thesis marlon

ABSTRACTIn this paper firstly we will describe the economic situationin Brazil at present moment and what is the major problemthat Brazil is facing. Through analyzes we will conclude thatthe lack of investment in infrastructure it is the majorchallenge in Brazil right now. According to the GlobalCompetitiveness Report 2013 -2014 Brazil occupy the 56th

position out of 148 countries, behind many countries wheretheirs GDP is substantially smaller then Brazil. (Malaysia,Iceland, Ireland, Puerto Rico, Malta, Panama, Latvia, Astria,etc), and in terms of Quality of the Infrastructure Brazilrank falls even more to the 114th position.

Infrastructure is a serious problem in Brazil, where it isthe main reason that makes the cost of the products becameconsiderable higher and less competitive. It is alsoresponsible for constant delay in deliver of the goods. InMarch of 2013 Brazil lost a huge deal of 2 million tons ofsoya beans with one of the biggest Chinese costumer (SunriseGroup) because of the intensify delays.

This paperwork is focus in the infrastructure problems inBrazil and the opportunities of cooperation in this sector.At the last explorer how China can invest and cooperate withBrazil to develop this sector. Which the research it will bedivided in 4 parts, the first part will explorer the scenarioof the infrastructure in Brazil and answers the questionssuch as: What is the real necessity in the infrastructure inBrazil? Why infrastructure is the main problem? What are the

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consequences that Brazil is facing because of a bad qualityof infrastructure?

Second part of this paper consists in the internationalopportunities for invest and cooperate in the infrastructureindustry in Brazil. This part will present the degree ofopenness for the foreign investors in this industry,regulations, policies, specific requirements and mold ofcooperation.

In the third part will show the currently scenario of foreigninvestors in the infrastructure sector in Brazil. Which willbe point it out questions such: if the inflow of the foreigninvestment is it enough? Yes or no and why? And which are therisks of investing in this sector.

Finally in the last part of this paper we will explorer theopportunities that China can cooperate with Brazil and howmuch China is already investing in Brazil in theinfrastructure sector and comparer these investments toothers countries.

Brazil is a developing country just like China, the bothcountries belongs to BRICS (Brazil, Russian, China, SouthAfrica) which plays an important role in the world economy.Both countries are developing fast, Brazil economic isconcentrated in agriculture products, natural resources andservices and China economic is focus on exporting andmanufacturing, beside different economy orientation, theyhave been partners since eighteenth century. Brazil

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represents the 7th economy in terms of GDP in 2013; it is infront of many countries such as Canada, India, Sweden,Portugal and Spain. Brazil have a big potential to makeeconomic grow and is still have a long way to go to became adeveloped country, China is the biggest exporter in the worldand can supply many of the necessity and demand fromBrazilian industry. It’s a right time and opportunity tocreate more forms of cooperation between these two countries.

The final part of this study is the conclusion of how Chinacan supply the Brazilian needs in The InfrastructureDevelopment industry and make the relation between Brazil andChina closer fulfilling the opportunities.

Key Words: Cooperation, China, Brazil, InfrastructureDevelopment Analyses, Forms of Cooperation.

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摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘）；（）； CTF，CTF 摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘、、、；一，

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摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘西，一摘

摘摘摘：摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘摘，，，。

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CONTENTS

1 INTRODUCTION.........................................1

1.1 BACKGROUND AND OBJECTIVES.............................11.1.1 Background.......................................11.1.2 Research Objectives.................................3

1.2 LITERATURE REVIEW...................................41.2.1 Modes of Entry in Foreign Markets.......................5

1.3 RESEARCH PROBLEM AND FRAMEWORK.......................161.4 METHODOLOGY........................................161.5 GENERAL THEORETICAL ANALYSIS.........................17

2 UNDERSTANDING THE CTF SECTOR AND THE ORAL CARE PRODUCTS..............................................19

2.1 UNDERSTANDING THE CTF CLASSIFICATION FOR THE BRAZILIAN GOVERNMENT............................................192.2 AN OVERVIEW OF ORAL CARE PRODUCTS....................21

3 BRAZIL’S IMPORT POLICIES............................23

3.1 TAX CLASSIFICATION OF PRODUCTS – HS CODE AND NCM.......243.2 BRAZILIAN TAXES LEVIED ON IMPORTS OF PRODUCTS..........26

3.2.1 II – Import Tax....................................283.2.2 IPI – Tax on Industrialized Products.....................313.2.3 PIS/PASEP and COFINS..............................323.2.4 ICMS – Merchandise and Services Circulation Tax...........323.2.5 AFRMM - Merchant Marine Renewal Tax..................33

3.3 IMPORT CALCULATION ANALYSIS..........................34

4 ANALYSIS OF THE BRAZILIAN MARKET....................35

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4.1 GLOBAL OVERVIEW OF THE CTF INDUSTRY..................354.2 THE CTF MARKET IN BRAZIL WITH FOCUS IN ORAL CARE PRODUCTS 384.3 OPPORTUNITY FOR CHINESE ORAL CARE PRODUCTS.............49

5 CONCLUSION AND RECOMMENDATIONS......................50

APPENDICES............................................53

APPENDIX 1 GLOSSARY....................................53APPENDIX 2 FLOWCHART OF IMPORTS OF GOODS – BASIC PROCESS.....56APPENDIX 3 TABLES......................................57

REFERENCES............................................73

ACKNOWLEDGMENT........................................78

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1 INTRODUCTION

1 INTRODUCTION

1.1 Background and Objectives

1.1.1 Background

Nowadays with the globalization growing faster than ever, an important event that occurs in one country, affects not only the local country but creates influences and changes over their boards. Such influences spread and shake whole world asone community. Examples are present in our daily life, it iscan be found just by watching the news or reading the first page of the newspaper. Most of the times those events are related to economics, politics or religion.

In such environment is extremely important nations strive to create a stronger ways to consolidate and establish relation with others countries, the word cooperation becomes fundamental for this task and affect significantly in the economic growth, many successful countries adopted different kinds of cooperation (free trade, blocs, zones, etc..). Establishing a strong link and a good relationship between countries it is important to maintain the economic grow in a long run.

Cooperation by general definition means: An act or instance of working or acting together for a common purpose or benefit; joint action.

Economics definition: the combination of persons for purposes of production, purchase, or distribution for their

RESEARCH ON MARKET OPPORTUNITY FOR CHINESE ORAL CARE PRODUCTS IN BRAZIL MARKET

joint benefit: producers' cooperation; consumers' cooperation.

Sociology definition: activity shared for mutual benefit.

Because of this global scenario, mentioned before this research will focus on the cooperation’s opportunities presented by Brazil in the infrastructure industry.

Firstly we will analyze why improvement in infrastructure is so important for Brazil and what it is really necessary to bedone, after understanding the currently situation it is possible to explorer the opportunities and limitations this sector have to offer for the foreign investment. And we can have picture of how much of the foreign investment in this sector is been invested and if is it enough or not, next stepis focus in China analyzes as an investor in this sector, howmuch China invest already and compare investment already madefor similar projects. In the end present China as the potential main partner for fulfill these opportunities in future.

Brazil and China both are part of BRICS (Brazil-Russia-India-China-South Africa)

For Cavusgil (1998), Page 2, Balassa, Bela. The Theory of Economic Integration (Routledge Revivals). Routledge, 2013. the rate that emerge markets are growing is faster than post-industrial economies, and with arrival of the modern age of globalization there is more opportunities to economic develop.

Brazil and China have a strong role in the world economic, stability and politic. China has a strong presence in the Brazilian economic, since the China is the biggest partner with Brazil in term of export and import (trade balance). The

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relation between China and Brazil has been growing stronger past last few decades.

The cooperation between these two countries it will tight closer their relations. This year 2014 Brazil is hosting the world cup and 2016 Olympics Games. Brazil is been the focus of the attention in the international communities regards to these important events, there are big expectation for Brazilian economic growth and burst, such expectation can be only possible if Brazil improves significantly theirs infrastructure industry. This can be a positive signal for opportunities of cooperation and development in this industrysince Brazil has a lack of public and private investment in this sector.

This paperwork is an exploratory study to betterunderstand the situation and problems that Brazil isfacing in the infrastructure sector and to analyze thefeasibility for foreign cooperation in this Industry inBrazil. It examines the reasons for invest in thissector in Brazil, the degree of openness for foreignerinvestment, policies, mold of cooperation and risks. Inthe end we will have a clear scenario of foreigninvestment in this sector and if is it enough or not,and how China is positioned as a foreign investor andcompare the investment that China did in Brazil intosimilar projects in others Countries and always seekingan academic and professional recommendations how thepartnership and cooperation between China and Brazil canbe done to develop infrastructure industry in Brazil.


1.1.2 Research Objectives

Based on statistics, theory and the currentinfraestructure scenario in Brazil, the purpose of thispaper is identify oportunities for foreign investmentand cooperation in Brazil in this sector. Describe whatare real needs in infrastruture in brazil, molds ofcooperation in this sector, barries, current foreigninvestement existent, China as an investor andrecommendation to increase China and Brazil cooperation.

It will describe infrastruture problems inBrazil and cost that bad quality of infraestrutureis causing.

It will analyse the oportunities for foreigninvestment in Brazil in this sector, which are therisks, barries, mold of cooperation and policies.

Overview the current foreign investment inthis sector.

China position as a partner and presentrecommendations to China became main investor.

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1.2 Literature Review

There are limited data and study about foreigninvestment in the infrastructure in Brazil and there isno previous research of how foreign companies establishinvestment in this industry or how they can exploreopportunities existent, therefore we will show somecases about Brazil and international cooperation, thereasons that brings two countries or more to cooperate,conditions to establish cooperation and a cleardefinition of what is cooperation then in whichways/situations it is possible to happen.

Nowadays with the globalization and integration between economics blocs it is extremely important to nations strive to create a stronger ways to consolidate and establish relation with each other, in this scenery cooperation becomes fundamental for this task and affectsignificantly in the economic growth, we have many successful countries that adopted different kinds of cooperation such as: Preferential Trade Agreements, FreeTrade Agreement, Economic Partnership, Common Market, Economic Union, Economic and Monetary Union and CompleteEconomic Integration.


Cooperation by general definition means: An act or instance of working or acting together for a common purpose or benefit; joint action. Economics definition: the combination of persons for purposes of production, purchase, or distribution for their joint benefit: producers' cooperation; consumers' cooperation. Sociology definition: activity shared for mutual benefit.

1.2.1 International Cooperation: Advantage and

Disadvantage.

Why cooperate internationally? Because, cooperation is the easiest and faster way to achieve it common goals in globalized world. International cooperation opens doors for opportunity to develop together with others countries developments. But cooperation is not always easily to reach as it sound, cause requires an agreement from both sides and in during this processes all parties tend to maximize their own interest and that's brings conflicts. To close an agreement and execute it until the end of the project it is not an easy task.

The benefits of cooperation can be presented in many ways. Such as: cost sharing, access to expertise, technology, facilities and know-how. Plus also serves as political boost for the project / program; creates good or close relations between others countries and influence in the positive way the country`s development.

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On the other hand, the risks are to cooperation is the restriction of freedom of action, creates too much dependencies on the partner, besides the increase of managerial complexity. There are also political risks if cooperation fails and “unwanted” technology transfer to the wrong countries can helps to create or involuntary strengthenfuture competitors. (Hondroyannis, G, 2003)

Therefore, developed countries allocate part of frontline knowledge and technological innovation ("core technologies") for their exclusive use, so that they can ensure leadership and receive dividends from "copyrights", patents and trademarks, and for that, employing all legal contraptions available for the protection of intellectual and industrial property. (Krieger, E.M., 2005)

1.2.2 Collaboration and cooperation: different modes of international relationship

Collaboration and cooperation have different concepts, though both signify “Work together", the power in collaboration is not even distributed between the participates involved, that means in each project there is a leading actor responsible for the collaboration andit`s owns the most interesting results of the industrialand commercial applications, while other members are just supporting cast. Normally, this type of collaboration work is limited to scientific and technical assistance, training of human resources for research, the equipment is donated from the developing countries and users of the equipment and laboratories are the principal member in the experiments, they are responsible for the findings and results. Since the


collaboration projects have a main members that is responsible for it, there is not so much mutual trust between both sides, always the stronger member will conduct the research for their own interest, detain the results and use it for their own benefits. Many collaboration projects in Latin America are running in this mold and characteristic.

The cooperation came at the end of the Cold War with theglobalization. There was need for traditional military enemies such as Russia and the United States (U.S.) to work together, both to prevent transfer sensitive technology (nuclear and space) of the Russian to “unwanted” countries.

As a result, the collaboration had to evolve and go for a step further changing to cooperation, where favoring dialogue, negotiation, joint decision, the project design in agreement and the sharing of costs and R & D. The big difference between the two forms of "working together" puts available to the cooperation, each partner has to offer, and so complement, but always ensuring the independence of each member. Coordination control replaced, and the exercise of trust has become the basic principle in favor of the partnership. The results of cooperation belongs partners, and not to the stronger member in the project as collaboration molds. As defined previously agreed proportional to effort each, because there is trust between them. The legal arrangements have become progressively less formal, and thus, allow greater flexibility of organizations involved. Each partner brings to cooperation what you do

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best. For this reason, enter into cooperation. The cooperative process highlights the absence of direct competition in terms appropriation of knowledge and technology between partners. They both have an agreementand bring the intellectual and industrial property for both the sides, they trust each other. This is the main reason for entering into partnership: everyone wins. Cooperate to compete with others outside the partnershipis the goal.

An essential point in the cooperation is that it not limited to sectorial segmentation. It`s brings knowledge(know-how) and self-financing. Each partner is jointly responsible for the success of cooperation. This procedure facilitates organizational learning. The partnership is like a society where the rules are known,accepted and respected by its members. The cooperation enriches both alliances, making them attractive in termsof competitiveness.

Several years learning to work together under these new bases were needed, especially in management partnerships/ joint management programs and project. Vonortas, N. S (1998)

Cooperation means joint decision, since the planning to implementation and final evaluation and course correction for projects of medium and long term. The chances of success increase with the partnership's efforts to absorb previous knowledge of each partner andthe partnership acquired. Cooperation motivate the successful completion of other, more daring, more


demanding knowledge, making more elaborate work; more fair share in terms of funding for each one, and sometimes conquest of slices market that promote and facilitate international partnerships.

1.2.3 Brazil and International Cooperation

Why some of the cooperation works successfully and others fail? Many studies show that to cooperation to beexecuted effectively is important to evaluate and choosethe right partners, right research theme or project, division of labor, clear objectives to be achieved, provide necessary material and conditions for each member.

These elements define the degree and the nature of the work. To maintain a good international cooperation for long run require good commitment from headquarter, governments policies, trust and respect from both side partners. Fulfillment these tasks makes possible to pursue easily the common goals and an agreement between them.

Brazil has cooperation to more than 15 countries; one ofthis cooperation is the program Space Station International (ISS). To implement it, the U.S. space agency (NASA) signed bilateral agreements with their counterparts in Europe, Japan, Canada and Brazil and theU.S. President signed an Intergovernmental Agreement with the heads of state of each member country. This wasonly possible for Brazil after inclusion appendix on theBrazilian participation in the ISS in the Framework Agreement on the Peaceful Uses of Outer Space signed

1 INTRODUCTION

between Brazil and the U.S. 1996. Brazil's contribution was made at the invitation of the U.S. President to conducting a portion of the task that NASA owns about 50% of the group and Brazil is an official collaborator (participant).

