AN 515:. ‘YSQS 3F FACTGRS iNFL UENCENG 1385 OF :1» fiRaFflNc RESEARCH [21" M‘i 331% :3 i213 BRAZEL I“! ‘1'” 1183525 Far "11.43 aegree 3‘? F2. 2‘ ‘aii‘ifiii’éfifiS “R3312 fish 'AE‘SEDREW FOSTER; WM.“ 11958 r1555. This is to certify that the thesis entitled "An Analysis of Factors Influencing the Use of Marketing Research by Manufacturers in Brazil" presented by Andrew F. Powell has been accepted towards fulfillment of the requirements for _Rh_._D_.__ degree in Businesstminis trat ion Date November 15, 1968 0-169 ABSTRACT AN ANALYSIS OF FACTORS INFLUENCING THE USE OF MARKETING RESEARCH BY MANUFACTURERS IN BRAZIL By Andrew Foster Powell This dissertation has a dual purpose. First. it investigates the marketing research practices of a representative cross-section of the larger manufacturers in Brazil. Second. it attempts to identify those factors ‘which influence the use of marketing research in Brazil. An understanding of the process by which management techniques are adopted may reveal the way to manage their introduction. The basic methodology uses inferential analysis to demonstrate the linkages which influence change in management values. Known users and non-users of market- ing research are studied in order to determine differ- ences in their respective market outlooks. The respon- dents' awareness levels of five hypothesized environmental factors are then analyzed. Where there are differences between users' and non-users' market outlook and aware- ness of the five hypothesized influences. it is inferred Andrew Foster Powell that these specific environmental factors have influenced the market outlook and, subsequently, the use of market- ing research. Personal interviews were conducted in three Brazilian cities, each reflecting distinct regional characteristics. The sample consisted of ll9 large manufacturing firms, representing twenty industries. Interviews were structured by a questionnaire consist- ing of four basic parts: l. Classificatory information 2. Marketing research practices 3. Marketing outlooks’ 4. Awareness of selected influences. Nearly one-third of the 119 respondents employed marketing research. While the use of research is pre- dominantly by foreign subsidiaries in the highly- industrialized Sao Paulo (south central) area, some national firms were adopting research. There was little evidence that manufacturers in the northeast city of Salvador practice the technique. In the south, Porto Alegre manufacturers recognize the need for research, but have not yet implemented the technique. Resistances among non-users generally reflect perceived, rather than real, obstacles. The lack of statistics and qualified personnel. while important, are subordinate to more basic objections by non-practicing respondents. Andrew Foster Powell Evidence demonstrated that firms employing market- ing research generally had significantly broader market outlooks than their non-practicing counterparts. These outlooks were measured by scaling replies to questions regarding sales problems (and their solutions), preferred market locations and expansion policies. Significant differences in awareness levels existed for the hypothesized influences--government. business administration graduates, competition, and foreign firms--when comparing research users and non- users. A fifth factor--advertising agencies-~was found to be non-influential. Competition was the factor most frequently linked to the use of marketing research. Foreign firms and governments contributed not by demon- strating research techniques. but by encouraging competi- tion. Geographical variances in the analyses suggest that it is unsafe to generalize regarding the infusion of a management technique such as marketing research. A comparison of the three locations studied indicates that various levels of consideration exist. In Salvador relatively low levels of production have limited the market range of manufacturers to a point where there is little need for firms to consider those elements of marketing dealing with expansion. Andrew Foster Powell Porto Alegre manufacturers demonstrate a second level of consideration. While a relatively high per- centage of these respondents had broad market outlooks, the structure of the firms is such that little administra- tive specialization exists. In Sao Paulo, where professional talent is rela- tively abundant, there is a need to broaden the market outlook of many firms before this talent will be utilized. From this research it is evident that there is a difference in the importance of specific environmental influencing factors in different geographical regions. This would imply that any attempt to manipulate the controllable factors for managing the adoption of market research requires detailed knowledge of the degree of influence of each factor in each region. Although the specific environmental factors studied in combination do influence the adoption of marketing research, there could be different adoption processes at work in each region. AN ANALYSIS OF FACTORS INFLUENCING THE USE OF MARKETING RESEARCH BY MANUFACTURERS IN BRAZIL By Andrew Foster Powell A THESIS Submitted to , Michigan State University in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY Department of Marketing and Transportation Administration 1968 GDCopyright by ANDREW FOSTER POWELL 1969 ACKNOWLEDGMENTS This study would not have been possible without the assistance of many individuals; unfortunately, only those making significant contributions can be cited. I am greatly indebted to Professor Donald A. Taylor for his continuing efforts in guiding my endeavor. Not only was he instrumental in the basic design of the study, but his visits during various stages of the field work in Brazil served to keep the objectives in perspective. I am grateful also to Professors Leo G. Erickson and Reed Moyer for their valuable suggestions regarding the presentation of the findings. To friends in three cities in Brazil I am ex- tremely grateful for the successful;completion of my research. Professors Gustavo de 56 e Silva, Ary Bouzan, Raimar Richers, and Alberto de Oliveira Lima, of the School of Business Administration in $50 Paulo,each played a role in the portion of the study completed in the $30 Paulo area. Contacts with manufacturers in Porto Alegre were made possible through the efforts of Mr. Brenno H. Sassen, Director of the Federation of Industries for that city. Professor Astor Hexsel of the Institute of Administration, University of Rio 11 Grande do Sul, also provided valuable assistance during my stay in Porto Alegre. Professor Joao Vargas Leal of the School of Business Administration, University of Bahia, and Mr. M. Cid Guerrero of RefinaEUES de Milho, made it possible for me to complete my field work in Salvador within very tight constraints. My greatest appreciation goes to my wife, Charlene, for her suggestions and assistance in prepar- ing the manuscript, and for her encouragement through- out the project. This study was made possible through a grant from the Midwest Universities Consortium, to which I also offer my gratitude. 111 TABLE OF CONTENTS Page ACKNOWLEDGMENTS. . . . . . . . . . . . . . . . . ii LIST OF TABLES . . . . . . . . . . . . . . . . . vi LIST OF FIGURES. . . . . . . . . . . . . . . . . viii Chapter I. INTRODUCTION. . . . . . . . . . . . . . . l Purpose of the Study Relationships between Marketing and Economic Development II. RESEARCH DESIGN . . . . . . . . . . . . . 12 Methodology Selection of Variables Formulation of the Hypotheses The Instrument The Sample Limitations of the Study Order of Presentation III. BRAZILIAN ENTERPRISE AND ITS ENVIRONMENT. 36 Industrialization Pattern to 1964 Industrialization and Inflation Impact of Brazil's Industrialization Pattern on the Business Environment Regional Economic Imbalances The Role of Transportation The Three Cities 530 Paulo Porto Alegre Salvador The Governments Program of Action iv Page IV. A SURVEY OF MARKETING RESEARCH PRACTICES IN BRAZILIAN ENTERPRISE . . . . . . . 77 Degree of Use Specific Research Activities Regional Comparisons Product Type Product Line Distribution Pattern Competitive Factors Market Expansion Contractual Research Resistances to the Use of Marketing Research Findings of the Survey Hypotheses 1 through 7 V. MARKET OUTLOOKS AND THE USE OF MARKETING RESEARCH . . . . . . . . . . . . . . . . 108 Differing Managerial Orientations Management's Marketing Mentality Major Sales Problems Expansion into New Markets Geographical Market Preferences Perceptions of the Changed Environment Placing Respondents on the Orientation Continuum Geographical Differences in Marketing Mentalities VI. ENVIRONMENTAL FACTORS AND THE USE OF MARKETING RESEARCH . . . . . . . . . . 132 The Hypothesized Environmental Factors Government Competition Foreign Firms Business Administration Students Advertising Agencies Marketing Research Practices and the Environmental Factors. VII. CONCLUSIONS . . . . . Market Outlook and Awareness of Environmental Factors Regional Variations on the Influence of Environmental Factors on the Adoption Process BIBLIOGRAPHY . . . . . . . APPENDICES . . . . . . . . . A. Questionnaires B. List of Manufacturers Interviewed C. Table vi Page l54 166 175 10. 11. LIST OF TABLES Sample Distribution of Manufacturers Interviewed (by Industry and by Location). . . . . . . Median Size of Manufacturing Firms Inter- viewed by Selected Industries According to Number of Employees. Real Product Index by Sectors, 1947-1965. The Automotive Industry as an Example of Brazil's Economic Development 1960-1966 Comparison of Active Population, Per Capita Income, National Income by Region and Economic Sector, 1950-1960. . . . Domestic Intercity Freight Traffic by Mode of Transport--Brazil, 1950-1963 (in Billions of ton/km) . . . . . . Research Practices of 119 Manufacturers in Brazil by Geographic Location, National Origin, and Time of Origin. . . . Percentage of Thirty-Seven Marketing Research Users Engaging in Specific Marketing Research Activities by Fre- quency of Use . . . . . . . . . . Product-Type, Product Line, and Distribu- tion Policies of 119 Manufacturers in Brazil by Geographic Location and Marketing Research Use. . . . . Perceived Competition Conditioned by 119 Manufacturers in Brazil by Geographic Location and Marketing Research Use Expansion Patterns of 119 Manufacturers in Brazil by Geographic Location and Market- ing Research Use. . . . . . . . . vii Page 28 3O 44 47 59 64 80 84 87 93 97 LIST OF FIGURES Figure Page 1. Percentage of Marketing Research Users and Non-Users with Market Mentality Score above and below the Average Score for All Respondents . . . . . . . . . . . . . 126 2. Percentage of Marketing Research Users and Non-Users Having Awareness of Selected Environmental Factors Scores above and below the Average Score for All Respondents . . . . . . . . . . . . . . . 146 3. A Comparison of Marketing Research Users and Non-Users Market Mentality and Awareness of Environmental Factors In- fluencing the Use of Marketing Research . 159 viii CHAPTER I INTRODUCTION Purpose of the Study This dissertation has a dual purpose. First, it investigates the marketing research practices of a repre- sentative cross-section of the larger manufacturers in Brazil. Second, it attempts to identify those factors which influence the use of marketing research in Brazil. Emphasis is placed on the latter purpose because its im- plications are broader. There has developed a growing interest in understanding the way in which change takes place, frequently referred to as the adoption process.1 Only recently this interest has focused on the way in. which management techniques are adopted by the business firm. Since economic development is in part a function of the presence and effiency with which business enter- prise operates, anything that can be done to increase management efficiency contributes to an improved economy, a matter of central concern to many of the developing 1For a review of studies in this area, see Everett M. Rogers, Diffusion of Innovations (New York: The MacMillan Company, 1937) nations. An understanding of the process by which manage- ment techniques are adopted by the enterprise may reveal the way to manage their introduction and thus improve the efficiency of those enterprises responsible for the eco- nomic output of society. Having delineated the general areas of considera- tion, the specific objectives of the study are the following: (1) To describe the general environment (of Brazil) in which this study was conducted, emphasizing the marketing implications of each facet. (2) To determine the extent of use of marketing research by those companies interviewed in Brazil, identifying users and non-users of the technique. (3) To determine significant relationships between specific environmental factors and the attitudinal factors-of firms. (4) To determine the acceptance process of the use of marketing research by firms in Brazil. The above objectives are studied within a conceptual framework established by earlier investigations. The literature to date emphasizes two different conceptual premises. Many scholars imply that the marketing be- havior of the enterprise is adaptive, and consequently, are concerned with environmental factors in explaining some aspects of marketing's contribution to economic development. Others emphasize more the innovative characteristics of marketing's contribution to economic development and concentrate on attitudinal factors within the enterprise in establishing causal relationships between marketing and economic development. Since the present study uses a combination of these approaches a discussion of their origins follows. Relationships between Marketing and Economic Development As stated above, marketing's role in economic development is a controversial one. One of the central issues evolving from the controversy is whether marketing methods and practices are dependent or independent variables; that is, whether marketing's role is adaptive or innovative. Since significant interest in the field has developed only in the last decade, relatively few studies have empirically demonstrated marketing's contri- bution. Despite this lack of data, Valuable insight has been provided by professionals in the field. Peter Drucker contends that the factor which keeps a country "underdeveloped" is its inability to bring together resources, wants, and capacities to convert a self-limiting static system into one with creative, self- generating organic growth. A basic contribution of market- ing is that its development makes possible economic M 165 596 11:81 in. of TE 13 de 11 integration and the fullest utilization of whatever assets and productive capacity an economy already posseses. The result is a "multiplier" effect in development.2 Drucker's thesis suggests that marketing's contri- bution to economic growth can take two general forms: first, by using relatively advanced marketing techniques a more efficient use of presently existing productive resources exists; and, secondly, by inducing companies to seek market expansion. The criteria for economic develop- ment-~increases in gross national product and per capita income--can be met by either or both processes. Because of this common objective, there is admittedly a close relationship, and even overlapping,between the two approaches. Perhaps the contribution toward a more efficient use of an existing distribution system is primarily dependent and adaptive, while the contribution toward market expansion is more innovative. W. W. Rostow has expressed a concern for the development of a national market in the emerging nations.3 The economies of many underdeveloped countries are characterized by limited and local markets fostering low 2Peter F. Drucker, "Marketing and Economic Develop- ment," Journal of Marketing, Vol. XXII (January, 1958), p. 256. 