Economy Overview

Executive summary

This report is dedicated to presenting values of the Brazilian culture, the core assumptions that influence the behaviour of the Australian people doing business in Brazil. Examples are given in order to illustrate how those values reflect in the business world. As a presentation of all Brazilian values would be very demanding in terms of time, a selection was made with those that are particularly important for intercultural business.

Table of contents

Executive summary

Table of contents

Introduction

Economic overview

Social factors

Environmental factors

Political/Legal factors

Conclusion

Recommendation

Reference

Appendix

Introduction

Brazil is the largest national economy in HYPERLINK “http://en.wikipedia.org/wiki/Latin_America” o “Latin America”Latin America, the HYPERLINK “http://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28nominal%29” o “List of countries by GDP (nominal)”world’s eighth largest economy at market exchange rates and the HYPERLINK “http://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP%29” o “List of countries by GDP (PPP)”seventh largest in HYPERLINK “http://en.wikipedia.org/wiki/Purchasing_power_parity” o “Purchasing power parity”purchasing power parity (PPP), according to the HYPERLINK “http://en.wikipedia.org/wiki/International_Monetary_Fund” o “International Monetary Fund”International Monetary Fund and the HYPERLINK “http://en.wikipedia.org/wiki/World_Bank” o “World Bank”World Bank. Brazil has a HYPERLINK “http://en.wikipedia.org/wiki/Mixed_economy” o “Mixed economy”Mixed economy with abundant natural resources and the Brazilian economy has been predicted to become one of the five largest in the world in the decades to come. Brazil is also a political and economic leader in Latin America. （Wagley, Charles. An Introduction to Brazil, 1971） In general, current Brazilian foreign policy reflects HYPERLINK “http://en.wikipedia.org/wiki/Multilateralism” o “Multilateralism”multilateralism, peaceful dispute settlement, and non-intervention in the affairs of other countries. The Brazilian Constitution also determines that the country shall seek the HYPERLINK “http://en.wikipedia.org/wiki/Economy” o “Economy”economic, HYPERLINK “http://en.wikipedia.org/wiki/Politics” o “Politics”political, HYPERLINK “http://en.wikipedia.org/wiki/Social” o “Social”social and HYPERLINK “http://en.wikipedia.org/wiki/Culture” o “Culture”cultural HYPERLINK “http://en.wikipedia.org/wiki/Economic_integration” o “Economic integration”integration of the nations of Latin America. We will provide more details in terms of the key national, political, legal, environmental, and economics factors, and link each factor to the business opportunities, which may affect the successful operation of a possible joint venture in Brazil.

Economy overview:

The economy of Brazil is the world’s HYPERLINK “http://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28nominal%29” o “List of countries by GDP (nominal)”seventh largest by nominal HYPERLINK “http://en.wikipedia.org/wiki/Gross_domestic_product” o “Gross domestic product”GDP and HYPERLINK “http://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP%29” o “List of countries by GDP (PPP)”eighth largest by HYPERLINK “http://en.wikipedia.org/wiki/Purchasing_power_parity” o “Purchasing power parity”purchasing power parity. HYPERLINK “http://en.wikipedia.org/wiki/Brazil” o “Brazil”Brazil has moderately HYPERLINK “http://en.wikipedia.org/wiki/Free_market” o “Free market”free markets and an inward-oriented economy. Its economy is the largest in HYPERLINK “http://en.wikipedia.org/wiki/Latin_America” o “Latin America”Latin American nations and the second largest in the western hemisphere. Brazil is one of the HYPERLINK “http://en.wikipedia.org/wiki/Economic_growth” o “Economic growth”fastest-growing major economies in the world with an average annual GDP growth rate of over 5 percent. In HYPERLINK “http://en.wikipedia.org/wiki/Brazilian_real” o “Brazilian real”Brazilian reais, its GDP was estimated at R$ 3.143 trillion in 2009. The Brazilian economy has been predicted to become one of the five largest economies in the world in the decades to come. HYPERLINK “http://en.wikipedia.org/wiki/Economy_of_Brazil” l “cite_note-15″http://en.wikipedia.org/wiki/Economy_of_Brazil – cite_note-15(Baer, Werner，“The Brazilian Economy”，2001)

