Brazil’s thriving economy represents an exciting prospect for exporters. Now the world’s seventh largest economy, with GDP per capita ahead of China’s – there’s been a huge expansion in the number of businesses active in the country over the last five years.
With GDP growth at around 3.4% and an EU free trade agreement on the horizon, the Brazilian market looks extremely promising for companies seeking new markets to export to. The country also has an existing economic relationship with the USA with annual exports to Brazil already close to £3bn.
Although Brazil offers great promise to US exporters, the country has some idiosyncrasies that make it a challenging place to do business. These include the complexity of the tax system, linguistic and cultural differences, a cumbersome bureaucracy, and infrastructure shortcomings.
This article aims to explore some of these challenges in more detail so that aspiring exporters can get a more complete picture of this market.
The World Bank considers Brazil to be one of the most difficult places in the world to start a business, with 13 different legal procedures required to complete the process (and around 4-5 months delay).
One confectionery business was surprised to find it took close to a year to open a branch in Copacabana, Rio de Janeiro. There was a huge burden of documentation to produce and this required the confectioner to hire not only a lawyer, but also a forwarding agent and an accountant. Each different confectionery product sold came under a different tax code and the shop and factory needed to be registered as separate businesses even though they were round the corner from each other.
Due in part to the burden of bureaucracy, the attrition rate of new businesses is high and corruption thrives as bribery will often speed the bureaucratic process along. The cumbersome nature of Brazil’s tortuous bureaucracy adds to the cost and complexity of doing business in the country and means business activities take longer than they do elsewhere. Faced with this mountain of legislation to navigate, Brazilian lawyers tend not to go hungry and it’s pretty much essential to hire one when entering the market.
Not only are Brazil’s taxes relatively high, but the country’s tax system has been ranked as one of the most complex in the world by market analysts at PwC. Regional taxes occasionally conflict with one another, and enforcement is aggressive. It takes an astonishing amount of time to complete tax activities, so expect an added cost for meeting tax requirements.
Taxes on imported goods also tend to be extremely high, which is one of the reasons Nintendo withdrew from this market. Taxes and tariffs on imported goods have sometimes driven the cost of new iPhones above $1200 in this market.
With demand for luxury cars booming in the country, brands such as Mercedes, BMW and Audi have chosen the costly step of manufacturing locally into order to dodge the high import tariffs on finished cars. The same approach has been adopted by PC manufacturer Lenovo.
Historically, Brazil’s economy has been based on the export of raw materials. This has meant that road building has historically tended to focus on getting materials from their source to the nearest port, rather than from settlement to settlement. Infrastructure is still underdeveloped and still has a long way to go. Expect travel delays such as traffic jams to delay business activities.
Whilst it’s difficult to get infrastructure projects off the ground in any country in the world, Brazil’s bureaucracy doesn’t help. Construction permits need around 17 legal procedures to be completed before they can be authorized, which usually takes around a year and a half.
Portuguese is spoken by around 99% of the Brazilian population, which arguably makes it easier to do business than dealing with a multi-lingual market such as India. However, unlike an economy such as India, not a great deal of English is spoken. Brazilian commentators have identified this as a factor holding back the expansion of domestic business across borders. Not many Brazilians speak a second language, if they do it tends to be German or Spanish. English and Spanish are taught in schools.
Brazilians often have a positive nature and are open about doing business with foreigners. There are some cultural differences between Brazil and the US, such as Brazil’s more relaxed approach to time-keeping.
Half an hour to an hour of lateness is generally considered acceptable when it comes to appointment keeping. There’s a relaxed culture of “jogo de cintura” which basically means that “everything will be fine in the end”, so projects are often left to the last minute: Brazilians are less inclined to plan things than the British or Americans. There’s also a cultural reluctance to avoid confrontations and to avoid saying ‘no’.
Whilst regions all have the same language in common, they will have unique cultural identities, climates and ways of doing business. Tax systems are different and even conflict with each other.
Although there remain many challenges of doing business in Brazil, it’s important to remember that there are also many advantages.
Politically the country offers stability and growth ambition, and there’s real compatibility between the Brazilian business culture and that of the European economies. Offering Latin America’s biggest port, Brazil is also an excellent point of gateway to the continent in general.
Brazil also offers a skilled and resilient labor force that tends to be friendly, optimistic and flexible. With several trade agreements being negotiated with the EU, the general outlook of the country is open to doing business with foreigners. When compared against the perils of doing business in a climate such as China, where domestic industries tend to be favored over foreign ones at any opportunity, Brazil is arguably more open to overseas investment.
The key to successful adaptation to doing business in Brazil is to be flexible, patient and persistent. It’s also critical to invest in personal relationships and commit to the long term in Brazil – certainly the bureaucratic delays will mean nothing is accomplished quickly in this market. Whatever your organization’s plans are for this potentially lucrative market, selecting the right agency or local partner will be critical to success.