3W. W. Rostow, see Chapter XI, "How to Make a National Market: View from the Seventh Floor (New York: Harper and Row Publishers,fil964). demand and high costs because of the lack of mass produc- tion and extremely high prices relative to income avail- ability. Typically, the larger countries are dotted with population concentrations widely dispersed into regional nodes. The rural and urban sectors are separated geo- graphically as well as economically. Thus, in a number of underdevelOped economies where rural areas have been neglected in terms of capital and technical investment, the agricultural population is not regarded as an ef— fective market for manufactured products. A survey con- ducted in an emerging nation showed that ninety per cent of the durable and non-durable goods were sold to thirty- nine per cent of the population living in towns of over 10,000, whereas the sixty-one per cent of the population living in rural areas bought only ten per cent of such goods.4 While the prices paid by the cities for the output (mainly food-stuffs) of rural areas are high, it is the cost of distribution rather than the farmers' prices (income) which elevates these costs. Thus, it is difficult for people in these rural areas to purchase manufactured products, prices of which are also rela- tively high. Rostow's central proposition is that the opera- tional task of development is to break down these struc- tural distortions, to produce a self-reinforcing mass for area agricultural and industrial expansion, and to create truly national markets within the underdeveloped nations where Possible. He suggests four major tasks, to be carried efit simultaneousln,which will accomplish this objective: (1) a build-up of agricultural productivity; (2) a revolu- tion in the marketing of agricultural products in the cities; (3) a shift of industry to the production of simple agricultural equipment aflg_consumer goods for the mass market; and (4) a revolution in marketing methods for such cheap manufactured goods, especially in rural areas. The first task--increasing agricultural produc- tivity--concerns primarily technological development. The second and fourth objectives relate to increasing distribution efficiency through advanced marketing methods and require adaptation of marketing methods to the en- vironment. The remaining suggested goa1--a shift to the production of simple agricultural and consumer goods for ethe mass market--has great significance in marketing's innovative contribution to economic development. In a broader concept, Albert Lauterbach in his book, Enterprise in Latin America (1966) discusses the Western World's interpretations of the relationship between enterprise management and development needs in the poorer countries. Two of the four approaches reviewed reflect the conceptual framework developed here. The 1111 the 111! EC! ad: 1'11 111: iii 1!“ first approach is based upon the interpretation of economic development essentially as "entrepreneurship," usually defined in terms of competitive readiness to innovate and to take risks. This interpretation has, to a degree, been illustrated above, and is part of Drucker's main thesis. The decisive question is how to arouse such a spirit where it has been characteristically absent. The second inter- pretation, favored and implemented by Lauterbach in his empirical study of management attitudes, is based upon relating the nature and functioning of management in a given area to the prevailing social system and cultural values both before and during a major development effort. The specific attitudes and practices of management are put into the context of the socio-cultural heritage of the population involved. Lauterbach argues that, although business activities are often studied exclusively from an economic, financial, or administrative point of view, additional knowledge about the attitudes and motives of enterprise managers is indispensable.5 Professor Lauterbach briefly discusses the atti- tudes of the interviewees toward competition and market 6 limitations. The smallness of the market is perceived 5Albert Lauterbach, Enterprise in Latin America (Ithaca. New York: Cornell Press, 1966). 6Ibid., see Chapter VI, "Competition, Production, Investment, p. XI. b1. mi st DE 11 by many as a kind of law of nature about which nothing can be done. The prevailing attitude assumes that the minority who constitute an effective market is eager to buy almost anything that is offered, and that this minority will increase in absolute terms with the con- stant growth of the population; but the rest of the. people, especially in the countries in Latin America with a large Indian population, might as well not exist insofar as the national consumers' market is concerned. A number of other scholars have dealt with the topic in part, although specific references to special- ized areas have frequently been corroborated by indivi- dual observation rather than by empirical testing. Since there is considerable repetition in the literature, it seems more appropriate to quote specific passages rather than paraphrase the references.7 The process of cross-cultural transfer, as it applies to marketing systems and the environmental factors influencing such systems, is Elsa worthy of special attention. Insofar as the role of marketing has truly been adaptive and responsive to certain environmental factors, and considering'that so many aSpects—bf the United States environment have been unique, it seems clear that extreme care should be exercised in attempting to transfer this nation's marketing institutions, concepts, and practices to other 7Underlining added for emphasis. 8Stanley J. Shapiro, "Comparative Marketing and Economic Development," in George Schwartz, Science in Marketing_(New York: John Wiley & Sons, Inc., I957), p. 426. societies.9 . . . the introduction of many American practices and institutions may become feasible only when . . . the environment is conducive to cultural innovation.10 The problem is to reinterpret our skills in terms of application to the local culture. 1 Limiped attention has been given to environmental factors. 2 . In marketing, all technical progress must be closely integrated with the cultural framework of the society into which it is introduced.'5 The study of a single advanced marketing culture and the role which marketing has played in its econo- mic development would yield patterns of chan e in mar- ketin attitudes and techniques Which might ead‘to useful generalizations.in Developing markets in underdeveloped countries re- quires ne attitudes toward development and market researc . Perhaps the major obstacle to the use of marketing research in the emerging countries is the attitude to- ward msrketing of business and government administra- ors. 9Kenneth H. Myers, "Marketing's Role in the Economy? ed. Stephen A. Greyser, American MarketingiAssociation Pro- ceedings (December, 1963), p. 364. ioshapiro, op.cit., p. 490. 11Woodruff J. Emlen, "Let's Export Marketing Know- How." Harvard Business Review, Vol. XXXVI (November- December, 1953). p. 76. 12Shapiro, op.cit., p. 405. 3Emlen, op.cit., p. 71. 14Kenneth H. Myers and Orange A. Smalley,'Marketing and Economic Development,“ Business History View, Vol. XXXIII (Autumn, 1959), p. 393} 15William Copulsky, "Marketing Research in Under- developed Areas," American Marketing Association, ed. W. David)Robins, Successful Marketing at Home and Abroad 1958 , 16Harper W. Boyd, Ronald E. Frank, William F. Massy, and Mostafa Zoheir,"0n the Use of Marketing Research in the Emerging Countries," Journal of Marketing Research, Vol. II, No. 4 (November,-T964), p. 20. 10 As much of the implementation process is directly identified with company-wide managerial perceptions and comprehension of the (marketing) concept, the use of attitude scales should prove useful.l7 Certain studies must be undertaken: . . . attitudes of potential investors with regard to market concept and attitude about distribution problems are necessary to determine risk perception of potential investors.18 The tendency to emphasize either the adaptive or innovative relationship of marketing to economic develop- ment, as well as the influence of environmental factors or attitudinal factors, is seen in the above quotations. There is a natural tendency to conclude that if marketing behavior is adaptive, environmental factors become more important, while if it is innovative, atti- tudinal factors are paramount. Unfortunately neither conclusion is sufficient to generalize on the topic. Utilizing the kind of functionalism elaborated by Taylor,19 both the adaptive-innovative relationship and the in- fluence of environmental and attitudinal factors are employed in the research design of the present study. Stated briefly, society is comprised of a number of en- tities with sets of relationships among them. These 17Robert L. King, "The Marketing Concept," ed. George Schwartz, Science in Marketing(New York: John Wiley & Sons, Inc., 1965), p. 97. 18Donald A. Taylor, unpublished report to Agency for International Development officials, United States Government, (Recife, Brazil: 1966). 19Donald A. Taylor, Institution Building in Business Administration (East Lansing, Mich.: Division of Research, GFaduate School of Business Administration, Michigan State University, 1968). 19' th ta en ac ac ta fr of RE ll relationships result in values and norms which influence the behavior of the entities and the structural form they take. Both the structural form and the actions in which the entities engage create the operating environment. In a dynamic society many entities are adapting to an environment which has changed because of the innovative actions of other entities. Consequently there is inter- action between competitive readiness to innovate and to take risks, the change in environment resulting there- from, and the adaptation of the entities to the new sets of environmental relationships. More specifically, marketing research as a manage- ment technique is employed by a firm because of the way in which that firm's management interprets the environ- ment and the influence of the environment on its goals. A study of the acceptance process of marketing research by firms in Brazil requires an examination of the firms' attitude toward the market and the way in which their interpretation of the environment affects that attitude. With this elaboration of the conceptual orienta- tion, the methodology used is developed in Chapter II. l‘E! W N pr tr as Of US 01‘ 111 Dr Si 1‘! 11 CE CHAPTER II RESEARCH DESIGN Methodology An inventory of users and non-users of marketing research by firms in Brazil is necessary to investigate the adoption process. It can be expected that users of marketing research exhibit a higher level of marketing professionalism than non-users. This is particularly true if the environment is such that marketing research as a technique can contribute to the goals of the enterprise. The first step is to determine if the users' market outlook differs from that of non-users'. Inferentially, use or non-use is related to a positive or negative market outlook respectively. In keeping with the conceptual orientation established in Chapter I, market outlook is conditioned by management's inter- pretation of environmental factors at any given time. Since it is not expected that management personnel can report those environmental factors which have influenced them to use marketing research directly, indirect indi- cators are used. The second step requires an evaluation of users and non-users awareness of and interpretation 12 13 of hypothesized environmental factors. The third step requires matching users'and non-users market outlook and awareness and intepretation of hypothesized environ- mental factors. If differences between users and non- users are shown in step three, it is possible to infer the influence of environmental factors on market outlook and subsequently on the use of marketing research. Selection of the Variables Several reasons exist for having selected market- ing research as the management technique to be investi- gated. Since change from non-user to user is the basic consideration in the analysis, a satisfactory number of users of the technique was necessary if comparisons were to be made. Boyd, gt_al, suggest that marketing research know-how should be one of the easiest "areas" in market- ] Thus, the feasibility of its use is ing to export. evident. A second reason for choosing marketing research is that it is a visible technique, in contrast to market- ing concepts and principles whose use would be more difficult to establish. Finally, despite the need for planning in the less advanced nations, professionals in the field believe that marketing research will not assume 1Harper W. Boyd, Ronald E. Frank, William F. Massy and Mostafa Zoheir, "0n the Use of Marketing Research in the Emerging Countries," Journal of Marketing Research, Vol. II, No. 4 (November,91964), p. 20. 14 great importance in the economic life of these nations for some time to come. The challenge of discovering what will induce firms to employ this technique, as well as investigating obstacles deterring its use, should not go unanswered. Establishing the criteria used in differentiating the market outlook of the firm is the first step in the design followed. The breadth of the company's market outlook is based on its perception of (a) sales problems and solutions, and (b) potential markets. Because management's definition of its firm's market generally connotes whether the former is production or market- oriented, (b) is further broken down to include opinions regarding preferred market locations, expansion policies, and external factors affecting the firm's sales volume. 0n the basis of this analysis, manufacturers are classified as having narrow or broad market perceptions, In order to keep the investigation within manage- able boundaries, the number of potential environmental factors specifically probed was limited to five. Selection of these five were based on exploratory dis- cussions in Brazil and reflect the general economic environment prevailing at the time of the study. They are as follows: Government--Business activities in Brazil are closely tied to governmental controls. Based 15 on a program of incentives, restrictions, and regulations, the nation's economic development has in recent years been planned by geographic sector, as well as by industry. Since the government requires a market feasibility study from firms applying for federal and state funds for investment purposes in selected regions, a lasting effect might well be expected after this experience. Competition-~Increased production, as well as reduced consumer buying resulting from defla- tionary policies imposed by a revolutionary government,2 prevented most firms from selling all their production. Did the resulting competi- tive pressures, leading to excess capacities and surplus stocks, influence the use of marketing research? Advertising,Agencies--Although marketing research companies exist in Brazil, it is felt that the constant contact of manufacturers with their advertising agencies would be more likely to influence the manufacturers in the area of market planning. 