1. 1
1.0 Product/Service:
1.1 Product
The products that they are currently selling can be successful internationally due to their focus on
customizability and low cost in an industry that is traditionally costly and has standardized
systems in place. The products currently are made for indoor use with a focus on home security.
In Brazil it may be successful to pair these products with current security services available. In
the Appendix are images and descriptions of the products offered by Scout all in the “Arctic
White” color, they are also available in “Midnight Black” and “Walnut.”
Currently the products work together with the Hub being the central operating unit and the Door
Panel, Access Panel, Motion Sensor and the HD Video Camera units being links that only
operate if they are either 100 feet from the Hub or 100 feet from a unit that is 100 feet from the
Hub. This works in homes in the U.S., but has yet to be tested on homes made of different
materials internationally. Also, high trade barriers like import taxes and fees will make Scouts
imports into Brazil significantly more expensive than the online list prices.
1.2 Service
The service packages currently offered by Scout are: the free standard features that come when
you purchase a system, the Always On plan, and the Always On+ plan. Below are description
of what the two paid monitoring plans include and cost:
The “Always On” Plan for $9.99/month which includes:
‘Standard features
● Email notifications
● Push notifications for iOS and Android devices
● Scout mobile app
Always On features
2. 2
● 3G cellular and battery backup
● SMS alerts
● No annual contract’ (https://www.scoutalarm.com/shop/monitoring-plans)
The “Always On+” Plan for $19.99/month which includes:
‘Standard features
● Email notifications
● Push notifications for iOS and Android devices
● Scout mobile app
Always On+ features
● 3G cellular and battery backup
● SMS alerts
● No annual contract
● 24/7 professional monitoring service (see below for details)
24/7 Professional Monitoring Service
● U/L-Certified Monitoring Centers
● Verified Incidents (with HD Video Camera)
● Dispatch Police on Your Behalf’ (https://www.scoutalarm.com/shop/monitoring-
plans)
The service Scout offers is currently not transferable to Brazil since the company that provides
monitoring service for Scout does not have operations in Brazil. Scouts goal in international
expansion should include different service options that work best for the people they serve, in the
case of Brazil may change “Dispatch Police” to “Dispatch Private Security” for the Brazil
Always On+ plan. Also, Scout prides itself in its Service and partnering with the right
monitoring company that services Brazil is vital to continue growth and enable Scout to offer
monitoring in Brazil.
3. 3
1.3 Modifications to Product and Service
A modification to the product that could be implemented is a change of materials for external
monitoring due to the current use of high wall barriers outside of homes for security in some
areas. This modification would be mainly for the motion sensor in order to detect a possible
intrusion beyond the cement wall barricade. This modification to the product could offer a
whole new product for Scout to sell to provide yard security instead of just house security.
Another modification that may be needed is to either make the sensors communicate from farther
distances with a stronger signal, so that when they are implemented in areas with different
(possibly heavier or thicker) materials used for the house structure they can still link back to the
hub to send out alerts. Due to the security issues faced daily by the brazilians, the design can
possibly diminish the range of the device. Many houses have thick and tall brick or concrete
walls which secure the house, however can somewhat be an issue regarding range.
Aware that many apartments and homes have security forces already in place; Scout can work
with these security companies to monitor areas that they are less likely to monitor, yet may pose
a threat to the security of residents living in these apartments and homes.
Modifications of service will include changing who Scout calls in cases of intrusion; changing
Police to Private Security in areas that already pay for security. Monitoring changes to a
company like outsourcing monitoring to a local monitoring company or a company in a region
that specialized in monitoring Brazil. These can be found through attending the security trade
shows in Brazil like: ISC Brazil and LAAD Defence and Security 2015.
4. 4
The current security providers in Brazil that Scout should consider partnering with or selling
their products through are: Soluções Integradas, G4S, VIP Security, Surcom Internacional
Importação e Exportação, Sectra, Montrel SMH Sistemas, Sanlia Tecnologia, Secur, Meta
Telecom Comercial, Securiton, Spark Controles, and Semaseg.
Modifications to both product and service are essential to the successful expansion of Scout
Alarms into Brazil. (Global Safety and Security Resource Guide)
2.0 Background Information on Brazil
Brazil is the 6th most populated country in the world, the largest and most populous country in
South America. Brazil has been pursuing industrial and agricultural growth, exploiting vast
natural resources and a large labor pool. Brazil is today South America's leading economic
power and a regional leader, one of the first in the area to begin an economic recovery. High
income inequality and crime remain pressing problems, as well as recent years' decrease in
economic growth. With an urban population of 84.6% of the population major takeover cities
like Sao Paulo 19.924 million; Rio de Janeiro 11.96 million and BRASILIA (capital) 2.813
million (2011).
