1 A Work Project, presented as part of the requirement for the Award of a Masters Degree
in Management from the Faculdade de Economia da Universidade Nova de Lisboa
Appendix
WPSMECOMPETITIVENESS
INTERNATIONALIZATION STRATEGY OF SCIENCE4YOU,S.A. TO THE BRAZILIAN MARKET
João Souto de Moura Quelhas da Silva, # 764
A Project carried out on the Management course, with the supervision of:
Professor Sónia Dahab
Professor Filipe Castro Soeiro
2 Annex Index:
Company’s Results………..……….3
Industry Mapping………..3
Value Chain .………..……...4
Portuguese Competitive Assessment …...4
Porter 5 Forces ………..6
SWOT Analysis ………8
World Toys Industry Data ………..………10
Country Overview ………..…12
Brazilian Toys Fairs ………...……….…14
Brazilian Toy’s Industry Data……….16
Process of Transport of the Toys ………...17
Description of Taxes to Pay ………...18
4M Tool ………...19
Processes Matrix ………...21
3 Annex 1: Company’s results:
Year Sales Volume (€) Net Profit (€)
2008 52.919,65 -16.854,19
2009 189.549,26 23.434,41
2010 245.028,96 22.494,55
2011 500.000 * -
*expected value Source: primary data
Annex 2: Industry Mapping
Science4you
Distributors and Commercial
Agents
Legislation Suppliers
Partnerships
Final Consumer Direct Competitors
Indirect Competitors Science4you
Stores
Major Clients Outsourced
4 Annex 3: Value Chain
Annex 4: Portuguese competitive assessment:
Regarding the Portuguese competition Science4you faces, the company is well positioned in the market, and with more presence in the several Portuguese large retailers than its competitors. In fact, the only important large retailer that it is not
commercializing Science4you toys is Sonae Group, since this retailer has the licensing
rights of the company’s competitor Discovery Channel. However, it is important to
mention that there are no studies about Portuguese toy’s industry, therefore this analysis in based in my visit to large retailers
The innovations presented to the market by Science4you could raise the issue of
protection of intellectual property by the company. Nevertheless, for Science4you, Patent registration is very expensive and it is not a safeguard in this market because
5 Its biggest competitor is the multinational 4M, who is in Portugal for a long time and also brings to the market quality products but does not have such variety in its
portfolio and practices prices slightly higher than Science4you. In fact, from all of its competitors, as I mentioned above, Science4you presents the cheapest portfolio in the
market, and with its 72 products launched since 2008 is also the one with more launches in Portugal.
In terms of appealing of the product, Science4you and 4M, as the ones with the
most innovative packaging, can be considered the manufacturers who have the higher one since the quality perception made by consumers seems to be higher in these two
brands.
Concerning value brought with the launch of a new toy, Science4you presents itself ahead of competition as well, mainly due to its museums tickets offerings that no
other toy manufacturer has, but also for be fair to consider that its pedagogical manuals brought to the market a new way to complement education with toys.
Annex 5: Comparison of product’s characteristics:
Price Presence Variety Appeal Value
Science4you * *** *** ** ***
4M ** ** ** ** **
Discovery channel
** * ** ** **
Clementoni ** ** ** ** **
6 Annex 6: Porter 5 Forces:
Power of Suppliers:
Science4you has several suppliers since each toy has its specificity. Therefore, it is always dealing with different suppliers, to whom it makes relatively small requests (for now). The fact that they are also small companies, and their low switching costs,
makes that their power over the company to be usually low.
All in all, we conclude that power of suppliers, mainly due to the suppliers’ competition and its low switching cost is lower over the company.
Conclusion: low power Threat of New Entrants:
Regarding the possibility of new entrants in the market, I considerate it as a medium level threat. There are two major concerns to deal with. First of all the attractive niche
market the company is implemented, that is not fully mature, may lead to the entrance of new competitors, either from existing or new toys’ enterprises; secondly these companies may enjoy economies of scale if they are able to cover the EU market.
