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CAGE Analysis of Lululemon Athletica

Info: 2790 words (11 pages) Essay
Published: 29th Oct 2021 in Business

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Introduction

This paper will provide officials at Lululemon Athletica with an analysis of their potential expansion to Brazil based on the factors of the CAGE framework. From Indigenous peoples residing near and around the interior with a significant presence of European culture by the coast, Brazil has a very diverse population. Brazil has a historically rich tapestry of folk traditions, music, dance, art, and literature emanating from the varied mix of cultures introduced over centuriesi. This may prove to challenge Lululemon as they hope to migrate business south to the Latin country of Brazil.

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Cultural Distance

A key difference between the two countries is in terms of the Hofstede cultural framework, specifically the Power Distance Metric. Brazil reflects a society that heavily values hierarchy, and subsequently, believe inequalities amongst people are acceptable. Lululemon prides itself on being a very progressive company, highlighting facts of self-empowerment, confidence, and equality. Lululemon has had problems arise in the past with employees not buying into the group improvement as they found the company culture in the realm of "being a little too preachy almost evangelical"ii. Problems may arise when hiring employees as they may not buy into the emphasis that Lululemon places on inclusive leadership; with end goals of retaining talent and developing leaders.

Another cultural problem the Lululemon will face is the difference in language. Entering the Brazilian market, Lululemon can expect challenges in customer service communication and e-commerce platforms. Communication avenues such as email and telecommunications will be something that Lululemon will have to adapt to minimize miscommunication as all inquiries and complaints will be in Portugueseiii. This will present Lululemon with higher costs as they will have to hire employees to spearhead this sector of their business. Moreover, this presents a challenge in-store as there is a vast difference in etiquette. In Brazil, it is normal to give two kisses on the cheek when meeting others. Employees must be aware of these customs when working to allow for a superior customer experience.

To combat the Power Distance challenge, Lululemon must have an in-depth screening process to choose candidates that will positively promote the progressive culture that Lululemon represents within Brazil. Concerning the language difference, Lululemon must hire an array of Portuguese speaking workers at their administrative offices. Having these workers will help with customer service issues that will arise, giving a more personalized feel rather than having automated translated responses. Lululemon must leverage their company's sense of community to aid its presence in the Brazilian market.

Administrative Distance

Canada and Brazil enjoy diplomatic relations dating back to 1941iv. Although there has been a long relationship between these two nations, there are still many areas hindering business dealings. Among all echelons of the Brazilian government, from the police to ranking government officials, corruption is one of the largest issues facing the country. Most of these issues arise from officials in the government bleeding money from government accounts for personal gain. This has shown negative effects on the economy, such as rising inflation rates and negative economic growth. The federal structure of the political system means there is a wide range of regulatory agencies, leading to demand for bribes from public officialsv. This will result in many issues for foreign firms entering the Brazilian market. The negative economic growth shown in Brazil has resulted in the devaluation of the Brazilian Real and variable tax rates. Because of this factor we have seen a decreasing annualized rate of imports at -8.9% from 223B in 2012vi to $181.2 in 2018vii.

viii

The devaluation of the currency and current political state has proven to decrease FDI as companies are wary of entering this unstable market. There are many improvements to be made to reduce the convoluted bureaucracy within Brazil.

Substantial investment in human resources and time is required to ensure compliance with local regulations, making Latin America's largest economy a problematic and expensive place to do businessix. Brazil ranked 109 out of 190 countries in the World Bank's 2019 Ease of Doing Business Report while also ranking 137 out of 138 economies for the burden of regulation, ahead of only Venezuelax. The administrative challenges facing Lululemon are complex and may prove to challenge expansion to Brazil.

For Lululemon to succeed in Brazil, they must be prepared to combat obstacles posed by the Brazilian government. Methods for Lululemon to tackle these on-going challenges may include developing a strong presence within the community and show a strong sense of tenacity to deal with unknown problems. Lululemon should work with local legal and accounting counterparts to have partners with experience dealing with the tight economic landscape of Brazil, able to combat the nameless administrative hurdles.