More than half of Brazil's population is considered middle class, but poverty and income
inequality levels remain high; the Northeast, North, and Center-West, women, and black, mixed
race, and indigenous populations are disproportionately affected. Disparities in opportunities
foster social exclusion and contribute to Brazil's high crime rate, particularly violent crime in
cities and favelas. Security issues are a common factor that must be implemented and dealt with
on their daily lives. Simple tasks like taking the kids to school or coming home late from the
movies can be and must be updated constantly regarding the security of the environment,
5. 5
location and time. Society has learned to adapt and somewhat create a flow of actions, that adapt
to the security issues faced daily by all levels of society. The country itself is an unexplored
powerhouse with a vast amount of resources, hard working and very welcoming people.
Currently Brazil’s official gross domestic product official exchange rate is currently $1.573
trillion, and the GDP for the country in purchasing power parity is $1.977 trillion, according to
the Department of State (Business Review). With this economic powerhouse, Brazil’s potential
for a bigger private security sector is very high.
2.1 Country Overview
Brazil has seen a growth on the security market registering an average annual growth of 15 to
20%, with annual sales accounting for around BRL 24 billion. 50% of the total market share
account for foreign products, with U.S. taking a 25% total market share. With the increase in
wealth and less social inequalities, the security market has become very promising. Due to this
increase in wealth people and entities have been getting richer. Which increases the needs for
protection rises in equal proportions.
With the market increase, large clients like the Federal Government who supplies the national
Public Security Sector, are key channels that ease the entry of these possible new security
systems. In order for a company to successfully import their product, establishing within the
country or having a local representative are also key components. By having local
representatives, sales and maintaining services, repairs or customer’s services become more
manageable. Approximately 5 million homes have some type of security device, but only seven
percent are equipped with electronic security systems.
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2.2 The Industry in numbers
Around 84% of Brazil’s electronic security systems are ran by small and micro businesses, only
16% accounts for the top 8 major security companies.
There are approximately 8.000 security companies operating in Brazil divided as:
● 49% retailers and installers
● 30% providers of monitoring services
● 12% distributors
● 9% manufacturers
Some of the largest security suppliers consist of: GRABER, Soluções Integradas, VIP Security
and Telecom.
2.3 Market Entry Opportunity
Currently the market is divided in 6 categories, these following prospect areas have been
in rapid growth within the past 8 years.
● Public Safety and Security: hi-tech equipment and professional private
training.
● Large Events: festivals, concerts, private events and government
related events.
● Mass Transportation: bus, train and subway stations security systems.
● Airport security: security systems, alarms and motion detectors.
● Personal and domestic defense: bodyguards, home alarms, TV and
fence circuits.
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● Cyber security: especially in data cryptography. Brazil has one of the
largest hackers' community in the world
2.4 Population Wealth
According to Forbes magazine, there is a new millionaire every two hours in Brazil. In 2011,160
thousand millionaires and about 30 billionaires, 70% of them concentrated in the states of São
Paulo and Rio de Janeiro. With the raise of national income, demand for private security systems
forces an increase in security expenditures. The culture has taken upon itself a secure way of
living, by implementing hi-tech electronic security equipment, such as closed circuit televisions
(CCTVs), alarm systems, surveillance technology, smoke detectors as well as trained
surveillance professionals.
2.5 Business Culture
The Business Culture in Brazil can be described as ‘diverse’. Sao Paulo, the business capital
is Brazil's most internationally orientated business city, business conduct is more ‘western’
than in other cities. Usually the more north you go in Brazil, the more conservative business
mentality becomes.
The key to success is patiency and understanding business customs. Speed in Brazil isn't their
forte when it comes to doing business, since bureaucracy and tradition, can difficult business
decisions. Adjusting budgets and planning accordingly regarding time will ease the operative
mindset Scout would need to start a new business, buy a company or invest in Brazil, is
patience. Also having local lawyers and accountants, can aid negotiations, when it comes to
laws and regulations.
8. 8
Face-to-face meetings, with company representatives can be more important than the company
itself. Communication is often informal and does not rely on strict rules of protocol. Its
important to not rush them or appear impatient, because often the people you negotiate with
will not have decision-making authority. Brazil's business hierarchy can also be a factor qwhen
negotiating deals. Most companies are vertically organized, and decisions are made by
superior management. Therefore Scout must be in general very social, patient and deal with
negotiations accordingly.
3.0 Target Market
“Consumer expenditure per capita is expected to reach $15,775 in 2015, from R$14,318 in 2012.
It is expected to reach R$16,789 in 2015” (Consumer Lifestyles). These amounts in USD are
$5,157, $4,680, and $5,488 respectively. Internet access in Brazil is becoming increasingly
mobile. Most of the country has access to 3G networks and most major cities have access to 4G
networks. Wi-Fi is also very common throughout cities. However, not every person has access
to the internet at home. Some people make use of the cellular networks and internet cafes for
their internet access. “Consumer Lifestyles in Brazil” also mentions that the older generations
are becoming more interested in the internet. They tend to use their computers at home to access
the internet and are not as reliant as the younger generation on mobile internet access.