2In March, 1964, a bloodless coup forced President Jango Goulart to relinquish his powers to a group of Brazilian army officers. Marshal Castelo Branco subse- quently was elected president by the Brazilian Congress. 16 Business Administration Professionals--While the development of business administration as a formal discipline is relatively new in Brazil,3 many graduates and students work closely with the companies as part of their curriculum. There is a strong possibility of their directing management philosophy toward market orientation and subsequent use of the research technique. Foreign Firms--A large number of foreign com- panies have either direct or indirect commit- ments in Brazil. In the past, marketing research had been used almost exclusively by foreign- linked firms; therefore, as pioneers in this field one would expect these firms to have had some influence on their national counterparts to adopt marketing research.. It should not be implied from the separate list- ing of these possible influences that they are mutually exclusive. To the contrary, it is a contention of this study that awareness of the positive contributions of each additional influence enhances the use of marketing 3While business administration practices had been used for many years in Brazil, its formal recognition as a discipline was the establishment of the first school of business administration in Sao Paulo in 1954. For a complete review of the discipline's acceptance, see Donald A. Taylor's Institution Buildingkin Business Administration, publication of the Bureau of Business and Etonomic Research (East Lansing, Mich.,: Graduate School of Business Administration, Michigan State University, 1968). 17 research. In addition, however, the relative importance of each factor will be determined. Description becomes an essential part of the de- sign due to the general unfamiliarity of the setting in which this study takes place. Not only does the general environment influence the variables selected, but it also reflects the impact of the economic life of Brazil on existing business norms. Extreme regional differences within Brazil make it possible to study business practices in varying stages of economic and industrial development. It has been estimated that there is a twenty year gap separating each of the three locations considered. Conscious efforts to narrow this gap, both on the part of govern- ment and private enterprise, add an element of dynamism to the analysis. An unrelated event made possible a second compari- son to reinforce the basic design. In an effort to contain the rampant inflation prevalent prior to 1964, the new government of Castelo Branco applied deflationary measures, subsequently changing the economic environment for many industries from a sellers' to a buyers' market. As the transition was artificial as well as abrupt, there was an immediate impact and the practical, micro implications became apparent in discussing the reversal with respondents in the sample. se Br 18 These two comparisons--the first designed, the other accidenta1--are superimposed over the basic design in an effort to provide as complete an analysis as possi- ble. Formulation of the Hypotheses Having established a need for further research, as well as setting forth the objectives which the present study is to accomplish, specific guidelines must be established to implement the intent. These take the form of hypotheses and are necessary to implement the methodology for the study. While reflecting five months of preliminary investigation in Brazil, the following hypotheses cannot, standing alone, reflect the complexi- ties of the change process under consideration. Rather, their formulation provides a spectrum of assumed facts which must be tested within the research design. Hypo- theses relating to the first major purpose of the study-- a survey of the marketing research practices of a repre- sentative cross section of large manufacturers in Brazil--are: (l) The technique of marketing research is familiar to large manufacturers in Brazil. (2) More companies have established marketing research departments in the last three years than were established prior to 1964. 19 (3) More consumer goods manufacturers are using marketing research than industrial goods manufacturers. (4) More foreign-based firms use marketing research than do Brazilian companies. (5) More Brazilian firms have established marketing research departments since 1964 than have foreign firms. (6) Those companies having wider distribution-- geographically and socio-economically--are more likely to be employing marketing research. (7) Marketing research practices vary within different geographical regions in Brazil. (8) Although advertising is a major expenditure for many firms, they do little or no marketing re- search. Hypotheses related to the second major purpose of the study--to identify those factors which influence the use of marketing research in Brazil--are: (1) Users of marketing research in Brazil have more positive market outlooks than do non-users. (2) Users of marketing research in Brazil are more cognizant of the positive contributions of government, competition, foreign firms, adver- tising agencies and business administration professionals than are non-users. 20 (3) One or more of the five variables listed in hypothesis (2) above influence the use of market- ing research in Brazil. To examine the above hypotheses it is necessary to establish measures which identify users and non- users of marketing research, positive and negative market outlooks and positive and negative cognizance of the contributions of the selected environmental factors. The measure of a user or non—user of marketing research poses no particular problems since it is a reasonably objective fact. It is recognized that there are degrees of use of marketing research among firms. These differences can be determined by care in develop- ing the instruments for data collection. In the pre- sent study a firm is classified as a marketing research user if it regularly analyzes data in any one of the areas of product, sales or market analysis. The measure of market outlook of a firm as well as cogni- zance of the contributions of the selected environ- mental variables pose more difficult problems. For purposes of this study an interpretation of market outlook is measured by the way in which the firm exploits its market opportunities. Those firms using marketing research have the following character- istics: 21 Define their market potential as encompassing the entire populace as potential consumers. Perceive expansion to be a function of market opportunities. Feel that product introduction or adjustment is a means of adjustment to markets. Look internally as well as externally for solu- tions to marketing problems. In contrast those firms not using marketing research may be characterized as follows: 1. Conceive their market to be constrained by production capacity or effective demand for their present product. View expansion as a function of an increase in capital, production capabilities or personnel requirements. Consider product introduction or adjustment only as a function of technological change. View the solution to their marketing problems as functions of external factors rather than internal factors. Measurement of the contribution of the selected environmental factors requires an examination of the way in which the firm interprets the presence of the selected factors on their own operations. More specifi- cally the following possible interpretations are explored. 1. View government planning as providing positive steps for improving a firm's efficiency. Recognize that graduates of business administra- tion make specific contributions to the establish- ment of marketing planning within the organization. 22 3. View foreign firms as having made positive con- tributions in Brazilian industry. 4. View competition as a healthy condition in their industry. 5. View advertising agencies as an important informa- tion source for marketing planning. Those firms not using marketing research may view the same factors as follows: 1. Tend to view government as a hindrance to the manner in which the firm does business. 2. Feel business school graduates make little, or only a general contribution to the company. 3. Have a hostile attitude toward the contribution that foreign manufacturers make in Brazil. 4. View competition as a negative force within the industry. 5. Feel advertising agencies can contribute little assistance in the marketing planning of the company. The above dimensions of the firm's orientation must be structured in the design of the data collection instrument. Interpretation of a positive or negative market outlook as well as the extent of awareness of the contributions of the environmental factors is based upon 'a five-point scale. Depending upon the way in which the respondent answers a series of questions, the firm was rated by the interviewer on a scale from one to five. The actual basis for rating is elaborated upon in Chapters V and VI. 23 The Instrument Because of the predominantly qualitative nature of the data sought, the interview method was used ex- tensively in investigating a cross-section of manufac- turers. Personal confrontation is of critical importance in successfully attaining information relative to a Brazilian company's activities. In addition to the need for establishing an atmosphere of confidence, the inter- action afforded by the interview avoided any misrepre- sentation by the respondent of a relatively unfamiliar discipline; it also enhanced a deeper understanding by the interviewer of an extremely complex business environment. A questionnaire provided the basic structure for the personal interviews; however, an element of flexi- bility was injected by using both open-end questions and the investigator's discretion in further probing specific replies. Results of the five pre—test inter- views were included in the data as only minor modifica— tions in the questionnaire format were necessary. The interview covered four phases as reflected by the questionnaire appearing in its original (Portu- guese)and translated form in Appendix A: Classificatory information Marketing research practices Marketing concepts Awareness of selected influences #WN—J eeee 24 While the first two sections present an objective look at a firm's current operations, parts three and four are subjective. This provided an opportunity to cross- check important points throughout the discussion. For example, a respondent who states that new products are developed on the basis of market need (Part 1), uses marketing research (Part 2), and expresses the Opinion that the principal contribution of research is to guide new product introduction (Part 3), has been consistent in his answers and leaves little doubt as to the market orientation of the firm. On the other side, the danger of what Brazilians refer as as "chutando"5 in answering questions is minimized by such controls. Much additional information and insight into the general topic of marketing, and specifically marketing research, was obtained from informal dis- cussions with professors and colleagues of business administration schools, executives of advertising and research agencies, and local businessmen in Brazil. Of particular value was the participation in a week- long management seminar on marketing research, conducted by the Brazilian affiliate of the American Management 5"Chutando" is equivalent to the slang expres- sion "Handing out a line." Literally it means "kick- ing" (the ball around). 25 6 A final source of valuable information Association. was the materials, much of it unpublished, generously offered by official and private contacts to this writer. Although a micro-analysis of manufacturers provided the basic instrument for this project, the value of gaining a composite picture through using different research approaches cannot be over-emphasized. The Sample A total of 119 manufacturing firms in three major Brazilian cities--Sao Paulo, Porto Alegre and Salvador--comprises the sample for this study. A list of the manufacturers interview is presented in Appendix B. Three considerations were emphasized in develop- ing a representative cross-section of manufacturers: relative contribution of each geographical region studied, relative importance of industries, and the size of the firms. Although generally based on available economic indicators, the number of companies selected in each city was influenced by time as well as financial con- straints. Thus, seventy-nine manufacturers were inter- viewed in $30 Paulo, while the number in Porto Alegre was twenty-five and in Salvador, fifteen. This 6This researcher is indebted to Mr. A. M. Greig, General Manager, and Mr. A. D'Agostino, Program Director of the Mana ement Center do Brasil for their kind cooperatian. 26 breakdown represents sixty-six, twenty—one, and thirteen per cent, respectively, of the total sample of 119 firms. References which compare the loCations of the interviews generally substantiate the representative- ness of the geographical distribution of the sample, with the exception of a relatively large group for Salvador. It was felt, however, that a minimum of fif- teen interviews was necessary in that city in order to attain sufficient data. As all these cities are indus- trial centers for their respective states, and are estimated to produce at least seventy per cent of their industrial output, it was assumed that a sample drawn from each city was representative of the manufacturers in that state. Manufacturers from twenty-one industries are represented in the sample. For Sao Paulo and Porte Alegre, the number of companies in each industry was determined by that industry's proportion of value-added contribution relative to the state's total. Thus, the higher the percentage of value added for an industry, the larger the number of companies represented. A similar breakdown was not possible for Salvador because of the lack of comparable data. Instead, the sample distribution was arbitrarily determined after discussions with government and academic officials of that community. ch at b1 11 27 A predominance of basic commodity manufacturers, Characteristic of a relatively underdeveloped region, attests to the validity of the latter approach. A breakdown, according to geographical location and by industry, of the 119 manufacturers interviewed appears in Table l. The size of the manufacturer was an important consideration in developing a sample; emphasis was placed on the larger companies in each industry. While it is generally believed that marketing research in the United States is used primarily by large firms,7 this should be particularly true in Brazil, where formal organizational structure and specialization are typically missing in small and in many medium-sized firms. In addition, an earlier investigation of small business in Brazil found that there is little concern among management about sales problems, relative to the areas of production and finance. Nearly half of the respondents in that study stated they had no sales problems.8 7See, for example, Richard D. Crisp, "Company Practices in Marketing Research," American Management Association, Report No. 22, 1953. "As the study confirms, marketing research has been developed to a greater degree in larger than in small organizations (Appendix, p. 61)." 