The CBRS (China- Brazil Earth Resources Satellite) it`s also an example of cooperation program that was born from the partnership between Brazil and China. This project it is in the space technical scientific segment.Brazil joined a select group of countries with remote sensing technology. Thus, Brazil has obtained a powerfultool to monitor its huge territory by its own remote sensing satellites, looking forward to consolidate an important autonomy in this segment.

Basically this program has as goal to build a series of remote sensing satellites built by Brazil and China. Thesearch for more effective and economical means of observing the Earth led the man to develop the remote sensing satellites. But the high cost of this technologymake developing countries dependent on the images supplied by equipment from other nations.

In an attempt to reverse this context, the governments of Brazil and China signed on July 6, 1988 a partnershipagreement involving INPE (National Institute for Space Research) and CAST (Chinese Academy of Space Technology)to develop a program to build and operate two advanced remote sensing satellites, named CBERS Program (China-Brazil Earth Resources Satellite).


With the financial and technological resources from Brazil and China, an investment exceeding $ 300 million,it was created a system of shared responsibilities (30% Brazilian and 70% Chinese) with the intent to implement a complete system of remote sensing internationally.

1 INTRODUCTION

1 INTRODUCTION

cultural and environment in Brazil using Hofstede'sdimensions model and then analyze of the currentmacroeconomics situation.

Before make an investment in a country it is importantevaluate some key point such as risks, local regulationand policy and cultural/environment differences.According to Hofstede's understanding differencescustoms, values, believes and culture can help todeterminant more clear which environment you arestepping in and make right decision, avoiding mistakesand bring positive results to the business.

National culture has been shown to impact on majorbusiness activities, from capital structure to groupperformance (Leung et al, 2005).

Cultural awareness can lead to greater success of international business ventures and lack of it can just aswell lead to their failure (Dowling et al, 2008: 57).

1.2.1 Hofstede’s Cultural Dimensions – Brazil

Analyze

Hofstede describe that each culture can be defined and comprehended base on series of dimensions. These dimensions seeks to answer questions deep in rooted in each culture and trace their characteristics and peculiarities.


Culture is the collective programming of the mind

distinguishing the members of one group or category of

people from others (Hofested, 2001)

Hosfstede studies consist in 5 dimensions: Individualism/Collectivism (IDV), Uncertainty Avoidance (UAI), Power Distance (PDI), Masculinity/Femininity (MAS), Pragmatic/Normative (PRA) and Indulgence/Restraint (IND).

Limitations about this study is that a country cannot be related directly to all individuality of that country, it`s means that even tough when this study is applied into a big scale it is quite effective and accurate, but must be aware that doesn’t include all the subcultures or individuals in this category. It is very useful to understand the general differences in culture between nations but always will be some gaps and exceptions. And culture is something that changes, it`s something dynamic not static, where constantly take shape and reshape by time and external/internal influences.

We will apply these dimensions into Brazil scenario and have a general idea of the Brazilian culture and environment.

(1) Individualism vs Collectivism

This dimension measures the degree of interdependence between individual to the members of the society. Where this dimension is trying to check the self-conscience whether is sharped into “I” or “We”. It is examples of the individualist society’s people who most of the time care about themselves and theirs family and not so much about others members of society and the opposite is the collectivist societies where the people associate

1 INTRODUCTION

themselves in a group and exchange favor between themselves creating a circle of loyalty.

According by Hostede`s research Brazil scored 38 points out of 100. Which means that the collectivism mind stillpredominant in the society, and have a strong influence in the business, especially when it is about members of families (cousins, uncles, aunts and grandfathers.) where they will protect themselves and make favors for each other in exchange of loyalty. Most of the time business is built in the trustworthy and long relationship; typically the older and more powerful member of the family will help the young members of family to get in the business.

(2) Uncertainty Avoidance

In Uncertainty Avoidance is how individual of the society react to the uncertainty of the future, where base on their beliefs and values should they take an action to try tocontrol the future (planning and executing) or whether just let it go and flow with course the course. This dimension is related to the anxiety and does each culture feel and react by unknown situation, countries that have high score in UncertaintyAvoidance tend to take less risks and step only in sure path opposite from countries that have low score in thisdimension.

According by Hostede`s research Brazil has a high score on UAI, total 76 points, where most of the Latin countries also have high score. In societies with high scores theirs regulation, laws and rules are normally very complex and strict, because they have a strong needfor a direction or “guide” from a superior entity or


institution so they can feel safe and protected. Consequences of these regulations and complex laws brings a heavy bureaucracy in theirs system.

(3) Power Distance

This dimension compacts with the differences between individuals in the society. Basically measures how it isthe perception and treatment of the society toward to the less powerful members in the society, institution ororganizations. Also give us the idea of the degree of the power unequally distribution in the country.

According by Hostede`s research Brazil scored of 69, this mean that people who is the power holder have much more benefits than those who doesn’t have it and this brings how the richer society treat the less powerful people and distance between then. Hierarchy it is extremely important in the society, company and family, where the younger and less powerful people should show respect to the elders and more wealthy people in the society.

(4) Masculinity vs Femininity

A high score in this dimension means that society is oriented to the masculine society normally it is societies extremely competitive praise the winner and value the individual achievements. This behavior is cultivated since the early education and extends it to the elder ages where takes influences in the organizational and business culture.

Opposite from the low scored countries, the society orientation is toward to the feminism, where the qualityof life is more important than individual achievements.

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According by Hostede`s research Brazil scores 49, is in the middle term, there no strong presence of masculinityor feminist in the society. Which means that Brazilian society try to find the balance between individual success and quality of life at same time.

(5) Pragmatism

This dimension shows how society is connected from theirtraditions, past and how they face changes and modernization of the future, which normally create conflict between past and future cause both have different goal and values.

Society that`s have low score in this dimension is less susceptive to changes for the future and prefers to keepthe traditions and honor of the past. Opposite from the countries that have high score, those countries are moreopen and flexible to changes and modernization.

According by Hostede`s research Brazil scores 44, which is considerate as intermediate in this dimension.

(6) Indulgence

In this dimension measures the control of the impulses from consumption, if the society tends to spend more money and enjoy life without feeling guilty about it or restrain their desire base on the way they are raised. Countries with high score is more indulgent, means that they are weak in controlling theirs impulse and desires.Opposite from the low scored countries they show more control of their actions and restrain their desire and impulses.

According by Hostede`s research Brazil scores 59 and is considered as a high score. The population in Brazil


tends to spend more without restriction or control and not feeling guilty after, the impulses to satisfy a desire of enjoying life is stronger than restrain impulse. Normally members of this society are positive about the future and optimism in almost all situations.

1.2.2 Macroeconomic Analyzes in Brazil

To understand a country current situation is important to check some main macroeconomic indicators, just like a doctor do with their patient before prescribe a medicine. This research section is dedicated to help investor have an idea of the market in Brazil and how well it is the Brazilian economic.

Economic indicators are statistical measures of the economic conditions of a specific market or sector of the economy. They are produced to support economic analysis as snapshots of economic performance at a specific sector at a specific point in time (Baumohl, 2008).

Economic indicators can have a huge impact on the market; therefore, knowing how to interpret and analyze them is important for all investors. (Ryan Barnes, 2012)

A scan of the Brazilian economic will be base it on some social, geography and macroeconomic indicators, such as: GDP, GDP per capita (PPP), Trade balance (Import and Export),International Reserves, Inflation rate (Consumer Price), Interest rate, Fiscal sector (Public Debt and Primary Surplus), Unemployment rate and FDI (Foreign Direct Investment).

(1) Population and Extension

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Brazil have high population, is 5th most populatedcountry in the world and rich in diversity. Thepopulation composed by different ethnics, white 47.7%,mulatto (mixed white and black) 43.1%, black 7.6%, Asian1.1% and indigenous 0.4%. The age structure in Brazilpredominant ages are between 25-54 years which represent43.7% of the society.

Source: IMF (2013)

Chart 1-1 Population of Inhabitants


In terms of territory extension Brazil is also among thetop five`s in the world.

Source: IMF (2012)

Chart 1-2 Territorial Extension

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(2) GDP and GDP per capita

The Brazilian economy is very diverse, extremely rich inagriculture products and natural resources. It`s thelargest economy in Latin America and occupies currently7th economy in the world. Bellow we can see how it is thecomposition of Brazilian economy and GDP, GDP perCapita.

Brazil has a strong domestic market, and not sovulnerable to external crisis, part of it it`s becauseof the solid foundation, stable politic, regulations,strict control of the inflation and improvements insocial welfare. This was proved when the economies failto the finance crisis of 2008-2009 Brazil was one of thelast economies to get affected and also one of the firstto show signs of recovery. In 2009 Brazil had a toughyear, but next year showed a strong recover of 7.5% grewin GDP, and then following years grow rhyme slowed downalong rest of the world, influenced by external andinternal market with 2.7% in 2011 and 1% in 2012.

Despite Brazil has a strong presence in the worldeconomy, there are big challenges that Brazil has toovercome to reach the developed countries. If we checkthe GDP per Capita we can realize that there is a biggap between Brazil to developed countries. For examplein terms of GDP Brazil is in the 7th position but when itis about GDP per Capita Brazil is situated in 105positions out of 228 countries. This mean although the


successful economic grow experienced by Brazil in theseyears; there are many social inequality andconcentration of wealth.

Source: J.P Morgan Investment Bank (2012)

Chart 1-3 Components of the Brazilian Economy

1 INTRODUCTION

Source: IMF (2012)

Chart 1-4 GDP

Source: CIA (2013)

Chart 1-5 GDP per Capita

(3) Trade Balance/Current Account Balance

Brazil in 2013 had current account negative -$77.63billion. Brazil is in the 191 position out of 193countries in the 2013 trade balance rank. Brazilian


export basically commodities such as: transportationequipment, iron ore, soybeans, footwear, coffee andautos in contrast of imports are focus in: machinery,electrical and transport equipment, chemical products,oil, automotive parts and electronics.

Brazil 4 main exports partners in 2012 is China with17%, US 11.1%, Argentina 7.4%, Netherlands 6.2% (2012)and as exporter is situated in 23 position out of 223countries.

The main importers partner in the same year are Chinawith 15.3%, US 14.6%, Argentina 7.4%, Germany 6.4% andSouth Korea 4.1% as importer also occupies the 23position.

Source: The World Bank (2013)

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Chart 1-6 Current Account Balance

Since the beginning of international crises in 2008Brazil is showing negative results in the CurrentAccount Balance, part of this situation, it is caused bymanufactures in Brazil that is losing competitivenessdual to the lack of investments in modernization andinfrastructure, also because there are less creditsavailable in the market, other factor is because Brazilexport it mainly consisted in commodities and the globalcommodities prices have been falling in these years.

Table 1-1 Brazilian productionin the World

Products Production ExportsSugar 1º 1ºCoffee 1º 1ºOrange Juice 1º 1ºEthanol 2º 1ºBeef 2º 1ºTobacco 2º 1ºSoy Beans 2º 2ºLeather and Fur 2º 4ºChicken Meat 3º 1ºIron Ore 3º 2ºShoes 3º 6ºSoybean Oil 4º 2ºSoybean Residue 4º 2ºMaize 4º 3º


Airplanes 4º 4ºPork Meat 4º 4ºCotton 5º 5ºCars 5º 12ºAluminum 7º 6ºSteel 9º 13ºSource: SECEX (2012)

(4) International Reserves

Brazil has good international reserves, which ispositioned in the 8th out of 169 countries, according toWorld Bank Brazil had $378,300,000,000 in the end of2013.

The reserves are composed by holdings of monetary gold,special drawing rights, reserves of IMF members held bythe IMF, and holdings of foreign exchange under thecontrol of monetary authorities. The gold component ofthese reserves is valued at year-end (December 31)London prices. Data are in current U.S. dollars.(International Monetary Fund, International FinancialStatistics and data files 2013)

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Chart 1-7 Chart International Reserve

(5) Inflation rate (Consumer Price)

Brazil in recent years inflations has been raising, in2013 Brazil`s inflation reached 6.2 points, Brazil islocated in the 180th position out of 223.

Inflation as measured by the consumer price indexreflects the annual percentage change in the cost to theaverage consumer of acquiring a basket of goods andservices that may be fixed or changed at specifiedintervals, such as yearly. The Laspeyres formula isgenerally used. (International Monetary Fund,International Financial Statistics and data files 2013)



Chart 1-8 Inflation Rate (Consumer Price)

(6) Interest rate

Deposit interest rate is the rate paid by commercial or

similar banks for demand, time, or savings deposits. The

terms and conditions attached to these rates differ by

country, however, limiting their comparability. Brazil's

historically high interest rates have made it an

attractive destination for foreign investors. Large

capital inflows over the past several years have

contributed to the appreciation of the currency, hurting

the competitiveness of Brazilian manufacturing and

leading the government to intervene in foreign exchange

markets and raise taxes on some foreign capital inflows.

(International Monetary Fund, International Financial

Statistics and data files 2013)

1 INTRODUCTION


Chart 1-9 Interest Rates

(7) Fiscal sector (Public Debt and PrimarySurplus)

Public debt compares the cumulative total of allgovernment borrowings less repayments that aredenominated in a country's home currency. Public debtshould not be confused with external debt. Brazil islocated 50th among 161countries.

(8) Unemployment rate

Unemployment refers to the share of the labor force thatis without work but available for and seekingemployment. (International Labor Organization, KeyIndicators of the Labor Market database).



Chart 1-10 Unemployed Rates

(9) FDI (Foreign Direct Investment)

Foreign direct investment are the net inflows ofinvestment to acquire a lasting management interest (10percent or more of voting stock) in an enterpriseoperating in an economy other than that of the investor.It is the sum of equity capital, reinvestment ofearnings, other long-term capital, and short-termcapital as shown in the balance of payments. This seriesshows net inflows (new investment inflows lessdisinvestment) in the reporting economy from foreigninvestors. Data are in current U.S. dollars.

1 INTRODUCTION

(International Monetary Fund, Balance of Paymentsdatabase, supplemented by data from the United NationsConference on Trade and Development and officialnational sources.)

1 INTRODUCTION

Most studies on entry strategies of multinationalsfollows basically two theories: the transaction cost andthe eclectic theory (Anderson & Gatignon, 1986; Chan &Hwang, 1992; Erramili & Rao, 1993).

The Theory of Transaction Cost says that theinternationalization strategies of the company should bebased on the financial aspects of the operation, alwaysaiming to reduce costs throughout the value chain.According to Anderson & Gatignon (1986), there are fourvariables that must be considered carefully before adecision is made:

Specific assets of the transaction, in otherwords, the physical and human investmentsspecialized for the transaction. The company mustavoid a full integration of its production untilgain a stable position in the market. The greaterthe investment in specific assets, that couldhardly be availed in other operations, the greaterthe risk of the company.

The environment instability of the targetmarket. Unstable environments exacerbate the


difficulties normally encountered when working withspecific assets. Changes in policy and economy ofthe countries can bring great consequences for thebusiness environment. Ideally keep a local partnerand invest as little as possible in specific assetsto reduce its exposure to risk.

