Mitsubishi UFJ Financial Group Enters Brazil

Introduction

Improving the efficiency of covering new markets in a competitive and dynamic financial environment requires understanding the mechanism of interaction between formal and informal institutions as two closely related processes. However, despite their connection, they differ in unique and crucial criteria. Informal market institutions, for instance, economic mentality or social capital, are more influenced by previous development mechanisms than formal rules. This means that when planning a business development strategy in a new region, one should take into account both the official standards for regulating the business sphere and the traditional principles and norms of entrepreneurial activities. For multinational enterprises (MNEs), the assessment of these factors is mandatory due to the hard work that is done to enter a new market and earn credibility. As an example of MNE and its expansion strategy, Mitsubishi UFJ Financial, Japan, will be reviewed, including its corporate policy, and its plan to enter the Brazilian market will be considered from the perspective of formal and informal institutions. A well-implemented strategy to cover the target market can allow the MNE in question to achieve maturity and leadership in its market segment in the remote region.

MNE Description

The financial market of Japan is appreciated worldwide due to the country’s stable economy, and the corporation in question confirms the success of work in this industry not only domestically but also abroad. Mitsubishi UFJ Financial is a group of financial services, and the bank under this group is the largest in Japan (Mitsubishi UFJ Financial Group (MUFG) Japan, 2020). The corporate policy of the corporation implies a strong desire to increase the sphere of influence due to the active involvement of customers and business expansion to become the most recognized financial group in the world (Corporate vision, no date). At the same time, according to the official data, in 2014, Mitsubishi UFJ Financial ranked eighth in the list of financial institutions by the criterion of market capitalization (Mitsubishi UFJ Financial Group, 2018). Such a result is essential to talk about the success of the corporation and its ability to cover new regions, including remote markets with a distinctive monetary culture from that of the Japanese.

In its quest to enter the Brazilian market, MUFJ is ready to prove its ability to provide competent services to all interested parties and establish business relations with South American partners. For almost fifteen years of work in the financial market, the company has learned to respond to diversified customer requests and offer professional assistance in expertise and analysis to create optimal working conditions (Corporate vision, no date). MUFJ has earned its MNE status due to its activities on various world sites while achieving high net profit and investing in the constant promotion. This holding group brings together several enterprises and branches, most of which are located in Japan, the USA, and European countries, but other regions are also covered. Entering the Brazilian market may allow the company to gain access to new investment channels and expand its sphere of influence through interaction with the local financial institutions.

Market-Entry Strategy: Basic Nuances

If a company has decided to expand its business and enter foreign markets, there are several ways to do this. The choice of a specific method for a firm to enter a foreign market depends on such factors as costs, the degree of risk, and the level of control over the process. However, those who plan their business expansion should take into account the specifics of the environment in which the parties involved conduct their operations. For instance, according to Horn (2015), for Japanese MNEs, a merger policy is characteristic, and the example of India proves the success of this expansion program. This method is less expensive than building a similar business from scratch and can immediately provide the company with a certain share in the target market. However, one should know all the legal restrictions and rules of this process. By using the example of Chinese MNEs, Holtbrügge and Berning (2018) demonstrate that the risk of becoming an outsider in a ready-made business framework is high if relevant conventions are underestimated. Therefore, it is crucial to consider the features of the local environment to create a sustainable business abroad.

The Brazilian domestic market is an unfamiliar environment for MUFJ, and its nuances need to be studied in advance. As Thome, Medeiros, and de Alcântara (2019) argue, the experience of foreign companies working in Brazil speaks of the challenges that MNEs may face, in particular, the insufficient willingness of the local investors to interact with large partners. In this regard, MUFJ can use the strengths of its corporate strategy to establish successful interactions and avoid significant obstacles. Since one of the business principles of the corporation in question is the active development of new sources of profit through partnerships, collecting information about the target market is an important stage of expansion. The assessment of Brazilian economic performance can help determine which strategies for engaging with partners and competitors may be applied and whether the current business plan is suitable for the needs of the target region. This preliminary analysis is an essential aspect of planning the expansion.

