Interactive Guide Series – Doing Business in Brazil
Growth opportunities in Brazil are abundant, both in terms of starting a Brazilian company and in terms expanding your business into Brazil. Although, like doing business in any foreign nation, it doesn’t come without its challenges. World Bank Research indicates that by 2014, developing countries are going to surpass developed companies in terms of receiving foreign direct investment (FDI) and will be responsible for more than 52 percent of the world’s GDP formation.
The consumer market in Brazil is growing every day because more and more people are gaining access to credit for the first time. In fact, according to Maria-Helena Petersson, Partner, Strategic Growth Markets Leader, Ernst & Young Terco, “Brazil is the only nation that has managed to alter its income distribution pyramid in less than a decade. In the last eight years, the average family income has grown more than 70 percent and Brazil’s changes in income distribution have generated an estimated 50 million jobs, taking more than 30 million Brazilians out of poverty during this timeframe.”
Additionally, within the next five years two of the world’s biggest sporting events will be held in Brazil, the Soccer FIFA World Cup in 2014 in 12 Brazilian cities and the 2016 Olympic Summer Games in Rio de Janeiro. This means investments in new infrastructure, new business and partnership opportunities and many global companies establishing a presence in Brazil.
Overall, of developing markets, Brazil is not only growing at a faster speed but also is also going to grow for a longer tenure as the economic population is estimated to grow until 2050[i]. So how does one begin doing business in Brazil? Below this guide offers ideas on trade bodies to help with market assessment, potential in-country partners, and nuances of the Brazilian market pooled from a panel of experts and entrepreneurs at the 2011 Dell Women’s Entrepreneur Network in Rio de Janeiro in June 2011.
Members of the “Doing Business in Brazil” panel providing the below advice and information included:
- Moderator: Silvia Bassi, President & Publisher, Now!Digital Business, IDG Brazil
- Government: Alessandro Teixeira, Deputy Minister of Industry and Commerce
- Trade: Regina Cunha, Sr. Commercial Specialist, U.S. Consulate General
- Private Sector Entrepreneur: Fernanda de Lima, CEO, Gradual Corretora
- Multinationals: Maria-Helena Pettersson, Partner, Strategic Growth Markets Leader, Ernst & Young Terco
- Entrepreneurialism in Brazil: Bedy Yang, Founder, Brazil Innovators
Benefits of partnerships and joint ventures: While all sectors in Brazil are welcoming investment, it’s necessary to understand the regulations attached to the business sector you want to go into before jumping into anything. For this reason, often the best way to enter the Brazilian market is through a partnership or joint venture to allow you time to learn the market from someone who’s already familiar with it.
The U.S. Embassy in Brazil provides a number of resources to help identify these local partners for you, including:
- Arranging appointments with local Brazilian partners, doing due diligence to ensure their credibility, including financial background checks, speaking with references and conducting interviews (they have an agreement with independent credit agency Dun and Bradstreet which provides all the background information).
- Bringing trade nations to Brazil throughout the year and bringing U.S. companies to exhibit at trade shows in Brazil and Brazilian companies to see technology tradeshows in the U.S. for companies who are already in Brazil. Other countries also provide these same services through their own embassies.
- Producing a commercial guide every year, which lists all the best sales prospects that can be found in Brazil and discusses trade regulations and standards (2011 Country Commercial Guide for U.S. Companies).
Every market has its challenges and that’s why the U.S. government and the other governments in Brazil are monitoring everything that happens and are in constant dialogue with their counterparts in Brazil government and exchanging best practices with one another. Information on regulations, opportunities in Brazil, market reports about every sector, and various other resources can be found on the Department of Commerce website.
Tap into networks: It’s not just about individual partnerships but also about joining the right networks and taking advantage of the opportunities that these offer in terms of exchanging ideas, building confidence and even enabling business growth. Dell has created the Women Powering Business Network on LinkedIn to support and nurture a community of female business leaders by providing access to knowledge, experts, and capital.
Some examples of additional networks to get involved with include:
- Endeavor Global - helps high-impact entrepreneurs unleash their potential through providing access to a powerful network of seasoned business leaders.
- Brazil Innovators – works to build the local community of innovators and entrepreneurs in Brazil by connecting them with the Silicon Valley startup ecosystem.
- Brazilian-American Chamber of Commerce - aims to promote trade and investment flows between Brazil and the United States and to forge closer ties between the business communities of both.