1 8Claude Machline, Kurt E. Neil, and Ivan de SaMotta, "A Administrapao da Producao na Peguena Empresa Brasileira," Monograph published by the Research and Pub- lications Center, Escola de Administracao de 530 Paulo; Fundacao Getulio Vargas, Sao Paulo, 1965, p. 16. HHFPLRCP CPTCFBTPU 28 TABLE 1 SAMPLE DISTRIBUTION OF MANUFACTURERS INTERVIEWED (BY INDUSTRY AND BY LOCATION) $50 Porto Paulo Alegre Total By 'k Industry Industry Salvador Non-Metallic Minerals Metallurgical Products Machines Electronic and Communications Transportation Equipment 1 Wood Furniture Paper and Cardboard Leather Products Rubber Chemicals Pharmaceutical Eroducts Cosmetics Plastic Products Textile Clothing, Shoes Food Products Beverages Tobacco Products Printing and Graphics Other \1 km (a) ._.I am ._a —J _a _.| 03 —-' 01 NN-‘O .._a_.a_.a—-I _.a ._I mummooonmmmw kON-J-b-bNO _.a N'NNNONC‘NNQ) \IN a-ampwm N—‘b—I-b —l TOTAL--BY CITY 25 15 119 \1 KO * Classification by Instituto Brasileiro De Georgrafia, E Estatistica, Conselho Nacional De Estatistica, Rio De Janeiro, Brazil. 29 Classification of manufacturers by size was based on "number of employees," primarily because of the availability of this information, but also because any financial measures would have little comparative value in view of the different financial reporting procedures used by the companies. Reflective again of regional differences, the median size of firms varied according to the three sample cities as shown by the selected industries and the total for all twenty-one industries in Table 2. No attempt was made to emphasize consumer, as Opposed to industrial, product manufacturers for several reasons. A lack of information concerning companies' product lines made it difficult to predetermine a categorization in many cases. Second, because no established patterns in the area had previously been determined in Brazil, it was felt that the initial survey should be indiscriminate in this respect. It should not be assumed that marketing research in Brazil is used predominantly by consumer-goods manufacturers, although this has been true in the United States. Final selections of manufacturers within in— dustries, using the above considerations, were made arbitrarily. It is interesting to note that of the 119 companies interviewed eighty-eight, or three-fourths of the respondents, appear on a list of the top 500 30 TABLE 2 MEDIAN SIZE OF MANUFACTURING FIRMS, INTERVIEWED, BY SELECTED INDUSTRIES ACCORDING TO NUMBER OF EMPLOYEES* $50 Paulo Porto Alegre Salvador Metal 950 2500 X Textile 2493 1200 300 Food 2550 300 200 Clothing 1650 477 157 Beverages 3350 575 400 Tobacco 500 350 1400 Median for All 21 Industries = 900 *Data Collected During Interviews 31 corporations in Brazil which was published after the sample was selected. Nearly one-fifth of the largest firms would be represented in the sample if service companies were excluded from the list. The sample for the present study includes not only corporations, but also the "limitada,"9 a second form of business struc- ture found in Brazil. The majority of interviews within firms were con- ducted with the Diretor Comercial (Commercial Director), a member of the executive committee who is generally responsible for marketing activities. Sales managers were the second most frequent respondents. Occasional interviewees were managing directors and marketing re- search managers. Only three of the original list of firms selected refused an interview, these three being in Fconcordata,' the Brazilian form of receivership, at the time. Although the formal interview lasted approxi- mately one hour, many respondents were interested in continuing the discussion informally. This writer, having conversational ability in Portugese, conducted ninety-two of the 119 interviews completed. The remaining contacts were made by two 9A "limitada“ is an "entity" distinct from the members forming it. Capital is divided into shares; the responsibility of members is not limited to these shares, but is based on the total capital. 32 students from the business administration school in $30 Paulo (Escola de Administracio de Emprésas de Sao Paulo), who had previous research experience. Inter- views were conducted in Portuguese, except for nine in English with executives who were either from the United States Or Europe. Limitations of the Study The basic methodology--using inferential analysis to demonstrate linkages which influence a value change—- has had little previous testing. Its validity as an instrument to determine causal relationships must be judged in general terms due to the heterogeneity of the data collected. As would be expected, conditions varied between industries, and these differences were made acute by discriminatory governmental policies which in- centivated or protected some industries while restrict- ing others. Because of the numerous variables affecting the measurements made, it is necessary to place more reliance on those cases which fall at the extremes of the market outlook and environmental factor influence scales. Though not as conclusive, data regarding manufacturers falling on intermediate points between the extremes can provide valuable information, parti- cularly in view of the qualitative nature of the study. There are also certain limitations in drawing inferences 33 from what people say as contrasted to what they do. This is particularly true regarding attitudes. However, the design of the questionnaire minimized these differ- ences. The choice of the five potential influences in- cluded in the study, to the exclusion of others, may also be subject to scrutiny. However, the intent was not to employ an all-inclusive list nor to suggest that each factor would be equally important. It could be argued also that, because the study was conducted while deflationary measures were being applied by the govern- ment and a general shortage of capital existed, interest concerning the use of marketing research would be at a minimum. While it is recognized that the availability of funds is certainly a criterion in the use of marketing research, it is felt that more basic motivations exist for the use of this analysis, as for example, a search for new markets under conditions of reduced consumer spending such as existed at the time. It should be apparent that, once having accepted the basic instrument, different variables could be substituted in future analysis. The reliability of the supporting materials is always of concern. The degree of confidence concerning the statistical data used for analytical purposes is a function of the familiarity which one has with the 34 sources from which the information was derived. The general criticism that data in Brazil are unreliable, if they exist at all, should not be taken at face value. The fact is that there are many sources--governmental agencies, foundations, and large banks-~from which ac- ceptable secondary data may be obtained. Difficulties arise with the delay in publication of statistics and also from attempts to compare information from various institutions. While economic statistics concerning Brazil are available, information at the industry and firm level generally is scarce. As a result, it was necessary to be adaptive while doing research under the varying conditions existent in Brazil. Compromises between the ideal and the feasibility of the situation were sometimes required. Order of Presentation Subsequent chapters basically reflect the research design. The general economic environmental conditions prevailing in Brazil at the time of the study are pre- sented in Chapter III. Chapter IV provides details of the extent of use of marketing research by large firms in Brazil. Chapter V examines the differences in market outlook between users and non-users of marketing re- search. In Chapter VI the respondents' attitudes toward the contribution of the selected environmental factors 35 areanalyzed in terms of users and non-users of market- ing research. The comparison between users' and non— users' market outlook and awareness of the contributions of selected environmental factors is the content of Chapter VII. Based on the findings of Chapter VII con- clusions are drawn concerning the influence of the environmental factors on the use of marketing research in Brazil. CHAPTER III BRAZILIAN ENTERPRISE AND ITS ENVIRONMENT While a general background for this study was developed in Chapter I, the purpose here is to describe the specific setting--Brazil--within which this analysis takes place. An examination of the marketing research practices of a cross-section of manufacturers prompted the selection of three sites where interviews were con- ducted: Salvador in the northeast; $50 Paulo in the south-central region; and Porto Alegre in the extreme south. Together, though not uniform proportionately, these three cities represent just under ten per cent of Brazil's total population of eighty million people, but over fifty per cent of the country's industrial output. At the same time, distinct characteristics differentiate the regions which each city typically represents. The present environment surrounding Brazilian enterprise has been affected by three major factors: (1) An industrialization pattern which has helped Brazil to attain one of the world's highest in- dustrial growth rates during the last twenty years. (2) Extreme imbalance in regional development_ 36 37 within this country of 3,286,270 square miles. (3) An austeritygprogram initiated by the revo- lutionary government of Castelo Branco in April, 1964. Industrialization Pattern to 19641 Brazil's economic development until World War II was characterized by a dependence on a succession of cycles of major export commodities. At the height of each cycle, Brazil occupied the leading position in world production but subsequently lost it as a result of several factors, including competition from other producing areas. From the middle of the sixteenth century until the second half of the seventeenth cen- tury sugar was its principal export crop. Sugar was one of the principle items of international trade at that time, and Brazil was the dominant source of supply until the expansion of West Indian sugar production. A gold-mining period lasted throughout most of the eighteenth century following discovery of the previous metal in the south-central portion of the country. A rubber cycle lasted from 1860 to 1910, during which 1Portions of the historical data presented in this section have been cynthesized and adapted from: Werner Baer, Industrialization and Economic Development in Brazil THomewood, 111.: Richard D. Irwin, Inc.); and nc n Gordon and Engelbert L. Grommers, United States Manufacturjgg_1nvestment in Brazil (Boston: Harvard UhiversTty Press, T962). 38 period Brazil had a virtual world monopoly as a supplier of rubber. This domination came to an abrupt halt when the East Indian region first entered the world market in 1909. Coffee became the country's staple crop during the nineteenth century and has remained so, although its strength has fluctuated substantially with changes in world demand. Cotton, tobacco, and cocoa also were developed as important, though not as dominant, export items. The development of manufacturing in Brazil did not begin seriously until the early decades of the 1900's. Still, sporadic industrialization efforts were encouraged principally by changes in the external sec- tion; that is, a market decline for the primary export crop resulting in declines in foreign exchange available. During World War I, the severe reduction in imports caused by the lack of shipping gave special impetus to the industrialization movement in Brazil. At the end of the war, however, the infant industries were over- whelmed by free competition from industrial countries. The government had no policy to protect actively, or to stimulate further, the small industrial base; its only policy was to protect the coffee interests of the old landholding aristocracy. The Great Depression, followed by World War II and by a sustained period of deliberate promotion of 39 manufacturing after the war, marked an important and lasting shift in Brazil's economic development. The depression in the 1930's had a severe nega- tive effect on Brazilian exports: their value fell from $445.9 million in 1929 to $180.6 million in 1932.2 As coffee accounted for approximately seventy per cent of total exports, the Brazilian government's main con- cern was to support the coffee sector. This was ac- complished by purchasing the surplus coffee and destroy- ing large quantities of it, thus artificially protecting the income of the coffee sector from the full brunt of the depression. During this same period, Brazil became one of the first Latin American countries to use exchange and other import controls. The latter, combined with a depreciation of the Brazilian currency (making foreign goods expensive on the domestic market), caused imports to fall from $416.6 million in 1929 to $108.1 million in 1932.3 Curtailment by the Brazilian authorities of the quantity of imported goods caused internal shortages. However, demand for imported goods remained high, main- tained by income support of the coffee sector. Thus, the lower supply and unchanged demand caused a 2Baer, op.cit., p. 20. 31b1d., p. 22. 40 substantial rise in the relative price of such goods. This created an incentive for increased domestic produc- tion of Brazilian import-competing industries. As a result, coffee growers shifted their available invest- ment funds to industry. In addition, the political orientation of the dictatorial regime of Getulio Vargas (1930—1945) tended to favor budding industrialists and their interests. The trend toward industrialization in Brazil was enhanced by the effects of World War II. Imports, parti- cularly in capital goods and other manufactured products, declined drastically as a result of both overseas scarci- ties and shipping difficulties. Imports had to be sub- stituted by domestic production. A substantial increase occurred in some of the more basic industries such as cement, iron, and steel, but the most notable develop- ment in the manufacturing sector during this period was the boom in the textile industry. By the end of the war Brazil was one of the world's leading textile ex- porters. Although the overall export quantum decreased, the value of the country's exports increased consider- ably, resulting in a substantial increase in Brazil's foreign exchange reserves, from $71 million before the outbreak of the war to $708 million in 1945.4 In February of 1945 the Brazilian government established Ibid., p. 45. 