Brazil, The Giant Awoken

Picture by FreeDigitalPhotos.net

Picture by FreeDigitalPhotos.net

Brazil’s GDP dwarfs that of every other country in the region. One legal system, one currency, almost 200 million consumers – Brazil is tantalizing for foreign investors, but oh-so-tricky to pull off in practice.

Today we talk with Rafael Pinto, a Rio-based consultant who helps foreign companies do business in Brazil.

GoSouth!: Brazil has a reputation for being a notoriously difficult market for foreign companies to enter. Is this true? Just how difficult is it for, say, a Canadian company to bring their product or service to Brazil?

RP:  Brazil has some of the most advanced financial and taxation systems in the world, yet, they are also considered some of the most complicated systems to understand, and this can intimidate an investor wanting to enter the market.   Nonetheless, the Brazilian government has made tremendous strides in trying to improve this process, and by no means should it be an obstacle for any foreign company wanting to bring their products or services into the country.

What is crucial for a foreign company interested in entering the Brazilian market is that they need to be IN the country in order to really be able to compete.  Having a physical presence in the country is key for success, and the willingness to invest and stay in for the long-term is what will differentiate your products and services from your competitors.

Different market entry strategies you could take include: partnering with a local company through a joint venture, having a paid local representative, or even opening a factory in the country. It all depends on your products or services.

It is not easy to enter the market, but the long-term benefits and huge market opportunities outweigh the obstacles you may face with regard to bureaucracy (such as delays in getting licenses or permits needed to operate).

GoSouth!: I get the impression that things are changing rapidly in Brazil.

For instance, according with FDI Intelligence and its report “American cities of the Future 2013-2014,” São Paulo ranked second after New York as the most attractive city in the hemisphere for inward investment. This is the first time a Brazilian city has ever ranked in the top ten, much less second. All other cities mentioned in this ranking are North American cities.

What has changed? What’s driving that change? How will Brazil continue to change?

RP:  Brazil overall generates 42% of the entire GDP of Latin America. (The next largest economy in the region, Mexico, generates only 21% of the region’s GDP.)   So it is not a surprise to see São Paulo in such a high ranking in a report of this nature.  At the same time, the city of São Paulo is the largest city in Brazil and the world’s seventh largest city by population, so there are opportunities that are created because of the sheer size and diversity of the city.

The Brazil of today is not the Brazil of ten or fifteen years ago. In particular, advances include improving government bureaucracy and battling corruption.  This provides the investor more confidence in investing in projects and business opportunities in the city and throughout the country.

GoSouth!: In the same FDI Intelligence report, São Paulo was ranked first on the list of Latin American cities for inward investment, followed by Santiago, Chile, and Rio de Janeiro a close third. So both Rio and São Paulo are huge centers for business, correct?

RP: Yes, both São Paulo and Rio de Janeiro are the two largest cities in Brazil in terms of business opportunities, having some similar industries present in both cities.

The state of São Paulo as a whole has a strong focus on financial, manufacturing and agribusiness ventures, for example.  Rio de Janeiro is the hub of the ongoing Oil and Gas and Energy boom taking place in the country, yet has strong service-oriented business opportunities as well.  Although some of these industries are located in both states, there is a growing presence of these same industries, and new ones developed, throughout the country as a whole.   A common mistake foreign companies make when looking into the Brazilian market is thinking that São Paulo and Rio de Janeiro are the only two main cities for them to invest in, or for them to establish a headquarter for their company in the country.

The Northeast of Brazil, for example, has grown at a faster pace then both São Paulo and Rio de Janeiro, with a population of about fifty million people, many of whom enjoy increased purchasing power as part of the growing middle class in the region.

And not only the Northeast–Brazil has several regions growing very fast, and with the increased investment in infrastructure and tax incentives in these different states, and a population with more money to spend and consume new products and services, Brazil offers numerous possibilities for new companies to enter and benefit from these opportunities.

GoSouth!: What’s the difference between doing business in São Paolo versus Rio de Janeiro? Roughly the same, or different?

RP: Both São Paulo and Rio de Janeiro have a lot of similarities regarding their business climates because historically they have been the main business centers in the country.  In both cities, you have to plan your meetings ahead of time in order to adapt to the terrible traffic present in both locations.  Be aware of the rush hour, and when it rains, give yourself plenty of time to make it to your meetings on time.

I am hesitant to distinguish specific differences in the way of “doing business” between both cities because it relates a lot to the specific industries present in both São Paulo and Rio de Janeiro.  It is roughly the same, especially when speaking of people working in the financial, legal and multinational companies.  Yet, it has been said that people in Rio de Janeiro tend to be a little more “relaxed,” or not as “formal” than people from São Paulo, depending on the settings or type of businesses discussed.

GoSouth!: You and I both specialize in helping SMBs enter the Latin American markets. What kinds of challenges does an SMB face if they want to enter Brazil?

