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International Business of Under Armour

Angela Kaiboni
Chris Lambert
Francisco Sanchez
Kyoung Choi
Randall Martin
Raymond Hamisi

Executive Summary
Under Armour Inc. is a clothing apparel company that sells sports merchandise. Under
Armour (UA), founded by Kevin Plank in 1996, features innovative apparel which uses
moisture-wicking microfibers. These microfibers keep athletes feeling cool, dry, and light during
the most brutally hot conditions. In 1997, Under Armour introduced the now famous ColdGear
fabric, which keeps athletes warm, dry, and light in cold conditions. Planks groundbreaking
apparel has grown the company into a recognizable and reliable brand. Under Armours
continued success in the United States has prompted the company to expand their business
internationally. Since becoming an established entity, Under Armour has grown their first years
revenues from $17,000 in 1996, to a 3 billion dollar company in 2014.
This report examines Under Armours expansion into the Brazilian market and evaluates
the methods used to increase the revenue and sales that are currently growing in South America.
Our research has brought to our attention the necessity of answering certain questions in order to
further develop our report. In this report, we will focus on Brazil as a foreign market as well as
three questions concerning Under Armours reasons for international business in Brazil: Why the
company initially expanded in Brazil? What marketing and financial benefits come with having
international operations? What difficulties may ensue in doing so? Along with our results, we
have provided SWOT analysis and calculated recommendations to fix specific issues that need to
be addressed.

SWOT Analysis
Strengths:
Professional athlete endorsements, such as Jordan Spieth, Tom Brady, Steph Curry, and Canelo
Unique technology
Brand recognition
Weaknesses:
Limited footwear line - lack of competitiveness in shoe market
Price
No major top selling product
Opportunities:

Expansion of footwear line, increase market share

Olympics in Rio de Janeiro 2016
Expand womens line of apparel
E-commerce, facilitate online sales and ordering in Brazilian and South American market.
Threats:

High competition - Nike and Adidas

Replacement for less expensive apparel - Ex: Champion
Lawsuits and patents
Endorsing an irresponsible athlete

Analysis of Brazil

GDP Growth
Since the 2000s, the Brazilian economy, the largest in Latin America, has grown at a
robust clip, with growth in 2010 reaching 7.5%. The country has rebounded from the global
recession in 2009 as the government announced a primary surplus target of 1.2 percent of GDP
in 2015 and at least 2 percent of GDP in 2016 and 2017. A high GDP is very important because it
can be used to gauge the health of a country's economy. Investors always worry about a negative
GDP growth so Brazil is on the right track (Lagarde).
Brazils Demographics
Population
Brazil remains a hotbed of opportunity city for those interested in doing business
internationally. The population of Brazil is estimated at 204,259,812 as of July 1, 2015. Brazil's
population is equivalent to 2.79% of the total world population. Brazil ranks number five in the
list of countries by population. This provides a greater domestic market for foreign investors.
Median Age-30.7

The mean age for Brazil is 30.7 years. This is also good for the economy because they
have many young people that can energize the economy and provide labor for multinational
companies.
Legal system-Civil law
Civil law systems, also called continental or Romano-Germanic legal systems, is part of
the Brazilian legal system. The law is based on concepts, categories, and rules derived from
Roman law, with some influence of common law. The civil law tradition is good for business
because it places more focus on individual freedom, promotes cooperation between human
beings. It is a law that would foster international trade because it clears expresses rights and
duties
Urbanization
Brazil is blessed to have many urban areas with a high population. The major urban
areas-population is 87.5%. Sao-Paulo leads the way with a population of 20.83 million, Rio de
Janeiro 12.82 million and Belo Horizonte has a 5.66 million. A lot of multinational companies
can benefit from the increase of population growth in urban areas. Population growth and
urbanization go together and economic development is closely correlated with urbanization
(CIA).
Member of BRIC
Brazil, Russia, India and China-commonly referred to as BRIC-command more attention
in the worlds economy because as a group, they generate 17% of the worlds exports, absorb
16% of FDI inflows and contribute 28% of world GDP. They also generate 8% of the worlds
FDI outflows. As emerging economies, the BRIC nations are investors dream markets (Peng, 7).
World Events

The country is known as a sport loving nation.They hosted the 2014 World Cup and are
hosting the 2016 Summer Olympics. As Brazil hosts the worlds biggest sporting events. A
multinational enterprise (MNE) entering this market would get a chance to get into the world
stage. Brazil would provide them with an opportunity to market their products to sports fans and
teams around the world. They have a great chance to showcase their goods and services to a
larger audience, a high- upside international market opportunity for brand exposure.

