Netcare's Expansion into Brazil

INTRODUCTION

Should Netcare expand into Brazil? This report answers the question by undertaking three steps:

1. An in-depth analysis of Netcare's Business Model

2. A PEST analysis of the current Brazilian Market Place

3. An integration of the Results of Parts 1 and 2 into a sound analytically based conclusion.

ANALYZING NETCARE'S BUSINESS MODEL

Netcare is a for-profit health care provider offering a number of world class services to its clients. At the core of Netcare's business model are four profit centers shown diagrammatically below. The four profit centers are then refined into their shared: Value Added Elements, Supporting Activities and Raw Inputs common to all centers.

Business Model

Value Added Elements

Supporting Activities

Raw Inputs

A PEST ANALYSIS OF THE CURRENT BRAZILIAN MARKET PLACE

The classical PEST approach provides an excellent framework for Netcare to analyze risk factors associated with entering the Brazilian Market Place.

Opportunities and Risks

Political Factors

In the early 90's Brazil opened its doors and encouraged foreign investment. Brazil receives the largest amount of foreign direct investment in Latin America, with an estimated USD 42 billion in 2008. Brazil has also been working to strengthen ties with South Africa by participating in forums like the India-Brazil-South Africa Dialogue Forum (IBSA). Brazil has a stable government and recently elected their first female President, Dilma Rousseff. The new President has said she will be retaining key members of the previous administration's economic team and few changes will be made to the current economic policies.

Judicial System - Brazil's judicial system has a reputation for being dysfunctional and overburdened. Contract disputes and legal issues are very lengthy. However, the concept of binding precedent has recently been introduced. In 2009, according to the World Bank "Doing Business" survey, it takes on average 45 procedures and 616 days to litigate a contract breach.

Corruption - Although corruption is illegal in Brazil, the effectiveness and enforcement of anti-corruption laws are inconsistent. Corruption is particularly problematic at lower levels of government. Brazil ranked 80 out of 180 countries in Transparency International's Corruption

Government – Although Brazil has been working to strengthen ties with other developing powers they continue to face difficulties in implementing various economic reforms, particularly in tax and business regulation. In the 2009, Brazil ranked 125th out of 181 countries for having a regulatory environment conducive to business.

Since the 1930's, the Brazilian government has funded health services through social security insurance from both public and private employers. They rely on both a public and private subsystem covering approximately 75% of the population. In 2003 24.5% of the population had private health insurance. Brazil has been facing pressure from the growing upper and middle class to privatize the public system, as well as political pressure to extend public access health from the lower middle class. As such, healthcare polices tend to be focused toward providing public healthcare options.

Tariffs, Taxes and other Trade Barriers - Brazil applies federal and state taxes. Corporate tax rates are 34% (compared to 28% in the UK and South Africa) and employers pay 37.3% of gross salary for social security.

Brazil has an applied tariff rate of 11.5%. The Government, however, has the ability to raise applied rates. Charges to imports can effectively double the cost of importing products into Brazil. A number of imports are prohibited, including foreign blood products