The internal uncertainty, which is theinability of the entering firms to evaluate theperformance of their agents by results, measured byobjective criteria. When there is no satisfactorycriterion available, so subjective criteria areadopted. The greater the international experienceof the firm, the greater the chances of thesecriteria to be fair.

The potential of the company to obtainbenefits without incurring high costs. Companiesthat have established brands in the market shouldkeep track of their operations, so that its imagewill not be damaged by a third party. This strategycan reduce the short-term return, but will bringlong-term benefits.

The Eclectic Theory, in turn, inserts the choice ofentry mode in the overall strategy of the company.Important aspects to consider are the level of marketconcentration, the incentives, the synergies, risksassociated with the country, demand uncertainty,

1 INTRODUCTION

intensity of competition, plus costs and specificvariables of the transaction itself.

There are several ways through which companies can enternew markets. Different entry modes represent differentlevels of control, risk and return. These factors can bequite significant when the target market is unknownand/or unstable.

Between modes of entry that enterprises can choose arethose which embrace a relationship with local companiesor representatives, such as mergers, acquisitions,strategic alliances (joint ventures), export andlicensing, through franchising or not. Another form ofentry is the opening of offices or subsidiaries(greenfield investments) in which the company does nothave the support of local businesses.

(1) Merger

A merger means the combination of two or more companiesto form a third company, entirely new under the legalaspect. The new organization normally absorbs brands,assets and liabilities of firms that generated. The oldcompanies, when combined, cease to exist (Castro, 1996).

Mergers are more frequent among companies of the samenature and the same industry. The control of the newcompany varies according to the fraction that eachcompany joined the formation of the new.


According Gitman (1997), “strategic mergers aim toachieve various economies of scale, eliminatingredundant functions, increasing market share, improvingraw material sources and distribution of the finishedproduct and so on. In these mergers, the acquiringcompany's operations and the target company are somehowcombined to achieve savings and thus make theperformance of the new company exceeds that shown by thecompanies prior to the merger."

(2) Acquisition

An acquisition is quite similar to a merger, with thedifference that the identity of one of the parties ismaintained. The acquisition generally occurs betweencompanies of different sizes, with the prevalence of theidentity of the largest one, which most often is theacquirer. As example, the acquisition mode was chosen bythe American Procter & Gamble1 to enter the Brazilianmarket. In 1988 the giant branch of consumer goodspurchased the traditional perfumeries Phebo2.

The acquisition can be a beneficial way for amultinational company to come into emerging countries1 Procter & Gamble is a company that brings together a hugeconglomeration of sub companies, producing food, hygiene andbeauty products (including oral care, shampoo, etc.), diaper,and medical drugs, among other products.

2 Phebo, a company of the Procter & Gamble group, has a widerange of products such as perfumes, makeup, and soaps, amongothers.

1 INTRODUCTION

like Brazil, since it enables a rapid market entry. TheROI (Return of Investment) tends to occur more quickly,since the acquired company already has a ready structureand it was already running.

There are other benefits such as the compensation forthe acquiring company of tax losses that the acquiredcompany has accumulated during its operations, which maycause a significant decrease in the tax burden of thecompany.

The confidentiality is very important during thenegotiation of the acquisition. The share price of thecompanies involved may undergo significant changes dueto rumors about a possible acquisition, which can haveserious consequences for the business (Newburry & Zeira,1997).

In an acquisition, it is advisable that theorganizational cultures of the companies involved do notpresent many points of conflict, so that the transitionto the new control is less traumatic. The older theacquired company is, the harder it will be to promotechanges in the organizational culture (Newburry & Zeira,1997).

(3) Strategic Alliances (Joint Ventures)

Associations of firms have emerged as an alternative wayto enter new markets, to the extent that enable thereduction of investment costs, sharing risk and accessto skills and advanced technologies along the value


chain. It is also an alternative to overcome legal andprotectionist barriers imposed by local governments.

A joint venture involves a sharing of goals, profits,managerial, risks and responsibilities between partnersfrom different countries. The success of the projectdepends on the coordination of activities throughout thevalue chain (Cavusgil, 1998). It is necessary toestablish in advance: what are the gains of eachpartner, how and how soon.

This mode of entry has received special attention fromvarious companies since the entry into unfamiliarmarkets – and with different culture and habits, it issafer when the foreign company has a partner who knowsthe market, its nuances and particularities.

Whereas the business world is increasingly complex anduncertain, it is risky to work in isolation. Theformation of alliances is a smart strategy, which mayeven be essential for the survival of the company. It isa source to gain competitive advantage againstcompetitors. However, when a company decides toparticipate in a strategic alliance, it needs to knowhow to coordinate cooperation with the partner and withthe conflicts that will surely occur, when the allianceis formed by potential competitors. There will begreater opportunity for success when the partners havecomplementary skills (Ohmae, 1989).

Alliances can be the starting point for the success of acompany. However, when it is not treated properly, it

1 INTRODUCTION

can cause major problems for the mother-companies. Trustbetween partners is primordial to the success of thealliance (Yoshino & Rangan, 1997; Newburry & Zeira,1997; Ohmae, 1987; Lorange & Roos, 1996).

Joint ventures are a special case of association, inwhich the decision-making process, the administrationsystem as well as the conditions of ownership andinvestment are preset. A joint venture is a legallyindependent organization, controlled by two or moremother-companies, wherein at least one of them has itsheadquarters abroad.

Joint ventures differ from other types of associationsbetween companies to be more clearly defined in relationto the form of sharing the control and decision making.Moreover, applies to joint ventures the same definitionof strategic alliances, in other words, a form ofagreement between independent enterprises which involvesthe joint production of some kind of knowledge, or thejoint development of products or production processes,which may include exchange of research and developmentand various information.

Joint Ventures may occur through the formation of a newcompany or by a contract between existing firms. In thefirst case, the association shall be subject to the lawsof international trade, which normally prevail the rulesof the host country business.

(4) Greenfield Investment


This strategy consists of the entry of a multinationalin order to produce its products or services directly,without promoting any kind of connection with localbusinesses. The construction of a factory or the openingof an office can be a good alternative for the entryinto a new market when there is not a suitable partneravailable in the country of destination, or a companythat can be acquired. It may also be advisable when theentering firm has trade secrets that do not want toshare with others (Newburry & Zeira, 1997).

A major disadvantage of this mode of entry is that theorganization alone assumes the entire risk of thebusiness, and may also face difficulties in adapting tothe local market. Moreover, this type of investmentdecreases the flexibility of the company, because thehigh initial investments that are required, and whichare difficult to be reversed, cannot be disregardedbecause they are made primarily in fixed assets. Anotherimportant point is that, prior to the effective entry,the company goes through several negotiations with thirdparties, such as owners of land, labor unions, potentialsuppliers, and government officials, among others, tomake the entry of the company viable without any help.Another disadvantage is the fact that the ROI (Return ofInvestment) tends to be slow, because the company willhave to start from zero to build a structure whichallows the start of operations (Newburry & Zeira, 1997).

1 INTRODUCTION

The construction of a factory should only be consideredwhen there is already a demand for the products thatwill be offered, or at least a prospect of growth indemand, which ensures the economic viability of theenterprise. Moreover, the raw materials should beavailable at the right time, with the quality andquantity needed.

This mode of entry was more frequent when the time forthe entry of competitors into the market was fairlylong, for so the company had a return on its investmentbefore facing large competitors. Nowadays, this type ofinvestment is most common when the country ofdestination has similarities with the country of originof the company. In this case, the market is not sounknown, and the chances of business success aregreater.

(5) Export

The export only involves the physical transfer of thecompany's products to abroad with the use or not of alocal distributor as intermediary business (Kumar &Subramaniam, 1997). The entrant firm generally does nothold any office in the new market, it only sells itsproducts to a local firm. This is undoubtedly the entrymode that offers less risk and greater flexibility tomultinationals, because the investment required isminimal. Moreover, if the results are not satisfactory,


the organization can easily leave the market withoutmajor consequences. In an export strategy, it may benecessary investment in marketing research, to meet thenew market and export products that adapt to localcustom.

This strategy can be a good alternative when the entrantfirm is interested in selling its products in anothercountry but does not have the resources to adopt anothermode of entry (Cavusgil, 1998).

When a company decides to just export to othercountries, rather than installing a subsidiary, theentire production may be concentrated in one place,which entails economies of scale. The problem is thatwhen production is centralized, standardized productstend not satisfactorily meet the needs of all consumers,especially those who are far from the site of production(Keegan, 1995).

It is essential to analyze the costs and salesforecasting of the company before deciding to export toanother country. There are cases in which the taxes onimports are too high or so local governments imposetrade barriers to imported products and require theinstallation of a factory. Therefore, both internal andexternal factors can affect the company's decision.

Cavusgil (1998) indicates what are the attributes of anideal partner for an export strategy:

1 INTRODUCTION

Good relationships with suppliers, customers,competitors and the community in general, as wellas the potential to grow with the business.

The local distributor should have someexperience with the product line that will beexported, or similar products, and also know-how toserve customers.

Ability to cover certain geographical region,and train the sales force in order to maintaindemand always high.

Commitment to the business, including keepingthe exporting firm informed about changes andtrends in the local market.

Familiarity with the legal environment of thetarget market, as well as good relationships withgovernment agencies.

Before choosing the partner, the foreign company mustmake sure the goals that led the local distributor tojoin them. This will avoid problems if need to break thecontract with a distributor that does not meet theexpectations.

Many companies enter new markets through exports, andthen, if the initial results are satisfactory, itdecides to open a subsidiary, form a joint venture or


acquire a local firm. In this case, the organizationwill better know the risks they will be exposed to.

(6) Licensing (Franchising)

The licensing is a contract in which a company sells theright to use a trademark, technology, know-how,structure, visual or some other asset to a licenseewhich pays for that right. This is an alternative entryand/or expansion with many attractive, especially forhigh-tech companies, know-how, or those which have astrong brand name in the market. In terms of risk, it isbetween a direct investment (high risk) and export (lowrisk). Licensing agreements do not require anyinvestment and there are no high costs involved. The ROI(Return of Investment) is very fast, because the cost isonly about signing contracts and implementing it. Thelicensing can be the best entry alternative when thecountry of destination has high tariff barriers and/orimports restrictions (Cavusgil, 1998).

Among the disadvantages of this mode of entry is thelimited involvement of the trademark owner in theoperation and control of the business. Profits from themanufacturing and marketing do not exist. Furthermore,there is always the possibility of the licensee to learnwith the licensor, and then develop its own brand orknow-how, and become a dangerous competitor (Keegan,1995). In addition, the brand image depends on the

1 INTRODUCTION

performance of several people with different opinionsand styles.

To implement a successful licensing program, the companyexamines in advance the legal requirements, politicaland economic of the country of destination for this typeof operation. It also examines the required fees forlicensing programs, patent protection methods and formsof payments to foreign licensors.

In Brazil, for example, all contracts involving royaltypayments are approved by the INPI (National IndustrialProperty Institute), so such expenses are deductible inthe Income Tax (Regulamento do Imposto de Renda, 1994).There is also a law that determines the maximumpercentage of sales that can be referred to the outerend as payment in royalties (Portaria do Ministério daFazenda, 1958).

Brazilian law defines royalty as “compensation for theuse or exploitation of industrial property rightsbelonging to third parties, such as patents, formulasand manufacturing processes, industry or trade marks andother rights of the same nature.” (Parecer Normativo,1975).

Franchising is a special form of licensing and has beenused as a mode of entering new markets, mainly by fastfood chains and service. Franchising is basically adistribution system where the franchisor gives the


franchisee the exclusive right to work with the brandand/or a business format, and charge a fee for thisfranchise. The franchisor company can put their productsto market more easily and with less capital outlay. Theperson acquiring the franchise (the franchisee) will ownhis own business, while he will be relying on all theexperience and support of the franchisor.

The franchisor/franchisee partnership means working aspartners, joining forces to achieve a common goal, thesuccess and growth of the franchised brand in themarket. Therefore, there must be identification of thefranchisor, the franchisee and the activity they carryout. It is necessary that the franchisees haveentrepreneurship, but also know how to work in teams, sothat consumers create the image of a standardized brandand can find the product or service of that brand at anypoint of sale. The idea that the franchisees of the samebrand work individually, competing with each other cannever be transmitted.

The franchisor should know that will work with partnersand that many decisions depend on consensus among theparties. Despite losing complete control of the courseof business, the franchisor has greater guarantee ofsuccess, because as the franchisee owns its business, itwill give its all to get the return on invested capital.

The franchisee, in turn, has the possibility of runningits own business, without bosses or leaders, and at the

1 INTRODUCTION

same time, has the support of an established brand andthe guidance and training provided by the franchisor. Onthe other hand, the independence of the franchisee islimited by the common rules to all franking system.

A relevant point of the franchise system is that ifthere is centralized purchasing by the franchisor, theorganization will have greater bargaining power withsuppliers and can achieve significant advantages interms of purchase and price.

1.3 Research Problem and Framework

Currently with the globalization, there are several newbrands for oral care products in the Brazilian market.Most of those new brands in the local market areBrazilians, however the products are manufactured inChina. Given this idea, what should the Chineseenterprises do in order to achieve its export salesprofit maximization of oral care products to Brazil?

This study is divided into five parts. At first, thereis the bibliography review, addressing the existingtheories on modes of entry in new markets and itsfeatures. It ends up with an analysis of the advantagesand disadvantages of each mode of entry.

The second part of this study comes with a detailedexplanation and classification of the oral care productsand its relation with the CTF sector.


The third part of this paperwork consists of an importanalysis, showing up the complicated import costcalculation in Brazil and explaining all the taxeslevied on imports of oral care products.

The fourth part provides broad data and statistics ofthis sector.

The last part summarizes the main part of this researchand brings up the final considerations andrecommendations for the Chinese enterprises to achieveits goal on profit maximization.

1.4 Methodology

This study is solely based on theory and statistics and aimsto introduce the process of entering in a new market, focusedon the analysis of exporting oral care products from China toBrazil.

These theoretical foundations are mainly composed of books,articles, journals, reports, laws and regulations, and isintended to give basic fundamentals and support to completethis paperwork. The statistics were mainly collected onwebsites of the Federal Government of Brazil, local oral careassociations, non-governmental organizations andinternational organizations, and is intended to give concretesupport, illustration and dynamics surround the oral caremarket in Brazil.

1 INTRODUCTION

Many difficulties were faced, especially in regard toobtaining data of the Brazilian local market, market share,etc. This is the main reason of the gaps in this study. Inmany cases, the information available was not suitable foruse in this paperwork.

However, without any doubt, the information obtained andlisted herein have contributed a lot to enrich thisdissertation.

1.5 General Theoretical Analysis

Based on the authors and on the theories developed throughoutthis chapter, we formulated two tables to display somerelevant aspects of our analysis.

In Table 1-1, we outline the most significant advantages anddisadvantages of the entry modes, according to the objectivesof the dissertation.

Table 1-1 Advantages and Disadvantages of the Entry Modes

MODE OF ENTRY ADVANTAGES DISADVANTAGES

MERGERShared risk and cost;A new company is created –there are no old problems.

Conflict of differentcultures;Shared trade secrets.

ACQUISITION

Rapid entry into themarket already with someparticipation;Use of benefits granted tothe acquired company.