Informal Institutions
Culture of Soccer
The Brazilian culture is passion about soccer. Soccer clubs in Brazil play a significant
role in football becoming a cultural passion for Brazilians as well as spreading the flair and
electric style of play that has become a symbol of the countrys everlasting impact on how the
game is played on pitches all over the world. A partnership with a soccer club by a foreign
investor could have a big impact on their sales. This partnership would help push their products
deep into the Brazilian market.

Social Culture
Brazilians are considered to be friendly, informal and easygoing. These characteristics
apply to meetings, schedules and negotiations. An initial meeting will be the most formal.
Foreign Investors should be aware that it is not uncommon, nor inappropriate, for times and
schedules to change unexpectedly. Meetings and appointments often begin 15 to 30 minutes late.
This is not impolite or disrespectful. Some Brazilians who find no harm in being tardy for social
meetings would never arrive late to a business obligation. In general, the Brazilian people are
friendly and vibrant.

Language
Brazil is the only Latin American country where Spanish is not the official language.
Brazilians speak Portuguese and can be offended by outsiders who assume they speak Spanish. A
useful recommendation for foreign companies is to learn Brazilian Portuguese, although many
business professionals know and use English, learning the Portuguese language would be very
helpful (Communicaid).

Formal Institutions
Brazils reforms on the privatization of key state-owned enterprises brought a profound
change in Brazil. It was the new transition that the Brazilian government brought in 1990s. It
implied the creation of new pro-market regulations, the abandonment of state intervention in the
form of special subsidies and incentives, the lift of trade barriers and the integration of the
country into the global economy, and the elimination of barriers against foreign investors
(Kormann, 29). Since Brazilian law provides the same protection and regulation to foreign
capital investment, the surge in foreign direct investment (FDI) has been growing; foreign
investors owned local companies of Brazil as well as the local supply chain. In the 1980s, the
average import rate reached 51%; however, in the 1990s, tariffs on import goods reached average
levels inferior to 15%. Since the 1990s, multinational corporations in Brazil has been growing
which leads to the new emergence of a radical new business scenario in the Brazilian economy
(Kormann,180).
Why did Under Armour enter Brazil?
As part of a strategic plan to double its sales revenue by 2016, Under Armour expanded
their operations internationally into Brazil in May of 2014. Brazil is a highly populated, soccer-

crazed nation with a renowned athletic history. Its rich history has created a culture that embraces
sports as a vital part of their daily lifestyle. The founder and CEO Kevin Plank viewed the
expansion as a market-seeking opportunity and a key building block in establishing Under
Armour as a global brand. Plank stated, The countrys passion and commitment to sport is
incredible, and we look forward to empowering Brazilian athletes and bringing them gamechanging apparel, footwear and equipment (uabiz.com). His vision along with Brazils
emerging economy provides vast opportunities to capture part of the countrys sports market
share currently dominated by Nike and Adidas.
If Under Armour plans to replicate its successful domestic business foundation in Brazil,
it will need to rely on their resources and capabilities to help build brand recognition in the South
American region. Financially, Under Armour has the ability to generate funds and raise capital
for expansion. The company has posted remarkable growth rates consistently. The first quarter
of 2015 was the 20th straight quarter of 20% or higher revenue growth rates for the company
(Soni). This bodes well for a foreign direct investment or other business strategy the company
may employ in the future.
The companys ability to develop and release new innovative athletic apparel, as well as
the diversity of their product offerings, has generated a steady growth in business over the years.
It has resulted in the brand remaining competitive and relevant in the sporting apparel
marketplace in North America. As of 2014, Under Armour surpassed Adidas for the number two
spot in sales revenue in the United States, behind Nike. Now, Under Armour must use this
momentum to help launch international marketing campaigns and establish some high profile
endorsements to increase brand loyalty.

