense aircraft, products and related systems. -Primary customer is the Brazilian Air Force although aircraft has been sold to the United Kingdom, France, and Mexico. -Competitors include Raytheon, Lockheed-Martin, and British Aerospace. -Products: -EMB 312 Tucano and Super Tucano -AM-X -P 99


Corporate Jet Segment-The Legacy: Corporate Jet Segment-The Legacy -Line of corporate jets based on ERJ 135 regional jet model. -Designed to provide customers with a cost-effective alternative to commercial regional airline travel. -Marketed to businesses in two models: -Executive version -highly customized interior based on the customer's specific requirements -Corporate shuttle version -partially customized and is generally intended to have business class-type seating and in-flight office design features.


Other Related Businesses: Other Related Businesses -After-sales customer support services and the manufacture and marketing of spare parts for products. -Activities include the sale of spare parts, maintenance and repair, and training. -Provide structural parts and mechanical and hydraulic systems to Sikorsky Corporation for its production of helicopters. -Limited manufacture of executive aircraft and crop dusters.


Keys to Success: Keys to Success -Low costs -Brazil’s low labor costs. -Easy access to natural resources such as iron ore to make steel. -Brazil’s weak currency has made Embraer’s products more competitive on the international market. -High quality -Repair and accident records rival those of competitors. -Strong customer service and training. -Easy customer access to parts. -Low maintenance costs.


Keys to Success(cont.): Keys to Success(cont.) -Strong management -CEO Mauricio Botelho known in Brazil as a long-term strategic planner. -Partially owned by a Brazilian financial group, Bozano, and a group of European aerospace companies. -Government subsidies -Favorable taxes and tariffs. -Controversial because it has drawn complaints from the company’s rivals. -Canadian government has complained to the WTO on behalf of Bombardier.


Embraer’s Future: Embraer’s Future -Effects of the War on Terror -Experienced a significant decline in stock prices after 9/11. - The company could end up benefiting in the long-run. -Since most airlines are looking to cut costs, Embraer’s low-cost products are more attractive. -Embraer focuses on regional jets for domestic airlines, which have not been targeted by terrorists thus far. -Decline in air travel has led more companies to explore to opportunities of corporate jets, which is a key market for Embraer. -An increase in the demand for military aircraft in smaller countries could increase Embraer’s military sales.


Embraer’s Future(cont.): Embraer’s Future(cont.) -Short-run success will depend on the number of Embraer’s exports and the continued weakening of the Real. -Long-run success will depend on how well the company’s new line of 70 and 100 seat aircraft performs. -Competing directly with Boeing and Airbus in the large commercial aircraft market is a huge risk for Embraer. -Embraer’s success also depends on the airline industry as a whole. -An increase in terrorist attacks and a decline in air travel could have a negative effect on sales.