41 a foreign exchange regime without any restrictions; in general, it held no quantitative restrictions on imports. The result of this liberal policy was that most of the accumulated wartime foreign exchange reserves had vanished by the end of 1946. During the twenty-two years following the end of World War 11, Brazil experienced considerable growth, with the development on the industrial sector far out- pacing the agricultural and service sectors. The imme- diate cause for the post-war industrialization effort was similar to previous situations which led to indus- trialization advances; difficulties were encountered in the external sector. However, a basic difference was that the latest expansion was changed from a stop-gap effort to a determined policy by the government to alter significantly the structure of the Brazilian economy. The principal reason for this change was a realization by authorities that Brazil could not attain a high rate of future growth by relying chiefly on the export of its primary commodities. Measures for coping with balance-of—payment difficulties became conScious instruments for the active promotion of an industrial complex. By the middle of 1947 Brazil had entered a phase of chronic foreign exchange difficulty which, with the 42 exception of a few good coffee years, has lasted to the present time. From June, 1947, until January, 1953, exchange controls were employed. The cruzeiro—dollar exchange rate was maintained at an unrealistic figure, a highly over-valued rate that discouraged exports and created a demand for imports. A drastic system of import licensing was used to keep demand in check. In theory, under the system, all types of imports were allowed; but, importers had to join waiting lists for many cate— gories of imports. The latter were determined by a system of priorities. Essential goods, such as drugs, ‘insecticides, and fertilizers were allowed to be freely imported, while such goods as fuels and machinery re- ceived priority in the licensing system. At the other extreme, consumer goods were discouraged by long waiting lists for the necessary import licenses. The effect was an incentive for investment in specific industrial sectors once there was an elimination of external competition. In October, 1953, a basic reform was instituted in the Brazilian exchange system with the establishment of a multiple exchange rate system. Imports were classi- fied according to five categories, depending on the degree of their essentiality. Some imports were con- sidered essential for the further development of the country and were placed in a preferential category 43 allowing their importers to obtain foreign exchange at the official rate. Still another basic change occurred in the ex- change system in August, 1957. The old tariff, having been of a specific nature, had lost its effectiveness due to inflation and was now replaced by an ad valorem tariff, varying between zero and 150 per cent. In the exchange system, the five import categories were reduced to two. A "general" category included the imports of raw materials, capital goods and certain essential con- sumer goods, while the secOnd "specific" category in- cluded all goods not considered essential. During these licensing periods the low import priority given to many consumer goods-~resulting often in complete blockage of imports--constituted a distinct incentive to local manufacturing. An indication of the structural modification in the Brazilian economy is shown in Table 3, comparing real product by sector for the period 1947—1965. Thus, the post-war period was characterized both by rapid growth and important modifications in the economic structure of Brazil. Between 1947 and 1961, the average annual rate of growth was 5.8 per cent, equivalent in per capita figures to approximately three per cent. There was a very evident increase in the growth rate during the second half of this fifteen year 44 TABLE 3 REAL PRODUCT INDEX BY SECTORS 1947-1965 Year Agriculture Industry Commerce PTotal roduct 1947 89.5 81.4 81.4 86.5 1948 95.7 90.6 96.2 94.7 1949 100.0 100.0 100.0 100.0 1950 101.5 111 4 104.1 105.0 1951 102.2 118.5 117.9 110.4 1952 111.5 124.4 122.5 116.6 1953 111.7 135.2 119.0 120.3 1954 120.5 146.7 136.7 129.6 1955 129.8 162.3 143.5 138.4 1956 126.7 173.5 142.7 141.0 1957 138.5 183.2 160.2 150.7 1958 141.3 213 2 171.1 160.7 1959 148.8 240.7 186.9 172.5 1960 154.0 266.3 195.7 183.4 1961 167.0 295.0 211.8 197.5 1962* 177.0 317 3 215.6 207.8 1963* 177.2 326.2 218.0 212.0 1964* 166.4 324.9 N/A 205.6 1965* 183.7 N/A N/A N/A SOURCE: Brazilian Institute of Economy (Rio de Janeiro, Brazil: Getulio Vargas Foundation), *Provisional Data 45 span, and between 1957 and 1961, the rate rose to seven per cent or a 3.9 per cent increase per capita. The increase in the rate of growth during the second half of the period was due basically to the extraordinary expansion in manufacturing. Since the production of consumer goods grew at a rate identical to that of the gross product, it can be assumed that the basic factor which fostered this growth was the rapid expansion of capital goods industries. During six years, 1955 to 1961, capital goods production as a category increased by almost eighty per cent; steel production rose 100 per cent; machine industry, 125 per cent; the electronics and communication industry, 380 per cent; and, the transportation industry by 600 per cent.5 As shown by the preceding figures, the outstand- ing single effort by the Brazilian government in estab— lishing new industries through favorable import treat- ment for manufacturing equipment, was made in the automotive industry. This program was instituted in 1956 under the direction of GEIA (Executive Group for the Automotive Industry), and set the precedent for similar programs in the shipbuilding, tractor and, on a limited basis, heavy machinery industries. The 5Celso Furtado. Dialética do Desenvolvimento (Rio de Janeiro, Brazil: EditOWa FOndo de Culture 1964), p. 106. 46 essential features of this government-sponsored program involved far-reaching benefits in the importation of manufacturing equipment and of automotive components for a limited number of years, in return for a commit- ment by the automotive companies for the progressive replacement of imports by Brazilian-made components. Implicit in the program was the prospect that non- participating companies would be excluded from the Brazilian market, perhaps permanently. A total of eleven companies (ten foreign) accepted the proposal to manufacture vehicles under these conditions. With the deterioration of Brazil's exchange posi- tion during the post-war period, automotive imports had to be restricted. At the same time, the automotive market was rapidly expanding due to the accelerated industrialization and to the increased emphasis on road building as a means of solving the transportation bottleneck. Table 4 demonstrates output at the estab- lishment of the automobile industry and production levels attained by the end of 1966. In addition to its direct contribution to in- dustrialization, the GEIA program Offers a striking example of "backward linkage" in the process of econo- mic development. Because a basic policy was to promote a horizonal structure in the automotive industry, rather than a vertical integration, the program indirectly fill ‘11. ‘II (.111 ‘111 Ill. ‘11 47 TABLE 4 THE AUTOMOTIVE INDUSTRY AS AN EXAMPLE OF BRAZIL'S ECONOMIC DEVELOPMENT 1960-1966 L 0 C A L P R 0 D U C T I 0 N* Year Passenger Commercial Total 1960 43,852 90,347 134,199 1961 60,776 86,206 146,982 1962 83,258 108,064 191,322 1963 94,846 79,881 174,727 1964 104,589 76,505 181,094 1965 115,953 74,742 190,695 1966 129,246 93,869 223,115 *First vehicles produced in 1957. Tables derived from industry figures furnished by Volkswagon do Brasil, $50 Paulo, Brazil. 48 created a Brazilian parts supply industry. The local production of important raw materials such as steel, synthetic rubber, and glass was also stimulated. Capacity was created for various types of castings, forgings and machinery that could now be used in the automotive field, but for which Brazilian demand had previously been too small to justify the necessary in- vestment. Evidence thus shows that the high rate of real growth experienced by the Brazilian economy in the post- war period can in large part be attributed to the in- dustrialization policies reviewed above. The different sectoral growth rates tend to confirm this success. The gross domestic product increased by 128 per cent from 1947 to 1961; however, the real agricultural product increased by only eighty-seven per cent while the in- A dustrial product increased by 262 per cent.6 However, this high rate of industrialization was not without its consequences. Industrialization and Inflation Chronic and large-scale inflation became a prominent feature of the Brazilian economic environment in the post-war period. Basically, the beginning of the high rate of inflation, which accompanied the high 49 rate of real growth, was the result of a dual~purpose governmental policy: the maintenance of the existing high rate of growth, and a simultaneous program of import-substitution requiring heavy investment outlays. The widespread investment activities in import-competing industries and in complementary infra-structure were only partially financed by foreign savings, thus apply- ing pressure on internal capital. While in the earlier years after World War II, the expansion of private in- vestment--financed partly by bank credit-~was a leading factor in the inflation, government deficit financing became the major inflationary element after 1956. The major causes of the large governmental deficits were the increased burdens in financing coffee surpluses; large-scale public investment in developing the economic infra-structure, particularly transportation and elec- tric power; and, the building of Brazilia, the new capital of Brazil. The short-term effect on business 0f the Shift in the main source of inflationary pressure was to tighten private credit availabilities at a time when working capital needs were expanding. The result was inevitable; capital became scarce and costly. In 1961 Brazil achieved one of its highest growth rates, 7.7 per cent. The following two years however were marked by substantial declines. Figures 50 Show that the real growth rate of the gross domestic product was 3.7 per cent in 1962 and only 2.1 per cent in 1963. Thus, with a population growth rate of 3.1 per cent, the per capita income actually fell in 1963. During this same period, inflation attained the alarming rate of over fifty per cent in 1962 and over eighty per cent in 1963.7 The immediate cause of the stagnation beginning in 1961 was the continuing condition of economic in- stability under which Brazil existed following the resignation of President Janio Quadros. Congressional resistance to his socio-economic reform programs and opposition to his efforts for controlling the inflation rate caused Quadros to resign in August, 1961. Jango Goulart, the vice president who had run on another party ticket and had been elected by substantially less than fifty per cent of the popular vote, was allowed to take office with a substantial curtailment of presi- dential authority; he had to share power with a newly created system of parliamentary government. The year 1962 was marked by a lack of firm leadership since there was continuous conflict between congress and the presi— dent. In January, 1963, a national plebiscite returned 7Mario Henrique Simonsen, A Experiencia In- flaciopgria no Brasil (Guanabara, Brazil: Instituto de Pesquisas e Estudos_Sociais, 1964), p. 10. 51 to the president his full power. Goulart did not, however, subsequently exhibit firmness in dealing with the country's problems. In the matter of inflation, Goulart's weakness resulted in his giving in to the demands of both the unions and the business community, readjusting wages more frequently and in greater incre- ments than previously, He also shied away from meaning- ful credit restrictions. The result was runaway infla- tion. Although aware of the need for fundamental socio- economic reform, Goulart evaded the issues. He played one socio—economic class against the other. Ultimately he lost control of the situation, and was overthrown on March 31, 1964. Impact of Brazil's Industrialization Pattern on the Business Environment While there are many factors—-for example, culture and heritage—-which might have influenced the traditional business practices of Brazilian management, the country's pattern of economic development indicates at least a partial explanation. The dependence over the centuries on the produc- tion of staple agricultural or extractive raw materials for export has had several significant effects. First, it has generally caused management to have an externally- oriented outlook in seeking solutions to their business problems. In the agricultural sector particularly, 52 where supply is dependent on nature and demand is a function of world trade conditions, the fortunes of plantation owners were basically beyond their control. Recalling that the subsidized agricultural export sector invested its resources in industry once it became apparent that a protected domestic market for manufac- tured goods had become available, it is not surprising that this agrarian mentality might continue to influence managerial practices in industry today. Reinforcing this dependence on solutions external to the firm was the support provided by the government in the form of protective tariffs and a high support system for the coffee sector. A second effect which appears to stem from Brazil's economic history of successive cycles of major export commodities is the traditional business philo- sophy of high margin per unit of sale, and consequently, lower volume. The cycle normally followed the pattern of an intensive exploitation of commodities highly prized in the international market until competition developed. At this point, Brazilian producers, apparently unable to meet competition by reducing costs, have his- torically either withdrawn from the market, or shifted to another commodity. Another suggested explanation for the lack of emphasis on turnover and volume prices rests with the widely accepted assumption on the part of 71?: C0 31 RE be it it Dr 15 SE 53 manufacturers that their market is limited. Demand was considered relatively inelastic and hence cutting prices (and margins) would have an insignificant effect on volume. Again, the assumption of inelasticity can be traced to earlier trade experience with staple export commodities. Two factors in the industrialization pattern were influential in creating what might be termed a "sellers' market psychology" among manufacturers during the post-World War II era. As might be expected from a country embarking on an import substitution program, sufficient local capacity did not initially exist to meet a growing demand. This fact, together with the government's import restrictions, meant limited sup- plies. An additional factor which intensified short- ages was the prevailing inflation. During this period business depended on a policy of "preventive buying," whereby they built inventories in advance of price increases. Consumers also hoarded goods; "buy today because it will cost more tomorrow" became the criterion for purchasing behavior. In addition, many Brazilians bought such goods as automobiles as a convenient way of protecting their capital from depreciation. As a result, the condition existed where "every company is selling everything it can make; a number of factory managers say that they are producing beyond their 54 theoretical capacity and still cannot keep up with orders."8 Under these circumstances most manufacturers underwent some operational as well as psychological adjustments. The central operating problems posed for the participating companies by the inflationary environment involved keeping prices ahead of costs and obtaining sufficient working capital. The normal business objec- tive in an inflationary situation would be to adjust prices in such a way that increasing costs could be fully passed on to the consumer. The difficulty in the Brazilian case arose when the actual rate of inflation accelerated considerably and unpredictably. As seen earlier, during 1962, 1963, and the first three months of 1964, when the situation became chaotic, firms often held back price adjustments, not because they did not intend to keep prices ahead of costs, but because they fell victim to the money "illusion;" that is, they were not always fully aware of the great decline in monetary values. They were satisfied with large paper profits (which did not make adequate provision for depreciation allowance), not recognizing that their companies were gradually being decapitalized by virtue of the inflation. FF. Siekman, "When Executives Turned Revolution- :ries," Fortune, LXXVII (September, 1964), pp. 147- 49. 