While taking into account the results of the analysis, an appropriate expansion strategy can be compiled. However, based on the review of selected Japanese MNEs, Chang and Ogasavara (2019, p. 1) highlight “the influence of institutional distance on internationalization speed”, which affects the speed and quality of business interaction. Thus, when considering the corporate strategy of MUFJ, it is essential to evaluate what impacts formal and informal institutions have on the specifics of the company’s activities in Brazil as a new operating region.

Roles of Formal and Informal Institutions

Official laws that determine the rules for the implementation of various financial transactions directly affect both the structure and level of costs, as well as the efficiency and results of economic activities. Formal institutions may be considered an object of the trusteeship of the state that stimulates subjects to take actions appropriate from the standpoint of social. According to Fuentelsaz, Garrido, and Maicas (2020), formal institutions are the forms of state regulation of the economy. Informal institutions arise under the influence of formal norms and rules. They represent the interests of a narrower group of individuals and do not belong to the goods produced, although they play the role of socially significant values. As Moreira and Ogasavara (2018) note, the advantages of informal institutions include the ability to adapt to changing external conditions and preferences. At the same time, such norms are often characterized by an ambiguous interpretation of the rules and a decrease in the effectiveness of state regulation, which, in turn, leads to discriminatory restrictions. Therefore, the role of both formal and informal institutions is significant in shaping financial development strategies and, in particular, entering new markets.

When building an appropriate strategy for entering a foreign market, any MNE should take into account the working conditions of the local financial system, including formal and informal institutions. Moreira and Ogasavara (2018) cite an example of large Japanese companies in Latin America and note that for effective business, the relationship between the two categories of institutions under consideration is to be equalized to avoid the dominance of one form over the other one. For instance, to enter the Brazilian market, MUFJ should consider not only the local tax, business, and other legislation types but also the internal features of the country, in particular, its attitude to foreign capital and the role of firms in the economy. However, both forms under consideration, as a rule, do not have equal weight. According to Fuentelsaz, González, and Maicas (2018), in most cases, informal institutions are forced to depend on the specific formal environment, and any new enterprises, including MNEs, should take this dependence into account. Therefore, the entry into the Brazilian market for MUFJ needs to be accompanied by the assessment of the state legislation about planned activities.

Since MUFJ is a financial services organization, initially, the impact of formal institutions on business in Brazil may be considered more significant. Estrin, Meyer, and Pelletier (2018) argue that foreign investors should study local working conditions to secure assets and create a productive work environment without the risks of violations and lawsuits by government agencies. In this case, the company needs to pay particular attention to the conditions of investment policies in the South American country, which differ from those in Japan. However, the Brazilian financial market has certain conventions that are crucial to take into account. In particular, according to Fuentelsaz, González, and Maicas (2018, p. 15), the variable of formal institutions in this country has a negative indicator of -0.30, while in Japan, this parameter is 1.04. This difference is an incentive for MUFJ to look at informal institutions as drivers that can enable a productive business environment in Brazil as a new region to cover.

As a result of the low role of formal institutions, MUFJ may face a strong influence of informal practices that put pressure on the entrepreneurial industry and, in particular, the financial sector. As Fuentelsaz, González, and Maicas (2018) note, Brazil, as a country with an insufficiently high level of governmental regulation of the economy, can demonstrate dangerously high rates of corruption and weak property rights. MUFJ, in turn, should take these factors into account and develop a strategy for entering the market, which will protect assets and eliminate any negative impacts on the business. The corporate culture of the company is advanced, but in the face of the peculiarities of the Brazilian financial industry, internal sustainability may be an insufficient incentive. Therefore, creating a robust implementation strategy for covering the market of the South American country is a critical task for the financial group in question.