Components of the economy

The service sector is the largest component of GDP at 66.8 percent, followed by the industrial sector at 29.7 percent (2007 est.). Agriculture represents 3.5 percent of GDP (2008 est.). Brazilian labor force is estimated at 100.77 million of which 10 percent is occupied in agriculture, 19 percent in the industry sector and 71 percent in the service sector. （Baer, Werner，“The Brazilian Economy”，2001）

The market elements of the Brazilian economy relied on the production of HYPERLINK “http://en.wikipedia.org/wiki/Primary_products” o “Primary products”primary products for HYPERLINK “http://en.wikipedia.org/wiki/Export” o “Export”exports. Within the HYPERLINK “http://en.wikipedia.org/wiki/Portuguese_Empire” o “Portuguese Empire”Portuguese Empire, Brazil was a colony subjected to an imperial HYPERLINK “http://en.wikipedia.org/wiki/Mercantile” o “Mercantile”mercantile policy, which had three main large-scale economic production cycles – HYPERLINK “http://en.wikipedia.org/wiki/Sugar” o “Sugar”sugar, HYPERLINK “http://en.wikipedia.org/wiki/Gold” o “Gold”gold and, from the early 19th century on, HYPERLINK “http://en.wikipedia.org/wiki/Coffee” o “Coffee”coffee.

Brazil’s economy is diverse, encompassing HYPERLINK “http://en.wikipedia.org/wiki/Agriculture” o “Agriculture”agriculture, HYPERLINK “http://en.wikipedia.org/wiki/Industry” o “Industry”industry, and many services. The recent economic strength has been due in part to a global boom in HYPERLINK “http://en.wikipedia.org/wiki/Commodity” o “Commodity”commodities prices with exports from HYPERLINK “http://en.wikipedia.org/wiki/Beef” o “Beef”beef to HYPERLINK “http://en.wikipedia.org/wiki/Soybean” o “Soybean”soybeans soaring. HYPERLINK “http://en.wikipedia.org/wiki/Agriculture_in_Brazil” o “Agriculture in Brazil”Agriculture and allied sectors like HYPERLINK “http://en.wikipedia.org/wiki/Forestry” o “Forestry”forestry, HYPERLINK “http://en.wikipedia.org/wiki/Logging” o “Logging”logging and HYPERLINK “http://en.wikipedia.org/wiki/Fishing” o “Fishing”fishing accounted for 5.1% （Baer, Werner，“The Brazilian Economy”，2001）of the HYPERLINK “http://en.wikipedia.org/wiki/Gross_domestic_product” o “Gross domestic product”gross domestic product in 2007, a performance that puts HYPERLINK “http://en.wikipedia.org/wiki/Agribusiness” o “Agribusiness”agribusiness in a position of distinction in terms of Brazil’s HYPERLINK “http://en.wikipedia.org/wiki/Balance_of_trade” o “Balance of trade”trade balance, in spite of HYPERLINK “http://en.wikipedia.org/wiki/Trade_barrier” o “Trade barrier”trade barriers and subsidizing policies adopted by the HYPERLINK “http://en.wikipedia.org/wiki/Developed_country” o “Developed country”developed countries.

Brazil is one of the ten largest markets in the world, producing tens of millions of tons of steel, 26 million tons of cement, 3.5 million television sets, and 3 million refrigerators. In addition, about 70 million cubic meters of HYPERLINK “http://en.wikipedia.org/wiki/Petroleum” o “Petroleum”petroleum were being processed annually into fuels, lubricants, propane gas, and a wide range of hundred petrochemicals. Furthermore, Brazil has at least 161,500 kilometres of paved roads and more than 93 Gig watts of installed electric power capacity. （Baer, Werner，“The Brazilian Economy”，2001）

Social factors

Brazil is the biggest country in South America. Its population is 183 million people; they are very diverse, because of their influential ancestors from Africa, Europe, Asia, and Native Indians. Brazilians are concerned about their position in a social class, because no class interacts with another social class unless it is in a professional way. Their social classifications are according to race, education, and income.

