Foreign direct investment in Brazil: A positive perspective of the future

• Published date: 01 September 2018
• Author: David Floyd,Amanda Bernardi
• Date: 01 September 2018
• DOI: http://doi.org/10.1002/jsc.2233

RESEARCH ARTICLE

Foreign direct investment in Brazil: A positive perspective

of the future

Amanda Bernardi | David Floyd

Lincoln International Business School,

University of Lincoln, Lincoln, United Kingdom

Correspondence

David Floyd, Lincoln International Business

School, University of Lincoln, Brayford Pool,

Lincoln LN6 7TS, United Kingdom.

Email: dfloyd@lincoln.ac.uk

Abstract

Brazil is a place for long-term investments, but it is losing its attractiveness to the foreign market

while factors such as location and ease of implementation of the business are the only determi-

nants of the investor. Basic education, political stability, and fiscal reforms have been identified

as areas having implications for policy making.

1|INTRODUCTION

During the 1990s, globalization was a boost for the Brazilian econ-

omy, which, together with several economic liberal measures, reached

the first Foreign Direct Investment (FDI) record in 2000 and

accounted in U$ 32.8 billion of investment (World Bank, 2017). Since

then, the ups and downs of the economy has slowed the flow of for-

eign investment in the country, which never again remained upgrow-

ing. As other emerging markets, Brazil is in need of foreign capital to

improve their infrastructure, to finance their foreign debts, and ensure

economic growth. Looking through the lenses of the Eclectic Paradigm

of Dunning (1993, 2001), Brazil has been attractive to the external

market for different reasons over the years. Mainly, the reasons for

investing in Brazil are parallel-related to the growth of the world econ-

omy. However, it is assumed that the attractiveness of Brazil is not

equally distributed, and that some factors persuade foreign invest-

ment more than others. Therefore, this article will provide a general

overview of the determinants for FDI in Brazil according to Dunning

theory of international production (1993, 2001), that is, an analysis

throughout the factors of market-seeking, resource-seeking,

efficiency-seeking, and asset-seeking, reflecting on the current eco-

nomic stage of the country as well as future prospects and its

historical past.

In terms of entry modes, Brazil has been showing more advan-

tages for mergers and acquisitions since the government released con-

cessions in sectors as services, electricity, commerce, health, and

automobiles (Banco Central do Brasil, 2018). This is something which

is expected for developing countries. As stated by Meyer (1998),

emerging markets are likely to attract investments regarding privatiza-

tions of state-owned firms, which happens as an attempt to stabilize

the economy. Moreover, local shareholders and businesses invest in

unloading assets because of financial distress caused by recession or

corrupt investigations (Schipani & Leahy, 2017). Likewise, the

privatization process entry, by definition, is a subset of acquisition and

joint-venture entries (Meyer, 1998). Foreign investors would acquire

firms in that way if the local asset requires local learnings, therefore,

both sides would share responsibilities and minimize their risk

exposure.

Furthermore, the literature shows the inclination for collaborative

entry modes into Brazil. Foreign business needs to adjust to the local

market in terms of attitude towards work and leadership, and the lack

of understanding of the market processes (Meyer, 1998). This hap-

pens because of the specificity of the local expertise, resources acces-

sibility and networking capabilities, fundamental to the success of a

FDI (KPMG, 2012). According to Kasper (2015), “the theories offer

different views on several factors, but when the factors are combined,

it shows that entry mode that had the broadest consensus is a collab-

orative mode.”That means that joint venture and alliances are more

appealing to external investors in general, and even more, in Brazil.

Joint-ventures and acquisitions are more popular in Brazil for two

reasons. First, the reasons behind transaction cost theory. As the Bra-

zilian uncertainty is relatively high, companies must avoid full owner-

ship and shift the risk to outsiders (Hollensen, 2011; Kasper, 2015).

This method naturally creates a certain level of opportunism, which

will generate costs of monitoring the partner. Yet, transaction cost

theory also brings advantages as the share of tacit knowledge and

advanced technologies, a fundamental relationship flow in emerging

markets. Second, Brazil is known for its complicated bureaucracy and

its unconventional means of doing business. A business would strug-

gle to work in Brazil without having Brazilians involved in the strategy,

who have the knowledge of the local market and the network. For this

reason, most of the companies that were successful in the Brazilian

market were businesses that made their entries through collaboration

with companies already existing in Brazil, or through acquisition

merger with Brazilian companies well positioned in the market, this

helps to make the market seem less distant. The acquiring company

DOI: 10.1002/jsc.2233

Strategic Change. 2018;27:489–493. wileyonlinelibrary.com/journal/jsc © 2018 John Wiley & Sons, Ltd. 489