However, new companies may face bureaucratic problems regarding safety regulations, Science4you did not had many problems with EU regulations, but is still struggling to
get the Brazilian one.
Conclusion: Medium Threat Threat of Substitutes:
We can consider as product’ substitutes of scientific toys the rest of the toy’s industry. In that sense, we can consider that there is a huge amount of toys, from the age
7 in the toys’ market; the size of the industry, associated with the low switching costs of change one toy for another makes the threat of substitutes a high one.
Conclusion: High Threat Power of Buyers:
Associated to what was said before, the very low switching costs of the product, give power to final consumers and their decisions. This power is even more relevant in the case of a small company like Science4You, who does not enjoy from economies of
scale neither from a good brand image strong enough to create trends over buyers. In
that sense, buyer’s decisions play a tremendous role in the company’s success or failure.
If we consider the large retailers buyers, the power of negotiation of a small toys’ company over worldwide retailers is obviously very low. So also in that area,
bargaining power of the company is not high. Regarding Sr. Brinquedo, the power of
negotiation is one the side of Science4you, however, since Sr. Brinquedo is one more intermediary in the process of reaching the product to final consumer, the company practices nearly the same margins that it does with the large retailers
Conclusion: High power
Industry’ Rivalry:
To conclude, we can admit that industry’ rivalry is high. We can characterize the industry has one which its product (toys) switching costs is low; where despite the relatively low competition present in the scientific niche, the company has in the
Chinese company 4M its most powerful competitor (annex X has the information about the Portuguese market) the threat of substitute of traditional toys is very high. About
8 protect the ones present in the market, but regarding EU territory, since the regulation is the same to all member-states, the big manufacturers do not have many obstacles in
reaching Portuguese market once they have approved their products.
Conclusion: High Annex 7: SWOT
Another important analysis to better understand the position of Science4you in the market, comparing it with its competitors and check for opportunities and threats in
the marketplace to better plan a strategy is the SWOT analysis.
As Strengths the most important can be considered the product development
associated to each toy, as well as its thematic manuals and the high average toys Science4You launches. Price versus quality ratio can also be considered a major strength of the company, since it has always with great quality lower prices than the
competition. An also its partnerships with universities and museums are one of the company’s major competitive advantage, since it allows the company to enhance
product’s value and give trust to the parents who buy the toy.
As opportunities the company has to find how to take the most out of the benefits this industry can provide. I consider that there are such as the increasing
awareness of parents to the pedagogical advantages that a scientific toy can provide to its children, which, combined with low prices can be a source of growth to the
company. Despite this increasing interest of parents by scientific toys, this niche market
is far from being fully explored either in Brazil or in Portugal, there are not many competitors which can be seen by the company a chance to raise its market power.
9 player like Fnac to be able to have a good support in each of its internationalization processes as well as its high average of product innovations.
Regarding weaknesses of its internal environment, as a small company, Science4you has the pitfall of not enjoying economies of scale, such as many others
competitors, and with that the company finds sometimes difficulties in match the demand and many other advantages in terms of costs that bigger companies have.
The high dependence of retailers is also a company’s weakness. For being dependent of this source of revenues, its bargaining (negotiation) power over the retailers is low and forces the company to accept unfair deals.
In this industry it is very important, by selling product to children, it is very important to create a brand awareness that makes parents to rely on the company in terms of quality and remember when go shopping, that they already saw or heard something about the product. Nowadays the company’s publicity is only made when it is requested to give interviews and on facebook with posts company’s news every week. In my opinion, it is not too much, and despite being a small company, the company
should increase its efforts on this topic.
In my opinion, the company faces some lack of organization regarding its
hierarchical structure and its product quality management. Regarding being a small company, seems that the operations are very centralized in its CEO, who probably if delegate some responsibilities the processes would flow easier; and its quality
10 This industry presents some Threats as the extremely difficult economic
environment lived in the world, especially in the major market that the company wants
to internationalize, EU. With this crisis, demand and trade operations usually decrease, and the search for the cheapest product is even more accurate, giving to the company
the challenge to face in this industry the power of the cheaper Chinese manufacturers.