According to “Consumer Lifestyles in Brazil”, home ownership is on the rise, “Across Brazil, as
the population has been increasing, both renting and homeownership have increased. In 2000,
33.3 million households were homeowners, compared with more than 46 million in 2012.” 86%
of these homes are located in urban areas. “Consumer Lifestyles in Brazil” also talks about the
9. 9
fact that the number of houses far exceeds the number of apartments. There were 6.9 million
apartments in 2012. The number of people per house in Brazil is getting smaller due to the fact
that Brazilians are having fewer kids. Most homes contain 3 people. The number of people
living alone in Brazil has also increased to 6.2 million from 4.2 million in 2000. “Consumer
Lifestyles in Brazil” mentions that more electronic devices and appliances are finding their way
into Brazilian homes.
Impulse purchases are common in Brazilian culture as stated in “Consumer Lifestyles in Brazil”.
Men are less likely to make an impulse purchase than women. “Self-esteem is the number one
reason for making impulse purchases, specifically anxiety and dissatisfaction with their own
appearance” (Consumer Lifestyles).
According to “Consumer Lifestyles in Brazil” energy costs are extremely high in Brazil. They
are among the highest in the world. If the temperature does not get too hot most people will
leave their windows open or use a fan instead of turning on their air conditioner. Concrete is
used widely in the construction of homes. This is due to the fact that it aids in keeping the home
cooler in the summer and therefore requires less use of the air conditioner and saves them
money. Differently from American suburbs, most houses or condominiums are surrounded by
tall walls that insures more security.
According to “Consumer Lifestyles in Brazil”, Brazilians like to spend their money instead of
save it. This is due to the fact that hyperinflation, although not recently, has been known to
occur. It is common for them to live paycheck to paycheck and spend all their earned money as
soon as they get it. Brazilians also have high debts. “The percentage of families that claim to
have debts increased from 59% in November 2012 to 63.2% in November 2013” (Consumer
10. 10
Lifestyles). They now have more access to credit and debit cards. This access is primarily
limited to the upper and middle class. This increased access has caused credit card spending to
increase substantially.
The best age group for scout to target in Brazil is what Passport’s Consumer Lifestyles Analysis
classifies as “Middle Youth”, which consist of adults aged 30-44. This is the largest age group
in Brazil. As of March 4th 2014, there are 44.75 million people belonging to it. “One in four
adults aged 25-34 is still living at home” (Consumer Lifestyles). This means that a large number
of people on the younger side of the Middle Youth category are buying a place of their own for
the first time and will be potentially interested in home security. “Consumer Lifestyles in
Brazil” also talks about how many people in this age group are also going back to school to seek
a higher education. This is a recent development and it used to be only those right out of high
school attended. The target income level should be upper-middle class. “Consumer Lifestyles in
Brazil” mentions that increased consumption levels are due to a growing middle class. They
represent 48% of national income. The middle class also makes up 60% of the internet users in
Brazil. Consumption from the middle class is expected to continue to increase. Housing is
expected to be a main area of growth. This is beneficial because that creates more potential
customers for scout.
The best strategy for Scout to use in the security market in Brazil would be differentiation. This
can be accomplished by providing unique value for consumers in Brazil, different from any
current market offerings. This would be most beneficial because they can use their already
unique approach on a security system as a way to market the product in Brazil. This will help
Scout stand out from the traditional security systems that are already in the country. The mobile
11. 11
aspect of Scout fits well with the increasingly mobile population in Brazil, while also creating a
exclusive appeal to it due to its origin. The “American Made” factor plays a huge roll in
consumer spending in South America. Foreign products can double or even triple the price due to
its origin and “status”. A brand name product in Brazil for example is somewhat a must within
the high society. With 8 daily flights from Sao Paulo to Miami due to high shopping, the
brazilian population definitely has the means to invest in a upscale security system.
While growth is expected in the coming years in Brazil, it is not at a very rapid rate. According
to “Outlook for 2015-19: Economic Growth” by the Economist Intelligence Unit, Brazil GDP is
expected to grow at a rate of 1.5% annually through 2018. This is below the 4.5% rate of the
2004-2010 economic boom in Brazil. “This reflects weaker labour market dynamics, softer
Chinese demand (dampening prices for Brazil's commodity exports), slower credit growth and a
failure to advance structural, growth-enhancing reforms”(Outlook For). Private consumption
growth is expected to be around 2% from 2016 through 2019. This is lower than the 5% rate that
previously took place during 2004-2010. The population is expected to reach 210.7 million by
2019, as stated by “Data summary: Economic structure, income and market size”. This is up
from 204.5 million which is the current population in 2015.
4.0 Competition
Due to the increase in wealth that the average Brazilian is seeing, more and more people in
Brazil are able to afford better security options. This coupled with crime rate in Brazil makes
Brazil an ideal candidate for those in the home security business.
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Over 8,000 security companies currently exists in Brazil and there is still room for growth. Only
49% of the 8,000 are actually retailers and installers so the level of direct competition hovers
around 4,000 for SCOUT. It is important to know that about 50% of the total market share for
security products are foreign products while the other 50% are domestically made. The United
States is responsible for around 50% of the imports which puts it around 25% of total imports.
