Brazil, Brazil – we already know that it is a country larger than the 48 states of the USA. We know that it has two-thirds the population of the USA and an economy produces half of the continent’s GDP . It is a country known as the breadbasket and lungs of the world. Brazil is the country of the future. But how do you do business there?
Yes, you can do business there on a scale that is right for you. The Brazil-Minnesota Chamber of Commerce is all about improving the understanding between Brazil and Minnesota on many fronts including better understanding on the commercial front. Brazil is very different in many ways from the USA and Minnesota, and so very similar in so many other ways. It is important to understand these differences and similarities as you asses the prospects for you in Brazil.
From a historical standpoint it is worthwhile to note that Brazil is a solid democracy built firmly on the principle of a free-market, capitalistic economy. It is an easy-going, fun loving society that never fought a war of independence or a significant civil war. It transitioned in the 80’s from military rule back to a democracy designed to be more democratic than the USA. And this was accomplished without a revolution or any form of armed uprising. Brazil has seen and endured the traumas of impeachments, death of leaders including presidents, constitutional crisis, and severe economic strain. And through all this, Brazil has emerged as a country with a stable political climate compared with most other countries in the world.
Portuguese is the language of Brazil. When considering doing business in Brazil, Spanish is not an acceptable substitute for Brazilian Portuguese and English is not widely spoken; except among members of the international business community there. Brazil is proud of its Portuguese language and heritage. Making an effort to communicate in Portuguese will be greatly appreciated. It is an easy-flowing, colorful language that reflects the easy-going nature of both social and business contacts in Brazil. Meetings often start with a “cafezinho” being offered and some friendly “ice breaking” chatter about interests other than the business at hand. Doing business in Brazil is “personal”; where getting to know those around the table with you is important when laying the groundwork for a business relationship.
While business and social relations are generally personal and easy going, it is critical to understand the differences in the Brazilian legal system. The Brazilian law is based on the Napoleonic Code; as is the case in most Latin American countries. Unlike English common law, the basis for U.S. law, where legal precedent and case law carry weight, Brazilian law can be understood as a compilation of detailed “codes”. It is very important to keep these legal system differences in mind and to make use of experience counsel and trusted local partners.
When assessing the prospects for entering the Brazilian market, one should always survey the market to see how your company’s offering compares with that of local as well as other international competitors. Be careful not to jump to conclusions when estimating and comparing costs and prices between your U.S. domestic market and the Brazilian market. It is easy to be misled by the effect the Brazilian system of taxation plays in arriving at the price the end-user customer will have to pay for your product or service. While the U.S. depends heavily on income and property taxes for their revenue bases, Brazil depends largely on the taxation of commercial transactional. Brazil has federal import taxes, federal value added taxes, state sales taxes, municipal service taxes, and several other social service taxes that must all be taken into consideration when determining the prices in Brazil. Most of these taxes, except for import duties, impact equally on locally-produced Brazilian produced goods as well as on imported goods. To appropriately compare market prices in Brazil, it is crucial to boil things down to a true net price/cost when making the comparison. Make sure to seek advice from experienced sources familiar with these cost and price calculations, before reaching conclusions about your company’s competitive position in Brazil.
Once your company has determined that it would like to enter the Brazilian market, it will be important to evaluate the most appropriate market entry mode. There are many ways a company can enter the Brazilian market, depending on factors such as expected market size, characteristics of the target market segment, the financial resources available, and the amount of control that your company will requires. Some of the possible entry modes include:
- Trading company
- Independent distributor
- Sheltered representative or incubator
- Brazilian employee
- US based employee
- Franchising
- Branch office
- Joint venture
- Wholly owned subsidiary
The graph below shows the rough relationship between the relative expense of different entry modes versus the amount of control provide.
Be sure to get the appropriate support and advice as you evaluate and make your market entry plans. With forethought, some sound advice and careful planning, your company can expect to enter the Brazilian market and build a profitable position there.