Regarding other possible threats, I highlight the increasing competition in this niche market. Science4you is facing a very different scenario nowadays than in 2008
since many players came into this market. Which bring us to a problem stated above which is the higher brand awareness of the company’s who compete with Science4you and all the disadvantages this brings to the company.
Annex 8: World Toys Industry revenues
Year $US Billions % of growth
1999 71.1 -
2000 69.5 -2.3
2001 74.4 7.1
2002 79.4 6.7
2003 84.3 6.2
2004 61.2 -27.4
2005 63.7 4.1
2006 67,0 5.2
2007 70.4 5.1
11
2009 74.0 2.6
Source: Abrinq
Annex 9: Top-10 markets 2009
Source: NPD Group
12 Annex 11: Country Overview
Brazil is a democratic country governed through a presidential federal republic. Its actual president (since 2011), Dilma Rousseff, was the first women to be conducted
to post, after 8 years of governance of Luiz Inácio Lula da Silva, and was elected by the left wing party Partido Trabalhista. The parliament, lying in Brasília builds the majority
of the laws on federal level, while the states create some state laws.
With an emergent economy, member of the famous group BRIC, Brazil is nowadays one of the most appealing countries to make business (either export or
implement operations) with. However, anticipating a scenario where national industries are destroyed due to the presence of stronger economic players in the country, the government mainly through taxes and bureaucracy is creating a somehow protective
economy to its home based industries
However, due to its protectionism, Brazil was already warned by World Trade organization (WTO), from which the country is a member – an organization that fights for free trade. The country is a member of other international organizations like
Mercosul, ONU, G-20 and IMF.
With the biggest economy of Latin America, and sixth worldwide, Brazil became one of the most powerful nations in the last decade. The economic openness to the rest of the world and the financial reform, known as Plano Real that brought a new
currency in the mid 90’s, gave to Brazil the economic stability necessary to register the
economic growth it did. All the sectors of the economy (primary, secondary, tertiary)
13 country exports, as well the new discovery of oil deposits that made the country
self-sufficient in 2006. The country’s trade balance presented a small deficit. The
government and the central bank press a solid control over the economy, which justifies the high interest rates and inflation.
Brazil nowadays is a country with 193.3 million of habitants (2010), from which
50 million are children (NPD) and 86.12% live in urban areas. The biggest states have about the following population: São Paulo – 40 million; Minas Gerais: 20 million and Rio de Janeiro – 16 million.
Besides the economic power and wealth be unequally distributed in Brazil, the economic growth in Brazil has been also followed by social programs that allowed
many families to rise up their income and, apparently, with a general increase in income and life quality of the poorest social classes. The country’s literacy rate, according to UNICEF, is of 90%. Many other social indicators like Education Index - 67ºplace - and infant mortality rate registered great progress in the last 20 years. Moreover, it also
decreased the percentage of children that does not go to school (IBGE).
As it was said previously, the size of the target for the toy’s industry is huge. There is nowadays a boost middle class that pushes for the economy.
Between the periods of 2006-2009, according to a research made by IBGE, there was a clear evolution in terms of income of the population. It can be concluded that social
classes with lower income, on average, increased their income, while the families who have more than five times the minimum wage represented in 2009 8.05% (while in 2006 was off 9.25%). This shows that the Brazilian income per capita is nowadays more
14 In terms of technological development and investment made in R&D, Brazil is one of the most advanced countries in Latin America, however, still below the average
of OECD countries. Comparing to other countries present in the Global
Competitiveness Index 2011-2012 of the World Bank, Brazil presents a good firm-level
technology absorption, and a fine FDI and technology transfer (28º), from which its main partners are U.S.A. and China. Its level of internet users is only of 40.7% and is
ranked in terms of innovation and sophistication factors with 3.5 out of 7.