55 Capital was both scarce and costly in Brazil. The resultant difficulties for companies seeking local financing were compounded by an inflationary environment which placed heavy pressures on the banks. 'In addition, working capital requirements tend to be much larger in Brazil than for comparable Operations in the United States. First, larger inventories are required due to the uncertainty of the supply of raw materials and com- ponents. Buffer stocks are required since many local suppliers have only recently begun production and cannot yet be fully relied on to meet delivery schedules. As mentioned earlier, inflationary pressure on costs led to even larger investments in inventory due to the tendency to buy as far ahead as possible under conditions of constantly increasing prices. While these conditions varied according to industry and companies, they absorbed abnormal amounts of executive attention which might have been reserved for other operations or long-term planning. The effects of the ease of selling one's products and the difficulty in meeting working capital requirements, provide at least a partial explanation for the relative disinterest or unawareness of the marketing problems of enterprise in Brazil. Some additional symptoms of the "sellers' market psychology," existing before March, 1964, were not as general or concrete. Speculation in selling became a 56 basic strategy employed by many firms. Items were stockpiled with the anticipation that they could be sold "more profitably" at a future date; as a result, retail inventories generally skyrocketed. Products were placed on the market indiscriminantly, with little planning. If a particular item did not move at a given time, it was taken from the shelf and stored. A seller waited for the product to become "cheaper" (since the cost was already absorbed) before attempting its sale “when the time was right." Alternatively, losses for product failures were absorbed by simply raising the prices of the manufacturer's other products. .There was little concern on the part of manufacturers regarding wpp_was buying the products. In many cases, the 3px could be attributed to consumers desires to possess commodities rather than money. While these provide only a few examples of thinking which typically prevailed during the postwar period up to March, 1964, they indicate several impor- tant tendencies specifically relevant to the use of marketing research in Brazil during this period. First, there was little effort, or necessity, to do any plan- ning (other than financial). It was of little import- ance to analyze consumers, or even markets, since it was possible for manufacturers to sell under almost 57 any market condition. Another consequence was the almost complete lack of necessity for manufacturers to seek new markets for their products because of the ease of replace- ment. Having traced Brazil's industrialization process and its effects through March, 1964, it is not necessary to consider briefly the specific geographical regions represented in the present study to show how the indus- trialization pattern affected regional development. Sharp contrasts characterize the extent and pattern of indus- trialization in each of the areas represented by the cities of Salvador, $50 Paulo, and Porto Alegre. The ef— fect these regional differences have had on local business practices will be a key consideration in the analysis pre- sented in subsequent chapters. Regional Economic Imbalances Disequilibrium between the regions represented by the three Brazilian cities in the sample results from several causes. At the root Of the economic disparities lies the difference in topography and the endowment of known natural resources. These disparities were intensi- fied by historical circumstances as well as by several cumulative processes Historically, the dominance of each of the export- commodity items discussed earlier was associated with the development of a different region in Brazil. The sugar cycle was associated with the development 58 of the northeast; the gold cycle with the central region of Minas Gerais; and, the coffee cycle, whose dominance still persists, with the south-central part of the country. Although it was the investment of coffee growers of the state of $50 Paulo in manufacturing which pro- vided the impetus to the heavy industrialization that has dominated the south-central region, several other factors also contributed. The transfer of the capital from Salvador in the northeast to Rio de Janeiro in the south—central area undoubtedly aided in the creation of a larger market in the latter region. European migra- tion to the southern regions also contributed to the higher social mobility and development of entrepreneur- ial spirit in that sector. The extent of regional inequality in Brazil is illustrated by several measures as shown in Table 5. While the northeastern region contains approximately twenty-five per cent of the population, it only earns about ten per cent of the national income; and while the south has approximately thirty-five per cent of the population, it earns about fifty per cent of the national 9 It should be noted that changes between 1950 income. and 1960 were slight, although they did tend to accentu- ate the inequality between the two principal regions of 9Baer, op.cit., p. 168. 11 .mepwmmco~ccwmz » ocwwrkmugm oopsocoom oucosw>po>:6mmo oz m_ecow mm mmummcucoo cw umuzpocw open sage umpwasou open» ”mumaom 59 ~.mm m.om o.oo~ o.ooP oo.oop oo.oo_ FmHOH ¢.mp o.v~ o. N.ow N.ov F.m+ m.mm m.m~ m _.o_ m.m o.N+ m.om m.¢~ m.m+ m.m~ m.mF N cosom m.m~ m.m— ~.m. N.mm m.mm m.m- p.¢¢ m.om P a.“ m.m 0.002 o.oo_ o.oo_ o.oo_ _apo» m.m A.m a.Pa m.aa F.N~ m.mp m “was m. H._ F.PP a.m_ a.m o.a N -gacoz w.m m.m m.m¢ P.m¢ o.mo P.Nm — N.¢~ m.¢w 0.00” o.oo— o.oop o.oop Pouch m.op m.op m.P+ c.m¢ m.P¢ m.m+ ~.mm m.mm m xgwwucmp o.m m.o m.¢+ «.mm m.m~ m.<+ m.m~ m.e~ N mumucooom m.m N.N «.m- l ¢.m~ m.mm «.mu o.mm o.~¢ F acmewga opaam omm 138.1 SS 41% 893511433 dmmm mEoocH chowumz escocw :a_mom we :meOm we co a mo meoucH couumm & ..n mm «soocH Louomm & a we cowumpaaom Lagoon aeouca Facoaoaz aeoucwowmmmaMmaaa co_oa.=aoa a>_uu< ommp cz< ommp .onhomm quozouu ozc zouwma >m. mzouzu 4~hu< ma zom~¢me mxmmF< ougog oFama omm mmuFuoan :ogmmmmu am F a F up?“ am mm: zumm A~Nhuho:ooma m m4m mF N «N m m NF “oxen: m_Lw:mm mm mm mm m NF mm “oxen: m_Lw»:m mgmmzucoz mcwm: Loum>me mmeF< oueoa onma owm Ii mmoFFume wemaF< opeom oFamN omm mmuFFum 4FN<¢m zF mammahum mzthFozou m>FPFhmazou om>qummm oF m4mme memoF< opgoa cram; oWM vow: m>Fum=LwFF< mmquomFa gusmmmmm Fm FFFQ Fm cochoaxu um: :uam 4FN< e, m F]. F m 3 _ . 3 NIH -- i F i ll fila l . if _ . D Fl. . _ n wF . ll mF . NF _ . . ell? . em _ L . Nm mau«=.zoz “ numm: _ mucmvconmom FF< com «Loom mmugm>< mg» :oFan van m>oa~ mwgoum aaFFuuca: “oxen: guF: usamsicoz use meow: :ugammmm mcFuoxgaz yo mamucougoasu.F ogsmFm AUOOEIVD HOV] NI SNUIJ JO 39V1N3383d 127 contrast, a large pr0portion of non-users have a market- ing menUthy below the average of 3.6 for all respondents and below 4.0. The number of the seventy-nine non-users with an average score below 4.0 in the sample is seventy- five or ninety per cent.3 From these results, it is apparent that there is a difference between the market mentalities of users and non-users of marketing research. Geographical Differences in Market Mentalities Relative differences in mentalities existed be- tween the geographical areas examined. Earlier dis- cussion has demonstrated that the larger firms in each of three cities studied differed considerably in respect to size, state of development, and market coverage. The disparity in market mentalities is not'as wide, but still is evident. The average market mentality of manufacturers in Salvador was lower (3.3) of those either in Porto Alegre (3.6) or $50 Paulo (3.6). Only one firm studied in Salvador could be considered marketing oriented; based on respondents' replies it was evident that a concern with manufacturing problems precluded a concern 3Three firms in the non-users category were dist carded from the analysis because of incomplete replies to questions in Part III of the questionnaire. 128 even with the sales function. In several cases it was pointed out by manufacturers in Salvador that customers would approach them, and it was generally not necessary to solicit sales. The same average rating of manufacturers in $50 Paulo and Porto Alegre is particularly significant. From these results, as well as general impressions gained in interviewing firms in these two cities, it appears that beyond a certain point, the stage of a firm's development does not necessarily affect management's perception or marketing mentality. This is further supported by the fact that many of the largest firms are product oriented. However, size or organizational specialization does appear to limit the implementation of marketing techniques, such as sales administration and marketing research. While the overall market mentalities in $50 Paulo and Porto Alegre were at the same level, the outlooks differed significantly when considering the specific elements. Surprisingly, the perceptions of market potential were higher for manufacturers in Porto Alegre than those in Sao Paulo. Several possible explanations exist. Since firms located in Porto Alegre generally distributed their products on a regional basis, coverage was more intensive. Thus, these manufacturers were 129 penetrating the interior towns as well as the urban centers. In this manner, these firms have become aware of rural potential over the years. By contrast, manu- facturers in the $30 Paulo area have been conditioned to rely on large, concentrated markets while relatively ignoring the smaller, outlying areas. Primarily this is a function of the proximity of cities such as Rio de Janeiro and Belo Horizonte. Easy accessibility however does not explain the preference for distributing to cities far to the north as opposed to selling to the interior of the state of $30 Paulo. It is noteworthy that many of these manufacturers set sales quotas based on the population of key cities in the country rather than using the state or region concept. The perception of marketing research's function is not as broad in Porto Alegre as in Sao Paulo. While possible influences will be discussed in the next chap- ter, one factor should be stressed here-~the difference in the evolvement of the firms in the two cities. Basically, the manufacturing company in Porto Alegre is traditionally family-owned gpg_managed; the business professional does not yet exist there. In addition, exposure to outside influences, such as foreign sub- sidiaries, has been limited. Conversely, the larger enterprises in Sao Paulo consist of complex corporations 130 with professional management. The influx of foreign technology has, at least, exposed (though not neces- sarily converted) manufacturers in Sao Paulo to the tools used in scientific management. Thus, while the entrepreneural spirit has broadened the outlook of Porto Alegre manufacturers, the opportunity to replace intuitive behavior with analytical techniques has not been as apparent as in $50 Paulo. Summarizing, the evidence in this chapter indi- cates that firms employing marketing research techni- ques generally have significantly broader marketing mentalities than their non-practicing counterparts, as hypothesized in Chapter II. Since many of the latter manufacturers have been traditionally highly discrimina- tory regarding market selection, there has been little effort on their part to seek market information. This complacency has been enhanced by rampant inflation and sellers' market conditions which existed until 1964. A second, smaller, group of respondents falling into the category of narrow mentalities found little need for the research function since production limitations would preclude expanding their market horizons. Thus, it cannot be generalized that all firms lacking a market orientation are governed by comparable condi- tions. The difference appears to result from "perceived" 131 versus "real" market conditions. A significant number of respondents were found to have broad marketing mentalities, yet did not employ research techniques. Manufacturers in the Porto Alegre area typically fit this category. It is apparent that beyond having a market orientation, two additional pre- requisites must exist before a company uses marketing research. A firm's structure should be advanced to a point where sales administration prevails, that is where there is a shift from an intuitive to a rational approach. Secondly, the non-practitioner must be in a position to be exposed to an agent familiar with re- search techniques. CHAPTER VI ENVIRONMENTAL FACTORS AND THE USE OF MARKETING RESEARCH The survey of marketing research practices which forms the basis for this dissertation demonstrates an increasing usage of this technique among the larger manufacturers in Brazil. Specific factors which may have influenced respondents to adopt the research prac- tice are analyzed in the present chapter. The Hypothesized Environmental Factors Five factors which, after preliminary research, seemed to best reflect the Brazilian business environ- ment were tested: the influences of (l) gpvernment; (2) business administration students; (3) advertising agencies; (4) foreign firms; and, (5) competitiOn. This is not to imply that these factors are unique to that country; they obviously are not. Yet, in some situations, one or more factors may not be applicable. One need not even leave Brazil to reinforce this point. 