· Race

Individuals that have dark skin are more likely to be of a lower class than someone with lighter skin who is considered to be a part of higher society. Brazilians working in jobs that require “working with their cocks” art crafts, landscaping, construction, etc is considered to be of a lower class. This mind-set comes from past centuries where Indians and Africans that used to make artesian to survive. On the other hand, middle class workers are called “collar and tie” because they are expecting to work in offices and not with their hand.

· Education

Brazilians are also categorized by the level of education they have acquired. An individual can also be considered of high society based upon their extended vocabulary, since most Brazilians of a lower class converse with a lot of slang. The condition of the country’s economic status, decides the level of education kids will receive. For example, individuals with higher income can put his or her own kid in a private school, compared to those who cannot afford private school, go to a public school or don’t go at all.

· Income

Brazil, like all South American countries have certain sectors or neighborhoods that divide the social class. Since living in the city is very expensive, the families that live there are considered to be middle to high class. Hence, people living in the suburbs or farms are categories as low middle or low class. Brazil is “the most unequal distributor of income in the nation except for South Africa” The income a wealthy person receives is three times more than the income of a poor person. This is a big problem in Brazil because the richer keeps getting richer and the poor keeps getting poorer. Brazil also has social welfare but it doesn’t help the lower class people enough, because of the increasing population and low circulation of money

Environmental factors:

Nature resource:

Brazil is second only to Australia as a producer of natural resources and leads the world in biofuel production. It is fully self sufficient of petroleum-producing regions such as the Middle East and produces all its own fuel from sugar cane. Billions of dollars continue to be pumped into the ethanol sector, where Brazil’s experience and technical expertise is an important advantage. Record commodity prices make its natural resources, which include oil, soya beans and the world’s biggest iron ore mine, more valuable than ever. As world demand grows, in the first 11 months of 2007 Brazil attracted $3bn into its mining sector, almost six times as much as in 2006. More than 85% of Brazil´s energy comes from renewable sources, mostly hydro-electrical isolating Brazil from international energy shocks. Brazil is home to more than one third of the world’s fresh water reserves.

Environment Position

Brazil has taken many steps to curb pollution and be environmentally friendly. The problem is implementation of the legislation or agreements. Brazil actually has a huge amount of laws and measures on the books, but has not been able to enforce those laws on a consistent basis.  To put it simply, many good environmental laws exist, but they exist simply in the books and are rarely if never enforced. “The purpose of the law was to preserve, improve and recover environmental quality, to ensure conditions for socioeconomic development in compliance with the interest of national security, and to protect the dignity of human life”. (Kirchhoff, 2006, p.2)  One of the biggest issues Brazil faces is how to handle the Amazon River basin region. Despite these environmental measures, at its current rate of deforestation, the Amazon rainforest is estimated to be reduced by 40% over the next twenty years. Other environmental issue that Brazil faces is air and water pollution.  The author remembers trucks belching their thick diesel smoke on every street of every city.  In the gigantic city of Sao Paulo, many people have developed respiratory problems as a result of this air pollution.  The city of Sao Paulo only allows certain cars with a license plate number ending on that corresponding day of the week to drive certain days.  Other measures are in place to try and reduce air pollution, but it is still a major problem.  Brazil also suffers from widespread pollution of their water systems caused by unregulated discharge of untreated urban wastewater.

Cultural issues:

Hofstede model:

Description for Brazil’s Hofstede model

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Brazil’s highest Hofstede Dimension is Uncertainty Avoidance (UAI) is 76,indicating the society’s low level of tolerance for uncertainty, in an effort to minimize or reduce this level of uncertainty, strict rule, laws, polices, and regulations are adopted and implemented. The ultimate or avoid the expected. As a result of this high uncertainty avoidance characteristic, the society does not readily accept change is very risk adverse.

