Trading with Brazil - Risks and Opportunities

Brazil the B in BRIC There is a lot of buzz on the international media in relation to the BRIC countries and how they don't seem to be affected by the recession that engulfed the developed world. Brazil has been portrayed as a sleeping giant that is waking up from a long sleep and this is causing a wave of investments in the country, opening doors to many new business opportunities. In 2012 alone Brazil received US$48.5 billion in foreign direct investments (FDI) and in the previous year was the U.S.’s largest source of imports followed by China, trading US$31.3 billion. Having said that, there are a few pitfalls that can be avoided if you know where they are.

  Know the new territory

 Brazil is a vast country with more than 190 million inhabitants and huge cultural and social diversity. The most developed states are Rio de Janeiro, Minas Gerais and Sao Paulo. The last one alone contributes more than 30% of all country's GDP. A recent study shows that Sao Paulo’s countryside is developing at a much faster pace than any other region in Brazil. Infrastructure for distribution and shipping overseas is widely available in it’s locations however production costs will be considerably higher than in other states such as Bahia where products can be bought at a fraction of the price.

 If your intentions are to export to Brazil then you should focus on the southeast since is the most developed and you will find clients with far more purchasing power than other regions. In case you plan to import, and depending on the volume of your business, it is highly recommended that you make regular visits to your suppliers in Brazil as the Brazilian commercial culture relies heavily on the development of strong personal relationships. Having said that, please note that business people in Brazil often speak English but many promising trade opportunities can fail due to misunderstandings and poor communication. If you believe Brazil will be the significant part of your commercial deals it may be worthwhile to hire recommended and trustworthy Brazilian Portuguese-speaking staff members. Also learn some simple phrases to make a favourable impression on your suppliers and clients.

 Low wages, really?

A common misconception for companies that plan to set up roots in Brazil is to believe that salaries are very low in Brazil. The monthly minimum wage is current BRL$622 ($300.00), but employees with a bachelor degree in engineering can earn from BRL$4500 ($2200.00) on entry level to BRL$15000.00 ($7200.00) for an experienced professional. Also salaries vary from state to state (southeast higher) and for experts wages may more than double in the next few years due to the economy expansion.

Hearts and minds

In order to avoid frustration please bear in mind the follow warnings when dealing with Brazilian entrepreneurs. Foreigners consider often Brazilians very vague. They can represent your company in Brazil without a firm commitment and this can easily lead to all sorts of difficult situations.

Another challenge is the nearly impossible conditions Brazilian sales representatives impose in order to do business with them. Such as, 50% sales commissions without added value, fixed fee to become their preferred vendor or even impose to the foreign part in a joint venture to take all the legal risks. These practices are accepted by some foreign companies operating in Brazil however this might drive away many opportunities as some might understand them as risky, dodgy or even illegal. However these tough preconditions might not be any of the above, just the Brazilian way of doing business.

Brazil is becoming a major player in the global trading and there are great opportunities waiting for the right individuals, however there are a significant amount of obstacles on the road even for an experienced businessperson. The Brazilian Government is planning to invest US$470 billion in the next few years for the development of the country’s infrastructure in areas such as the energy generation and distribution system, roads, railroads, ports, and airports not to mention stadiums as it prepares for the World Cup in 2014 and the Olympics in 2016. These investments alone represent huge business opportunities for subcontractors and suppliers. Although being a challenging country, there is great potential if all the precautions are taken.