'For example, many of the larger manufacturing firms in Sao Paulo are subsidiaries of foreign companies; at the same time, this type of organization rarely is found 132 133 in either Porto Alegre or Salvador, and therefore is not potentially as strong an influence in the latter cities. Nevertheless, this did not preclude respondents from expressing their viewpoints concerning this factor. A differentiation is made between these five influences and conditions which might make it conducive to use marketing research. For example, while the availability of surplus funds may be a prerequisite for many firms to adopt the technique, it is doubtful that it is a basic influencing element in the decision to initiate the practice other than in cases involving superficial imitation or emulation for prestige pur- poses. Also, if one accepts the notion that a broad market mentality must exist before research is used, the implication is that the availability of funds is responsible for changes in basic business attitudes. In short, the hypothesized influences are considered active forces rather than passive variables. Respondents replied subjectively to questions concerning each of the principal factors thought to in- fluence the use of marketing research. (See part IV of the questionnaire.) The questions were structured so that anSwers would (a) indicate the respondent's aware- ness of the degree of influence each factor exerted; and (b) reflect each factor's role (if any) in the firm's marketing process. Specifically, replies were used to Ha I Nil-lab; . 134 determine if each factor was recognized more as a posi— tive influence by users of marketing research than by non- practitioners. These findings are a critical link in the principal argument being tested in the overall study-~that is, one or more of the factors under in- vestigation influences the initial use of marketing research, through affecting the market mentality of the firm. A second objective of the analysis in this chapter is to compare the relative influence of each of the factors considered. A second five-point scale was used to classify the respondents' replies. References to a negative contribution of any of the factors considered are classified as l’or g depending on the degree of intensity of the reply. A comment that foreign firms have con- tributed to the failures of many of their Brazilian competitors is obviously more extreme than a respondent stating that foreign firms do not share management techniques, though both reflect awareness of negative contributions. No awareness on the part of the manu- facturer is rated a neutral 3, Awareness of a positive contribution by the factor is scored either as a‘g or 6, again depending on the forcefulness of the reply. As in the case of the market mentalities discussed in the previous chapter, a total measure of awareness for the 135 firm was calculated by averaging the scores on each question. Most of the respondents had an average score of above 3 (neutral). For all practical purposes, a neutral response is the same as a negative response insofar as the hypothesized factor influences the market mentality and the subsequent use of marketing research. Because most of the respondents had average scores of 3 or better, above and below the overall average of 3.4 is interpreted as high and low awareness. It is the negative reactions and extreme positive awarenesses that will demonstrate the validity of any relationship existing between marketing research and the hypothesized influences. As in the case of the market mentalities discussed in the previous chapter, specific comments by the respondents help place the findings reflected in the scaling in perspective. Government The awareness toward government was reflected, for the most part, in references to the specific regime of Castelo Branco, rather than to "governments" generally. Thus, the degree of awareness indicated the manner in which the strong, "positive" measures taken by the regime to combat inflation were affecting the respon- dent's firm. For example, the deflationary policies were detrimental to marginal firms, which in turn was 136 expressed as an awareness of the negative contribution of the government. Several firms fitting this category were in receivership at the time they were interviewed. On the other hand, while many respondents were not happy with the recession, they recognized that the govern- ment's actions would be beneficial in the long run, and that it was necessary for their firms to make some basic adjustments. There were also many respondents who be- lieved that the government had little influence on their marketing programs. Replies among those respondents aware of the government's positive influence varied in degree. The more general comments alluded to "a more sophisticated business environment." That is, the government was stabilizing the economy and attempting to eliminate erratic business practices stemming from rampant infla- tion. Reference in these cases was made to the neces- sity for organizing, but there was no specific indication of marketing research. Although a positive awareness exists, these replies rated a notch below the highest score. A second group of responses also fit the A classification. Approximately eighteen per cent of the respondents referred to the government's incentive laws, most pinpointing the SUDENE program mentioned earlier. 137 Under this plan manufacturers were eligible to receive up to fifty per cent in tax rebates for investment in the northeast section of Brazil, a relatively under- developed area as seen in Chapter III. In order to be considered an applicant, the firm had to first submit a market study for the product(s) it proposed to manu- facture in that area. In many cases this was the com- pany's first exposure to marketing research. Rather than undertake the task themselves most firms used specialized research agencies, frequently started by former SUDENE officials specifically for this function. (These agencies'expertise was less in the area of con- ducting research, and more in the submitting of market studies acceptable to the government. Consequently it is assumed here that, unless a respondent refers to marketing research as well as SUDENE, this market survey requirement had no conclusive influence. The more general of the replies, therefore could not be included in the upper limit on the scale. Approximately ten per cent of the respondents identified the role of the government specifically with research, and consequently gained the highest rating. However, the stated contribution was not as a provider of statistics and official data as one might suspect; rather, these replies emphasized the role the government 138 was currently playing in forcing the use of (market) studies and showing the need for planned expansion into new markets. Another aspect was a recognition by the firms of the necessity to reduce costs, or "eliminating the fat" which existed during the period of uncontrolled inflation. Because costing had been virtually ignored, any such program would also require studies; cost analy- sis had been next to impossible under the varying condi- tions which had existed previous to the new government. Several "traditional" Brazilian firms had already initiated distribution cost analysis programs. At the opposite extreme of the scale and also representing ten per cent of all respondents, were those firms viewing the government's role as negative. This interpretation was based on two consequences of the government's action--a general sales decline and a reduction in credit availability. Both results tended to squeeze a firm's capital position. In extreme cases, the respondent was quite bitter and saw no solution except for a modification of policies or even a change in government. Competition Nearly seventy per cent of the respondents were aware of the positive influence of competition. As seen in Chapter II a buyers' market had existed only a 14%? 139 short time for most products, and adjustments to these conditions were in process. Increased use of price cuts, installment buying, and advertising was very evident, after a period during which these actions were virtually nonexistent. Most references to the influence exerted by competition were general. The most frequent comments stated that competition was necessary in that it pro- vided incentives to progress; that is, it stimulated development. Elaborating, respondents referred generally to business administration techniques, while a few mentioned product or technological improvement. Approxi- mately fifteen per cent of those responding to the question linked competition directly to the use of analytical methods in market determination. The latter firms rated highest on the awareness code, while the more general positive comments received a rating of 4. The fourteen companies (ten per cent) whose replies received a negative rating represented either of two viewpoints regarding competition. The extreme group considered all competition detrimental to its operations. These firms had operated in a monopolistic "pocket" in which decisions previously had not reflected the actions of their competitors. Under the new condi- tions of restricted consumption it became imperative for 140 these firms to cope with competition. Some were not able to withstand this pressure and expressed awareness of only the negative influence of competition. The implication of the negative awareness among the second group was less serious and therefore was rated more moderately. These respondents were primarily aware of the damaging effects on their sales caused by "disloyal" competitors using price cutting methods.. These competi- tors were selling products at a loss in order to attract customers and sell accumulated inventories for much needed working capital, no longer available from banks. It was evident from some replies that the "disloyal'I competition became an excuse for the respondents' non- aggressive selling techniques. Foreign Firms A majority of respondents expressed an awareness of the positive contribution of foreign firms to the Brazilian business environment. Significantly, this contribution was viewed not in terms of teaching ad- vanced methods and technology, but in terms of the foreign firms stimulating competition and "pulling" the nationals forward. Again, most of the comments were general and could not be linked directly to marketing research. Typical statements included the verb RISE: sures--"their (foreign firms') rationalization process 141 pressures us to modernize," "they contribute by forcing us to compete more aggressively;" "nationals have to better themselves to survive;" "by stimulating with the aggressive and modern administrative methods that they bring (into Brazil)." While research is implied by "rational" and "modern" methods, such replies were scored only as a 4_on the scale. Receiving top ratings were comments with direct reference to marketing research or alluding to it; for example, influence came about from the emulation of the foreign firms' "scientification of marketing“ or of the analytical sales methods they employed. Less than ten per cent of the manufacturers responding to the question were included in this category. Eight companies viewed the foreign firms' contri- bution negatively. The extreme cases felt that the foreign firms provided "unfair competition" in that they had the advantages of better technology, administrative know-how and foreign capital. As a result these re- spondents believed that it was impossible for the national firm to compete effectively. Several respon- dents in Sao Paulo believed that the methods used by the foreign firms did not yet fit the Brazilian market. Others felt that foreign management did not share rela- tively advanced business techniques which they brought 142 to Brazil. This last group of responses represented a less serious objection and rated a step above the other replies, though still carrying negative implications. Business Administration Students A stricter criteria was applied in determining awareness of the positive influence of business admin- istration students. Thus, one of the more frequent comments "they contribute a broader vision for the firm," was considered a neutral reply because of its generality. Replies such as "generally helpful" and "they introduce a new viewpoint" were placed into this category as well. There were also the obviously neutral replies. Some respondents expressed the opinion that it was too early to tell the effect of the business student. Others indicated that the business graduates employed by their company had shown few advantages thus far. Elaborating, these respondents confided that the structure of their companies had not permitted these men to function effectively. Surprisingly, two-thirds of the respondents were included in the neutral classi- fication, a far greater proportion than any other in- fluence except advertising agencies. There were only a few cases of respondents being aware of a negative influence by business administration students. This was caused principally by a feeling that 143 the graduates were too theoretical. Two respondents cited examples of graduates disrupting the firm by wanting to create new departments when this was not feasible. While these comments may have been valid to a degree, there were also indications of a resistance on the part of these respondents to business administra- tion generally. The consensus of those respondents aware of a positive influence by business administration students was that the latter enabled a firm to program its efforts rather than experimenting with decisions. Approximately one-third of this group referred specifically to market- ing--sales or market analysis--and received the highest rating. The remainder cited general contributions such as controls, costing programs,and scientific management; these were rated a step below on the scale. Advertising Agencies Manufacturers interviewed showed little awareness of any influence--positive or negative--upon their marketing efforts by advertising agencies. One-third of the respondents using the services of advertising agencies stated that they received information from their agencies. Yet, only ten per cent indicated that the advertising agency contributed positively. This disparity is explained primarily by the fact that most 144 of the assistance provided consisted of media cost in- formation, rather than market data to support advertis- ing campaigns. The isolated instances of agencies pro- viding market forecasts or surveys typically involved a United States affiliated agency and a foreign manufactur- ing subsidiary. Most comments