Annex 12: Brazilian Toy’s Fairs
The presence in the toy’s fairs should be seen of major importance as part of the marketing strategy developed by Science4you and its representative. Their attendance
can allow a more effective bet in the country and the increase of business opportunities, since in these fairs the toys manufacturers present their portfolio for the upcoming year
and make business with all the other players of the industry. For that reason, it is a good opportunity for the company (and its representative) increase brand awareness in Latin America, network, and possibly get new distributors and clients for the whole
country and even be aware of the launches of its competitors. For the presence in these fairs, the company has the financial support of QREN (NSRF)1 in 50.000€. However, it is important to mention that this support is a loan that the company has three years to payback. I decided that the company should be represented in two fairs that will take
place in April and August of 2012, in São Paulo. Regarding the fair Educar, I think that it is only necessary to be the representative of Rio de Janeiro.
1
15 Feira Abrin: it is the biggest toy’s fair of Latin America (and third of the world). Every year, the amount of business done increases and in 2011 was able to made revenues of
R$ 1700 million, which is 50% of the revenues expected for the industry in 2011. From 2010 to 2011 the growth was massive since in 2010 it was transacted R$ 1000 million that was the equivalent to 30% of the total industry’s revenues. In the Abrin 2001, 16.000 players from the sector visited the fair that had the exposition of toys of 200
companies.
Educar- International Fair of Education: it is the biggest fair of education of Latin America, focused on products and services directed to schools, this fair can be
important to develop the non-core business of the company in São Paulo that will be the creation of an Science4you animation team. Hear, the company may be able to get partnerships to enter in this business area and check for business opportunities to get
schools as one more client of its toys.
Feira Abrine – similar to Feira Abrin, but organized by the association of educational toys (Abrine). It is targeted to the market’ segment of the industry that Science4you is inserted and therefore can be seen as a way to increase brand awareness and networks even further, after the first appearance on Abrin. It does not have as much business and
16 Annex 13: Brazilian toy’s industry revenues:
National Production Imports Total
source: Abrinq
Annex 14: Brazilian revenues per segment:
2006 2007 2008 2009 2010
Affective development
23.0% 26.1% 32.7% 27.1% 30,0%
First age 16.0% 11.8% 4.4% 5.4% 5%
Technical world
5.0% 6.5% 11.7% 14.7% 14.0%
Physical activities
17.0% 10.0% 16.2% 13.6% 15.0%
Intellectual activities
14.0% 16.2% 10.8% 10.6% 10.0%
Criativity 11.0% 12.1% 12.1% 12.8% 11.0%
Social
Relationships
14.0% 17.2% 12.1% 15.8% 15.0%
Total 100% 100% 100% 100% 100%
17 Annex 15: Sales/Distribution Channels:
2007 2008 2009
Magazines 18.0% 20.3% 19.6%
Self-service (supermarkets, etc)
15.1% 15.9% 14.4%
Specialized 41.0% 38.8% 41.3%
Wholesalers 24.7 % 24.5% 23.3%
Others 1.2% 0.5% 1.1%
Total 100% 100% 100%
source: Abrinq
Annex 16: Process of transport the Toys
The toys would leave the Lisbon port and arrive to Rio de Janeiro about 20 days later.
Once there, they would become responsibility of the representative, who has to make each lot be approved by the competent authority (DECEX), which will test the several kind of toys that arrive (even if they were previously approved). For each kind of toy is
given a budget of how much will cost to the distributor to make the test and consequent approval. So, the higher the number of toys shipped to Brazil at once, the less the cost
per unit this testing will represent. Sometimes they may be pretend to perform an additional testing, for being a product related to children, but this extra test is usually
only made once for each kind product.
The value I advanced for the extra cost of licensing in the mode of entry ($R 1, 05) per toy it is not completely accurate, because the value to pay for this test may vary, but
18 On a first phase, the representative in Rio only wants to ask to Lisbon for 2000 toys, 500 of four kinds. However, with the possibility of increasingly demand, it is expected
that shipments can bring a higher number of products.
