Market Entry Strategy
One of the best ways to enter the Brazilian market is by attending a trade show. The U.S. Commercial Service Brazil frequents many of the trade shows held throughout Brazil, and can provide counseling assistance or organize meetings with potential buyers during these events. More information on upcoming events can be found at www.buyusa.gov/brazil. Some of the other key ways that U.S. businesses enter Brazil are through agents, distributors and joint ventures. Some firms even establish an office in Brazil. Further discussion of these alternatives can be found in the “Marketing Products & Services” chapter. With each of these options, and because Brazil’s business culture is one largely based on personal relationships, it is often best for a U.S. company to visit Brazil to meet one-on-one with a potential partner. At the very least, a U.S. business should receive credit information on a potential partner from a well-respected source.
With offices in Brasilia, São Paulo, Rio de Janeiro & Belo Horizonte, the US Commercial Service Brazil (www.buyusa.gov/brazil) helps US exporters enter the Brazilian market through research, matchmaking and advocacy. To the best of our knowledge, the information in this report is accurate. However, readers should conduct their own due diligence before entering into business ventures.
Using an Agent or Distributor
Although some companies import directly from foreign manufacturers without local representation, in most cases the presence of a local agent or distributor can be very helpful. As in other countries, the selection of an agent requires careful consideration. In general, larger companies will have a wider net of sales offices and smaller agents will be geographically limited. Because of regional economic disparities, poor infrastructure and a host of other issues, it is often difficult to find one distributor that had complete national coverage. Lawyers recommend that exporters and representatives have a written agreement to help exporters limit liability in case of product defects, protect a trademark, better ensure payments and define a warranty.
It is up to the foreign firm and the local partner to negotiate the representative agreement, including whether it is or is not exclusive and does or does not include specific performance targets. Contract clauses are freely negotiated between the foreign and local firms. However, the US Commercial Service strongly suggests that US companies consult a Brazilian law firm before signing any agreement, so to avoid future legal problems. Under Brazilian law, an agency agreement entitles an agent to receive a termination amount equivalent to at least 1/12 of all commissions received throughout the contract.
Establishing an Office
Either setting up a company in Brazil or acquiring an existing entity is an investment option for Brazil. Setting up new companies is relatively complex, although the Ministry of Development has signaled a desire to simplify the process. Acquisitions of existing companies are monitored by the Central Bank. Corporations (“sociedades anonimas”) and limited liabilities (“limitadas”) are relatively easy to form. Local law requires that foreign capital be registered with the Central Bank - failure to do so may cause serious foreign exchange, capital repatriation, or profit remittance problems. More information for potential investors can be found on our “Investment Climate” report (www.focusbrazil.org.br/ccg), or through Brazil’s Ministry of Foreign Affairs, Trade Promotion Department (www.braziltradenet.gov.br).
Franchising
Franchising accounts for approximately 25% of gross revenue in the retail sector. Local Brazilian Franchises dominate the market (90%); however, foreign groups, particularly from the US, are making their way into the market. To take advantage of this huge market, U.S. franchisers should adapt their product or service, invest in market research, and test market receptivity through pilots. Franchise consultants call this process “the tropicalization” of the franchise. The Franchising Law requires close attention. It states that franchisers or their master-franchisees should provide all potential franchisees with a Franchise Offering Circular (Circular de Oferta de Franquia). This must contain basic information about the financial health of the franchiser, as well as information on any pending legal disputes. A full discussion of the Franchising sector can be found in the “Best Prospects” section of this Guide (www.focusbrazil.org.br/ccg).
Direct Marketing & E-Commerce
Brazil is a large country with an untapped interior that is perfect for direct marketing. E-commerce is on the rise and provides many additional marketing and business opportunities. Because of its excellent postal service, direct marketing is a proven way to reach 35 million middle-class Brazilian consumers. On average, Brazilians only receive 10 percent as much direct mail as US citizens each year.
Although Brazil differs from the US in regards to telemarketing, postal rates, regulations, fulfillment, printing and mailing services, US catalog, e-commerce and teleservice firms have been successful. Brazil is Latin America’s most advanced Internet and e-commerce market. Today, over 20 million Brazilians are on-line regularly, often using broadband.