concerning the advertising agencies' role were variations of "no influence;" that is, a neutral position. "We order our agency to do research," or "We would like to see our agency do more research," were typical replies fitting this category. There was only a single instance of a respondent considering ad- vertising agencies negatively. This was attributed to agencies applying standardized approaches to industries having different advertising requirements. The respon- dent felt that manufacturers normally had a much better feel of their market than did the agency. The preceding section has served two purposes. First, it explains the manner by which the responses reflecting awareness of the five influences under study were classified for scaling purposes. Second, it pro- vides a qualitative framework within which specific findings regarding awareness could be placed into con- text. Basically, the findings presented below attempt to demonstrate that differences exist between users and 145 non-users of marketing research regarding the hypothe- sized environmental factors and the relative importance of each. Marketing Research Practices and the Environmental Factors Marketing research users showed a higher aware- ness (3.6 average) of the aggregate positive contribu- tion of the five factors studied than did non-users, (3.3 average) as hypothesized in Chapter II. Approxi- mately one-third of the users had an average awareness of 4.0 or better. Only seven non-users, or less than ten per cent, had a rating of at least 4.0. At the other extreme, the proportion of non-users having an awareness of less than 3.0 (negative contribution) was twice as great as among users of research. Four respon- dents had averages of below 2.0; all were non-users of marketing research. These comparisons are shown graphically in Figure 2. A comparison of individual influences provides some significant differences in awareness between users and non-users of research. The data supporting the following findings may be found in Appendix C. The average awareness was higher for all five influences among users. The largest variance in awareness (3.7 versus 3.2) occurs for the business administration student. Three other influences--government, foreign 146 S o , :szmm__m_F__w__F_F_Fm_ “ _ F__m_m__._ F._ F__._ _m_F__W_ mazavcoanmm FFa Foe mgoum mmmgm>< on“ :oan ucm m>onm mmgoum mFouumm FaucmzcoFF>cm wouuuFum mo mmmcmgoz< mummzicoz use meow: :ugawmom ucFuoxsaz yo mauveousom--.~ usaupm wagersa. w“ .ovw N. ... _ . .NN _ _l.... h, :F mcFumm_mmmFm>< wF . . o . m e _ .3. 2 _ 3 Cf. C e u o F F: _ Z [_ - I. mF _ mF _ d _ mammauzoz " mmum: . _ 13A31 HDVB NI SHUIi JO SiSVlNBDUSd 147 firms and competition--had a 0.4 difference. As indi- cated earlier, however, the degree of awareness dif- fered only slightly (3.1 versus 3.0) between the two respondent categories for the advertising agency. The awareness of competition received not only the highest score among both users (3.9) and non-users (3.5), but was often reflected positively in the replies concerning the contribution of foreign firms and occa- sionally in terms of the government's role. Competition would have scored considerably higher had it not been for the references to the "disloyal" price cutting. For example, if one were to discount the four users of research who replied in this manner, and thus received below average ratings, the average rating for competition for users would have been 4.6. The effect would not' have been as great among non-users, where reference was more frequently made to "unfair" competition from foreign firms. Foreign firms were felt to be the second most important positive influence on their management practices by respondents, averaging 3.8 among users and 3.4 among non-users of research. Not a single negative reference was made by users, while twelve per cent of non-users felt that foreign firms contributed negatively to the Brazilizn business environment. 148 The difference in the awareness toward the government on the part of users (3.6) and non-users (3.2) was accounted for by the fact that sixty per cent of the users viewed this influence as being posi- tive; by contrast, approximately the same percentage of non-users felt that the government was either non- influential or had a negative effect. It should be reiterated that the users of research were mainly foreign, and generally have a capital structure that could better absorb the pressures applied by the govern- ment. Nevertheless, the relevant point is that the marginal firms tended to blame the government, rather than themselves, for their unfortunate position. While the business administration student showed the greatest difference in awareness between users (3.7) and non-users (3.2) of marketing research, these average ratings are not as high as might be anticipated. One principal factor is the general lack of exposure to this possible influence. Only one-third of the firms interviewed stated having ever employed business stu- dents. Also, through December, l966, only an estimated 400 students received bachelor degrees in the field from the three prominent business schools in the country. A second possible reason is that business administration is contrary to the traditional practice of intuitive 149 decision—making by family-owned and managed firms. There were only a few instances of awareness of negative influence. One-half of the research practi- tioners demonstrated awareness of the positive effects of the business student; in comparison, only twenty per cent of non-users indicated the same. Thus,the wide disparity in these ratings lies in the fact that the Specific role of this influence is more clearly seen by those firms already using research techniques, rather than a rejection on the part of a number of non-users as in the case of government, competition and foreign firms. The advertising agency gained little support as a possible influence by either of the two measures used to determine awareness. There was only a slight differ- ence between users (3.2) and non-users (3.1) of research. In addition, both ratings represent positions only slightly above the no-influence level. Specifically, only seven of the eighty-one respondents using agencies indicated that the agency (as opposed to advertising) made any type of positive contribution to their market- ing program. These findings verified that client-agency relations are not as close as has been traditionally experienced in the United States. Again, the apparent explanation is the individualistic attitude on the part 150 of Brazilian enterprise,a result of family ownership patterns and a basic distrust of outsiders. Indeed this characteristic has limited the flow of information generally as has been illustrated several times. Significant differences in awareness levels existed for four of the five factors tested, when com- paring users and non-users of research. Yet, the abso- lute levels of awareness among the four factors were not exceedingly high. Therefore,it appears that any in- fluence exerted by these factors is indeed indirect as had been conjectured. This finding is supported by statements regarding the role of two of the potential influences-—"foreign firms" and "government." Awareness of a positive contribution typically emphasized the opinion that these factors created a desirable business environment, one which stressed the need for efficiency and innovation in order for firms to remain competitive. The advantages of employing marketing research become apparent in either case. Further evidence that the influence process is not direct is provided by the case of advertising agencies. It was concluded in an earlier chapter that advertising decisions among the firms interviewed were generally supported by market analysis. Yet, only a few respondents admitted that their agencies exerted any 151 influence on their firm's marketing efforts. Despite the fact that the larger agencies in Brazil are either subsidiaries of United States agencies, or are managed by persons known to have an extensive background in research methodology,1 it must be inferred that agen- cies are not influential. The findings regarding the business administration student suggest that he plays an active role in imple- menting research rather than influencing the decision to employ it. In many cases the decision to hire a business graduate came after management recognized a need for the "scientific approach." This is not to suggest that the business student cannot instill this change within a company; however, he normally must be in a high-ranking position to do so. In other words, the basic decision to use research is inherent in the decision to hire the business student. His role thus seems to be to teach (administration and research), rather than to persuade. Of the five influences considered in this sec- tion, competition was the factor most frequently and emphatically linked to the use of marketing research. Evidence to this effect permeates this entire study. 1Several agencies had been started by professors of business administration. 152 It should be remembered that competition, practically speaking, was a new phenomenon to Brazilian enterprise. The results were some basic changes in managerial atti— tudes and practices. CONCLUSIONS 153 CHAPTER VII CONCLUSIONS Discussion in this concluding chapter relates to the study's overall objective of identifying the adoption process of marketing research within Brazilian enterprise. The complexity of this process has been underscored by the numerous variables emerging from earlier analysis. Wide disparities exist in the composition of the Brazilian market. Regional differences relative to demographic factors, natural resource endowment, and economic development, are reflected in the varying size, structure, and operating methods of the respondents in three sample cities. Geographical separation of these three large cities, together with a limited infrastruc- ture, tend to accentuate these differences. Distribu- tion coverage, particularly, has been characterized by varying approaches, some of which appear to be less than efficient. Internally, managerial perceptions have been molded by two principal elements. A traditional ap- proach to business, extending over several centuries, has caused many businessmen to think in terms of quick 154 155 returns on investment or a low-volume--high-profits approach to marketing. Also, a dependence on govern- ment support programs has caused a heavy reliance on external solutions to internal business problems. Secondly, spiralling inflation from the early 1950's to 1964, instilled a complacency among manufacturers regarding the necessity for aggressive selling on their part. Reinforcing these basic attitudes are such factors as a limited purchasing power by a majority of the popu- lation on one hand, and a scarcity of professional management on the other hand. These forces tend to have a limiting effect on apparent market size. As a result, there appears to be lacking a motivation to expand, other than by natural growth. Under these circumstances the need for marketing research is not as readily apparent. While the use of marketing research is predomi- nantly by foreign subsidiaries in the highly-industrial- ized $30 Paulo area, national firms had begun practicing research in the three years prior to the interviews in 1967. However, there is little evidence that manufac- turers in the northeast city of Salvador will turn to the practice in the near future. In the south, Porto Alegre manufacturers recognize the need for research in view of their plans for geographical expansion, but 156 have not yet been able to implement research techniques. Resistances among many non—users generally reflect per- ceived, rather than real, obstacles. The lack of sta- tistics and qualified personnel, while important, are subordinate to more basic objections by non-practicing respondents. Differences, as well as changes, in the general economic environment afforded the opportunity to study countervailing forces at work on traditional managerial norms and practices in Brazil. Five specific environ- mental factors were found to have varying effects on the employment of marketing research. The hetereo- geniety and interdependence of the variables studied makes it difficult to establish precise criteria which will lead to the use of marketing research by a given firm. On the other hand, the results obtained from this study demonstrate some definite patterns in the adoption process. Market Outlook and Awareness of Environmental Factors As stated in Chapter II the methodology employed to examine the adoption process was divided into three steps as follows: 1. To determine if there is a difference in users' versus non-users' market outlook. 157 2. To evaluate users' and non—users' awareness of and interpretation of hypothesized environmental factors. 3. To match users' and non-users' market outlook and awareness of and interpretation of hypothe- sized environmental factors. The methodology reflects the conceptual orienta- tion conveyed in Chapter I. Namely, that market out- look is conditioned by management's interpretation of environmental factors at any given time. If there are differences between users' and non—users' market outlook and awareness of and interpretation of hypothesized environmental influences it is inferred that the en- vironmental factors have influenced the market outlook and subsequently the use of marketing research. In Chapter V it is shown that firms employing market research have a more positive market outlook than their non-practicing counterparts. This finding might be expected. The pertinent question in analyzing the adoption process for marketing research is to deter- mine what environmental factors have influenced the market outlook either positively or negatively. In Chapter VI it is shown that marketing research users have a higher awareness of the aggregrate positive contribution of the five hypothesized environmental factors than do non-users. When the specific hypothe- sized environmental factors were analyzed it was found 158 that there were some differences in degree of influence. The ratings given to users' and non-users' awareness of the hypothesized influences varied in two ways. First. there are differences in the absolute average rating for each influence. Second, there are differences in the variance in awareness between users and non-users for each influence. The largest average rating was given to competition by both non-users and users. But, the variance in rating between users and non-users for competition equalled the variance for foreign firms and government. The influence of the business administra- tion student showed the greatest variance between users and non-users, while the influence of the advertising agency was lowest in absolute score and in variance. It is concluded that competition is the most influential factor, with foreign firms. government and business administration students placing a close second. Advertis- ing agencies seem to have little influence. The above analysis reflects an aggregative situa- tion. 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