Brazil has a slightly higher Individualism (IDV) rank of 38 compared to the Latin American population. However, virtually all the Latin countries are considered to be collectivist societies as compared to individualist cultures. This is manifest in a close long-term commitment to the member ‘group’, be that a family, extended family, or extended relationship.

Considering factors that different from Australia style by using Kluckhohn-Strodtbeck Framework model

Etiquette: personal space & body language

Brazilians have less sense of personal space than Australian and are not bothered being packed together in crowded public places. They are physically expressive and convey emotional information through touch. While in some societies touching has sexual overtones, Brazilians equate it with friendship and a show of concern. Women tend to touch more than men and greet others with kisses on both cheeks, but men also welcome each other with hearty pats on the back and bear hugs. Such informality extends to conversation. （Joseph A. “The Brazilians”, 1996）

Brazilians usually address teachers, doctors, priests, and other professionals using their title followed by their first name—Professor João, Doutora Maxine or Presidente Henrique. Still, body language and terms of address vary with an individual’s social standing. A domestic servant will greet her employer with a limp handshake, head slightly bowed and eyes lowered, and address her using the respectful “you” ( a senhora ), rather than the familiar “you” ( voceê ); the mistress of the house, by contrast always addresses her servants as você. University graduates or, at times, evens those who appear to be well educated, are addressed as doutor or doutora (doctor).

Ethnic Relations:

Unlike in Australia, in Brazil there is no “one drop” rule—the custom that defines anyone with any known or suspected African ancestry as “black.” The Brazilian system of racial classification is both more complex and more in keeping with biological reality. First, Brazil has never had two discrete racial categories—black and white—and Brazilians recognize and have words for a wide variety of racial types. Moreover, how individuals are classified racially does not depend solely on their physical appearance, their skin color, hair type, and facial features or on those of their relatives. Social class, education, and manner of dress all come into play in assigning someone to a racial category. As Brazilians put it, “money whitens”—that is, the higher the social class, the lighter the racial category to which an individual belongs. A well dressed, well educated woman with dark skin and Negroid features might be referred to as a moreno (roughly, brunette), while an illiterate sharecropper with light skin might be assigned to a darker racial category than his physical appearance alone would warrant.

Lifestyle:

As Brazil urbanizes and industrializes, the leisurely family-centred meal at midday is being replaced by lunch, smaller meals usually consumed in restaurants, including ones featuring buffets that sell food by the kilo and such ubiquitous fast-food eateries as McDonalds. The poor, who cannot afford restaurants, are likely to eat the noon meal at home, to buy snacks sold on the street, or to carry food with them to work in stacked lunch buckets. In rural areas itinerant farm labourers who are paid by the day and who carry such buckets have been dubbed bóias-frias, “cold lunches.” Meals may be accompanied by soft drinks— including guaraná, made from a fruit that grows in the Amazon—beer, or bottled water. （Summ, G. Harvey. Brazilian Mosaic: Portraits of a Diverse People and Culture, 1995）

Food Customs at Ceremonial Occasions:

While the principle foods consumed in Brazil are fairly uniform across the country, there are regional specialties, many of which are eaten on festive occasions. In the north-eastern state of Bahia ingredients of African origin—palm oil ( dendê ), dried shrimp, peanuts, malagueta peppers—are the basis of regional cuisine in such dishes as vatapá (seafood stew) and acarajé (black-eyed pea fritters). A variety of fruit and fish native to the Amazon are featured in dishes of that region, while in southern Brazil, an area of extensive cattle ranches, meals of grilled meat (churrasco) are favoured. Another southern specialty are rodizios, restaurants featuring barbecue in which waiters pass from table to table with large skewers of grilled meats and poultry.