Education is first and foremost: One thing that people are demanding around the world is education. Brazil is a young economy (just over 500 years old) and with this comes a number of challenges.
Can entrepreneurship be taught or is it something you’re born with?
- On a global scale, employment is a key issue, and if Brazil and other developing economies don’t foster entrepreneurship it will be hard to create new jobs because the world is transforming.
- Thus, the partnership between private companies and the public sector is very important in ensuring economic and social development throughout the nation.
The importance of financial planning: As noted earlier, consumption in Brazil is growing at a rapid pace but this is only sustainable if the investor base continues to grow and the financial market continues to develop and mature.
Fernanda de Lima, CEO of Gradual Corretora, noted during the panel that financial planning is at the core of entrepreneurship because if a person cannot manage his or her own budget, they will never be a successful entrepreneur. “Ninety percent of businesses in Brazil fail before five years due to lack of financial planning as good ideas aren’t enough if you don’t know how to run your business properly,” said de Lima. Additional insights from de Lima’s discussion include:
- It’s not about possessing the financial instruments, but about having the investment knowledge and proper education in terms of financial planning.
- Successful businesses in Brazil that have been growing significantly often ignore the need to do any homework in terms of financial planning until it’s time to obtain capital to continue their growth trajectory. It is important to have both a founding business plan and founding valuation for your company because when you go to approach a bank or partner without a financial structure outlined, you’re going to have to take a step back and develop this before you can move forward.
- Therefore, it’s best to invest time into this from the very beginning rather than waiting until the very moment when the company needs to raise capital, find a partner or enter into a joint venture.
- In terms of today’s business world, it’s technology, financial planning and understanding the capital markets that are really fundamental for success.
Understanding the legislation: Because Brazil is a young economy, the country is still coming into its own in terms of legislation. The Library of Congress website provides additional details.
Legislation varies from country to country and Brazil is no exception. There’s a need to understand the environment in order to be successful. Maria-Helena Pettersson highlighted some of the complexities of starting a business in Brazil.
- In Brazil, every city has a different system of taxation for services so in terms of understanding this legal regulatory environment you must have knowledge of all the components, all the risks involved and also the cultural environment in Brazil as its important to recognize how Brazilians communicate and do business with one another to make successful deals.
- Before doing business in Brazil, it is necessary to do research and due diligence, something often referred to as the ‘cost of Brazil’. For example, according to Pettersson, “to open a business in Brazil there are sixty separate processes and it takes an average of 120 days to become completed, a very complex process with each activity depending on another.” According to the World Bank’s annual Doing Business Report, Brazil ranks #127 worldwide in terms of “ease of doing business” by country.
- Regina Cunha, Sr. Commercial Specialist, U.S. Consulate General, says “regulators in Brazil are working towards cutting down the red tape, reducing the regulatory framework and hopefully lowering the amount of time needed to open a company by half by simplifying guidelines.”
- The Brazilian Securities Commission has issued a number of recent regulations, carrying best practices from other countries. In terms of open capital, governance standards, and compliance, Brazil has borrowed from the U.S. model, which is one reason why we’re seeing so many companies open capital in Brazil and why so many private equity funds are coming into the country.
Technology as a strategic growth tool: One way to help overcome the ‘cost of Brazil’ referred to above is for businesses to work together with the government to simplify the process. Silvia Bassi, President & Publisher, Now!Digital Business, IDG Brazil, highlights some of the ways that technology can help to change the current reality in Brazil and enable businesses to be more competitive.
According to data from IDC, Brazil is on the forefront of technology:
- Brazil is ranked the sixth largest IT market in the world, with $81 billion in IT sales.
- Brazil is the fourth largest PC market in the world.
- There are more than 70 million people online in Brazil. The growth of the middle class has allowed more people access to technology, which is a huge difference from four years ago.
- There have been incredible digital advances in Brazil. As an emerging economy, new technologies are immediately adopted; unlike in more mature markets where there are more cycles of technology innovations.
Founder of Brazil Innovators, Bedy Yang, says that the number of successful Brazilian entrepreneurs based in Silicon Valley today is still at a minimum, but that there’s a number from Venezuela, Colombia and Argentina, most of which are also tapping into the Brazilian market. However, the number of businesses that start in Brazil is gradually increasing thanks to the ability to globally scale through technology and reach and connect with new communities. Technology provides the necessary process and systems needed to bring efficiency to your business, so you can focus on growing and taking your business to the next level as opposed to managing day to day operations.