Responsibility forproblems of the acquiredcompany;Conflict of differentcultures.

STRATEGIC ALLIANCES Shared risk and cost; Incompatibility between


(JOINT VENTURES)Less trouble to adapt tothe new market;Rapid entry into themarket.

partners;Problems in makingimportant decisions(conflict of power).

GREENFIELDINVESTMENT

Possibility of enteringinto the new marketshowing how the companyis;Certainty that there is noold pendency;Maintaining trade secrets.

High cost, high risk;Difficulties in knowingthe market andconsumers.

EXPORTLow initial investment;Low risk;Flexibility.

Distance of theconsumers;Products not adapted toconsumers.

LICENSING(FRANCHISING)

Franchisee owns thebusiness – either success;Lower risk – brand alreadyestablished in the market;Centralization ofpurchases enablesincreased bargaining powerwith suppliers.

Franchisor has nocontrol of the business;Mutual dependencebetween franchisor andfranchisee.

Source: Formulated by the author based on the Literature Review

Table 1-2 shows the assessment regarding the control, riskand return of each entry mode analyzed.

Table 1-2 Characteristics of the Entry Modes

MODE OF ENTRY CONTROL RISK RETURNMERGER Total Moderat Medium-

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e term

ACQUISITION TotalModerat

e

Medium-

term

STRATEGIC ALLIANCES (JOINT VENTURES) SharedModerat

e

Medium-

termGREENFIELD INVESTMENT Total High Long-term

EXPORT Shared Low Short-termLICENSING (FRANCHISING) Shared Low Short-term

Source: Formulated by the author based on the Literature Review

Those analysis will be helpful for the company to choosethe right way to get into the new market. Although anychange in the entry strategy is possible, the companymust analyze with due sparingly, because it can resultin significant additional costs. In some cases, however,this decision is inevitable, since it follows the legalrequirements of the local government.


2 UNDERSTANDING THE CTF SECTOR AND THE ORAL

CARE PRODUCTS

2.1 Understanding the CTF Classification for the

Brazilian Government

The Brazilian government (ANVISA)3, under the ResolutionRDC 211 – 14/07/2005, classifies Cosmetic, Toiletry andFragrance (CTF) products as those for external use ondifferent parts of the human body (skin, hair system,nails, lips and external genital organs, teeth andmucous membranes of the oral cavity), with the purposeof cleaning, perfuming, changing the appearance,correcting odors body, protect or keep in goodcondition.

This definition is similar to those adopted in bothMercosur and European Union, and it has favored the

3 ANVISA is a governmental regulatory agency, which operates inall sectors related to products and services that affect thehealth of the Brazilian population. Its mission is “to protectand promote public health and to intervene in the risks causedby the production and use of products regulated by healthsurveillance. This mission must be carried out in coordinationwith states, municipalities and the Federal District, accordingto the Brazilian Unified Health System principles, in order toimprove the quality of life of the population” (ANVISA, 2014).

2 UNDERSTANDING THE CTF SECTOR AND THE ORAL CARE PRODUCT

export of Brazilian products since it currently existsin the country an internationally acceptedstandardization (Garcia & Furtado, 2002; Salomão, 2003).

ANVISA classifies CTF products by level of risk to theuser. The levels are:

Risk Level 1 – Cosmetics, toiletries andfragrances that are characterized by having basicor elementary properties, which proof is notinitially necessary and do not require detailedinformation on its method and restrictions of use,because of the intrinsic characteristics of theproduct. At this level are listed products such as:soaps, shampoos, shaving creams, aftershavelotions, toothbrushes, dental floss, powder, beautycreams, beauty lotions, oils, make-up, lipstick,lip pencils and eyeliners, products for the eyesand perfumes.

Risk Level 2 – Cosmetics, toiletries andfragrances that have specific indications, in whichthe characteristics require proof of safety and/orefficacy, as well as information and cautions, userestrictions and manner. At this level are productsthat present potential risk, such as: anti-dandruffshampoos, anti-caries and anti-plaque toothpaste,feminine intimate deodorants, underarm deodorants,chemical exfoliating for skin, protectors for lipswith sunscreen, certain products to the area of the


eyes, UV filters, tanning lotions, hair dyes,bleaches, bleaching, permanent waving products,products for hair growth, hair removers, cuticleremovers, stain nicotine chemical removers, nailhardeners and insect repellents.

The criteria for this classification were definedaccording to the likelihood of unwanted effects arisingfrom improper use of the product, its formulation,purpose of use, areas of the body as intended to use andprecautions to be observed during its usage. It isnoteworthy that cosmetic products in Level 2 are subjectto comply with more stringent technical requirements.

The CTF industry is a segment of the chemical industrywhich the basic activity is the manipulation offormulas, and it can be divided into three segments:

Cosmetics: comprising hair treatment andcoloring products, fasteners and styling, makeup,sunscreens, skin creams and lotions, depilatory,etc.

Toiletries: soaps, oral care products,deodorant, tampons, shaving products, disposablediapers, talcum powder, hair care products, etc.

Fragrances: perfumes and extracts, water ofcolognes, aftershave products, etc.


The products, in turn, are divided into four categories,namely:

Products for hygiene;

Cosmetics;

Fragrances; and

Baby products.

2.2 An Overview of Oral Care Products

Oral health is a state of being free from chronic mouthand facial pain, oral and throat cancer, oral sores,birth defects such as cleft lip and palate, periodontal(gum) disease, tooth decay and tooth loss, and otherdiseases and disorders that affect the oral cavity. Riskfactors for oral diseases include unhealthy diet,tobacco use, harmful alcohol use, and poor oral hygiene(WHO, 2014).

Regarding to oral hygiene, people must take some actionsin order to keep the mouth always clean, fresh andhealthy, such as: A) correct hygiene – the use of oralcare products (which is the focus of this paperwork); B)smart consumption of carbohydrates (sugars); C) properuse of fluoride to strengthen the teeth; and D)monitoring of oral health by specialists (dentist)(Experts, 2009).


There are several kinds of industrialized products tohelp people hygiene their mouth. In this paperwork, inorder to facilitate the understanding and thecomprehension of these products and its features, wewill devide it into four categories:

Breath items: Toothpaste/dental gel andmouthwash;

Brushes: Infant finger brush, toothbrush(children and adults), denture brush andinterdental brush;

Floss: Dental floss/tape;

Others: Tongue cleaner.

In table below, we can see the classification of theseproducts as well as its taxes.

Table 2-3 Oral care products classificationand its taxes in Brazil

Description HS Code NCM

Federal Governmentimport taxes in Brazil

- Tariff

IIIPI PIS COFINS

Toothpaste/dental gel33061010

.93306.10.00

18% 0%

2.20% 11.30%

Mouthwash33069000

.003306.90.00

18% 0%

2.20% 11.30%

Infant finger brush96032100

.009603.21.00

18% 0%

2.20% 11.30%

Toothbrush (children and adults)

96032100.00

9603.21.00

18% 0%

2.20% 11.30%


Denture brush96032100

.009603.21.00

18% 0%

2.20% 11.30%

Interdental brush 96032100.00

9603.21.00

18%

0% 2.20%

11.30%

Dental floss/tape 33062000.00

3306.20.00

16%

0% 2.20%

11.30%

Tongue cleaner 39249000.00

3924.90.00

18%

10%

1.65%

7.60%

Source: Created by the author

These are the main oral care industrialized products and willbe the ones discussed throughout this paperwork.


3 BRAZIL’S IMPORT POLICIES

The import is the entry followed by the internalizationof foreign goods into the customs territory. In legalterms, the goods is only considered imported after itsinternalization in the country through the customsclearance stage and the payment of taxes required bylaw. The import process can be divided into threephases: administrative, fiscal and cambial.

The administrative phase refers to the procedures andrequirements of government agencies prior to theeffectiveness of the import process and vary accordingto the type of operation and merchandise: it is theimport permit.

The fiscal phase comprises the customs tax treatmentthrough the clearance of imports, which is the procedureto verify the accuracy of the data declared by theimporter in relation to the imported goods, thedocuments submitted and the specific legislation, with aview to its customs clearance. This stage takes place inappropriate facilities, shortly after the arrival of thegoods in Brazil, and includes the payment of taxes dueon importation. Upon the customs clearance completion,the goods is considered imported and can be released tothe domestic market.

3 IMPORT ANALYSIS

The cambial phase is regarded to the purchase of foreigncurrency destined to the realization of the payment ofimports (when such payment exists) being sued byfinancial entity authorized by the Central Bank ofBrazil to operate in the exchange market.

We can take a look on Appendix 2 Flowchart of imports ofgoods – basic process, it systematizes the process forthe importation of goods or commodities to Brazil,highlighting the administrative and fiscal (customs)phases.

3.1 Tax Classification of Products – HS Code and

NCM

The Harmonized Code is the international designation ofgoods (HS or SH code). The actual nomenclature isinternationally standardized in a system of names andnumbers for classifying traded products and maintainedby the World Customs Organization – WCO (formerly theCustoms Cooperation Council), an independentintergovernmental organization with over 170 membercountries based in Brussels, Belgium.

The HS is a six-digit code of nomenclature. (The NCM toBrazil has eight digits – the NCM is the same as the HScode, but has two more digits). The first four digitsare referred to as the heading. The first six digits areknown as the subheading. Countries that have adopted theHarmonized System are not allowed to change in any


circumstance the description associated with a positionor an item, nor may the number codes composed by four orsix digits be changed. This is what keeps the SystemHarmonized.

Each country may extend a Harmonized System number toeight or ten digits for export and customs purposes.Over 200 countries, customs or economic unions,representing more than 98% of world trade, use the HS asa basis for customs tariffs; creation of internationaltrade statistics; rules of origin; levying internaltaxes; trade negotiations; transport tariffs andstatistics; monitoring of controlled goods (that isresidues, narcotics, chemical, weapons, offensiveproducts to the ozone layer, endangered species); areasof customs controls and procedures, including riskassessment, technology information and compliance (WCO,2014).

Many codes have been revised over the years. Therefore,it is necessary to reference a code related to acommodity, there is the need to worry and make sure thatthe definition being used matches the code.

Below we can see the definitions for the NCM codes usedto classify the products listed in this paperwork,according to HsCode (2014):

NCM 3306.10.00 – Toothpaste/dental gel

3 IMPORT ANALYSIS

33: Essential oils and resinoids; perfumery, cosmetic ortoilet preparations;

3306: Preparations for oral or dental hygiene, includingdenture fixative pastes and powders; yarn used to cleanbetween the teeth (dental floss), in individual retailpackages;

3306.10.00: Dentifrices.

NCM 3306.90.00 – Mouthwash



3306.90.00: Other preparations for oral or dentalhygiene.

NCM 9603.21.00 – Infant finger brush;Toothbrush (children and adults); Denture brush;Interdental brush

96: Miscellaneous manufactured articles;

9603: Brooms, brushes, hand-operated mechanical floorsweepers; prepared knots & tufts for broom or brushmaking; paint pads & rollers; squeegees;


9603.21.00: Tooth brushes, including dental-platebrushes.

NCM 3306.20.00 – Dental floss/tape



3306.20.00: Yarn used to clean between the teeth (dentalfloss).

NCM 3924.90.00 – Tongue cleaner

39: Plastics and articles thereof;

3924: Tableware, kitchenware, other household articlesand toilet articles, of plastics;

3924.90.00: Other household articles and toilet articlesof plastics.

3.2 Brazilian Taxes Levied on Imports of

Products

When import goods from abroad and ask for the shipmentto Brazil, beyond the value of the product, freight costand insurance, it is important to know all the domestic

3 IMPORT ANALYSIS

costs (taxes, fees, services, etc) levied on themerchandise until it arrives to the destination company.

It is also important for foreign companies, which areinterested to get into the Brazilian market, to know allthe Brazilian duties. With these information, theforeign exporter companies can know for how much theproducts are arriving in Brazil and can manage itsselling price according to the domestic market, aimingto maximize the profit.

Brazil has a very complex and complicated tax system,differentiating from countries which work with VATsystem.

The import tax in Brazil is regulated by the Decree 4543of December 26/2002, and has undergone several changessince then. Overall, the interest part to develop thispaperwork will be described below.

Basically every imported product is subject to paymentof import duties, except gifts and books. Anynegotiation made between a foreign company and adomestic company is taxed under Brazilian law. Theexception happens when the product purchased is a book;or when the sender is an individual sending the productby post as a gift worth up to USD 50,00 per package.

Softwares are exempted, paying tax only on the value ofthe physical mean (a CD, for example). Drugs (medicines)


are exempted since presented to the Federal Revenue ofBrazil and released by ANVISA.

Imports of used, refurbished or counterfeit products isforbidden, being subject to customs retention. It isimportant to underline that the surveillance opens thepackage to examine the goods, if it is selected forinspection.

The taxes on imports of oral care products are:

II: Import Tax (Imposto de Importação, inPortuguese) – it is the Brazilian customs tariff(federal tax).

IPI: Tax on Industrialized Products (Impostosobre Produtos Industrializados, in Portuguese) –compared as VAT for some other countries (Federaltax).

PIS: Social Integration Program (Programa deIntegração Social, in Portuguese) – (Federal tax).

COFINS: Contribution for Social SecurityFinancing (Contribuição Social para o Financiamentoda Seguridade Social, in Portuguese) – (Federaltax).

ICMS: Merchandise and Services Circulation Tax(Imposto sobre a Circulação de Mercadorias ePrestação de Serviços, in Portuguese) – (Statetax).

3 IMPORT ANALYSIS

AFRMM: Merchant Marine Renewal Tax (Adicionalao Frete para Renovação da Marinha Mercante, inPortuguese) – Some researchers call it as atribute, instead of tax.

3.2.1 II – Import Tax

(1) General Overview

The rate of import tax is based on the Common ExternalTariff - CET of Mercosur.

The import tax (II) focuses on foreign goods, as well astraveler luggages and goods shipped as gift or sample,or free of charge. For purposes of this tax, it isconsidered as foreign the national goods or nationalizedexported, that return to the country, unless:

Shipped on consignment and not sold in theperiod allowed;

Returned due to technical defect, for repairor replacement;

By reason of changes in the system of importof the importing country;

For reasons of war or public emergency;

For other reasons beyond the control of theexporter.

The II is not levied on:


Foreign merchandise that, correctly describedin the transport documents, reach the country byunequivocal error or proven shipping, and which isredestinated or returned to abroad;

Identical foreign goods in equal quantity andvalue, and that is intended for replacement of ananother previously imported which came to lightafter the customs clearence, defective or uselessfor the purpose it was intended, since observed theregulation issued by the Ministry of Finance;

Foreign goods that have been subject topenalty of loss;

Foreign goods returned abroad prior toregistration of the import declaration, subject toregulations issued by the Ministry of Finance;

Vessels built in Brazil and transferred byBrazilian shipping company for wholly ownedsubsidiary abroad, which return to Brazilianregistry, as property of the same national companysource array;

Foreign goods damaged or proves useless forthe purpose of which it was intended, since it isdestroyed under customs control, before customsclearance, without cost to the National Treasury;and

3 IMPORT ANALYSIS

Foreign goods in customs transit passage,accidentally destroyed.