Geographical Distance

The main factors contributing to the geographical distance of Brazil and Lululemon are physical distance and significant infrastructure issues. Brazil is located 7316.57 km from the US and 9304.08 km from Canada. The closest distribution center that Lululemon has to Brazil is located in Columbus, Ohio. Lululemon will encounter high shipping costs from the sheer distance of Brazil's location. The Brazilian federal government has recently sold various ports across the country to the private sector. In March this year, four areas alone – three in Cabedelo Port and one in Vitória Port – rendered approximately US$65 million. Brazil is currently planning to vigorously expand the sale of port areas for the next four yearsxi. The privatization of these ports will hopefully show increasing efficiency in the future and provide foreign firms such as Lululemon with cheaper means for the transportation of their goods.

Given the lack of sufficient infrastructure, Lululemon will be presented with high logistic costs. In Brazil, there are 1.75 million km of highways, of which only 18% are pavedxii. This shows a substantial deficiency as 60% of Brazil's freight moves by road. To combat this issue, Brazilian officials will need to focus more of the nation's resources into upgrading the infrastructure. Currently, less than 1% of GDP per annum has been set aside for such spending when, according to the World Bank, 6% of GDP would be necessary to catch up with advanced industrial countries. Lululemon will have to keep in mind that these infrastructure issues may cause delays when shipping products.

Lululemon can combat these geographical issues by planning for hold-ups that may occur. Another way to deal with the geographical distance is to increase the safety stock in stores to account for any possible delays that may arise during shipping processes.

Economic Distance

Brazil is one of the Latin American countries with the worst levels of wealth inequality. In 2017, it was estimated that 57.8 percent of the income generated in Brazil was held by the wealthiest 20 percent of its populationxiii. As a large portion of Brazilian people live in poverty, this will challenge Lululemon on how

to best target their customers. Although there is a dominant separation of wealth, Brazil is putting parameters in place to reduce this. Brazil experienced a period of economic and social progress between 2003 and 2014 when more than 29 million people left poverty and inequality declined significantlyxiv.

Local purchasing power in Brazil is 65.55% lower than in Canadaxv. As Lululemon is a premium product, they may find challenges selling to the Brazilian population as they have a considerably lower purchasing power. This affects Lululemon as the people may emphasize cost rather than the quality of products. As Lululemon is a luxury good, they may have trouble entering and remaining in the Brazilian market.

Brazil has a higher total GDP than Canada, but in GDP/capita, Canada is roughly quintuple that of Brazil. This provides an insight into the standard of living in Brazil. Often people will travel abroad to purchase high-end goods as prices in Brazil are substantially higher due to high import tariffs. A London-based marketing agency with a presence in São Paulo says that a bottle of perfume can triple its price in Brazilxvi. Although these rankings prove to show that Brazil is in a more impoverished economic state than Canada, it is important to take these factors with a grain of salt. Due to the sheer population of Brazil, there is still a large market for high-end goods. The biggest challenge Lululemon will face is marketing their product in an area with significant poverty levels and enticing the quality benefit of their product. To combat this, Lululemon should focus on entering cities such as Sao Paulo or Rio, where wealth is more prevalent than other areas of Brazil.

Conclusion

The challenges facing Lululemon are complex. The variable tax system, high tariffs for some products, long journeys between major commercial centers, where cultures and practices can vary, a highlycomplex regulatory regime will challenge officials at Lululemon. Entering the Brazilian market will prove to be rewarding for Lululemon, but it will require time, persistence and investment. I believe that Lululemon will be able to leverage the cultural aspect of their business, along with the high quality of their products to be successful in Brazil.