Planning the Market-Entry Strategy

The imbalance in economic dynamics observed in Brazil is a consequence of the weak manifestation of formal institutions. This means that MUFJ will not be able to create the same business model as in the domestic or European market. According to Anderson and Sutherland (2015), for many MNEs, an acquisition strategy is the most common form of expanding influence, when the target environment is different from a traditional operational form. Consequently, in this case, the initial stage of implementation implies analyzing the informal institutions of entrepreneurial work, which are not fixed to minimize costs. The main criterion for success is to make sure that the planned activity is attractive to the target market and can have a wide field of application. For this purpose, data collection is necessary to conduct and evaluate the prospects for opening a business in Brazil based on the expectations of interested parties and market readiness. As Anderson and Sutherland (2015) state, if a particular MNE has a good reputation and recognition, these are valuable drivers of success. Thus, for starters, MUFJ needs to assess the willingness of the Brazilian market to interact.

After the necessary preparatory procedures have been completed and information has been received about the readiness of the target market for interaction, the organization should create a background for stable business growth. New forms of entrepreneurship applied by MUFJ may be considered informal, but with the right steps to development, its economic presence will be obvious. Subsequently, work to strengthen the position in the Brazilian market may allow the company in question to form a new segment and gain significant influence by crowding out competitors. With the right analysis, MUFJ will be able to successfully operate in the new market since, as Arslan and Dikova (2015) state, the large economies of countries with worldwide MNEs, including Japan, provide a good basis for implementation and enhancing credibility. Therefore, an increase in confidence in the new business may be achieved even with the prevalence of informal institutions that are more characteristic of Brazil. The corporate culture of MUFJ is flexible, which allows the company to expand its activities in different world regions. Thus, the analysis of market needs and the competent delivery of services are factors contributing to the business’s success.

Because the activities of MUFJ are global, the influence of formal and informal institutions may be considered important but not decisive factors when entering the Brazilian market. According to Triwastuti (2017), globalization as an economic trend is increasing, and such factors as the effects of government rules or civic principles can be indirect in the context of earning credibility. The services of the Japanese organization are in demand in many world regions with developed economies. However, Sartor and Beamish (2018) note that those MNEs that enter foreign markets can bridge emerging cultural gaps successfully if a clear strategy for overcoming uncertainty is built. In addition, the authors argue that corruption that is characteristic of certain markets can be overcome by building an individual development model (Sartor and Beamish, 2018). In other words, MUFJ does not need to comply with local business standards and should build an individual sustainability program that will allow the company to grow and expand successfully.

Based on the aforementioned analysis, one can assume that MUFJ can choose the greenfield mode of entering the Brazilian market and create a sustainable growth strategy even in an unfamiliar business environment. Tulung (2017) describes the features of such a development model for MNEs and mentions the high costs of organizing work, a deep assessment of recruitment and personnel management practices, as well as stable capital growth as significant components of successful entrepreneurial activity promotion. Nevertheless, compared to many other enterprises, MUFJ does not have to spend enormous amounts of money to support work in Brazil since the MNE has an advanced business base and can allocate resources freely to grow confidently. As a result, such factors as market analysis, the evaluation of the role of formal and informal institutions, and the development of a growth strategy are the background for ensuring work in a new market. The expansion of MUFJ’s business in Brazil can be successful if both the local characteristics of the entrepreneurial industry and the basic principles of building a robust business system are taken into account.

Conclusion

The well-planned development strategy of MUFJ’s business upon entering the Brazilian market may allow the company to achieve growth and trust of interested parties, despite the role of informal institutions in the country. The greenfield mode can move forward since the organization has sufficient resources and extensive experience in reaching new regions. In Brazil, official norms and regulations are not sufficiently strict to develop a growth strategy by the conventions of formal institutions. Nevertheless, to avoid financial and other risks, MUFJ should pay attention to the characteristic features of the entrepreneurial industry in this country. The company needs to go through all the implementation stages, including the analysis of market needs, the assessment of institutions’ roles, and the promotion of sustainable development through constant investment.

Reference List

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