RP:  Brazil is a unique country in Latin America because it cannot receive a copy-paste model from any foreign company wanting to enter this market after having already entered markets in neighbouring countries.  [True in every country in Latin America! –Ed.] The cultural differences between regions even within this country, the disparities between classes of consumers (distinctions between the poor, the middle class and the more wealthy), and the complicated tax and bureaucratic systems – these are some of the main challenges SMBs face when entering the Brazilian market.  It is important to choose an appropriate market entry strategy for SMBs, in particular by identifying reliable partners on the ground.

Although there are obstacles to face when entering the Brazilian market, it is still worth the effort, over the long run, to get established and conquer the markets available in the country due to the sheer size and potential markets available for all kinds of products and services.  I am optimistic in saying that the timing now is perfect to get into the country because Brazil will continue to offer tremendous opportunities for companies, both national and international, to prosper and benefit from the growing classes of consumers, and in different regions throughout the country.

GoSouth!: You talk about language – just how big a barrier is it for a company that does not speak Portuguese? Can a Canadian or American who speaks Spanish – but not Portuguese – still do business successfully in Brazil?

RP:  Doing business in Brazil has its challenges, especially when it comes to the language barriers.  I don’t want to say that you won’t be able to do business successfully in Brazil if you don’t speak Portuguese, but at the same time don’t assume that your counterparts all speak English or Spanish fluently.

On the other hand, there are many Brazilians who have gone abroad to study for their MBAs, and others who have taken English classes throughout their lives, but their English might not what a native English-speaker would consider “fluent.”  You may find that people in specific industries, for example, have more advanced language skills, both in English and Spanish, because of their constant interaction with foreign companies, or they may have had to travel for work more often.

My advice would be to learn some basic business terms or greetings in Portuguese, which helps “break the ice” and make the locals feel more comfortable and appreciate your efforts in trying to speak their language.  Perhaps ask them if they prefer to conduct the meeting in Spanish or English (if you do not speak Portuguese well enough).  It will depend on the Brazilians you meet, so check with them beforehand to avoid any uncomfortable situations during the meetings.  You can also hire local interpreters and consultants to assist with these initial interactions.

I also highly recommend They Don’t Speak Spanish in Brazil. It’s an ebook that came out recently, and provides a good description on how to do business in Brazil. It was written by an American businessman who lived in Brazil many years and is married to a Brazilian. Here’s a link for your readers: http://www.theydontspeakspanishinbrazil.com

GoSouth!: I talk a lot on this blog about how you need to do business not just in the language but also the culture of the country you want to enter. What are some common stumbling blocks foreigners make?

RP:  In Brazil, as in many other countries throughout Latin America, the culture is a lot more based on relationships and personal contact than it is in the United States or Canada.  Getting to know the person you work with, and having a series of meetings until the business deal is closed, is not uncommon.

Again, it is important to stress that in some industries many meetings can also be like meetings that take place in the United States or Canada, with objectives very clearly stated beforehand and next steps highlighted afterwards.  There are a growing number of business people in Brazil who have worked and lived abroad already, and recently returned to the Brazil over the past 5-6 years in order to take advantage of the growing opportunities in the country.  So you might encounter business people with very similar business practices found in other countries.

As a general rule though, be very patient in meetings, and courteous with invitations for lunch or dinner after meetings.  People can be very open to sharing stories of their personal lives and wanting to learn more about your own personal stories.  This is a culture that appreciates the personal contact with the person they are doing business with, so it is worth the time to drink coffee with the locals, or join them in a more social setting after the meetings are concluded.

Of course, these are general statements, and will be different depending on the individual you are working with in Brazil, or perhaps the industry they work in, or their work and educational background, because they may have lived and worked abroad and might have adapted to different working styles as well.  Your interaction with the locals will be based on the initial contacts you have with them, or what you learn from them when you arrive to Brazil.

GoSouth!: What foreign products and services does Brazil need right now? Where are the opportunities for foreign investors?

RP:  Due to the huge market potential throughout the entire country, Brazil has a lot to offer foreign companies who want to come in and establish their offices, factories, or pursue joint ventures with local partners.  Some of the most profitable industries include financial services, extractive industries, energy, utilities, and construction.  To complement the ongoing preparations for the World Cup and the Olympics–taking place in the country in 2014 and 2016 respectively–there are opportunities for companies that provide support services or products for international events around the world.

Brazil urgently needs more investment in infrastructure, but this is an area that is also very difficult to navigate.  A lot of the large infrastructure projects are controlled by the government, or are provided under concessions to private sector companies.  Through different bidding processes, foreign companies can also enter the market for some of these larger projects offered by the government.  There are opportunities to support these important infrastructure needs throughout the country, especially when working in partnership with local Brazilian companies.   This is an area that will need a lot more investment for decades to come.

GoSouth!: On a related note, who are Brazil’s main trading partners? Who do they have the most experience doing business with?

RP:   For figures from 2012, the top five export markets for Brazil (in order of 1-5) were China, the United States, Argentina, Holland and Japan, respectively.   China is the top export market mostly because of the large commodities Brazil provides to China.

