Brazil

Market Entry Analysis of Brazilian Hospitality Industry 1
Market Entry Analyses of Brazilian Hospitality Industry

University of South Florida

Leandre Meldener
Ebuka Ojika
Patrick Shields
Hao Xie
Peng Li

Global Entrepreneurship

Diana Hechavarria

April 10
th
, 2014

I. Product and Company Background
Interstate hotels & resorts is a leading U.S third-party hotel management
company (Ricca, 2012). The company specializes in hotel management and hospitality
consultancy.
Company Summary
Company Name: Interstate Hotels & Resorts
Industry: Third-Party Hotel Management & Hotel Ownerships
No. Hotels Under Management: 380+ Hotels
No. Of Rooms: 73,000+ Rooms worldwide
Ownership: Subsidiary of Thayer Lodging & Jin Jiang Hotels
Some of the top competing third-party hotel management companies are:
Rank Company Name Number of
Hotels
Revenue as at 2011
1 Interstate Hotels & Resorts 354 $2,500,000,000
2 Pillar Hotels & Resorts 234 $582,000,000
3 GF Management 129 $440,000,000
4 White Lodging Services Corp. 145 $676,244,603
5 Pyramid Hotel Group 52 $784,700,000
Source: hotelmanagement.com
II. Market Analysis
Brazil is the largest country in South America and has the 5
th
largest population
in the world. Its climate is mostly tropical and is home to the amazon rainforest that has
many of the tropical species in the world. Portugal owned the territory of Brazil until
1882, which is the reason why they speak Portuguese. They abolished slavery in 1888,
and officially became a republic in 1889. Brazil, being the most populated country in
South America was mostly controlled by a military government, under the leadership of
Getulio Vargas. This military regime lasted more than half a century until 1985 where a
civilian regime peacefully came into power. Thanks to its large amount of natural
resources and population, Brazil continues to dominant agriculture in South America,
and is the leading economic power in the region. However even as Brazil continues to
develop over the years, there is still an alarming problem with the unequal income
distribution and the very high crime rates that discourages many people from visiting the
country.


The People
Population Religion Age Structure
47.7% white 64.6% Roman Catholic 0-14 years: 23.8%
43.1% mulatto 22.2% Protestant 15-24 years: 16.5%
7.6% black 2.2% Spiritist 25-54 years: 43.7%
1.1% Asian 0.7% Other Christian 55-64 years: 7.6%
(CIA Database)
65 years over: 7.3%

As you can see from
the table, Brazil is overall
pretty well balanced with an
equal amount of whites and
mulattos and there are a
large amount of religions
that are represented. Brazil
however has the same
problem as many developed countries where there is a lack of young people to pay for
the retirements of the elderly in the coming years. As you can see from the figure, Brazil
overall has an equal male to female distribution. However with the decline in population
in the coming years, and the higher life expectancies, the number of people exceeding
75+ years old will far outtake the number of young people. This is a concern for the
economy, as younger people will have to work more, and pay higher taxes in order to
pay for the retirement of the elderly.
As shown in the picture, most of Brazil's population is concentrated on the East
side of the country. As many countries,
most of its larger cities are situated close
to the ocean, as a large number of people
like to live there. The capital Brasilia is
actually situated a little inland, and has a
total population of 2.5 million inhabitants.
It isnt however the most populated city in
the country. Rio de Janeiro, famous for its
impressive Christ the Redeemer, has a population of 6.3 million people and is located
right on the coast. Furthermore Sao Paulo, by far the largest city in Brazil has 11.3
million inhabitants. This city surprisingly enough is located fairly close to Rio de Janeiro.
Opportunity
Interstate Hotels & Resorts have been the leading hotel management company
in the world for many years. With over 380 hotels and more than 73,000 rooms located
all around the world, it is hard to go anywhere without sleeping in one of these
incredible hotels. With the success of Interstate Hotels & Resorts it would be easy to
think that they would be located in a number of cities around Brazil, a country with
beautiful architecture and landscapes, with warm weather all years long. This is
however not the case. Interstate Hotels & Resorts do not have any hotels in Brazil, and
is a huge untapped market that they should carefully consider to keep their global
supremacy in the hotel management business. With the increase in investments in the
hotel sector, companies have seen a steady increase in revenue per available rooms
over the past few years.
Tourism Forecast in Brazil