Appendix: CAGE Data Table

Canada

Your Target Market: Brazil

Cultural Distance

Individualism/Collectivism

80

38

Power Distance

39

69

Uncertainty Avoidance

48

76

Long term orientation

36

44

Indulgence

68

59

https://www.hofstede-insights.com/product/compare-countries/

Administrative Distance

Ease of Doing Business

23

124

https://www.doingbusiness.org/en/rankings

Corruption & Transparency

9

105

https://www.transparency.org/cpi2018

Geographic Distance

Mileage distance

9304.08 km from Canada

https://distancecalculator.globefeed.com/Distance_Between_Countries.asp

Economic Distance

GDP/capita

 

46,210.5

 

8,920.8

https://data.worldbank.org/indicator/ny.gdp.pcap.cd

GDP growth

 

1.9

 

1.1

https://data.worldbank.org/indicator/ny.gdp.mktp.kd.zg


i Commisceo Global Consulting Ltd. (2019, January 1) Afghanistan - Language, Culture, Customs and Etiquette. Retrieved from https://commisceo-global.com/resources/country-guides/afghanistan-guide

ii Constantineau, B. (2013). Companies like Lululemon take different approach to relationships with employees. Retrieved November 30, 2019, from http://www.vancouversun.com/life/companies like lululemon take different approach relationships with employees/8562925/story.html.

iii Chamber Internationl. (2019). Top tips for export to Brazil. Retrieved December 1, 2019, from https://www.chamber-international.com/export-import-key-markets/about-import-export-trade-with-brazil/top-tipsfor-export-to-brazil/.

iv Global Affairs Canada. (2019, September 10). Canada-Brazil relations. Retrieved December 1, 2019, from https://www.international.gc.ca/world-monde/country-pays/brazil-bresil/relations.aspx?lang=eng.

v Sottovia, M. (2019, March 7). Top challenges of doing business in Brazil. Retrieved December 1, 2019, from https://www.tmf-group.com/en/news-insights/articles/top-challenges/doing-business-in-brazil/.

vi Pix, L. (2018, March 19). Top challenges of doing business in Brazil. Retrieved December 1, 2019, from https://oec.world/en/profile/country/bra/.

vii Workman, D. (2019, October 2). Brazil's Top 10 Imports. Retrieved December 1, 2019, from http://www.worldstopexports.com/brazils-top-10-imports/.

viii Pasquali, M. (2018). Foreign Direct Investment in Brazil 2017. Retrieved December 1, 2019, from https://www.statista.com/statistics/748543/fdi-brazil/.

ix TMF Group. (2016, March 2). Brazil: Brazil Ranked Among The World's 10 Most Complex Countries For Business Compliance. Retrieved December 1, 2019, from http://www.mondaq.com/brazil/x/470562/Compliance/Brazil Ranked Among The Worlds 10 Most Complex Countries For Business Compliance.

x export.gov. (2019, May 9). Brazil - Trade BarriersBrazil-Trade-Barriers. Retrieved December 1, 2019, from https://www.export.gov/article?id=Brazil-Trade-Barriers.

xi Vianna, B. M., Davila, D. R., & Melo, F. (2019, September 18). Shipping in Brazil. Retrieved December 1, 2019, from https://www.lexology.com/library/detail.aspx?g=bffbaa98-0be0-4639-a93b-a2370cdb4080.

xii World Bank. (2012, June 8). Brazil - How to decrease freight logistics costs in Brazil. Retrieved December 1, 2019, from http://documents.worldbank.org/curated/en/348951468230950149/Brazil-How-to-decrease-freightlogistics-costs-in-Brazil.

xiii Statista. (2019, October). Income held by top 20% in Brazil. Retrieved December 1, 2019, from https://www.statista.com/statistics/1075207/brazil-income-inequality/.

xiv The World Bank. (2019, October 4). Overview: Brazil . Retrieved December 1, 2019, from https://www.worldbank.org/en/country/brazil/overview.

xv Numbeo. (2019, December). Cost of Living. Retrieved December 1, 2019, from https://www.numbeo.com/costof-living/compare_countries_result.jsp?country1=Canada&country2=Brazil.

xvi Chamber International. (2019). How to set up a business in Brazil. Retrieved December 1, 2019, from https://www.chamber-international.com/export-import-key-markets/about-import-export-trade-with-brazil/how-toset-up-a-business-in-brazil/.

 

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