In terms of where the most imports come from, it again includes China (1st) and the United States (2nd) and also Argentina, Germany and South Korea.

Brazil is also one of the founding members of the Mercosur, a trading bloc which includes most of the South American countries as either Full or Associate members.

GoSouth!: Can you tell us a little about politics in Brazil? My understanding is that Brazil is fairly socialist. Should foreign investors be concerned about this? For instance, how stable is the political situation in Brazil? What is the government’s attitude toward foreign investment? How would you describe Brazilian socialism compared to the Soviet Union, or China, or Venezuela, Cuba or Argentina?

RP:  When the ex-president, Luiz Inácio da Silva (Lula), was elected president of Brazil in 2002, foreign investors initially did have concerns about how the country will move forward in the business and political spheres.  Lula had a very socialist background and people both in Brazil and abroad were worried how that might affect the already positive reforms started by his predecessor, ex-president Fernando Henrique Cardoso.

However, for the past two decades, Brazil has had political stability and several successful democratic elections without any major violence or controversial results.  The country has respect for private property, the rule of law, and the free market.  This has continued throughout different administrations in power, with different political parties, and democracy is certainly more consolidated then in most other countries in Latin America.

There should not be any worries about government intervention when talking about foreign investments, but it is important for the foreign companies to do their due diligence before thinking of entering the Brazilian market.  There are specific industries the government tends to protect more than others.  This leads to higher taxes for the foreign companies wanting to enter the industry, or stringent rules they need to follow in case they want to do business in these markets.

GoSouth!: As you know, I specialize in helping high-tech Canadian companies bid on large infrastructure projects in Latin America – specifically in Spanish-speaking Latin America. Brazil is spending billions of dollars on new infrastructure projects. What should I tell my clients? Is now a good time for them to enter Brazil? Who can they talk to in Brazil and who they can trust?

RP: As mentioned before, the infrastruture projects in Brazil are very much in high demand, and will be for several decades to come.  However, in this specific industry, a lot of the infrastructure and construction projects are in government control or already designated to large Brazilian construction companies, who already have past experiences working with projects throughout the country.

This is not to say that there are no more opportunities for foreign investments in these areas.  On the contrary, just recently the bids for the Oil and Gas explorations and airport concessions to the private sector were won by partnerships between Brazilian and foreign companies, under a consortium.   A lot of these infrastructure projects do have a bidding process, which tend to take a long time to be organized, but depending on the interests of the Canadian companies, and specific areas they can provide services and products for, they can pursue contacts with local partners in the field and find out more about the process of bidding or collaborating in different projects.

Many State and Municipal governments have a local contact (either representative or office) that receives requests by foreign companies interested in learning more about business opportunities.   They can be a good source to find out more about bidding processes, new opportunities in the sector, potential partners or a point of contact for initial new business ventures in itself.

GoSouth!: Rafael, thanks very much for taking the time to talk to us today. I’m sure my readers have found your insights into doing business in Brazil useful and thought-provoking.

For those interested in learning more, here’s Rafael’s bio and contact details:

Rafael Pinto is an International Consultant with over 11 years of experience working in the design, implementation and evaluation of projects in the fields of Entrepreneurship, Corporate Social Responsibility, Public-Private Partnerships, and other areas. He has developed several projects that involved multi-stakeholder participation including International Organizations, non-governmental organizations, universities, and government agencies.   He worked for almost 6 years at the Young Americas Business Trust (YABT), a non-profit corporation based in Washington, DC, which has a general cooperation agreement with the Organization of American States (OAS).

His career then led him to work in Santo Domingo, the Dominican Republic, for 10 months.  While working for the United Nations Association of the Dominican Republic (UNA-DR), Rafael developed programs with national and international organizations targeting entrepreneurship, community service, education and volunteer development for young people in the Dominican Republic.   He then returned to Washington DC and worked for the International Finance Cooperation (IFC) of the World Bank Group (WBG) for 3 years.

Rafael studied International Relations for his Bachelor’s Degree at Florida International University and obtained a Master’s Degree on Development Management at American University.   Rafael is originally from Rio de Janeiro, Brazil, but has lived in 10 different countries, including the 12 years he worked and studied in the United States and 10 months working in the Dominican Republic.

He is now runs Occasio International Advisory Services (www.occasioias.com), an independent consulting practice, which focuses on:
a) Providing support to the design, implementation and evaluation of projects in the areas of entrepreneurship, corporate social responsibility, and public-private partnerships, b) Offering business networking and support services to local and international businessmen or companies interested in doing business in Brazil and abroad.

Rafael can best be contacted via email at rafaelpinto@occasioias.com, or through LinkedIn at: http://www.linkedin.com/in/rafaelpintooias

4 thoughts on “Brazil, The Giant Awoken

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  3. Pingback: Guest Post: Great links and information about doing business in Brazil | Go South! Consulting

  4. Pingback: Having strong domestic and international partners make a difference. An example from Canada! | Occasio International Advisory Services

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