(2) Tax Fact Generator

The fact generator of import tax is the entry of foreigngoods into the customs territory. For purposes ofcalculating the tax, it is considered the fact generatoroccurred on the date of registration of the ImportDeclaration of goods dispatched for consumption or, inthe cases provided by law, on launch day of thecorresponding tax credit. It does not constitute ataxable fact generator the entry into the customsterritory:

Fish caught outside the territorial waters ofthe country, for company located in its territory,since it meets the requirements governing thefishery;

From goods to which the regime of temporaryexport has been applied, although the regimereneged.

The exchange rate used for converting the value of thegoods expressed in foreign currency to the localcurrency (for purposes of calculating taxes on imports),it is that prevailing on the date when considering theoccurred fact generator. This rate is available daily on


SISCOMEX4, and shall be based on the closing Ptax5 of theprevious day of the price quotation of its currency.

Regarding the rate of import tax, Brazilian law providesfor the use of specific duty, ad valorem, or acombination of both. The specific duty is a fixed amountapplied per unit of measurement of the goods. The ratesof import tax are in TEC/NCM. Currently, the use of advalorem rate prevails, with no determination toimplement specific rates in TEC.

(3) Calculation Base

The basis for calculating the tax, that is, the value onwhich the rate is applied to determine the tax amountis:

4 SISCOMEX or Foreign Trade Integrated System is a system used bythe government of Brazil for the control of foreign trade, whichin a single stream, record activities, monitoring and controlthose operations.

5 Ptax is an exchange rate calculated during the day by theCentral Bank of Brazil. It consists of the average ratesreported by dealers of USD during 4 gaps of the day. It is thereference rate for the value of USD of D2 Typically, ratederivative contracts are liquidated based on PTAX disclosed forthe previous business day.

3 IMPORT ANALYSIS

When the rate is specific, the amount of goodsexpressed in the unit of measure indicated in thetariff;

When the rate is “ad valorem”, the customsvalue determined in accordance with standards ofArticle VII of the General Agreement on Tariffs andTrade (GATT).

3.2.2 IPI – Tax on Industrialized Products

Tax on Industrialized Products (IPI) is levied onmanufactured products and has as fact generator, inimport, customs clearance of goods of foreign origin.The basis for calculating the IPI is the customs valueof the goods plus the amount of import duty. The IPI taxrates on imports are the same as applicable in thedomestic market operations, and are listed in TableIncidence of IPI (TIPI), approved by Decree No. 6,006,of 28/12/2006. In general the rates are ad valorem;however, some products (that is chocolates, beverages,cigarettes and tobacco), shall be subject, by unit orquantity of product, the tax fixed at the domesticcurrency.

The IPI is regulated by Decree No. 4,544, of 26/12/2002.IPI on imports is also collected at registration of theImport Declaration. It is observed that imports of goodsfor which there are special schemes or simplifiedtaxation are exempt from IPI. Moreover, it applies to


IPI the same tax regime applied to II, provided that itmeets the requirements and conditions for the grant ofsimilar benefit, if any, on the II.

TIPI (%) × (CV + II) = IPI

3.2.3 PIS/PASEP and COFINS

Law 10.865, of April 30th, 2004, established thecontribution to the Social Integration Program andTraining of the Public Service incident on Import ofForeign Products or Services (PIS/PASEP – Import) andSocial Contribution for Social Security Financing owedby Importers of Foreign Goods or Services from Abroad(COFINS – Import).

In case of import of goods, the chance of incidence, thefact generator and the occurence date of the generatorfact of contributions are the same as those observed forthe import tax. Unless otherwise provided by law, therates are 1.65% for PIS/PASEP – Import and 7.6% forCOFINS – Import. The Basis of contributions is thecustoms valuation, plus the amount of ICMS and the valueof its own contributions.

PIS rate × (CV + ICMS + PIS + COFINS) = PIS

COFINS rate × (CV + ICMS + PIS + COFINS) = COFINS

3 IMPORT ANALYSIS

3.2.4 ICMS – Merchandise and Services Circulation Tax

The tax on circulation of goods and provision ofservices on interstate and intermunicipal transportationand communication (ICMS) is a tax imposed by the Statesand the Federal District. In imports, the ICMS levied ongoods imported from abroad, even in the case of goodsintended for consumption or fixed assets of theestablishment of the importer. The fact generator occursin the moment of customs clearance or at delivery of theimported goods, whichever occurs first. The ICMS ratesare stipulated by the State (or Federal District) byState (or District) law.

The ICMS calculation basis is obtained by adding thefollowing components:

Customs Value;

Import taxes;

Tax on industrialized products;

IOF – Tax on foreign exchange transactions;

Any other taxes, contributions and customsexpenses;

The amount of ICMS itself.

To make the calculation "inside" of the ICMS:


(Product Value + Freight Value + Import Duty Value) xICMS Rate = Value of ICMS

3.2.5 AFRMM - Merchant Marine Renewal Tax

According to the Decree Law No. 2.404/87, the AFRMM isAdditional Freight for Merchant Marine Renewal – that it acontribution to support the development of the merchantmarine and the Brazilian naval construction and repairindustry. It is levied at the entrance of the port ofdischarge being calculated on the amount of international seafreight. The fee imposed varies between 10% (cabotage), 25%(by far navigations course) and 40% (river and lakenavigation, when the transport of bulk liquids in the Northand Northeast regions), with a deadline of 10 days forpayment, after the entry of the vessel at the discharge port.

AFRMM encumber on imports and does not levied on all importedgoods. The Decree Law establishing it specifies the goodswhich are free of charge. Here are some:

Baggage;

Books, newspapers and periodicals, as well as thepapers intended for the printing;

Goods donated to charities or which enter thecountry specifically to participate in cultural andartistic events;

3 IMPORT ANALYSIS

Assets intended for scientific and technologicalresearch, among others, of goods;

Goods imported to replace other identical in equalquantity and value, which have been returned to theoutside after importation, for having proved defectiveor unsuitable for the purpose for which it was intendedand others.

3.3 Import Calculation Analysis

The author made the import calculation analysis for eachof the products herein listed and the results are shownin Table A, Table B, Table C, Table D, Table E, Table F,Table G and Table H.

It is noteworthy that the quantity listed in thesetables is the quantity to fulfill 1x40’HC container, andthe price used is an average price of products made inChina, researched in various supply on alibaba.com,therefore it brings it into fact.


4 ANALYSIS OF THE BRAZILIAN MARKET

This chapter will give us deeply information about the CTFmarket in Brazil with focus in oral care products.The term cosmetic industry will be adopted with its amplifiedmeaning to encompass the industries of cosmetics, toiletriesand fragrance.

4.1 Global Overview of the CTF Industry

There is a direct correlation between per capita consumptionof CTF with per capita income. The CTF sector issignificantly dependent on income, which means that anyincremental increase in income implies in the increase of itssales.

The global cosmetics market, which in 2010 totalized revenuesof more than USD 374 billion, is listed in Table 4-4. TheUnited States has the largest market for cosmetics. Somemarkets, for cultural reasons, present more prone toconsumption of cosmetics, such as Japan. Brazil and China isconsidered by sector companies the most promising market – inrecent years both have registered high growth rates, andchanges in the legislation of the countries will boost directsales.

Table 4-4 CTF

World market

Cosmetics, 2009 2010 Growth Participat

4 ANALYSIS OF THE MARKET

Toiletries andFragrances % ion %

USD billion USD billion(consumerprice)

(consumerprice)

World 349.7 374.3 7.0 100.0

1The United States 58.8 59.8 1.7 16.0

2 Japan 41.0 43.8 6.8 11.73 Brazil 28.8 37.4 29.9 10.04 China 21.3 23.6 10.8 6.35 Germany 18.0 17.7 -1.7 4.76 France 16.5 15.9 -3.6 4.2

7United Kingdom 14.7 15.3 4.1 4.1

8 Russia 10.9 12.5 14.7 3.39 Italy 12.6 12.0 -4.8 3.210 Spain 10.9 10.4 -4.6 2.8 Top Ten 233.5 248.4 6.4 66.4

Source: BACTFI (2013)

The Table 4-5 shows the Latin America market for CTFproducts, the position of Brazil among the othercountries in Latin America is far from the second place,Mexico. And another important observation to be done isthat when comparing both tables, we can see clearly thatthe Latin American countries are growing much fasterthan the world average.

Table 4-5 CTF Latin America

market

Cosmetics,Toiletries and

Fragrances

2009 2010

Growth%

Participation %

USDbillion

USDbillion

(consumerprice)

(consumerprice)


Latin America 53.77 64.09 19.19 100.00

1 Brazil 28.80 37.40 29.86 58.362 Mexico 7.58 8.61 13.59 13.433 Venezuela 5.10 4.10 -19.61 6.404 Argentina 3.01 3.43 13.95 5.355 Colombia 2.91 3.38 16.15 5.276 Chile 1.78 2.06 15.73 3.217 Peru 1.50 1.70 13.33 2.658 Ecuador 0.74 0.82 10.81 1.28

9 Dominican Republic 0.47 0.48 2.13 0.75

10 Guatemala 0.40 0.43 7.50 0.67 Top Ten 52.29 62.41 19.35 97.38


Through these statistics, we can also confirm that theconsumption per capita in Brazil for the products listedunder the CTF sector reached USD 187 in the year of2010, against USD 53,50 in the world, and the projectionsays that in Brazil it will reach about USD 255 by theyear of 2015. BACTFI (2013) classifies the CTF Brazilianmarket as a moderate and expanding market, justifyingthat the sector had an average growth rate of 16.2% fromthe year 2000 to 2009. The Chart 4-1 shows thestatistics data for the BRICS countries from 2005 to2010 and gives a projection for the sector for 2015.



Chart 4-1 The projection growth for 2015 in the BRICS countries

– CTF industry

Getting close to the oral care products, the Table 4-6splits the CTF industry into categories and demonstratesthe participation of the Brazilian market in the world.Furthermore, BACTFI (2013) says that the oral careproducts in Brazil counts to be the 4th largest in theworld.

Table 4-6 The CTF sector divided by

categories

Categories

2010

World BrazilParticipati

on %Participati

on %USD billion USD billion Brazil in

the world

Category inthe CTFindustry

(consumerprice)

(consumerprice)

Skin products 88.130 4.670 5.3 23.5Hair products 66.650 7.407 11.1 17.8


Makeup 45.830 3.260 7.1 12.2Perfume 39.530 6.030 15.3 10.6Oral care 35.000 3.320 9.5 9.4Bath 32.810 3.470 10.6 8.8Male products 29.010 3.080 10.6 7.8Deodorant 17.652 3.558 20.2 4.7Sunscreens 8.139 1.088 13.4 2.2Babyish 7.409 1.324 17.9 2.0Depilatories 4.140 0.193 4.7 1.1Source: BACTFI (2013)

The consumption per capita for oral care products inBrazil reached USD 16,60 in 2010, against USD 5 in theworld. Furthermore, the study conducted by BACTFI (2013)reveals the potential of the Brazilian market bycategory – the oral care category appears as a strongand growing market into the CTF industry in Brazil.

4.2 The CTF Market in Brazil with focus in oral

care products

Brazil has a huge and developing market for CTF productsand the figure below illustrates the number ofindustries in this sector by Region/State.



Figure 4-1 Industries in the sector of CTF – by Region/State

This sector in Brazil is characterized by largeinternational companies with global, diversified orspecialized activities in the fields of cosmetics,toiletries and fragrance, and by small and medium-sizeddomestic companies, in large numbers, focused on theproduction of cosmetics. The simplicity of the technicalbase (manipulation of relatively simple formulas) can be


a factor that justifies the vast amount of domesticsmall and medium enterprises. It is common to findcosmetic companies that have developed from ancientmanipulation pharmacies.

BACTFI (2013) says that the domestic consumption for CTFproducts in Brazil is divided as: 56% of the total salesrevenue of the sector belongs to toiletries; 28% belongsto cosmetics and 16% belongs to fragrances products.

Domestic production is strongly guided to satisfy theinternal market, which currently accounts for about 93%of sales. As it is of essential use, products of dailypersonal hygiene (toiletries) have a broader market andreach all classes of the population. The cosmetics andfragrancies products are preferentially targeted to thehigher classes and have, as an important feature, higherconcentration of sales at the end of the year.

Currently exists in the market a wide range of productsin the oral care segment and was previous divided incategories by the author in the third chapter – breathitems, brushes, floss and others. The following areexamples of well-known products in Brazil presented ineach of these categories (Gomes, Fonseca, Caruso &Quintella, 2012):

Breath items: Listerine, Colgate Plax, Oral B,Cepacol, Malvatricin, Flogoral, Sanifill, Noplak,Peroxyl; Brushes: Colgate, Dentil, Sorriso, Sanifill,Condor, Oral B, Aquafresh; Floss: Oral B, Johnson & Johnson, Sanifill,Colgate, York, Krisdent, Hillo; Others: Curaprox, Bitufo, Condor.


According to BACTFI (2013), the Brazilian CTF industryhas shown significant growth in recent years, growingfrom a turnover of R$ 4.9 billion in 1996 to R$ 27.3billion in 2010 (see on Chart 4-2). This represents anaverage annual growth deflated by CPI/FIPE of 10.5%.

The sector has stood out significantly in recent years,as can be seen in Chart 4-3.


Chart 4-2 Sales of the CTF sector – out price of the industry,

without taxes



Chart 4-3 Real growth from 2001 to 2010

There can be pointed out some reasons that, according toBACTFI, explain the strong growth of this sector inrecent years:

The increasing participation of women in thelabor market;

The incorporation of new productiontechnologies by companies resulting in increasedproductivity. Thus, consumer prices have increasedless than the price index of the economy ingeneral;

The constant launching of new products thatmeet the market needs;

The increase in life expectancy, which bringsthe need to keep a more youthful visual appearance;and

The significant increase in consumption ofmale cosmetics.

The Brazilian market is among the most important in theworld, featuring a vain population who now considers thecosmetic products as essential. The recent sales growthof the sector in Brazil has made the country moveforward three places among the top ten markets, from the6th registered in 2004 to the 3rd place in 2010.


The basic inputs used to manufacture virtually allproducts are supplied by Brazilian companies in thechemical industry. The imported products are mainly thefragrances, deodorants, creams for skin and the oralcare products. The main suppliers are the European Unioncountries and the United States, although China issignificantly increasing its participation in thedomestic market, it is still not listed as a mainsupplier. In with the beauty and makeup industry, themain suppliers of raw materials for domestic enterprisesare Argentina, with 44.2%, France with 42.6% and theUnited States, with 16.3%.

Taking a close look in the oral care products –specifically the products listed in this paperwork, wecan notice that China is a majority supplier for theBrazilian market for the products listed under the NCMcodes 9603.21.00 [Tooth brushes, including dental-platebrushes] and 3924.90.00 [Other household articles andtoilet articles of plastics], and for the others, Chinastill has a lot to be done in order to increase itsparticipation in the Brazilian market. Below is asequence of 2 charts and 3 tables listing the productsspecified in this paperwork.

The 3306.10.00 NCM code is a specific code for theproducts herein classified (toothpaste/dental gel). Wecan see through the statistics that China has a very lowparticipation in the Brazilian market and as thequantity of the “Made in China” products is


insignificant, its average price becomes useless for anykind of study, because in this data is included everykind of importation, even samples.