The timing of Under Armours entry into Brazil coincides with the upcoming Olympics
in Rio de Janeiro in 2016. This will be a great opportunity to capitalize on an aggressive
marketing strategy to gain exposure with millions of viewers worldwide. As the nation prepares
to host the worlds biggest sporting events, this is an exciting opportunity for Under Armour to
identify with the passion Brazilians have for active lifestyles and provide them with the most
innovative performance products in the market (uabiz.com). Under Armour has recently
announced the sponsorship of Sao Paulo, Brazils most decorated soccer club, and Gisele
Bundchen, a Brazilian supermodel. These high profile endorsements are expected to give Under
Armour exposure into soccer and womens apparel.
For Under Armour to become a viable international brand, it must overcome the
deficiencies in their business operations. First, UAs entry into Brazil signals its effort to
establish a strong presence outside of North America. Over 90% of its 2013 revenues came
from North America (Soni). Because the company was founded as an American football brand,
the majority of their consumers and sponsorships are related to that sport. For this reason, the
strategy to enter Brazil widens their target market by infiltrating a country where soccer,
arguably the most popular sport globally, is a way of life. Their tradition of winning,
development of young footballers and strong reputation for embracing innovation makes them a
great fit for Under Armour (Mirabella). The Sao Paulo and Gisele Bundchen endorsement deals
may prove to be a defining moment in the companys success in Brazil. It will need to capitalize
on those relationships to give Under Armour the necessary boost to diversify their product
offerings to a variety of sports, and also womens apparel.

Challenges of Doing Business in Brazil

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Doing business in Brazil is complicated and rather challenging. The bureaucratic

systems laws and regulations have caused difficulties for international businesses. For example,
it can take an average of 13 procedures and 119 days of work to start a business in Brazil (TMF
Group). This makes it difficult for MNEs to overcome liability of foreignness. Due to Brazils
bureaucratic challenges, Under Armour must combat the formal and informal institutions to
continue success.
Understanding the challenges of entering a foreign market, Under Armour decided to
enter Brazil as a non-equity mode. Currently, UA distributes their merchandise in Brazil directly
through exports sold by local distributors. This type of entry into the Brazilian market is less
costly and exposes less risk with better control over distribution. This type of entry mode
however, can cause challenges such as trade barriers and protectionism from Brazils formal
institutions. There are import and export barriers that Under Armour may be confronted with due
to complications of exporting and importing goods. Most imported goods are held in port-ofentry for some time, which are the correct procedures implemented by Brazils government.
Also, the average cost per container is rather steep. Exports can expect similar treatment, taking
an average of 13 days just to leave Brazilian territory. This may result in unplanned and
unbudgeted costs.
Another challenge UA faces is that politicians and senior business people are perceived to
be corrupt. Transparency International ranked Brazil 69th on its 2014 Corruption Perceptions
Index (Transparency International). As a U.S. based company, Under Armour is subject to the
Foreign Corrupt Practices Act (FCPA). This law is intended to combat bribery and corruption by
making it illegal to make payments to officials of foreign government officials.

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Inflation has pushed up prices meaning that doing business in the country is not cheap.
In Brazil consumer prices increased 8.89 percent year-on-year in June of 2015. The inflation
rate accelerated for the sixth straight month to a new twelve year high. Inflation rate in Brazil
averaged 383.47 percent from 1980 until 2015, reaching an all-time high of 6821.31 percent in
April of 1990 and a record low of 1.65 percent in December of 1998. A high inflation would
depreciate the Brazilian currency and this might affect the price of Under Armour's products
Inflation Rate in Brazil is reported by the Instituto Brasileiro de Geografia e Estatstica (IBGE)
(Trading Economics).
The tax burden is 34% of all revenues in Brazil, not as in other countries where tax is
charged on profit. In Brazil all revenue is subject to tax whether the company makes profit or
not. Under Armour is going to face challenges because many firms in Brazil have a history of
battling with authorities over huge sums of tax revenue. Many companies moving into the
country prefer to partner with local companies. It makes the transition less disruptive to
consumers and it also gives the company essential insight on the local company.