This is important because it shows that half of the security market is able to produce products
outside of Brazil, pay the high tax rates (around 22.7%) to import, but still manage to put up a
good return on their product. This might not end up being the case for Scout.
Inside the Brazilian security market, roughly 85% of the players are made up of small, micro
businesses. These include the smaller startups or security companies that are local and do not do
business for all of Brazil. The other 15% is where all the revenue is being generated through.
This is all the “Macro” businesses, the ones who are on global level of distribution. The most
successful of that market group includes:
- Bosch Security Systems: Bosch is a global security company out of Germany. While
they are the world’s leader in automotive components, they also have a security division and
home security is one of their products. They offer at home video surveillance, Intrusion alarms,
comprehensive smoke alarms. They also have significant app development for their security
products as well.
- Johnson Controls Inc. is a fortune 500 company right of Milwaukee, Wisconsin. They
have revenue in the $45 billion range and have been around since the 1880’s. They were
awarded $29 million USD contract from the Brazilian government to provide security for the
2014 World Cup. They provided video surveillance and security communications to 12 soccer
13. 13
stadiums during the cup. This is significant because it shows they already have a strong footing
in Brazil and their government.
- Tyco Integrated Security is better known as one of its subsidiaries, ADT (American
District Telegraph). It brings in revenue of over $10 billion USD (Security and fire protection).
It is well known that ADT is one of, if not the biggest player for home security in the United
States, but it is a global company and can also be found in Brazil. Their home security systems
are a lot more in depth and are not the mobile type that SCOUT makes. The target market for
Tyco in Brazil might be more along the lines of contracts as opposed to at home security.
- Siemens Building Technology is another global security company that is involved in
Brazil. It is an $84 billion USD company that is headquartered in Switzerland. While Siemens
is a major player on the international market and thus Brazil, it does not specialize in home
security the way SCOUT does. Siemens provides security and surveillance but not so much on
the residential side, public housing is the extent of that segment for them. They are also more
inclined to do government contracts like Tyco.
- Pelco Corporation is a California based surveillance, technology, and security company.
They have revenue of around $400 million and are well known for providing security to high
profile landmarks such as The Statue of Liberty, Buckingham Palace, and China’s Presidential
Palace.
- Samsung is a well-known, multinational conglomerate out of South Korea. Samsung
provides a number of technology products such as phones and televisions but they are also in the
business of home security and CCTV surveillance. Recently, Samsung announced its new
14. 14
partnership with Precision Trading Corp. to distribute Samsung’s security products to the Latin
American market which includes Brazil. They already have six offices in Latin America and aim
to become a huge player in that market.
- GE Security is a branch of General Electric. GE is aimed at medium to large sized
business, but they should not be ruled out of being considered a threat in the home security
market as it would be an easy transition for them to make.
Even though there are already some big players in the security market in Brazil, this should not
deter Scout from successfully entering the market. Scout has a product that is like no other in
Brazil, this could help differentiate themselves in the market. While most security solutions
offered in Brazil revolve around expensive CCTV options, Scout has an affordable alternative to
this that should attract middle class Brazilians. Another important way Scout can compete in the
industry is to target the urban population, which as of 2015, accounts for 85% of the Brazilian
population (over 172,000,000).
5.0 Entry Mode
As we have explained before, Brazil is an ideal country for Scout Alarm to expand into foreign
markets. With a growing population, an increasing middle class, and increasing consumer
demand, along with stable input prices Brazil is an appealing option for businesses going global.
In order to penetrate this South American’s giant market the mode of entry becomes very
important. The mode of entry should also be tailored so it directly benefits and makes it easy for
the growing market of personal and domestic defense to acquire and distribute the different
15. 15
Scout Alarm products and services. In order to enter the Brazilian market effectively, it is
important for Scout to divide its business into two parts: the manufacturing portion and the
service portion.
Option 1: At a first glance, there are several entry modes that may be appealing for Scout to
penetrate Brazil’s market. Joint ventures, green field, franchising, and licensing all seem to have
strengths and weaknesses. After careful assessment of advantages and disadvantages that the
different entry modes present, one viable option for Scout Alarm to enter the Brazilian market
would be through franchising its service portion of the company and produce domestically the
manufacturing portion of the company. According to Berners Consulting (Berners Consulting,
4), Brazil accounts for more the 60% of Latin American retail market and retail sales are
expected to grow by over 40% by 2016. Also, Brazil is the second largest franchising market
worldwide in total number of brands. This leads us to one of the major strengths, aside from the
boom in Brazil’s middle class, Brazilian business people are used to and embrace franchising.
Franchising will give Scout Alarm the opportunity to take full advantage Brazilian
businesspeople understanding of the market while minimizing risks like knowledge of the
market. Another important benefit will be that Scout will reduce cultural differences in ways of
doing business by franchising Scout to already proven Brazilian business people. It would be
very difficult for Scout alone to execute on the appealing demographics by itself. By 2016 the
number of cellphone subscriptions is expected to exceed 300 million and the number of 3G
mobile subscriptions will double to over 130 million, according to Berners Consulting.