US exporters may sell directly to Brazilian consumers or distributors. However, different Brazilian customs rules apply to these types of transactions. As far as shipments to distributors or Brazilian trading companies, US exporters can only sell to Brazilian companies that are registered with the Secretariat of Foreign Trade (SECEX) of the Ministry of Development, Industry and Commerce. SECEX plays a central role in the implementation of directives on trade issues in general. With respect to sales to end users or consumers, US exporters may ship goods directly.
Joint Ventures & Licensing
Joint ventures are very common in Brazil, particularly as a way for foreign firms to compete for government contracts or in heavily regulated sectors, such as telecom and energy. Usually joint ventures are established through "sociedades anônimas" or "limitadas," which are similar to corporations and limited partnerships in the US. Licensing agreements are also common in Brazil. Use of a competent local attorney in structuring such an arrangement is advised. All licensing and technical assistance agreements, including trademark licenses, must be registered with the Brazilian Industrial Property Institute (INPI, www.inpi.gov.br/).
Selling Factors & Techniques
Price, quality and payment terms are extremely important sales factors. Generally, US goods are perceived as high quality, though the market’s opening in the early 1990s brought greater foreign and domestic competition. To be competitive, U.S. companies should adapt their products to local technical requirements and culture. In many cases, products manufactured at U.S. standards are not acceptable, while the country’s size creates numerous cultural differences. Competing with an ever-increasing amount of Chinese imports can be difficult because of their lower price – thus, again, emphasizing the quality of the product is key for U.S. companies.
Advertising & Trade Promotion
With its well-established and diversified industrial sector, Brazil has a variety of specialized publications that can provide excellent advertising outlets. TV advertising can also be important, particularly for consumer goods and food products. Most of the world’s top agencies are present in Brazil, and though top advertisers vary from year to year, often included are Unilever, VW, Fiat, Ford, and GM. The top ad categories per investment are trade & commerce, consumer services, culture, leisure, sports & tourism, media, and public & social services.
The most popular magazine in Brazil, with a circulation of over one million copies, is the weekly Veja, published by the Abril Publishing Company (www.uol.com.br/veja). The largest daily circulation newspaper is Folha de São Paulo, published by the Folha Group, with a circulation of 400,000 on Sundays and 300,000 from Monday through Saturday (www.uol.com.br/fsp).
Participating in trade fairs is another important marketing tool. The city of São Paulo hosts around 300 trade fairs per year, and other cities host significant shows as well, e.g. Oil and Gas (Rio de Janeiro) and Mining (Belo Horizonte). These events attract many visitors and exhibitors from Brazil and foreign countries. The USCS Brazil participates in many of these events and can help you attend and arrange meetings with potential agents, distributors, lawyers, and customers.
Pricing
Payment terms are extremely important in Brazil because of the country’s high interest rates – it is not unusual for a company to select a supplier whose prices are higher but who offers better terms. In Brazil, all import-related costs are generally high because of taxes – thus some U.S. companies implement efficient logistic systems and lower expected profit margins. In some cases costs are so high that a simple calculation may indicate that margins will not allow you to compete with a local product. For more information on calculating the landed costs for exports to Brazil, please refer to our report on Trade Regulations and Customs at: www.focusbrazil.org.br/ccg.
Sales Service & Customer Support
The “Consumer Protection Law” of 1992 requires customer support and after-sales servicing. In the case of imported products, the importer or the distributor is responsible for such services. Thus, US manufacturers should appoint agents or distributors that are qualified to provide such services.
Selling to the Government
Winning contracts with the Brazilian Government is challenging, even for large US companies. Without a significant in-country presence and the patience and financial resources to respond to legal challenges, charges of corruption, and bureaucratic delays, exporters should proceed cautiously. Still, the Brazilian Government is expected to spend a significant amount in a variety of areas, and US companies may find success by subcontracting with larger Brazilian firms that can navigate the procurement maze.