Economical and Political Environment
Social Groups in Brazil
This recent success can be attributed to the Fernando Henrique Cardoso
government between 1995 and 2002. During that time there was a large increase in
demand in Asia for soybeans, beef and iron ore, and Brazil was able to provide that to
them and were able to have an annual economic growth of 4.2 percent from 2003 to
2008. However like many countries around the world, Brazil was hit by the economic
downturn but was still able to post 5 percent growth over the last few years.
The next big event happening in Brazil is the 2014 FIFA World Cup, which will
bring in hundreds of thousands of people for those two weeks while the competition is
taking place. Brazil has been hard at wok in trying to build as many hotels as possible in
order to be able to accommodate all of the people that will be coming, but unfortunately,
as you can see from the figure below, every city that will host the competition are
missing a large amount of beds needed. Cities like Natal is missing over 34,000
necessary beds and even larger cities like Sao Paulo is still missing a staggering 19,000
beds. This shows that there is the potential, but due to the lack of beds, Brazil will not
be able to house all the soccer fans that will be coming into the country. The strong
GDP and a stable exchange rate has projected Brazil and its hotel industry to undergo
very high development. However even with this positive development, Brazils potential
hotel quantity is still below its potential.
Hotel beds vs Forecast for 2014 World Cup

Porters 5 Forces
The Porters 5 Forces helps to analyze how the market behaves and if it is worth
expanding into that market. Using this method we will be able to identify the bargaining
power of the suppliers of Interstate Hotels and Resort, and well as the bargaining power
of their buyers. This method also allows you to identify the threats of entry and the
threat of substitute to know if you will be successful into the new market, or if it will be to
complicated to enter.

Threat of new entry Threat of substitute Industry rivalry
Many new hotels are being
built for the World Cup and
Olympics and are going to need
management companies to
operate them.
Interstate Hotels & Resorts
have worldwide operations and
have brand recognition.
The company has a lot of
access to suppliers because they
are so dominant.
The company might not have
huge economies of scale in
Brazil because they are not in
the market yet.
It will cost a lot of money
initially to set up the company in
Brazil
If hotels are too expensive
and people do not want to pay
the high prices there could be
alternatives that they could
consider such as bed and
breakfast, renting a caravan, or
staying with family.
All of these alternatives are
usually much cheaper than
staying at a hotel for a long
period of time, but are not as
comfortable as hotels.
There are many competitors
trying to enter the market.
There are many competitors
already established on the
market that could cause
problems, such as the Brazil
Hospitality Group.
The industry is growing very
fast and the size is very large
with the upcoming World Cup
and Olympics.
Advertisement will cost a lot at
first entry, as it will be important
to get the world out to
consumers.

Bargaining power of
supplier
Bargaining power of
buyers

Interstate Hotels & Resorts has
many suppliers for its hotels
around the world, and will be
able to use these same suppliers
for Brazil.
They have very large suppliers
ready to service their next hotels.
It could cost them more money
to work with their suppliers in
Brazil if the suppliers are located
far away.
There are many buyers as
there are many potential
customers that will be looking
for hotels to stay in, in the
country. There is even a lack of
hotels for the amount of people
projected to visit the country in
the coming years.
During the World Cup and the
Olympics, hotels will be able to
charge a premium, as many
people will be looking for hotels
to stay in.
In the off-season however,
hotels will have to lower their
prices, as there wont be as
many tourists.

GDP of Brazil in last five years

The gross domestic product (GDP) represents the total dollar value of all goods
and services produced over a specific time period. GDP is an important indicator of a
country's economic power. The chart above shows the gross domestic product (GDP) in
Brazil from 2009 to 2013. According to the chart, Brazil's GDP has a significant increase
from 1.6 trillion in 2009 to 2.1 trillion in 2010. In 2011, Brazil's gross domestic product
continued to increase to around 2.5 trillion U.S. dollars. There was a small declined from
2.5 trillion (2011) to 2.4 trillion (2012), and then returned to 2.5 trillion in 2013.
IV. Location
Interstate Hotels &
Resorts will focus in the next
4 years to penetrate the
Brazilian market by entering
in all the cities where the
events will be held for the
2014 FIFA World Cup and
the 2016 summer Olympics.
The World Cup will have twelve host venues in twelve different cities. As you can see from the
breakdown of the cities that will be hosting the 2014 FIFA World Cup, almost all of them have a
million or more inhabitants. This is promising for when the event is over, as more people will be
visiting the larger cities, with the most activities.
Host Cities 2014 FIFA World Cup
Rio de Janeiro, RJ
Population: 6,323,037
Brazilian, DF
Sao Paulo, SP
Population:
11,316,149
Fortaleza, CE
Belo Horizonte, MG
Porto Alegre, RS
Salvador, BA
Recife, PE
Cuiaba, MT
Population: 942,861
Manaus, AM
Natal, RN
Population: 803,811
Curitiba, PR