As part of our recommendation, we have analyzed the major advantages that franchising Scout’s
service portion will have. A very relevant advantage for Scout, especially since it is a start-up, is
16. 16
the easy expansion of capital. Scout will be able to grow and expand internationally without the
need to use its own capital and time to find the most adequate retailers and end customers. This
leads us to another benefit, which is the minimized growth risk. By earning royalties and fees,
Scout will be able to increase its revenues and bottom line with very low risk. Since the
franchisor will have sell the product in order to be profitable, Scout will be transferring most of
the risk to the franchisee, who will be in charge of distributing the product or investing his/her
capital in order to sell the products. The major cons that franchising will have for Scout are the
loss of control and innovation challenges. Since Scout will be giving control to the franchisee to
sell the product, it is beyond Scouts control to manage and oversee how they are hiring people,
where they are selling the product, or how really operating internally. This loss of control also
generates innovation challenges, since Scout will not have control over Brazilian outlets. Much
more negotiation will have to happen in order to change or introduce products.
In order for franchising to be successful, a lot of due diligence and research should take place in
order to select the most ideal franchisee. One framework that may be used to select a potential
franchisee is following a strict process that includes: Definition of requirements; a long list of
identification and screening candidates; a short list or pre-selection of preferred candidates;
selection, integration & contracting; and integration. It is extremely important for Scout to select
a franchisee that has experience and a large network in the technology and security business as
well as a franchisee that demonstrates a sophisticated plan on how they will approach the
Brazilian market. In addition to franchising the service portion, the company could manufacture
domestically at Manaus, the Free Trade Zone. The costs of setting up a Brazilian manufacturing
plant and office at Manaus will offset the in the medium term the cost of imports in Brazil.
17. 17
Under the “Location” segment of this analysis you may find more information on the benefits
that Manaus could have for a company like Scout. The following is a portion of what you will
see under the “Location” segment:
One of the best options is to manufacture or import the products to Manaus. Located in the
Amazon, Manaus is a Free Trade Zone and these are some of the highly beneficial incentives in
the Manaus Free Trade Zone. According to “The Brazil Business” it's worth highlighting the
following:
- 88% reduction in Import Duty on the inputs of industrial goods
- For electronic products the Import Duty is reduced proportionally to the local added value
- No tax on industrialized products (IPI)
- 75% reduction on the income tax. Exclusively for reinvestments
- 0% COFINS for incoming goods and inter-industry internal sales
- 0% PIS for incoming goods and inter-industry internal sales
In addition, businesses can receive a 55% - 100% credit on the ICMS rates if they demonstrate
some contributions to the funds for support of high education, tourism, R&D and others. “The
Brazil Business” states that some of the industrial requirements for projects within the Manaus
Free Trade Zone the companies will be evaluated based on the following parameters:
- Execution of Basic Productive Process
- Job creation in the area, with the concession of social benefits to the workers
18. 18
- Compliance with demands on products and standards of production
- Permanent training of the workforce in order to obtain growing levels of productivity
- Reinvestment of profit in the region
- Investment for scientific and technological development
- The current status of Manaus Free Trade Zone
Today more than 60% of all trading within the Manaus Free Trade Zone is related to electronics
and motorcycles, with chemicals and metallurgy as two other significant industries.
Option 2: Another viable mode of entry for Scout into the Brazilian market could be partnering
up with a third party to do their security service and internally sell and distribute the product
themselves primarily via online sales. In addition, the manufacturing of the product could be
licensed to an already consolidated Brazilian manufacturer. This strategy would also present
different benefits and challenges, including the logistics and distribution costs of product
deliveries. On the other hand, Scout would be able to achieve higher revenues (instead of small
royalties). With mobile phones and Internet increasing significantly in Brazil, online sales
portray a very big opportunity. The following demonstrates the major advantages and
disadvantages of licensing the manufacturing segment:
Licensing Advantages: Licensing is less risky for inventors because the licensee assumes
business risks; Simpler, less expensive and allows inventors to spend more time inventing;
Requires less time and money and offers freedom to live and work anywhere; Licensing allows
you to make money without risking your own cash; By licensing their invention, inventors don’t
19. 19
have to invest up-front capital; Licensing an invention avoids the problem of unsold garage
inventory.
Licensing Disadvantages: Very few inventors can retire on their inventor royalties; If you license
your invention you only receive a small percentage of sales; Potential payoff for licensing an
invention is much smaller than it is for manufacturing; Loss of control over product; It might be
a long time until you receive royalties.
The most appealing third party security service partner for Scout would be any of the company’s
that are in direct competition with Scout. Even though it might sound strange at first, many of the
more important Brazilian security companies have not been able to adequately acquire the
middle class segment. Scout would appeal for them due to the competitive advantage it would
give them versus other competition, while Scout will be able to take advantage of the entire
security infrastructure these companies already posses in Brazil.