Brazilian Government procurement policies apply to purchases by government entities and parastatal companies. Government procurement regulations contained in Law 8666 of August 1993 established an open competitive process for major government procurement. Under this law, price is to be the determining factor in selecting suppliers. Law 8666 establishes general norms for tenders and administrative contracts (for goods and services) to be followed at the Federal, State, and Municipal level, by entities directly and indirectly administered by the Federal Government, special funds, public enterprises, and public-private companies. In theory, the Brazilian Government may not make a distinction between domestic and foreign-owned companies. However, in the case of a tie in the tendering process, preference is given to goods produced or services supplied by Brazilian firms of national capital or domestically produced in Brazil.
Most government procurement processes are open to international competition, either through direct bidding, consortia or imports. However many of the larger bids (e.g. military purchases) become very political and are done through sole sourcing or national security arrangements that exclude competition. This kind of purchasing often requires an act of Congress, which can be difficult and time consuming.
Brazil is not a signatory of the WTO multilateral Agreement on Government Procurement (GPA), and as such does not necessarily use the same procedures as other signatories. International bidding is required for all procurement with international development bank funding, i.e. the Inter-American Development Bank, the World Bank, etc. The Brazilian executing agencies of IDB loans require international bidding above specific ceilings, according to IDB procurement guidelines. For example, consultant contracts require international bidding above US$200,000 and civil works above US$5 million. However, portions of major projects financed by IDB may not require bidding where local Brazilian counterpart funding is involved.
Government procurement of telecommunications and informatics equipment is exempt from the above requirements. Special requirements were established in 1993 and 1994 allowing locally manufactured telecommunications and informatics products to receive preferential treatment in government procurement, and to be eligible for tax and other fiscal benefits based on local content and other requirements. These exceptions to WTO norms are significant. The Brazilian Federal Accounting Court noted that 51% of the Government’s procurement in 2003 was done without a formal competitive bidding process. Often the Brazilian Government cites emergencies in procurement actions that would make the open bidding process time-prohibitive. At all levels, corruption remains a concern.
It is often difficult for foreign companies to operate in Brazil’s public sector unless they are associated with a local firm. To be considered Brazilian, a firm must have a majority of Brazilian capital participation and decision-making authority, or operational control. A Brazilian State enterprise is permitted to subcontract services to a foreign firm if domestic expertise is unavailable, but a foreign firm may only bid to provide technical services when there are no qualified Brazilian firms. In the case of international bids to supply goods and services or specific government projects, successful bidders are required to have local representation -- i.e., legal presence in Brazil. Since the open period for bidding is often as short as one month, it is advisable to have a resident partner in Brazil. The inclusion of local purchases of Brazilian goods and services, or significant subcontract association with a Brazilian firm, may improve a bid’s chance for success. Similarly, a financing proposal that includes credit for the purchase of local goods and services for the project will be more attractive.
Advanced descriptions of US suppliers' capabilities can prove influential in winning a contract, even when they are provided before the exact terms of an investment plan are defined or the project's specifications are completed. Such a proposal should include financing, engineering, and equipment presentations. The success of e-government has prompted Brazil’s Government to change Law 8666 and pilot a more efficient system using electronic purchase contracts, with the goal of making small companies more competitive. The pilot program currently only covers a few categories.
Distribution & Sales Channels
All of the customary import channels exist in Brazil: agents, distributors, import houses, trading companies, subsidiaries and branches of foreign firms, among others. Brazilian importers generally do not maintain inventory of capital equipment, spare parts, or raw materials, partly because of high import and storage costs. Recently, because of the creation of additional bonded warehouses, industries that rely heavily on imported components and parts are maintaining larger inventories in these warehouses.
Due Diligence
Because laws regulating commercial agreements and transactions vary from country to country, we strongly encourage all US companies conduct legal and financial due diligence before completing a commercial transaction or formalizing any agreement. In Brazil, the USCS can provide US companies with lists of well-known and respected credit rating companies and law firms who can conduct credit checks on potential customers or provide important legal advice. Additionally, the USCS Brazil offers US companies detailed background information, including visits to the target company, through its International Company Profile (ICP).
