To weather tough economic conditions, successful exporters are shifting gears to take advantage of developing markets, like Brazil, rather than dwelling on the global financial crisis.
Brazil has the world’s sixth largest economy while still developing which is why it may be considered the best of the BRICs. The country’s booming economy is said to be up fifth by the end of 2012 and is home to the second largest industrial sector in the Americas. Brazil is internationally involved in several world economic organizations including the World Trade Organisation, G20 and The Cairns Group. With the consistent efforts of the government to maintain economic stability and a 25.7% total trade increase in 2011, Brazil offers a higher opportunity for Australian exporters to do business.
The benefits of the expanding economy spill over to anyone involved in business throughout the country. Brazilian businesses realize the favorable circumstances for advancement and are making efforts to expand beyond boarders though trade agreements and foreign investments. Agriculture production carries much of the economic development; therefore Australian exporters should focus on supplying Brazilian farmer’s high demand of equipment, technology and fuel.
Domestically contributing to Brazil’s growth is the emergence of a new middle class. The new middle class consists of high spending consumers looking for quality finished goods. These Brazilians have an appetite for name brand products and convenience and are willing to pay for it. Take the U.S. Company Wal-Mart for example, currently the third largest retailer in Brazil. Fed-Ex has benefited from the new consumer class as well, despite the country’s poor infrastructure, and has even bought out one of Brazil’s largest transportation and logistics companies.
Caution: Under Development
Great opportunity exists within Brazil’s boarders for Australian business; however there are still some issues the country faces as a developing economy. The nation relies heavily on commodity exports, particularly from China. In order to maintain economic growth and achieve overall stability without any backlash, Brazil cannot depend on commodity exports.
Perhaps the biggest problem existing in Brazil is the poor infrastructure system. Multinationals have steered away from doing business due to this ongoing issue. Australian exporters have faced logistical and distribution problems due to backed up airports and clogged road ways. With plans to host the 2014 World Cup and 2016 Olympics, there is hope that provided funding for infrastructure projects will resolve this setback and equally create ease for exporting.
Inefficiency is another major issue when dealing with Brazilian business. Poor infrastructure contributes to the problem but business in Brazil is slow in general. It takes over 100 days to start up a business and costs can be outrageous.
Heavy government involvement has resulted in high taxes and tariffs for trade through Brazil. Duties and taxes on imports could add up to 100% to the price of goods. High tariffs and consumer sales tax on imported goods not only hurts the exporter, but the consumer as well.
Government regulation has also placed strict laws on labor, manufacturing, intellectual property and competition in Brazil. In order to begin business without getting slammed by fines and penalties, it is necessary to require a strong knowledge base in Brazilian law and business practices alike. The best way to this is by building a relationship with a Brazilian partner who has expertise on the stern regulations.
Target practice
Several strategic choices should be considered when entering the Brazilian market. Targeting key demographic factors are critical to success. The first demographic, as stated above, is the emerging high spending middle class. According to a report from the Getúlio Vargas Foundation, Brazil's middle class has grown to 55% of Brazil's 191million citizens in 2011, up from 38% of the population in 2003.
The next area to target is Brazil’s average age group. With its economy on the rise, the population is keeping up steadily making Brazil a young country. According to the Central Intelligence Agency, the median age of Brazil is 30 years compared to average 37 years in Australia. In order to target this segment, businesses should consider popular social media channels for advertising as well as advanced technology for consumer goods.
Another demographic factor to target is Brazil’s variety of culture. Although it is one country, there is a significant degree of cultural diversity throughout the various states and cities of Brazil. Despite the high diversity throughout the nation, one cultural aspect that is very important in any part of Brazil is making, committing and maintaining relationships. Personal interaction and individual relationships are essential to provide exceptional business performance in the country.
There are multiple strategies to hedge financial risk as well. The best way to enter into an unfamiliar foreign market is by partnering with someone who is knowledgeable. A joint venture is a great way to reduce the risk of the unknown and learn from someone who has experience in the country. A partnership with a Brazilian native is another strategy to get to know people and companies you will be dealing with.
All things considered, starting up a business practice can feel like a hassle but once involved in Brazil’s power house economy, the hard work pays off in profit.
Top Tips: Key considerations when exporting to Brazil - Country analysis and research
- Who is your competition and what are the competition laws
- Logistics planning, packaging and labeling requirements, payment procedures
- Trade barriers
- Employment laws
- Areas of opportunity: mining and minerals, sports infrastructure, sportswear (textile, clothing and footwear)
- Secure relationships with native Brazilian businesses