Optimal Option - Recommendation: With the vast variety of options available to penetrate into
one of the most promising markets for Scout, we believe that the idea combination would be
setting up a manufacturing plant in Manaus Brazil to manufacture the Scout products and
combining third party security service along with Scouts own distribution and sales channels. By
partnering with a third party that would control the service and security aspects of the product
(for example the reaction when an alarm goes off), along with its own online sales (potentially
retail sales in the short to medium term), and its own manufacturing plant, Scout would be able
to adequately penetrate its product into Brazil by retaining control of its product and service.
When we analyze a cost-benefit scenario for each of the options, we find that with this
20. 20
combination, the company would have the greatest earnings potential with a reasonable amount
of costs and risks.
6.0 Marketing
Social media advertising in Brazil is one way to target Brazilian consumers. This involves using
a combination of Facebook, Google+, YouTube, and Twitter to advertise Scout Security systems.
The advertising must have a family oriented perspective in order to be successful and have
accurate translations into Portuguese. An option for Scout is to hire a marketing company that
specializes in Brazil or is from Brazil to have the most effective marketing campaign. Data
suggests that Brazil’s marketing is becoming more important and some of the major marketing
players in Brazil are: Young & Rubicam Comunicação Ltda., Borghi Lowe Propaganda e
Marketing Ltda, Ogilvy & Mather Brasil Comunicação Ltda, Almap/BBDO Publicidade e
Comunicações Ltda, McCann Erickson Publicidade Ltda, PBC Comunicação Ltda, Africa São
Paulo Publicidade Ltda, Havas Worldwide Life Brasil Comunicações S/A, J. Walter Thompson
Publicidade Ltda, and F/Nazca Saatchi & Saatchi Publicidade Ltda. (Mintel) Further data about
marketing in Brazil is featured in the appendix.
A survey during Spring 2014 revealed what Brazilian consumers feel are the most important
measures businesses should take to build a consumer-brand relationship. 96% said offering
promotions, 92% said rewards for loyal customers, and 89% said offering loyalty programs
(http://www.statista.com/statistics/368476/customer-relation-building-measures-brazil/).
Marketing to Brazilian consumers as an international company may be difficult, but Brazilian
consumers do not have a negative outlook on products from the U.S. so it will be less of a
21. 21
challenge than other international markets. Three challenges that Scout will face in marketing
are translation, negative perception from product that looks similar to Scout, and cultural
differences. These challenges are expanded upon below and must be considered when planning
Scouts marketing campaign.
Marketing Challenge 1
A challenge that will be faced when marketing to Brazil is the direct translation of words and
phrases to the local language. It takes many years of exposure to a new culture to be able to pick
up on these subtle differences. A great example of one company’s lack of care in this area was
when Chevy introduced the Nova to Spanish speaking countries. The direct translation of the
cars name means “does not go”. This is obviously not a very good name for a car. In order to
avoid problems caused by this, it is important to work with and consult locals to make sure
product names and marketing campaigns do not have unintended meanings in the foreign market.
Marketing Challenge 2
There is a possibility that after entering the market, a manufacturer from the foreign country
could imitate the idea and product design of Scout and produce a negative perception for the
company, potentially ruining Scout’s reputation. This is a very common issue for companies that
expand internationally and should be avoided as much as possible. In order to avoid this
situation, Scout should prepare itself by taking every precaution possible and ensuring their legal
rights for the company are protected within the foreign country.
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Marketing Challenge 3
Another challenge when it comes to marketing a product in a Brazil is culture. Culture is family
centric in Brazil and advertising for Scout must be centered around family safety. This is
challenge due to its positioning currently being more focused on individual or two people. The
focus on smaller living spaces must be recentered to be on a family unit. This challenge can be
easily addressed and will be easy to reposition, with videos demonstrating the product for Brazil
using family and also going into Brazil or hiring a Brazilian marketing agency to film the
demonstration videos
7.0 Finance
Federal Funding
There are many routes that Scout can take in order to raise funding for possible future expansion
in Brazil. The federal government offers a number of grant programs to help your company test
foreign markets, orient itself in a new market, train U.S. or foreign representatives, and
overcome in-country obstacles to trade. U.S. Trade Development Agency grants support sound
investment policy and decision-making in host countries and helps U.S. companies enter foreign
markets and bid on infrastructure projects. USTDA is uniquely positioned to work with U.S.
firms and host countries giving emphasis to industry sectors that may benefit from U.S. exports
of goods and services (Federal). There is a possibility that Scout would fit this criteria because of
the fact that Scout will be providing security for the population in the foreign country.
State Funding
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Advantage Illinois (AI) would be the optimal choice when it comes to state funding. The top
priority of Advantage Illinois is to enhance business access to capital. AI consists of three
programs to spur institutional lending to small businesses and one program to leverage private
venture capital in start-ups and high-growth businesses. By working with the Illinois’ banking
community and venture capitalists, AI is able to assist small businesses expand and create job
growth at a faster rate compared to doing it alone. The Department of Commerce and Economic
Opportunity has an Office of Trade and Investment (OTI) which opens overseas markets for
Illinois companies and promotes foreign direct investment in Illinois. OTI strives to raise
Illinois’ profile as a global business leader through a network of professionals focusing on
improving the state’s economy worldwide. OTI is headquartered in Chicago, Illinois and has 10
foreign offices around the world, including an office in Sao Paulo, Brazil (Exports).