Table 4-7 Brazilian’s import data – NCM: 3306.10.00

Year

Totalquantityimported –

kg

Totalquantityimported

from China –kg

Average price FOB USD

Unit importedprice/kg

Unit importedprice fromChina/kg

2002 385,999 0 4.50 0.002003 456,702 0 3.09 0.002004 566,937 0 2.90 0.002005 455,411 0 4.02 0.002006 521,985 0 4.70 0.002007 593,157 200 5.81 7.472008 1,032,086 0 6.53 0.002009 2,973,858 6,189 5.33 5.382010 6,105,994 0 4.49 0.002011 6,967,310 603 5.24 11.962012 7,331,513 8,258 6.58 7.612013 13,203,164 1,997 5.62 11.05Source: BFT (2014)

The 3306.90.00 NCM code has a broader classification andcovers a wider range of products, including mouthwash.The total quantity imported by Brazil has significantlyincreased (as seen in Table 4-8). And again the averageprice of the Chinese imported products cannot be used asbase for any kind of research, as the quantity isinsignificant.



Year


kg


from China –kg




2002 4,075,540 0 1.56 0.002003 3,294,388 0 1.60 0.002004 2,909,116 0 1.56 0.002005 1,728,154 0 2.35 0.002006 4,067,214 0 1.88 0.002007 5,704,379 0 2.15 0.002008 8,287,129 0 2.17 0.002009 7,588,438 0 2.16 0.002010 4,680,255 0 3.11 0.002011 6,122,055 2,171 2.56 13.212012 6,865,668 748 2.75 22.592013 10,188,125 0 3.15 0.00Source: BFT (2014)

The products infant finger brush, toothbrush (childrenand adults), denture brush and interdental brush areclassified under the NCM code 9603.21.00. As we saw inchapter 3 of this paperwork, this NCM code is veryspecific and the quantity imported from China issignificant, so the calculation of data is more accuracyand thus it brings more reliability in order to evaluateit and for companies to take some actions.

The data collected and summarized under the Error:Reference source not found shows the massive presence ofthe Chinese products in the Brazilian market. Thequantity imported from China increased from 35% of the


total quantity in 2002, to 89% in 2013. The pricecorrelation between the Chinese products and the othercountries products has been decreasing gradually overthe past twelve years.

Source: BFT (2014)

Chart 4 4 Brazilian’s import data – NCM: 9603.21.00

The NCM code 3306.20.00 is used to classify the dentalfloss and dental tape. It is specific for these productsand no other product can be herein classified. However,when we use the Table 4-9 to analyze the data, we cansee that the average price for the Chinese products aremuch cheaper than the ones imported from other countries(about 77% cheaper). The finding for the difference inprice can be explained by the package of the products orso that China exports the large floss roll instead ofexporting the finished product, once this NCM code hasno distinction of floss in raw material and floss asfinished product.



Year


kg


from China -kg




2002 98,007 0 12.41 0.00

2003 65,657 0 8.01 0.00

2004 97,269 0 8.43 0.00

2005 95,526 10 9.55 8.70

2006 110,534 0 14.57 0.00

2007 104,468 0 19.01 0.002008 139,087 0 23.61 0.002009 99,111 0 28.89 0.002010 167,897 765 21.91 9.282011 115,446 1,643 24.99 11.132012 83,110 1,998 25.31 18.452013 143,893 20,717 22.75 5.27

Source: BFT (2014)

The NCM code 3924.90.00 comprises many products and so this

statistic cannot be used specific for tongue cleaner

products, one of the focused products of this paperwork. This

NCM is broad and involves every household articles and toilet

articles of plastics.


Source: BFT (2014)

Chart 4-4 Brazilian’s import data – NCM: 3924.90.00

The cosmetics industry is heavily characterized byvalue-generating activities, it also has a high capacityto generate employment and income (Garcia & Furtado,2002). The job opportunities have presented an averagegrowth of 8.8% in recent years. In 2010, 62% of thelabor-intensive industry was associated with directsales, followed by beauty professionals, with 34% (asthe shown in Table 4-10).

Table 4-10 Worker force and entrepreneurship in 2010 – theimportance of the CTF sector in employment generation

Amount ofworkers

(thousands)

Entrepreneurship

(establishment


s / companies)Franchise store 34 5,579Perfumeries 81 11,100CTF industry 68 1,659Beauty professionals 1,480 91,500Resellers, direct sales 2,700 -- 4,363 109,838


Because of the importance of the Brazilian market andalso for its strong growth possibilities, all majorglobal companies either specialized or with concentratedactivities have productive and commercial activities inthe country.

The products distribution in the country is primarilymade by three means: direct sales, franchised storeschain and traditional channels (supermarkets andpharmacies, among others). The system of direct sales(door to door), adopted mainly by the cosmetics andfragrance companies, had a share of 24.3% of sales inthe market and is growing year by year. The main reasonis the increasing number of retailers seeking anadditional source of income and the option to not havefixed working hours. The sales by franchised stores hada share of 4.3% and traditional channels (outlets)accounted for 71.4% (BACTFI, 2013).

It should be stressed that companies usually do not usethese three means of distribution. Thus, each company


uses, sometimes preferentially, sometimes exclusively,one means or another.

The participation of companies in the Brazilian marketis showed in Chart 4-5.

Table 4-11 Channels marketing in the CTF sector

Means ofdistribution Marketing channel

Leadercompanies

Direct sales Consultants Natura and Avon

Traditional channels

Supermarkets and pharmacies

Gillette, Unilever and Johnson & Johnson

Franchised storesOwned or franchised stores O Boticário




Chart 4-5 Market share of the CTF products in Brazil – 2013

Because of the low barriers to entry (little need forinitial investment and easiness for the manufacture ofproducts), there are a large number of small and mediumenterprises in the cosmetics industry. However, thesecompanies usually face with important limiting growth,such as difficulty in establishing a chain distributionand marketing of products (Garcia & Furtado, 2002), andalso differential access to credit for investment andrunning of the business.

Typically, toiletries and cleaning require lessinvestment grade and technical training. Importantly,Natura, O Boticário and L'Oréal sell products withhigher added value in relation to other companies (mostwork in the cleaning and toiletries sector, with the


exception of Avon, which operates in the same line ofNatura, but with products less sophisticated).

4.3 Opportunity for Chinese Oral Care Products

As we could see through the import analysis and theanalysis of the market, we can say that Chinesecompanies have a very competitive price to get into theBrazilian market, and so if it has quality, theBrazilian market tends to be very promissory. We canpoint out the examples of the products studied in thispaperwork:

Table 4-9 Price analysis of imported goods from China to Brazil (estimated final price delivered in Sao Paulo City – R$ x

Average unit price for final consumers in the supermarkets –

R$)

Description of theproduct

Averageunit price

fromChinese

suppliers -FOB USD

Estimatedfinal pricedeliveredin Sao

Paulo City– USD

Estimatedfinal pricedeliveredin Sao

Paulo City- R$

Averageunit pricefor finalconsumersin the

supermarkets - R$

Difference %

Toothpaste/dental gel (90g)

0.40 0.61 1.39 2.96 212.95

Mouthwash (250ml) 0.76 1.19 2.69 11.97 444.98Infant finger brush

0.30 0.46 1.04 11.27 1,083.65


0.12 0.20 0.45 6.02 1,337.78

Denture brush 0.27 0.41 0.94 8.19 871.28Interdentalbrush

0.48 0.71 1.59 15.03 945.28


(6pcs)Dental floss/tape (50m)

0.28 0.42 0.96 9.42 981.25

Tongue cleaner 0.18 0.30 0.68 6.00 882.35

Source: Formulated by the author

Every items have a very big gap between the “estimated

final price delivered in Sao Paulo City” and the

“average unit price for final consumers in the

supermarkets”. But it is very important to highlight

that this is the gross profit for the Brazilian import

enterprises and that the sales taxes and fees as well as

all the other taxes to keep the enterprises running in a

good condition are very high. Notwithstanding, the

margin is still workable and can leverage the Chinese

enterprises in the Brazilian market.


5 CONCLUSION AND RECOMMENDATIONS

As we could see in the first chapter of this paperwork,the theme of internationalization has been treated inthe last decades by several authors, who analyze it invarious aspects. Initially considered a uniquephenomenon of large global companies, it was closelyassociated with foreign investment. Currently, theliterature already gives an emphasis to other entrymodes such as agreements between companies (licensing),as well as other players in the market such as small andmedium enterprises. Regardless of all this, there is nosingle theory that can explain the best processes ofinternationalization, although the author used the “SixSteps Model of Internationalization Process”, created byMoberg & Palm, as a base to the development of thispaperwork.

As exposed, the methodologies of entry into a foreignmarket contain differences in various managerial andadministrative levels, as its theoretical descriptions.Thus it was created the proposition that the results ofdifferent strategies tend to allow different returns.

It was evidenced that the entry modes of highercomplexity, that is those inserted in the classificationof Direct Investments (merger, acquisition, joint


ventures and greenfield investment), represent higherlevels of control of operations, greater potential forfinancial returns and better level of access to marketinformation, than the classifications relating toexports (direct and indirect export) and contractualagreements (licensing).

As weakness of Direct Investments in relation to otherclassifications has the fact that it requires a moresubstantial initial investment, which preclude the useof modes of entry into foreign markets herein classifiedfor smaller companies.

There are several motivations for internationalizationidentified in the literature – and these are the mainreasons that inspire companies to make this decision –,highlighting the willingness of company growth, theadvantage of opportunities created in a new market aswell as access to better resources and skills.

In this study we analyzed the oral care products (inwhich we divided it in four categories – breath items,brushes, floss and others) which belong to the Cosmetic,Toiletry and Fragrance (CTF) sector.

In general, the CTF market in Brazil is looselyregulated when compared to other sectors, such aspharmaceuticals. A market that deserves mention is theUnited States of America, as the largest nationalmarket, with a considerable distance from the second


place. The United States is an example of a looselyregulated market, while Brazil is in an intermediateposition.

The control of manufacturing and import of cosmetics inBrazil is conducted by the Ministry of Health. As thoseproducts are used directly on the skin or in the mouth,there is a greater need to ensure safety and productquality in order to protect human health.

It is noteworthy that in the CTF sector, Brazil alreadyadopted internally harmonized rules for Mercosur andalso very close to those adopted internationally.

To manufacture and store cosmetic products, everycompany must be registered with ANVISA and receive an“Operating Permit”. There are also a number ofrequirements for importing firms, for shipping companiesand for distributors. The rules and procedures forobtaining the registration or the registry changes forCTF products are defined in the ANVISA Resolution 79.

The oral care market in Brazil is very competitive withthe presence of large global brands competing for ahigher market share. What explains the competition forthis kind of products is that Brazil is a country withlarge population, the Brazilian economy is in a boomwith high GDP growth rate and the increase of the incomeper capita, as the consumption of the CTF products iswell related to this. It also should be highlighted that


the Brazilian market is among the most important in theworld, featuring a vain population who now considers thecosmetic products as essential.

But in the market there is always space for more, andthese “more” should have products that meet theexpectations of the final consumer, that is productswith a very good quality combined with competitiveprice.

Based on the results obtained, it is concluded that theBrazilian market for Chinese enterprises in the field oforal care is a very promising market and with a highgrowth potential for the coming years.

It is recommended for the Chinese manufacturers of oralcare products to establish a trade association in whereall members can have clearly and unlimited access toinformation. This trade association will make themanufacturers stronger and with more bargaining power inthe national and international market, as well as in thelabor market. It would also help the manufacturers(members) to have clearly information of theinternational market, such as the selling price forfinal consumers in a specific market/country. With thisinformation on hands, it could establish a minimumexport sale price according to the selling price forfinal consumers in that market, so that it would getprofit maximization on export sales.


It is also recommended that Chinese enterprisesinterested in exploring the Brazilian market make a gooduse of this material in order to take the right decisionabout the entry modes and about exporting its productsto Brazil, as the export process is often the firstentry mode for many companies.

APPENDICES

APPENDICES

Appendix 1 Glossary

1 AFRMM: Merchant Marine Renewal Tax (Adicional aoFrete para Renovação da Marinha Mercante, inPortuguese).

2 ANVISA: Brazilian Health Surveillance Agency (AgênciaNacional de Vigilância Sanitária, in Portuguese).

3 BACTFI: Brazilian Association of the Cosmetic,Toiletry and Fragrance Industry.

4 BFT: Bureau of Foreign Trade, under the BrazilianMinistry of Development, Industry and Foreign Trade.

5 BRICS: Brazil, Russia, India, China and South Africa– acronym for an association of five major emergingnational economies.

6 CNPJ: Brazilian Register of Legal Entities (CadastroNacional da Pessoal Jurídica, in Portuguese).

7 COFINS: Contribution for Social Security Financing(Contribuição Social para o Financiamento daSeguridade Social, in Portuguese).

8 CPI: Consumer Price Index.


9 CTF: Acronym for Cosmetic, Toiletry and Fragrance.

10 CV: Customs Value.

11 FIPE: Institute of Economic Research Foundation(Fundação Instituto de Pesquisas Econômicas, inPortuguese).

12 FOB: Incoterm FOB – Free On Board.

13 HS Code: Harmonized Commodity Description and CodingSystem – it is an internationally standardized systemof names and numbers for classifying traded products.

14 ICMS: Merchandise and Services Circulation Tax(Imposto sobre a Circulação de Mercadorias ePrestação de Serviços, in Portuguese).

15 II: Import Tax (Imposto de Importação, in Portuguese)– It is the Brazilian customs tariff (Federal tax).

16 IPI: Tax on Industrialized Products (Imposto sobreProdutos Industrializados, in Portuguese).

17 Kg: Kilograms.

18 NCM: Mercosur Common Nomenclature (Nomenclatura Comumdo Mercosul, in Portuguese) – it is the HS Codeimplemented in common by member countries ofMercosur.

19 OEM: Original Equipment Manufacturer.

APPENDICES

20 PIS: Social Integration Program (Programa deIntegração Social, in Portuguese).

21 R$: Brazilian currency (Reais).

22 ROI: Return of Investment.

23 SISCOMEX: Foreign Trade Integrated System (SistemaIntegrado de Comércio Exterior, in Portuguese).

24 SOE: State-Owned Enterprise.

25 SWOT: Strengths, Weaknesses, Opportunities andThreats – variables used to examine thecompetitiveness of an organization.

26 USD: United State Dollars.

27 VAT: Value Added Tax.


Appendix 2 Flowchart of imports of goods – basic process

Source: Trade (2014)

APPENDICES

Appendix 3 Tables

Table A Toothpaste/dental gel

import analysis

-- A B C D E F G H I J K

1 DescriptionToothpaste/dental gel (90g) NCM

3306.10.00

2Quantity (pieces) 200,000

Net weight(Kg) 18,000

3Exchange rate USD - R$ 2.2600 Date 28-Mar-14

4 5 Unit USD Unit R$ Total USD Total R$

6Value FOB [Shanghai Port] 0.40 0.90 80,000.00

180,800.00

7 8 Description of costs % Total USD Total R$

9International freight (Shanghai Port - Santos Port) -- 3,200.00 7,232.00

10 International insurance1.5% Value

FOB 1,200.00 2,712.00

11 Sub-Total 84,400.00190,744.0

012 13 II (Federal Tax) 18% 15,192.00 34,333.9214 IPI (Federal Tax) 0% 0.00 0.0015 PIS (Federal Tax) 2.20% 2,252.13 5,089.8116 COFINS (Federal Tax) 11.30% 11,567.76 26,143.1417 ICMS (Local State Tax) 4% 4,730.66 10,691.29

18 AFRMM

25%Intern.freight 800.00 1,808.00

19 Sub-Total118,942.5

5268,810.1

620 21 SISCOMEX -- 123.89 280.00

22THC - Terminal Handling Charges -- 376.11 850.00

23 Customs broker service -- 353.98 800.0024 Union of customs agents -- 320.35 724.00


25 Import permit -- 176.99 400.0026 Storage cost in the port -- 530.97 1,200.0027 Documents release -- 221.24 500.00

28Inland freight (Santos Port- Sao Paulo City) -- 884.96 2,000.00

29 Other local costs -- 663.72 1,500.0030 31 Unit USD Unit R$ Total USD Total R$

32 Final Value 0.61 1.39122,594.7

6277,064.1

6

Notes

I The table above is merely compatible for this study andreflects the import costs of the specified product in Brazil.