Regarding the transportation of the toys inside Brazil, the costs will be carried by the
retailers.
Annex 17: Description of the taxes to pay
Tax % per product
Import tax– II 35
Tax over industrialized
product – IPI 10 Tax of circulation of
products - ICMS
14% (12% in São Paulo)
Social Security - COFINS
7.6
Program of Social Integration - PIS
1.65
Total 68.25 (66.25)
19 Annex 18: 4M - Money:
Descripton Annual Cost
Wage 550€*14
Plane Ticket Lisbon – Brazil + Living
Expenses (850+400)*2
Presence in toy’s fairs 2025€+
2695€+4500€
Wage 700€*13
Plane Tickets within Brazil + Living
Expenses 200€*10
Office in Rio de Janeiro 530€*12
Total 36880€
Science4you Costs
20 Annex 19: 4M Minute
Activity 1 month 2 month 3 month 4 month 5 month 6 month 7 month 8 month 9 month 10 month 11 month 12 month 3 years
1 Contact AICEP AND CEB
2
Acknowledging the Brazilian legislation
and import tariffs
3
Adapt toys to Brazilian safety
requirements
4 Get the InMetro safety certification
5 Participation in Fairs
6
Partnerships with universities and
museums
7
Adapt packaging and manuals to
Brazilian
8 Establish contact with large retailers
9 Find a commercial agent for S. Paulo
10 Search for Brazilian market trends
11 Add new products to the portfolio
12
Establish science4you store and
animation team
21 Annex 20: Processes Matrix
Business Processes Cr itical S u cc ess Fac tor s R &D Ne twork P ric e vs Qua li ty P artne rship
s Bra
nd Aw ar ene ss Tota l of im pa cts Qua li ty of
the proc
esses (1 -5) S pe nde r P roc ess Suppliers’ Relationships
X X X 3 4 20%
Promotion X X X X 4 3 5%
Quality Management
X X X 3 2 10%
Search for market opportunities
X X X X X 5 4 20%
Non-core business activities
22 Annex 21: Risk Analysis
By choosing the path of having an independent distributor in Rio de Janeiro, that is responsible for developing the internationalization strategy of the company,
Science4you does not have control over operations there, but has the advantage of the low risk that is associated to it, since it only exports what the distributor asks for,
transferring in that way the threat of failure to him. However, it is advisable for the company to have some control over the distributor like reporting rules about the
on-going operations; information about Brazilian clients; and motivational factors like the increase of profit margins to the representative after being sold a certain number of units. In that way the company is decreasing the risk of becoming too dependent of the
representative in Brazil.
However the company and the distributor face some risks in the strategy I designed:
The partnerships with museums and the certification by the university may not happen, which would undervalue the toys comparing to the one that is commercialized in
23 Concerning the agent chosen for carry the brand in São Paulo, there is always the risk that he does not bear as it expected, which can damage the brand’s image. There is also the risk of he does not have a good network developed in the target he is assigned to. To fight against this possibility the company has to choose a company already well
established in the market, that preferably carries other successful brands.
About the portfolio chosen by the distributor to commercialize, there is the chance of not selecting the right ones. The agent already told me he wants to enter in the market
with toys that does not exist yet in Brazil along with the Science4you top-sellers. A choice that brings along the possibility of the products does not be well received by the market. If that happens, the representative has to be constantly adapting its portfolio
with new toys that may attract the clients.
In a macroeconomic context, I identified two major risks for the company: the chance
that the Government implements even more disincentives to the importation of toys to Brazil; the exchange rates between Euro and Real, knowing that it is preferable for the company and the distributor that Euro depreciates over Real, so that the European
24 Regarding operations, the risk that these are not fully optimized may have the
consequence of: the possibility that the toys does delay in the trip over the Atlantic,
which can cost money to the both parts; and, yet about delays, the chance that demand may be higher than expected in some periods and in that sense the time of response in Lisbon might not be the previously expected. To overcome these obstacles the company