Social Stratification:

Classes and Caste: “Brazil is no longer an underdeveloped country. It is an unjust country,” Brazilian President Fernando Henrique Cardoso proclaimed in 1994. Today Brazil, although one of the ten largest economies in the world, it still has the most unequal distribution of income of any nation except in South Africa. Moreover, inequality has been growing. In the mid-1990s, the poorest 20 percent of the population received only 3 percent of national income, while the richest 10 percent received 47 percent. Or, put in another way, the wealthiest 20 percent earn twenty-six times as much as the poorest 20 percent. It is estimated that some thirty-three million Brazilians live in poverty, including twenty million workers and ten million pensioners who receive the minimum wage of around $115 a month.（Levine, Robert M., and John J. Crocitti, eds. The Brazil Reader, 1999）

Symbols of Social Stratification: Brazilians are preoccupied with class distinctions and are quick to size up the social distance that exists between themselves and others they meet. Yardsticks of such distance are general appearance and the “correctness” of a person’s speech. The degree to which an individual’s vocabulary and grammar is considered “educated” is used as a measure of schooling and, hence, social class. And this, in turn, establishes patterns of deference and authority between two individuals should they belong to different social strata. When such patterns are ignored, the “elite” persons may harshly demand of their “lesser,” “Do you know whom you’re talking to?”—a ritualized response when someone of higher status is not accorded due deference by someone lower on the social scale.

Political/Legal Factors

As Brazil plays an important role in international business, we need to analyse the advantages and disadvantages of Brazil’s economy. Political and legal factors are important as it influence the market and site location decisions. Government regulation is significant for foreign companies doing business in Brazil.

Tariffs Barriers and Nontariff Barriers

Brazil’s import tariffs range from 0 percent to 35 percent, with an average applied tariff rate of 11.6 percent in 2010. Brazil’s average bound tariff in the WTO is significantly higher, at 31.4 percent. (SICE, 2011) For foreign companies, they may face significant uncertainty in Brazil’s market because the government has the ability to raise applied rates to bound levels in an effort to manage prices and supply. Average applied tariffs in Brazil have risen by three percentage points since 2007, and are imposed on the vast majority of imports. These tariffs are applied on automobiles, auto parts, electronics, chemicals, plastics, textiles, and apparel. So, it is not good for foreign investment in these kinds of industries. It is obvious that the Brazilian government is trying to protect the domestic producers and wants to generate more revenue. Hence, foreign companies looking into these kinds of products are not good choice.

Besides, there are other non-tariff barriers in Brazil. Brazil applies federal and state taxes and charges to imports that can effectively double the actual cost of imported products in Brazil. Some products are prohibited in Brazil including foreign blood products and all used consumer goods, such as automobiles, clothing, and tires, as well as used medical equipment and information and communications technology products. (SICE, 2011) Brazil only allows the importation of such products that Brazil cannot be produced domestically. Therefore, in these kinds of industries, the only way to occupy the Brazilian market it to export product that Brazil cannot produce. It seems that it is quite impossible for foreign companies to enter into the Brazil market.

Foreign Direct Investment

Brazil is a favourite location for foreign direct investment. From its modern origin as a colony to about the middle of the 20th century, FDI came mainly for Brazil’s abundant natural resources and huge infrastructure requirements. The main attraction has been its large, often rapidly growing, and protected internal market. In the last decade, infrastructure and financial service sectors have received enormous amounts of FDI as policies shifted to allow it. Protection for manufacturing overall is much lower than in the heyday of import substitution, but still significant. Also, in spite of overall progress, Brazil appears to be still more reliant on non-tariff measures, including licensing arrangements and outright prohibitions than other Latin American countries. (SICE, 2011)

The FDI of Brazil increased steadily. There are the very significant inflows of the earlier years, between $2 and $4 billion annually. It is obviously that Brazil is keen to promote FDI. The reason why Brazil does this is that the government wants to attract more foreign investor to help Brazil to develop their local industries.

Conclusion

In conclusion, Today Brazil has the eighth largest economy in the world. It is a major producer of such agricultural products as sugarcane, soybeans, oranges, coffee, cocoa, rice, wheat, and cotton. It is also a major supplier of beef with vast cattle ranches primarily in the southern and western regions of the country. Nevertheless, because of the tremendous growth of industry, agriculture accounts for only 13 percent of the nation’ gross domestic product. Therefore, there are numerous of business opportunities in Brazil, such as coffee industry as it has a large production of coffee, and it becomes easier and cheaper to enter the foreign market of running a coffee industry in Brazil.