The next major event only two years after the FIFA World Cup, the XXXI Olympiad will
be an even bigger event bringing people from all over the world back to Brazil in 2016. Around
9,000,000 people on average attend the Olympics, which is a huge opportunity for all hotels in
the area. The Olympics will not be in as many cities as the World Cup, meaning there will be a
lot of hotels situated in those areas in order to accommodate all of the people that will attend. As
you can see from the picture bellow Barra da Tijuca will host most of the venues for the event
and the Olympic Village. The rest will be situated in Copacabana, Maracana and Deodoro. By
focusing on these four main areas, Interstate Hotels & Resorts will be able to capture the market
very quickly by being situated in the cities where the events will be taking place.
However these events will only last for 2014 and 2016. Once they are over,
Interstate Hotels & Resorts will need to be situated in the cities that are the most visited
in Brazil throughout the year. Below is a table showing the top 10 most visited cities in
the country that the company will need to focus on. If the company is able to capture the
markets for both the World Cup and the Olympics, and then is able to capture the top 10
visited cities in Brazil, they will be in very good shape to take a large part of the market
share in the country.
10.Sao Paulo 9.Brasilia 8.Fortaleza 7.Parati 6.Recife
5.Olinda 4.Manaus 3.Salvador 2.Iguazu Falls 1.Rio de Janeiro

Recommendations for Entry
The most promising market location for Interstate Hotels & resorts is Rio de Janeiro;
this is because there is a massive construction of new hotels in the City. New hotels are
under construction and sex hotels are hastily being converted to regular hotels. The
reason as to why this is, the Brazilian government anticipates that Rio will have a total of
50,000 guests for each of the upcoming sporting events The World Cup and The
Olympics However, the city currently has approximately 33,000 beds, which wouldnt be
nearly enough to accommodate the number of guests expected.
It is recommended that Interstate Hotels & Resorts consider the five star luxurious hotel
under construction in Vidigal, Rio de Janeiro. The hotel, of which the name has not been
made public, is still under construction, but it is anticipated that the hotel will be completed
before the year of the Olympic.

References
The World Factbook. (2014, March 11). Retrieved March 31, 2014, from
https://www.cia.gov/library/publications/the-world-factbook/geos/br.html
Brazil population | Xang Blog. (n.d.). Retrieved April 2, 2014,
from http://xangs.wordpress.com/tag/brazil-population/
BBC News. (2010). Gang violence grips Brazil State. BBC News.
boraid . (2013, 5 27). boraid management . Retrieved from the introduction to Brazil economic,society,
business environment: http://www.boraid.com/article/html/230/230430.asp
CLR search . (2010). Brazil Demographics Summary. Retrieved from CLR search:
http://www.clrsearch.com/Brazil-Demographics/IN/
Kingstone, S. (2010-04-30). UN highlights Brazil gun crisis. BBC News.
UNODC. (2013). Homicide Statistics 2013. UNODC.
Zdun, S. (2008). Violence in street culture: cross-cultural comparison of youth groups and criminal gangs.
New directions for youth development, 39-54.
Rio's Sex Hotels To Become Normal Hotels for Olympics || HotelChatter. (n.d.). Retrieved from
http://www.hotelchatter.com/story/2013/3/11/52555/3530/hotels/Rio%27s_Sex_Hotels_To_Beco
me_Normal_Hotels_for_Olympics
world tourism: Interesting Facts About Brazil. (2011, March). Retrieved April 3, 2014, from http://about-
world-tourism.blogspot.com/2011/03/interesting-facts-about-brazil.html
The Brazilian Hotel Sector. (2010). Retrieved April 3, 2014, from http://www.dk-
export.dk/media/The_Brazilian_Hotel_Sector_August_2010.pdf

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Market Entry Analysis of Brazilian Hospitality Industry 1

Market Entry Analyses of Brazilian Hospitality Industry

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