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Labor unions have a lot of influence in Brazil. They have improved the labor market but
the business sector needs to be aware of union operations. There are 900 labor articles which are
difficult to navigate. Companies have to know them and be compliant. Noncompliance may
result in bad reputation of the company.
Recommendations
By expanding into the Brazil, Under Armour can establish a headquarters for the growing
South American market. Under Armour can leverage its resources and manufacturing facilities in
Brazil to further expand into other South American countries. Using the success of UAs
Brazilian football club sponsorship with Sao Paulo, it will give UA an opportunity to expand to
other football teams. Under Armour can capitalize on the 2016 Summer Olympics as a method of
increasing its brand awareness. To gain market share in Brazil, UA can implement a penetration
pricing strategy by pricing below competitors. As the womens apparel market continues to grow,
UA can take advantage of the growing middle class in Brazil. Under Armour can expand current
factory owned locations to supplement third party outlets, providing customers with greater
options to access UA products. Additionally, UA can partner with local companies as well as
local supply chains to reduce corporate tax liabilities. Lastly, as a mode of entry, UA can increase
foreign direct investment (FDI) through equity mode. This will establish an independent overseas
organization, committing UA to the South American market.

Learning Outcomes

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Under Armour has been in Brazil since 2014 as they continue to grow their brand
internationally. At this point, it is too early to predict the success in the country. As a late-mover
in the Brazilian market, UA has had to face competitors that already have an established position
in Brazil. Though UA faces some disadvantages as a late-mover, the company is in a better
position than Nike and Adidas to adapt to market changes and uncertainties. Under Armour is
also in a position to learn and take advantage of its first-mover competitors investments in Brazil.
To ensure future success, UA must commit to foreign direct investment in Brazil to establish
control over operations and sustain a competitive advantage. Gaining a foothold in the Brazilian
market will allow UA to further expand into South America, aligning with the goal of becoming
the global leader in sporting apparel.

References

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CIA World Fact Book. Brazil. Retrieved from

https://www.cia.gov/library/publications/the-world-factbook/geos/br.html
Communicaid. Doing Business in Brazil / Brazilian Social and Business Culture.
Communicaid Culture and Communication Skills Consultancy. Communicaid Ltd
2008. Retrieved from https://www.communicaid.com/country/brazil/#.VbaDyflViko
Grounded: Special Report on Brazil. The Economist. (2013, September 28). Retrieved from
http://www.economist.com/sites/default/files/20130928_brazil.pdf
Kormann, Luiz. (2015). Big Business and Brazils Economic Reforms. New York, NY:
Routledge
Lagarde, Christine. (May 28, 2015). Reigniting Strong and Inclusive Growth in Brazil.
IMF Direct. Retrieved from http://blog-imfdirect.imf.org/2015/05/28/reignitingstrong-and-inclusive-growth-in-brazil/
Mirabella, Lorraine (March 17, 2015). Under Armour will sponsor Brazil's most decorated
soccer club. Baltimore Sun. Retrieved from
http://www.baltimoresun.com/business/under-armour-blog/bal-armoury-underarmour-will-sponsor-brazilian-soccer-club-20150317-story.html
Peng, Mike W. (2014). Global Business 3rd Edition. Mason, Ohio: South-Western
Soni, Phalguni. (July 14, 2015). Under Armour Stock SoarsWill Its 2Q15 Earnings
Justify the Rise? Market Realist. Retrieved from
http://marketrealist.com/2015/07/can-armours-2q15-earnings-results-justify-recordhighs/

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TMF Group. Top 10 Challenges of Doing Business in Brazil. Retrieved from

https://www.tmf-group.com/en/media-centre/resources/top-challenges/theamericas/brazil
Trading Economics. Brazil Inflation Rate. Retrieved from
http://www.tradingeconomics.com/brazil/inflation-cpi
Transparency International (2014). Corruption Perceptions Index 2014. Retrieved from
https://www.transparency.org/cpi2014/results
UAbiz.com. (March 12, 2014). Under Armour Amplifies Global Expansion Efforts With
Brazil Launch. Retrieved from http://www.uabiz.com/releasedetail.cfm?
ReleaseID=832521