Recommendation

We need these steps for entering the market

Properly setting expectations

Developing a bank of resources

Studying local market norms

Deciding upon a foreign national or expatriate as country manager

Developing a champion customer

Wisely selecting sales channel partners

Preparing itself for fraud and scandal

Incorporating lessons from competitors into its expansion plan

Reference

Baer, Werner. “The Brazilian Economy: Growth and Development” 5th. Westport, CT: Praeger Publishers, 2001，viewed 17 May 2011,<http://www.business.unr.edu/faculty/beekun/Brazil%20JBE-%20pub.pdf>

Brown, Diana Deg. “Umbanda: Religion and Politics in Urban Brazil”, 1994. Viewed 17 May 2011, HYPERLINK “http://www.everyculture.com/Bo-Co/Brazil.html”http://www.everyculture.com/Bo-Co/Brazil.html

Harrison, Phyllis. “Behaving Brazilian”, 1983, Viewed 17 May 2011<http://www.amazon.com/Behaving-Brazilian-Comparison-American Behavior/dp/0838428495 >

Lesser, Jeff. “Negotiating National Identity: Immigrants, Minorities, and the Struggle for Ethnicity in Brazil”, 1999, viewed 17 May 2011, <http://www.paperbackswap.com/Negotiating-National-Identity-Jeffrey-Lesser/book/0822322927/ >

Levine, Robert M., and John J. Crocitti, eds. “The Brazil Reader”, 1999, viewed 17 May 2011, < http://www.amazon.com/Brazil-Reader-History-Culture-Politics/dp/0822322900 >

MacMillan, Gordon, “At the End of the Rainbow? Gold, Land, and People in the Brazilian Amazon”, 1995, viewed 17 May 2011, <http://www.amazon.co.uk/End-Rainbow-Brazilian-Biodiversity-Conservation/dp/0231103557 >

Margolis, Maxine L., “Little Brazil: Brazilian Immigrants in New York City”, 1994, viewed 17 May 2011, <http://www.amazon.co.uk/Little-Brazil-Ethnography-Brazilian-Immigrants/dp/0691000565 >

Mariz, Cecilia Loreto, “Coping with Poverty: Pentecostals and Christian Base Communities in Brazil”, 1994, viewed 17 May 2011, <http://findarticles.com/p/articles/mi_hb3244/is_n2_39/ai_n28687713/ >

Mcgowan, Chris, and Ricardo Pessanha, “The Brazilian Sound: Samba, Bossa Nova, and the Popular Music of Brazil”, 1998, viewed 17 May 2011, <http://www.nextag.com/Tradition-Matters-Modern-Gaucho-1228965292/prices-html >

Oliven, Ruben. “Tradition Matters: Modern Gaucho Identity in Brazil”, 1996, viewed 17 May 2011, Page, Joseph A. “The Brazilians”, 1996, viewed 17 May 2011, <http://www.amazon.com/Brazilian-Mosaic-Portraits-American-Silhouettes/dp/0842024921 >

Summ, G. Harvey, “Brazilian Mosaic: Portraits of a Diverse People and Culture”, 1995, viewed 17 May 2011, <http://www.amazon.com/Brazilian-Mosaic-Portraits-American-Silhouettes/dp/0842024921 >

Vianna, Hermano. Samba Nation: Popular Music and National Identity in Brazil, 1999. viewed 17 May 2011, <http://www.bookbyte.com/1/1/913997-mystery-of-samba-popular-music-national-identity-brazil-by-vianna.html >

Wagley, Charles, “An Introduction to Brazil”, 1971, viewed 17 May 2011, < HYPERLINK “http://en.wikipedia.org/wiki/Economy_of_Brazil”http://en.wikipedia.org/wiki/Economy_of_Brazil>

Maxime L. Margolis, Maria Enedina Bezerra, and Jason M. Fox (2007). Culture of Brazil

N.D. Family Life and Family Values. Retrieved October 12, 2010, from HYPERLINK “http://family.jrank.org/pages/859/Brazil-Family-Life-Family-Values.html”http://family.jrank.org/pages/859/Brazil-Family-Life-Family-Values.html