Venture Capital
There are many online networks that exist which connect entrepreneurs and investors who are in
the market to invest in new businesses; an example would be EquityNet. Contacting a local
venture capital firm could be another viable option. Firms such as New World Ventures and
FireStarter Fund are venture capital firms that are located in Chicago and specialize in early
stage start-ups and expansion. However, Scout should not limit its options to Chicago; there is a
company located in New York called Cosmo Holdings, that invests in innovative technology and
recently invested $12 million in Terranova, a location-based photo sharing app. As far as
international investment goes, there are several firms that specialize in expansion. One firm to
note would be Walden International who looks for investing in opportunities in early stage and
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expansion businesses that meet the following criteria: internet and digital media, semiconductors,
software and IT services, and emerging technologies.
Conclusion
All of the mentioned sources of funding would be feasible choices; Advantage Illinois is a great
program that would work to a great advantage for Scout, however, the choice that would best
meet the needs of Scout would be to receive funding from a local venture capital firm that is
specializes in technology advancements. This would allow Scout to build a solid relationship
with their investment firm and clearly explain their plans for future expansion. Also, many of
these firms offer a wide range of funds from less than $1 million to $12 million. This gives Scout
the opportunity to potentially receive the appropriate amount of funding to make their plans for
international expansion become a reality. Following this, a move towards capturing the attention
of a large investment firm, such as Cosmo Holdings, could potentially lead to the proper funding
and expansion for Scout to become a top tier home security provider in a global market.
8.0 Location and Staffing
8.1 Where the product should be manufactured
Importing your manufactured product from China would be impractical because Brazil’s import
taxes and tariffs are extremely high. The majority of the import costs are the Merchandise and
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Service Circulation Tax (ICMS), the Industrialized Product Tax (IPI) and the Import Duty (II).
The ICMS is anywhere from 7-18%, the IPI ranges from 0-15%, and the II can cost from 10-
35%. In the best case scenario, importing your product would raise your costs by at least 17%.
Worst case scenario, your costs would increase by at least 68% (http://export.gov/brazil).
Instead of importing from China, Scout could license its design to a manufacturer located in
Brazil who already makes similar products. The manufacturer could then market the product on
your behalf. One company we found, Visonic Ltd. from Tyco Security Products, manufactures
intruder alarm systems, safety sensors, motion detectors, IP communications for central
monitoring stations and deals mostly with residential wireless home security. Visonic
manufactures in Brazil and would be an ideal candidate for a manufacturing partner
(http://www.visonic.com).
One of the best options is to manufacture or import the products to Manaus. Located in the
Amazon, Manaus is a Free Trade Zone and these are some of the highly beneficial incentives in
the Manaus Free Trade Zone. According to “The Brazil Business” it's worth highlighting the
following:
● 88% reduction in Import Duty on the inputs of industrial goods
● For electronic products the Import Duty is reduced proportionally to the local
added value
● No tax on industrialized products (IPI)
● 75% reduction on the income tax. Exclusively for reinvestments
● 0% COFINS for incoming goods and inter-industry internal sales
● 0% PIS for incoming goods and inter-industry internal sales
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In addition, businesses can receive a 55% - 100% credit on the ICMS rates if they demonstrate
some contributions to the funds for support of high education, tourism, R&D and others. “The
Brazil Business” states that some of the industrial requirements for projects within the Manaus
Free Trade Zone the companies will be evaluated based on the following parameters:
● Execution of Basic Productive Process
● Job creation in the area, with the concession of social benefits to the workers
● Compliance with demands on products and standards of production
● Permanent training of the workforce in order to obtain growing levels of
productivity
● Reinvestment of profit in the region
● Investment for scientific and technological development
● The current status of Manaus Free Trade Zone
● Today more than 60% of all trading within the Manaus Free Trade Zone is
related to electronics and motorcycles, with chemicals and metallurgy as two
other significant industries.
Suframa is a government body that administers the Manaus Free Trade Zone. Scout must
be approved by Suframa to qualify for the tax exemptions. Approval requires submitting your
business plan through an economist registered with the Regional Economy Council, Corecon.
8.2 Where the service staff should be located and operate from
Scout will need a point of contact in Brazil for customer service. A local service staff is
necessary for installation, handling complaints, and technical support. Having a service staff in
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Brazil would help logistically by minimizing service time, which would in turn lower labor costs
and increase consumer confidence.
Scout also needs to find local, professional security personnel for the “Always On+” feature that
dispatches for on-site support. You could possibly partner up with an existing security company.
The pricing for this package may need to be adjusted depending on the cost of the private
security. Products would be sold in shopping malls or private electronic stores for example. With
a trained staff and a strong customer service, Scout has a great market potential. Another option
could be to allow the franchisee to hire security personnel individually. You could help monitor
this by providing hiring criteria including in depth background checks.