IIThe values exposed above is as close as possible to thereality but cannot be used as base to any decision to betaken by companies, each case should be studied individually.

III In this table, we consider the final destination as being in SaoPaulo City and the goods to be cleared in Santos Port.

IV

The ICMS in Sao Paulo State is 18%. But there is a benefitfrom the local State authority that importer companies justpay 4% at the time of clearing the goods. The difference of14% gets into a "graphic account" and should becredited/debited in the end of the period.

V Formula to calculate the II: (JK11)*(FG13).VI Formula to calculate the IPI: ((JK11)+(JK13))*(FG14).

VII Formula to calculate the PIS: ((JK11*(1+FG13)*(1+FG14)/(1-FG17)*FG17+JK11)/(1-FG15-FG16)*FG15).

VIII

Formula to calculate the COFINS: ((JK11*(1+FG13)*(1+FG14)/(1-FG17)*FG17+JK11)/(1-FG15-FG16)*FG16).

IX Formula to calculate the ICMS:((JK11+JK13+JK14+JK15+JK16+JK21)/(1-FG17)*FG17).

X Formula to calculate the AFRMM: (JK9)*(FG18).Source: Formulated by the author

Table B

Mouthwash import analysis


1 Description Mouthwash (250ml) NCM3306.90.00

APPENDICES



3 Exchange rateUSD - R$

2.2600 Date 28-Mar-14

4 5 Unit USD Unit R$ Total USD Total R$6 Value FOB

[Shanghai Port]0.76 1.72 60,800.00 137,408.0


9

International freight (Shanghai Port - Santos Port) -- 3,200.00 7,232.00

10 International insurance 1.5% ValueFOB 912.00 2,061.12

11 Sub-Total 64,912.00 146,701.12

12 13 II (Federal Tax) 18% 11,684.16 26,406.2014 IPI (Federal Tax) 0% 0.00 0.0015 PIS (Federal Tax) 2.20% 1,732.11 3,914.5716 COFINS (Federal Tax) 11.30% 8,896.76 20,106.6717 ICMS (Local State Tax) 4% 3,639.54 8,225.36

18 AFRMM

25%Intern.freight 800.00 1,808.00

19 Sub-Total 91,664.57 207,161.92

20 21 SISCOMEX -- 123.89 280.0022 THC - Terminal Handling

Charges-- 376.11 850.00

23 Customs broker service -- 353.98 800.0024 Union of customs agents -- 320.35 724.0025 Import permit -- 176.99 400.0026 Storage cost in the port -- 530.97 1,200.0027 Documents release -- 221.24 500.0028 Inland freight (Santos

Port - Sao Paulo City)-- 884.96 2,000.00

29 Other local costs -- 663.72 1,500.0030


31 Unit USD Unit R$ Total USD Total R$

32 Final Value 1.19 2.69 95,316.78215,415.9

2Notes

I

The table above is merely compatible for this study andreflects the import costs of the specified product inBrazil.

II

The values exposed above is as close as possible to thereality but cannot be used as base to any decision to betaken by companies, each case should be studiedindividually.

IIIIn this table, we consider the final destination as being in SaoPaulo City and the goods to be cleared in Santos Port.

IV



VIIFormula to calculate the PIS: ((JK11*(1+FG13)*(1+FG14)/(1-FG17)*FG17+JK11)/(1-FG15-FG16)*FG15).

VIII

Formula to calculate the COFINS:((JK11*(1+FG13)*(1+FG14)/(1-FG17)*FG17+JK11)/(1-FG15-FG16)*FG16).

IXFormula to calculate the ICMS:((JK11+JK13+JK14+JK15+JK16+JK21)/(1-FG17)*FG17).


Table C Infant finger

brush import analysis


1 Description Infant finger brush NCM9603.21.00



3Exchange rateUSD - R$ 2.2600 Date 28-Mar-14

4

APPENDICES

5 Unit USD Unit R$ Total USD Total R$


216,960.00

78 Description of costs % Total USD Total R$

9



FOB 1,440.00 3,254.40

11 Sub-Total100,640.0

0227,446.4

01213 II (Federal Tax) 18% 19,211.40 43,417.7614 IPI (Federal Tax) 0% 0.00 0.0015 PIS (Federal Tax) 2.20% 2,847.98 6,436.4416 COFINS (Federal Tax) 11.30% 14,628.28 33,059.9217 ICMS (Local State Tax) 4% 5,980.90 13,516.83

18 AFRMM25%

Intern.freight

800.00 1,808.00

19 Sub-Total144,108.5

6325,685.3

52021 SISCOMEX -- 123.89 280.00


23 Customs broker service -- 353.98 800.0024 Union of customs agents -- 320.35 724.0025 Import permit -- 176.99 400.0026 Storage cost in the port -- 530.97 1,200.0027 Documents release -- 221.24 500.00

28Inland freight (Santos Port - Sao Paulo City) -- 884.96 2,000.00


32 Final Value 0.46 1.04147,760.7

7333,939.3

5Notes

I The table above is merely compatible for this study and


reflects the import costs of the specified product inBrazil.

II


IIIIn this table, we consider the final destination as being inSao Paulo City and the goods to be cleared in Santos Port.

IV




VIII




Table D Toothbrush (children and

adults) import analysis


1 DescriptionToothbrush (children andadults) NCM 9603.21.00





6

Value FOB [Shanghai Port] 0.12 0.27 39,600.00 89,496.00


APPENDICES

9



FOB 594.00 1,342.4411 Sub-Total 43,394.00 98,070.4412 13 II (Federal Tax) 18% 7,810.92 17,652.6814 IPI (Federal Tax) 0% 0.00 0.0015 PIS (Federal Tax) 2.20% 1,157.92 2,616.9116 COFINS (Federal Tax) 11.30% 5,947.53 13,441.4117 ICMS (Local State Tax) 4% 2,434.76 5,502.56

18 AFRMM25% Intern.

freight 800.00 1,808.00

19 Sub-Total 61,545.13139,092.0

020 21 SISCOMEX -- 123.89 280.00



28 Inland freight (Santos Port - Sao Paulo City) -- 884.96 2,000.00


32 Final Value 0.20 0.45 65,197.35147,346.0

0Notes

I


II


IIIIn this table, we consider the final destination as being inSao Paulo City and the goods to be cleared in Santos Port.


IV


V Formula to calculate the II: (JK11)*(FG13).VI Formula to calculate the IPI: ((JK11)+(JK13))*(FG14).VII Formula to calculate the PIS: ((JK11*(1+FG13)*(1+FG14)/(1-

FG17)*FG17+JK11)/(1-FG15-FG16)*FG15).

VIII


IX Formula to calculate the ICMS:((JK11+JK13+JK14+JK15+JK16+JK21)/(1-FG17)*FG17).


Table E Denture brush

import analysis

-- A B C D E F G H I J K1 Description Denture brush NCM 9603.21.00





6Value FOB [Shanghai Port] 0.27 0.61 78,300.00 176,958.00




FOB 1,174.50 2,654.3711 Sub-Total 82,674.50 186,844.3712 13 II (Federal Tax) 18% 14,881.41 33,631.9914 IPI (Federal Tax) 0% 0.00 0.0015 PIS (Federal Tax) 2.20% 2,206.09 4,985.7616 COFINS (Federal Tax) 11.30% 11,331.27 25,608.6617 ICMS (Local State Tax) 4% 4,634.05 10,472.95

APPENDICES

18 AFRMM25% Intern.freight 800.00 1,808.00

19 Sub-Total 116,527.31 263,351.7320 21 SISCOMEX -- 123.89 280.0022 THC - Terminal Handling

Charges-- 376.11 850.00

23 Customs broker service -- 353.98 800.0024 Union of customs agents -- 320.35 724.0025 Import permit -- 176.99 400.0026 Storage cost in the port -- 530.97 1,200.0027 Documents release -- 221.24 500.0028 Inland freight (Santos Port -

Sao Paulo City)-- 884.96 2,000.00

29 Other local costs -- 663.72 1,500.0030 31 Unit USD Unit R$ Total USD Total R$32 Final Value 0.41 0.94 120,179.53 271,605.73

NotesI The table above is merely compatible for this study and reflects the

import costs of the specified product in Brazil.II The values exposed above is as close as possible to the reality but

cannot be used as base to any decision to be taken by companies,each case should be studied individually.

III In this table, we consider the final destination as being in SaoPaulo City and the goods to be cleared in Santos Port.

IV

The ICMS in Sao Paulo State is 18%. But there is a benefit from thelocal State authority that importer companies just pay 4% at thetime of clearing the goods. The difference of 14% gets into a"graphic account" and should be credited/debited in the end of theperiod.

V Formula to calculate the II: (JK11)*(FG13).VI Formula to calculate the IPI: ((JK11)+(JK13))*(FG14).VII Formula to calculate the PIS: ((JK11*(1+FG13)*(1+FG14)/(1-

FG17)*FG17+JK11)/(1-FG15-FG16)*FG15).VIII


IX Formula to calculate the ICMS: ((JK11+JK13+JK14+JK15+JK16+JK21)/(1-FG17)*FG17).



Table F Interdental brush import

analysis


1 DescriptionInterdental brush (6pcs) NCM

9603.21.00





6Value FOB [Shanghai Port] 0.48 1.08

182,400.00

412,224.00


9



FOB 2,736.00 6,183.36

11 Sub-Total188,336.0

0425,639.3


18 AFRMM

25%Intern.freight 800.00 1,808.00

19 Sub-Total264,425.1

0597,600.7

220 21 SISCOMEX -- 123.89 280.00


23 Customs broker service -- 353.98 800.0024 Union of customs agents -- 320.35 724.0025 Import permit -- 176.99 400.00

APPENDICES

26 Storage cost in the port -- 530.97 1,200.0027 Documents release -- 221.24 500.00



32 Final Value 0.71 1.59268,077.3

1605,854.7

2Notes

I


II



IV




VIII




Table G Dental floss/tape

import analysis

-- A B C D E F G H I J K1 Description Dental floss/tape NCM 3306.20.0


(50m) 0


Net weight (Kg) 5,040




177,184.00


9



FOB 1,176.00 2,657.76

11 Sub-Total 82,776.00187,073.7


18 AFRMM

25%Intern.freight 800.00 1,808.00

19 Sub-Total114,933.6

6259,750.0

82021 SISCOMEX -- 123.89 280.00




APPENDICES


32 Final Value 0.42 0.96118,585.8

8268,004.0

8Notes

I


II



IV




VIII




Table H Tongue cleaner

import analysis

-- A B C D E F G H I J K1 Description Tongue cleaner NCM 3924.90.00






6Value FOB [Shanghai Port] 0.18 0.41 48,600.00 109,836.00




FOB 729.00 1,647.5411 Sub-Total 52,529.00 118,715.5412 13 II (Federal Tax) 18% 9,455.22 21,368.8014 IPI (Federal Tax) 10% 6,198.42 14,008.4315 PIS (Federal Tax) 1.65% 1,006.73 2,275.2016 COFINS (Federal Tax) 7.60% 4,637.04 10,479.7217 ICMS (Local State Tax) 4% 3,081.26 6,963.65

18 AFRMM25% Intern.freight 800.00 1,808.00

19 Sub-Total 77,707.67 175,619.3420 21 SISCOMEX -- 123.89 280.00



28Inland freight (Santos Port -Sao Paulo City) -- 884.96 2,000.00

29 Other local costs -- 663.72 1,500.003031 Unit USD Unit R$ Total USD Total R$32 Final Value 0.30 0.68 81,359.88 183,873.34

Notes

IThe table above is merely compatible for this study and reflects theimport costs of the specified product in Brazil.

IIThe values exposed above is as close as possible to the reality butcannot be used as base to any decision to be taken by companies,each case should be studied individually.


IV The ICMS in Sao Paulo State is 18%. But there is a benefit from thelocal State authority that importer companies just pay 4% at the

APPENDICES

time of clearing the goods. The difference of 14% gets into a"graphic account" and should be credited/debited in the end of theV Formula to calculate the II: (JK11)*(FG13).

VI Formula to calculate the IPI: ((JK11)+(JK13))*(FG14).


VIII


IXFormula to calculate the ICMS: ((JK11+JK13+JK14+JK15+JK16+JK21)/(1-FG17)*FG17).


Table I Average toothpaste/dental gel price (R$) for the

final consumer in Brazil

Toothpaste/dental gel

Full description

Quan-tity

Brand

Average

priceforthefinalconsumer

Full description

Quan-tity

Brand

Average


Cr. Dental Gel White Delic. 70g

Closeup

R$3,63

Cr. Dental Lumin. White Gel 90g

Colgate

R$5,61

Cr. Dental Gel White Fresh 70g

Closeup

R$3,63

Cr. Dental Jr. Spider Man

100g

Colgate

R$5,67

Cr. Dental Gel White Power 70g

Closeup

R$3,63

Cr. Dental Sens. P. Alivio Br.

