For its latest business trip feature where we are looking at emerging export markets, Business Leader gives an overview to all you need to know about doing business in Brazil.
Brazil has been climbing the global economic ladder over the last decade and is now the world’s ninth largest economy, and fifth largest by population. The country is also the fifth largest in terms of land mass, and the largest nation in the Southern Hemisphere.
But what do business leaders need to know about doing business there?
What do you need to know about Brazil?
Department of International Trade (DIT) Trade Commissioner for South America, Joanna Crellin explains: “Brazil has 28 states, and they all have different regulations. So, before you do any sort of business in Brazil, you need to do a great amount of research into this enormous market and to locate where in the country your business will be most successful to launch and grow.
“Different states have different strengths – some are more about manufacturing, some are more related to agriculture, and in the states in the south of the country where there are more of the middle classes based, there are more professional service companies.”
And it is not just regional differences you need to be prepared for, but the vast amount of legal work that will need to be completed before you can set foot in the country.
According to the TMF Group: “On average, it takes 11 procedures and around 90 days of work to start a business in Brazil, and construction permits demand an average of 20 procedures and 404 days to finally get authorised.”
However, despite the challenges, Brazil is a very promising investment and venture destination for British companies.
Crellin continues: “One of the interesting things about Brazil and Latin America is that they have suffered from a perception problem in recent years. There is currently a lack of understanding, with UK companies not knowing the market.
“For those companies that are here in the market and working, they think it is a great market. It can be tricky and hard work, but it is very profitable. With the right support and guidance, you can do great business in Brazil.”
Is Brazil attractive to British businesses?
Although there is currently no Free Trade Agreement with Brazil, the nation is still very attractive to British companies.
DIT South West Market Specialist for Latin America Sarah Hildersley comments: “Brazil is the largest economy in Latin America and its development is generating demand for products, technology and services across a range of industries, despite the difficult recession it went through in 2015-16. Positive reforms took place in 2018, which aims to attract investment, create more jobs and make the economy more competitive and these initiatives are starting to make traction.
“UK companies are unlikely to see a quick return from establishing business in Brazil though. Most will already have experience of trading internationally, such as in Europe or the US, before they target the market. Sales via distributors or other partners will usually take place initially, proving that there is demand and having a good, reliable partner is key. It may become viable to then set up assembly or production facilities further down the line, once the market is proven.”
The ability to have more distributors, partners and production facilities is due to the societal changes the country has experienced in recent years.
More than 35 million Brazilians out of a population of 209 million have risen out of poverty and into the middle classes, with many of them getting jobs within tech, pharmaceuticals, manufacturing and professional services. This increase in the skilled labour force has made Brazil an increasingly attractive proposition.
The Brazilian government has also worked hard to put Brazil in the shop window for foreign investment.
Leonardo Ferreira, Brazil services group leader at Deloitte UK said: “The federal government is seeking to attract foreign investment in the oil & gas and infrastructure sectors, with a number of steps already being made. Real estate development and consumer businesses are also likely to increase as the economy grows.
“Right now there are big opportunities for foreign firms to enter the market, as prices are depressed due to the recession. But entering all these sectors requires a long-term investment commitment and understanding of the country.”
Although growth has slowed in the last few years the current economic downturn offers many opportunities for foreign investors. Foreign-led transactions and mergers and acquisitions (M&A), grew by 5% last year. Investment opportunities range from manufacturing, tech, pharmaceutical, professional services, energy, oil and gas.
No matter the sector or industry, there are many cultural customs should be aware of.
A major part of the Brazilian economy is driven by family businesses, which is important to consider before starting any ventures within the country. A large part of Brazilian business culture and entrepreneurship is about having a decent family background – as this is a common topic of discussion before, during and after business meetings.
This close and personal element of business is key to embrace if you are a British business looking at expanding into Brazil, as Ferreira explains: “Personal relationships in business transactions are very important. It is possible that the success or failure of a deal – such as an acquisition or partnership – could depend on the chemistry between the Brazilian owner and the foreign investor.
“It is important that besides the normal activities one would expect like carrying out a proper due diligence, the foreign investor must also invest some time in developing the relationship.”
What are the challenges?
It is clear to see that Brazil has many opportunities available, especially if their cultural customs are embraced.
However, any business looking at starting a Brazilian venture does need to be aware of any potential pitfalls.
The country has a very complex tax system, with many extra taxes for companies who aren’t from Brazil. This also applies to import tax duties. Overall, there are over 90 taxes, duties and contributions that British companies need to be aware of, according to the TMF Group.
Getting a local law firm, as well as services from the Department for International Trade (DIT), are vital before anything is done.
Sarah comments: “Services can attract taxation of 40-50% on the basic cost. Some products also still attract significant tariffs and an early requirement will be to work out what the level of tariff is on your product. Not only that, but import duties can apply on entry, and between States for certain products, increasing the cost of some products by 60-80%, depending on the sector.”
Should you start a business venture in Brazil?
Despite the clear and serious challenges that face anyone looking to do business in Brazil, carefully negotiating your way through Brazil’s business community can lead to rapid growth for British businesses looking for overseas expansion.
Sarah comments: “Perceptions of the Brazilian market are often out-of-date. Demand for UK goods and services is strong, as we are seen to have high quality products and to be trusted business partners.”
However, due to its complexities, it is worth having experience of international expansion before looking at the Brazilian market.
Joanna summarises: “Brazil is suited to companies that have exported and worked in previous countries before. Brazil should not be the first country to move into – it is a common phrase that ‘Brazil is not for beginners’ – and that is true.”