8.3 Outline of suggestion for how the foreign operations should be staffed
Sales staff, customer service, and marketing would be locally staffed. Although Scout should
provide the Franchisee minimum hiring criteria, the franchisee would handle the majority of the
hiring since he or she would be taking over a large portion of the operations.
9.0 Likely Challenges
Challenge 1
A likely challenge faced by a company entering a foreign market is dealing with the increased
uncertainty and risk associated with the entry. The main reason for this uncertainty and
increased risk is the company’s lack of experience in the new market. The solution to this
problem for the company is to make sure they are as knowledgeable and comfortable as possible
with the foreign market. Seeking out a good local partner that is familiar with the market will
help greatly with this issue.
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Challenge 2
Whether or not the product would be accepted in Brazil could be another challenge. Whether it
be the design of the product itself or if it is there is not a large enough demand for it. In order to
avoid this problem, Scout could run some product testing in the market place, where they offer
their product for free testing to people of different demographics in Brazil and receive feedback.
This would allow Scout to manufacture their product accordingly for the foreign market and
possibly lead to better success than if it were to skip this process.
Challenge 3
Doing business in Brazil, scout will encounter the problem of exchange rate fluctuation. In order
to deal with this problem, Scout should always make sure invoices are stated in Brazilian real.
The reason the invoice should not be in USD is because the other company will charge a
premium for having to deal with the risk of exchange rate fluctuations from the point of order
until they get paid. If prices are quoted in Brazilian real, Scout has two choices. One choice is
to lock in the price in USD right then to avoid the uncertainty of price fluctuations until the order
is paid. Another option is to work with a foreign exchange specialist and have them watch the
exchange rate for you. They can then notify you when the exchange rate fluctuates in your
favor, allowing you to lock in the best price.
Challenge 4
Channeling the products might also be somewhat a challenge, by ensuring prime and effective
marketing channels the product will be successfully distributed. The key is to understand that
Brazil’s market works differently from the U.S.A., where Amazon and Ebay are substituted by
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“BuscaPe and Mercado Livre”. Online shopping hasn’t quite yet became a trend, however by
channeling through stores in malls or in local business areas would possibly be more effective. A
second option to overcome the international differences is by using a third party private security
company, to implement Scout’s products into their security packages and service. Targeting the
high class and the private security sector would increase chances for success and future deals.
Challenge 5
Another likely challenge to Scout is competition. Upon entering a foreign market they may have
competitor that they didn’t foresee and need to either take on the competition or pivot the
product to offer better/ different competitive advantages. If Scout decides to manufacture in
Brazil they may have to go through a process to protect their brand image with copyrights and
trademarks that protect against the imitation of Scout products and services. Scout should also
use marketing to protect itself against competition and increase brand awareness.
Appendix
1.0 Scout Hub
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1.1 Door Panel
The Scout Hub currently sold online for
$129.00 is the central component to the
security system.
‘The Hub is responsible for
communicating with all of your Scout
sensors. It sends you relevant
notifications via your smartphone or
computer so you're always connected
from anywhere in the world. Every
Scout systemrequires a Hub, but only
one — whether you live in a studio
apartment or a three-story house.’
(https://www.scoutalarm.com/shop/scou
t)-hub)
The Door Panel that is currently sold online for
$69.00.
‘The Door Panel lets you know
anytime someone enters or exits. Mount
it at an entry door so you can arm and
disarm as you come and go, evenwhen
your phone dies. The RFID sticker and
key fobs let you give people you trust,
like your babysitter, easy access to your
home.’
(https://www.scoutalarm.com/shop/door-
panel)
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1.2 Access Sensor
1.3 Motion Sensor
1.4 HD Video Camera
The Access Sensoris currently sold online
for $29.00.
‘The Access Sensor
continuously monitors anything
that opens and closes such as
windows, doors and cabinets. If
someone tries sneaking into your
home through a back door or a
window, opening them just an inch
will trigger the sensor to alert you.
Plus, guard specific valuables in
your home, like your safe or liquor
cabinet, with an easy push-and-
stick setup that takes seconds.’
(https://www.scoutalarm.com/shop/
access-sensor)
The Motion Sensor is currently sold online
for $49.00.
‘The Motion Sensor detects
movement within 25 feet, day or
night. Wireless and versatile, it can
mount on a wall, in a corner, or prop
on a shelf for discreet surveillance
and full-range coverage. So if a
sneaky burglar attempts to break in
without opening doors or windows,
there's no way to get past Scout.’
(https://www.scoutalarm.com/shop/m
otion-sensor)
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The HD Video Camera is currently sold
online for $169.00.
‘The HD Video Camera is focused on
security. Stream live video or access cloud
backups to see what's going on at home from
miles away. Two-way audio lets an intruder
know they're not alone and night vision
means you're never in the dark about what's
going on at home.’
(https://www.scoutalarm.com/shop/hd-video-
camera)