FIAS, 2011, “LEGAL, POLICY AND ADMINISTRATIVE BARRIERS TO INVESTMENT IN BRAZIL”, Viewed on 17 May 2011, HYPERLINK “http://czbrcham.org/yahoo_site_admin/assets/docs/PUBBrazilReportVolII.2525055.pdf”http://czbrcham.org/yahoo_site_admin/assets/docs/PUBBrazilReportVolII.2525055.pdf

SICE, 2011, “BRAZIL” Viewed on 17 May 2011, < HYPERLINK “http://www.sice.oas.org/ctyindex/USA/USTR_Reports/2011/NTE/BRA_e.pdf”http://www.sice.oas.org/ctyindex/USA/USTR_Reports/2011/NTE/BRA_e.pdf>

POLITICAL FACTORS

The One-China policy firmly states that Taiwan is part of China. The People Republic of China (PRC) refuses to continue diplomatic relations with any nation that recognizes the Republic of China (ROC) commonly known as Taiwan, but it does not object to nations conducting economic, cultural, and other such exchanges with Taiwan that do not imply diplomatic relation. Therefore, many nations that have diplomatic relations with Beijing maintain quasi-diplomatic offices in Taipei. Similarly, the government in Taiwan maintains quasi-diplomatic offices in most nations under various names, most commonly as the Taipei Economic and Cultural Office. With this regards, many international companies having manufacturing plants in both PRC and ROC have to be cautious about stating their products’ country of origin. Some companies experienced that they are required to state, ‘Made in Taiwan, province of China’ on the product’s label.

Taiwan not only built good diplomatic relationship with the United States but it also has a very strong economic relationship with the U.S: its largest trade partner, which acts as an engine boosting its economy, attracting foreign investments, and growing entrepreneurship. Apparently, through decades of hard work and sound economic management, Taiwan has transformed itself from an underdeveloped, agricultural island to an economic power that is a leading producer of high-technology goods. For instance Taiwan has transformed itself from a recipient of the U.S. aid in the 1950s and early 1960s to an aid donor and major foreign investor, especially in Asia. Taiwan is now a creditor economy, holding the world’s fourth-largest stock of foreign exchange reserves $385.6 billion as of December 2011 (CIA World Factbook, 2012).

Taiwan is one of the best places for foreign investment partially due to its stable political situation. Taiwan is considered a law-abiding country—which means businesses are fully P.E.S.T Analysis 3 protected and treated based on rule of law. Taiwan has a good relationship with many countries in Asia. Furthermore, Taiwan could build excellent relations with foreign manufacturing companies and service industries providing a good economic opportunity for cooperation with foreign investors and for access to the Asian market. Since Taiwan and mainland China have both joined the WTO, and as China’s economy is growing, Taiwan industries/business have become more eager to explore new business opportunities in mainland China, either on their own or through joint venture with other international investors. The government has privatized and deregulated much of the economy and is seeking to improve economic ties with mainland China which would greatly improve Taiwan’s economic prospects. Hence, good diplomatic relationship with China is utmost important for Taiwan to further strengthen its economy in a global arena.

For some investors, Taiwan seems to be a risky place for doing business due to its recent domestic political events and the strained relations with People’s Republic of China (PRC) which could negatively affect their business and the market price of their common shares. President Ma Ying-jeou’s promotion of closer economic ties with China has boosted trade and reduced the risk of military conflict. The government is expected to press ahead with achieving an economic cooperation framework agreement — essentially the precursor to a free trade deal. But the issue of ties with China remains highly divisive in Taiwan and there is always the risk of new controversies.

On the other hand, there was concern over corruption in Taiwan in recent years. Taiwan is generally rated as being far freer of damaging corruption than most of its regional peers. But many corruption rankings, including the World Bank’s World Governance Indicators, suggest that there has been a significant deterioration in control of corruption in recent years. Graft is considered most common in local government, but life sentences given to former president Chen P.E.S.T Analysis 4

Shui-bian and his wife on corruption charges