110g

Colgate

R$11,85

Cr. Dental Triple Hortela 90g

Closeup

R$1,81

Cr. Dental Freedent Menta 90g

Freedment

R$0,95

Cr. Dental Triple M. Americ. 90g

Closeup

R$1,81

Cr. Dental Complete L. Prof. 70g Oral B

R$2,27

Cr. Dental Triple M. Silvest 90g

Closeup

R$1,81 Cr. Dental 3d White 70g Oral B

R$3,99

Cr. Dental Triple Menta 90g

Closeup

R$1,81

Cr. Dental P. Saude Menta Sv 70g Oral B

R$3,99

Cr. Dental Gel Eucalyptus 90g

Closeup

R$2,05

Cr. Dental P. Saude Hortela 70g Oral B

R$4,99

Cr. Dental Gel Mentol 90g

Closeup

R$2,05

Cr. Dental P. Saude Menta 70g Oral B

R$4,99

Cr. Dental Gel Peppermint 90g

Closeup

R$2,05

Cr. Dental p. Saude Cuid. Geng. 70g Oral B

R$10,58

Cr. Dental Gel Red Hot 90g

Closeup

R$2,05

Cr. Dental Complete Original 90g Oral B

R$3,85

Cr. Dental Ext. White 90g

Closeup

R$2,72

Cr. Dental Inf. Stages

100g Oral B

R$6,82


Cr. Dental Fire Fr.Intense 90g

Closeup

R$2,99 Cr. Dental Branq. 50g

Sensodyne

R$8,87

Cr. Dental Fire Freeze 90g

Closeup

R$2,99 Cr. Dental Orig. 50g

Sensodyne

R$8,87

Cr. Dental White Now 90g

Closeup

R$3,73

Cr. Dental Pro Esmalte 50g

Sensodyne

R$8,87

Cr. Dental Mpa 50gColgate

R$1,15

Cr. Dental Multiprotecao 50g

Sensodyne

R$9,13

Cr. Dental T. Acao 50gColgate

R$1,44 Cr. Dental D. Bco 50g

Sorriso

R$1,07

Cr. Dental Sens. P.Alivio 50g

Colgate

R$6,79 Cr. Dental D. Bco 90g

Sorriso

R$1,49

Cr. Dental T. Prof.Geng. Saud 70g

Colgate

R$4,91

Cr. Dental S. Refresc. 90g

Sorriso

R$1,79

Cr. Dental T. Prof.Sensitive 70g

Colgate

R$4,91

Cr. Dental Tripla Ex. Fresh 90g

Sorriso

R$1,79

Cr. Dental T. Prof.Whitening 70g

Colgate

R$4,91

Cr. Dental Fresh Extra Mint 90g

Sorriso

R$2,06

Cr. Dental Mpa 90gColgate

R$1,95

Cr. Dental Fresh Impac. Ment. 90g

Sorriso

R$2,06

Cr. Dental T. Acao Hort. 90g

Colgate

R$2,17

Cr. Dental Fresh Menta Hit 90g

Sorriso

R$2,06

Cr. Dental T. Acao Menta Sv 90g

Colgate

R$2,17

Cr. Dental Xtreme Fr. Ice 90g

Sorriso

R$3,31

Cr. Dental T. Acao Orig. 90g

Colgate

R$2,17

Cr. Dental Xtreme 4dWhite 90g

Sorriso

R$3,44

Cr. Dental Herbal Branq. 90g

Colgate

R$2,93

Cr. Dental Xtreme Hortela 90g

Sorriso

R$3,44

Cr. Dental Bic. Sodio 90g

Colgate

R$3,89

Cr. Dental Xtreme Menta 90g

Sorriso

R$3,44

Cr. Dental Ultra Branq. 90g

Colgate

R$3,99

Cr. Dental Xtreme 2xGts Sab 90g

Sorriso

R$6,88

Cr. Dental Total 12Advanced 90g

Colgate

R$4,81 Cr. Dental Morango 50g Tandy

R$3,21

Cr. Dental Total 12Cl. Mint 90g

Colgate

R$4,81

Cr. Dental Tutti Frutti 50g Tandy

R$3,21

Cr. Dental Total 12White 90g

Colgate

R$4,81 Cr. Dental Uva 50g Tandy

R$3,21

Cr. Dental Lumin. White 90g

Colgate

R$5,61 -- -- -- --

Source: Large supermarkets chain (Carrefour; Pão de Açúcar; Walmart;

GBarbosa; Bretas; Dia %; Muffato; Condor; Angeloni) with stores all over

the country

Table J Average mouthwash price (R$) for the final

consumer in Brazil

MouthwashFull

descriptionQuan- Brand Average

priceFull

descriptiQuan- Brand Average

price

APPENDICES

tity

for thefinal

consumer

on tity

for thefinalconsume

r

Anti Sep. Plax Classic

250ml

Colgate

R$11,05

Anti Sep. Cool Citrus

250ml Listerine

R$11,59

Anti Sep. Plax Fr. Mint

250ml

Colgate

R$11,05

Anti Sep. Cool F. Burst

250ml Listerine

R$11,59

Anti Sep. Plax Ice

250ml

Colgate

R$11,05

Anti Sep. Cool Mint

250ml Listerine

R$11,59

Anti Sep. Plax Kids

250ml

Colgate

R$11,05

Anti Sep. Zero Alcool

250ml Listerine

R$11,59

Anti Sep. Plax S. Mint

250ml

Colgate

R$11,05

Anti Sep. Cool C. Total

250ml Listerine

R$13,04

Anti Sep. Plax T. Fresh

250ml

Colgate

R$11,05

Anti Sep. Defesa

250ml Listerine

R$13,04

Anti Sep. Plax 2x1 C. Mint

250ml

Colgate

R$12,89

Anti Sep. Tart. Control

250ml Listerine

R$13,04

Anti Sep. Plax 2x1 Fr. Mint

250ml

Colgate

R$12,89

Anti Sep. Whitening

437ml Listerine

R$18,81

Anti Sep. Lum. White

250ml

Colgate

R$13,29

Anti Sep. Antimanchas

500ml Listerine

R$17,23

Anti Sep. Plax l500p Clas.

350ml

Colgate

R$15,47

Anti Sep. Cool C. Total

500ml Listerine

R$18,81

Anti Sep. Plax l500p F.Mint

350ml

Colgate

R$15,47

Anti Sep. Defesa

500ml Listerine

R$18,81

Anti Sep. Plax l500p Ice

350ml

Colgate

R$15,47

Anti Sep. Tart. Control

500ml Listerine

R$18,81

Anti Sep. Plax l500p S.Mint

350ml

Colgate

R$15,47

Anti Sep. Hortela

250ml Oral B

R$10,45

Anti Sep. Plax l500p T.Fresh

350ml

Colgate

R$15,47

Anti Sep. Menta

250ml Oral B

R$11,73

Anti Sep. Whitening

236ml Listerine

R$13,04

Anti Sep. Prot. Menta

250ml Oral B

R$14,78

Anti Sep. Antimanchas

250ml Listerine

R$11,59 Anti Sep.

300ml

Sensodyne

R$11,44




the country

Table K Average infant finger brush price (R$) for the

final consumer in Brazil

Infant finger brush

Full description Brand

Average

priceforthefinalconsum

er

Full description Brand

Average

priceforthe

finalconsumer

Massageador Geng. Bebe PurR$ 7,9

0Massageador Geng. Bebe C/Capa Prot. --

R$18,90

Massageador Geng. Bebe LilloR$

12,50Massageador Geng. Bebe C/Estojo

Safety

R$21,50

Massageador Geng. BebeSilicone --

R$13,40 -- -- --



the country

Table L Average toothbrush (children and adults) price (R$)

for the final consumer in Brazil


Fulldescription

Classi-ficatio

nBrand

Averagepricefor thefinalconsume

r

Fulldescription

Classi-fication Brand

Average


Esc. Dental Multi Clean Macia Adults

Closeup R$ 9,26

Esc. Dental Biflex Mc Adults

Jadefrog

R$4,99

Esc. Dental Multi Clean Media Adults

Closeup R$ 9,26

Esc. Dental Gengic. Mc Adults

Jadefrog

R$4,99

Esc. Dental Adults Close R$ 9,26 Esc. Dental Adults Jadefr R$

APPENDICES

White System Macia up Clean up Mc og 5,22Esc. Dental Classic Macia Adults Colgate R$ 2,31

Esc. Dental McRef310 Children

Jadefrog

R$3,36

Esc. Dental Classic Media Adults Colgate R$ 2,31


Jadefrog

R$4,10

Esc. Dental 360 Mc Adults Colgate

R$14,59


Jadefrog

R$4,85

Esc. Dental 360 Mc Actiflex Soft Adults Colgate

R$14,59

Esc. Dental 1 2 3 Media Adults Oral B

R$3,45

Esc. Dental 360 Mc Surroud Adults Colgate

R$14,59

Esc. Dental Complete N.40 Adults Oral B

R$8,35

Esc. Dental Slim Mc Cab. Comp. Adults Colgate

R$14,59

Esc. Dental Indic. Plus N.35 Adults Oral B

R$8,49

Esc. Dental Classic

Children Colgate R$ 2,31

Esc. Dental Essencial 30 Mc Adults Reach

R$2,85

Esc. Dental Smiles 0 a 2 Anos


Esc. Dental Essencial 30 Md Adults Reach

R$2,85

Esc. Dental Smiles 2 a 5 Anos


Esc. Dental U.Clean Macia 40 Adults Reach

R$4,35

Esc. Dental Smiles 5 MaisAnos

Children Colgate

R$9,98

Esc. Dental Prof. 30 Macia Adults Reach

R$7,24

Esc. Dental Stylus Mc Ref501 Adults

Jadefrog

R$2,90

Esc. Dental Prof. 40 Macia Adults Reach

R$7,24

Esc. Dental Stylus Mc Ref502

Adults

Jadefrog

R$2,90

Esc. Dental Prof. 40 Media Adults Reach

R$7,24

Esc. Dental Flex Mc Ref813

Adults

Jadefrog

R$3,36

Esc. Dental Acces Mc 40 Adults Reach

R$8,40

Esc. Dental Onda Mc Ref817

Adults

Jadefrog

R$3,36

Esc. Dental Conf. Clean Mc 40 Adults Reach

R$8,40

Esc. Dental Dual Mc Ref022

Adults

Jadefrog

R$3,60

Esc. Dental Tripla 123 Macia Adults Sorriso

R$2,93

Esc. Dental Super Mc Ref102

Adults

Jadefrog

R$3,92

Esc. Dental Dura Adults Tek

R$2,49

Esc. Dental Wave Mc Ref101

Adults

Jadefrog

R$3,92

Esc. Dental Macia Adults Tek

R$2,49

Esc. Dental Star Mc Ref523

Adults

Jadefrog

R$4,29

Esc. Dental Media Adults Tek

R$2,49


Esc. Dental Top Mc Ref305

Adults

Jadefrog

R$4,29 Esc. Dental

Children Tek

R$2,49



the country

Table M Average denture brush price (R$) for the final

consumer in Brazil

Denture brush

Full description Brand Average price for thefinal consumer

Esc. Dentadura Limp. Int. Ext. Condor R$ 8,19Source: Large supermarkets chain (Carrefour; Pão de Açúcar; Walmart;


the country

Table N Average interdental brush price (R$) for the final

consumer in Brazil

Interdental brush

Fulldescription

Quan-

tity/

packa-ge

Brand

Averageprice

for thefinal

consumer

Fulldescription

Quan-

tity/

packa

-ge

Brand

Average


Esc. Dental Interd. 0.5mm 5pcs

Dr.Veit

R$ 15,90

Esc. Dental Interd. Ref401 3pcs

Jadefrog

R$5,49



the country

Table O Average dental floss/tape price (R$) for the final

consumer in Brazil

Dental floss/tape

APPENDICES

Fulldescriptio

n

Quan-tity Brand

Average

priceforthe

finalconsum

er

Fulldescription

Quan-

tityBrand

Average

priceforthefinalconsum

erFio DentalEncerado 100m Hillo

R$2,95

Fita Dental Reach Cera 50m

Johnsons

R$8,99

Fita Dental Encerado 100m Hillo

R$2,95

Fio Dental Essencial Jua 100m

Johnsons

R$6,29

Fio DentalMenta 100m Jadefrog

R$4,88

Fio Dental P.Saude 25m Oral B

R$12,29

Fio DentalExt. Fino 50m

Johnsons

R$8,99

Fio Dental C/Cera 50m Oral B

R$8,09

Fio DentalMenta 50m

Johnsons

R$8,99

Fio Dental Menta 50m Oral B

R$8,09

Fio DentalRegul. 50m

Johnsons

R$8,99

Fio Dental Supor Floss 50m Oral B

R$13,79



the country

Table P Average tongue cleaner price (R$) for the final

consumer in Brazil

Tongue cleaner

Full description Brand Average price for the finalconsumer

Limp. Língua - Adulto Kolbe R$ 6,00Source: Large supermarkets chain (Carrefour; Pão de Açúcar; Walmart;


the country

REFERENCES

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6 CASTROFrancisco deEduardo. (1996). Fusões eAquisições no Setor Bancário - A Importância doProcesso Pós-aquisição. Masters Dissertation, 11.


7 CAVUSGILTamerS. (1998). International Partnering - ASystematic Framework for Collaborating with ForeignBusiness Partners. Journal of InternationalMarketing, V. 6 (N. 1), 92-105.

8 CHANWKim, & HWANGPeter. (1992). Global Strategy andMultinationals' Entry Mode Choice. Journal ofInternational Business Studies, 23, 29-53.

9 DAVISSPeter, DESAIBAshay, & FRANCISDJohn. (2000).Mode of international entry: an isomorphismperspective. Journal of International BusinessStudies, 31 (2).

10 ERRAMILIKrishnaM, & RAOPC. (1993). Service Firms'International Entry-Mode Choice, A ModifiedTransaction Cost Analysis. Journal of Marketing, 57,9-38.

11 EXPERTSOral Healthin. (2009). FAQ: Saúde Oral. 2014,February 23. Saúde Oral Web site:http://www.saudeoral.fcl.com.br/faq.php

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ACKNOWLEDGMENT

ACKNOWLEDGMENT

Write a Master's thesis is an enriching and fullyovercome experience. We have modified every attempt toseek answers to our distress of “researcher”. For thosewho share this moment, it seems a darkling and endlesstask that only becomes feasible thanks to many peoplewho participate, directly or indirectly, without evenreally knowing what and for what we engage in research.And it is these people that I would like to thank:

First of all, I want to thank God for the gift of life.

A special thank to the Brazilian and ChineseGovernments, for the efforts and agreements in terms ofexchanging views, culture and knowledge through thescholarship program.

Another special thank to CSC (China Scholarship Council)and all the others government agencies that help thisscholarship program to move on, without which would beimpossible the realization of this dream.

To my parents – father and mother, for giving meeducation and values. Especially my mother, who taughtme how to walk and gave me inspiration through her lifeexperience. Mommy, you are the one who bore and literateme, you are the one who taught me how to write and read,did you see how I learned it correctly? You are the one


who often abandoned your dreams so I could make my own;I share the joy of this moment with you. To you, myeternal gratitude and unconditional love.

To my grandparents (maternal in memorian), for giving mewisdom and willpower to continue.

To my brothers and sister, nephews and nieces, for theencouragement. I practice the fraternity with you all.

To my uncles, aunts and cousins, for the words ofencouragement and helps in everything that I needed.

To all my close friends, friends and colleagues forgiving me positive vibration and moments of muchhappiness.

To my Supervisor Professor, Mr. Jiang Wenxue. To you, myreal expressions of admiration, respect and affection. Amix of austerity and competence.

To all the other professors in DUFE for the competenceand willingness to share experiences.

And finally, to all those who, for a lapse period, I didnot mention but contributed to this research: brotherlyhugs to all!

ACKNOWLEDGMENT

Júlio FelippeBicudo

1. References :2. Hofstede, Geert. Cultures’ Consequences,

Comparing Values, Behaviors, Institutions, andOrganizations Across Nations. Thousand Oaks,CA: Sage Publications, 2001.

Dowling, P. J., Festing, M. and Engle, A. D. (2008)International Human Resource Management, 5ed, London: ThomsonLearning. Hofstede, G. (1997) Cultures and Organizations: Software of the Mind,London: McGraw-Hill.

1. Leung, K., Bhagat, R. S., Buchan, N. R., Erez, M. andGibson, C. B. (2005) ‘Culture and InternationalBusiness: Recent Advances and their Implications forFuture Research’, Journal of International Business Studies, Vol.36, pp. 357-378.

Baumohl, B (2008) The secrets of economic indicators 2ndedition. Wharton School publishing