21 December 2014

Andre Malinowski

Andre Malinowski - ModusLink

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Expanding Your Global Footprint into Brazils Booming Economy

03 December 2012  |  2313 views  |  0

With the increasing complexity of the world’s consumer markets, businesses face various challenges when it comes to expanding their footprint into the different corners of the world. Diverse government structures, unique social and business cultures, and an ever-changing array of legal requirements and compliance policies make it difficult to overcome country-specific challenges.

This is especially true in the e-commerce space. Web-shops have to be fully localized in terms of language, pricing, check-out processes, and culturally preferred payment methods. Add the complexity of various import taxes, foreign exchange and repatriation rules that need to be carefully attended, and it’s clear these companies need a country-by-country strategy. A “one size fits all” approach simply will not, in most cases, be successful.

Of the various challenges, the complexity of government-based monetary policies can become an organization’s biggest headache. Even very attractive emerging markets, like Brazil, pose this problem. In fact, Brazil’s multifaceted tax, import and repatriation rules can be some of the most difficult to untangle and manage over the long-term.

Likely the most pervasive barrier encountered by the incautious would be the “Custo Brasil” or the “Cost of Brazil.” This term refers to a variety of extra—often unanticipated—costs of doing business in Brazil including legal and bureaucratic impediments, excessive taxation, poor infrastructure, inflation and the like. This explains why the World Bank ranks Brazil #127 out of 183 economies in the world for the ease of doing business. The overall cost percentage is difficult to assess and while it has generally decreased in recent years, it remains a real burden and the cause of great frustration for international organizations doing business in Brazil.

Despite all these hurdles and challenges, Brazil remains one of the hottest investment opportunities in the world. With a population of 195 million, Brazil represents the 5th largest world economy in terms of GDP. As the purchasing power of the Brazilian population has grown in recent years, the demand for imported products, especially from the US and Europe, has been growing as well. Finally, adoption of online buying is skyrocketing, resulting in an expansion opportunity that, despite some difficulty, e-retailers should not miss. In order to avoid the bureaucratic and monetary tripwires, it is imperative to do ample homework in advance.

To balance opportunity and risk, entering the Brazilian market with an experienced partner is highly recommended. Many companies are able to address some of the critical e-commerce issues, such as language, on their own. However, achieving good conversion rates relies on a complete offering of local payment options. Many times, as is the case with Brazil, a partner is fundamental to fully understanding more basic questions of import regulations, what taxes have to be paid when and even repatriating funds. Several companies, such as PagBrasil & ModusLink, specialize in guiding companies in the development and execution of their e-commerce strategy. Additionally, this kind of service is available from specialized third party logistics providers, who may also help with distribution and order fulfillment.

Conclusion:

Choosing the right partner can be the make or break decision that determines success in Brazil – not only to help you tackle country- and industry-specific challenges, but also to help you grow as your e-commerce strategy evolves and the Brazilian market matures. In most cases, going a step further to outsource the main elements of the supply chain and e-commerce processes provides the optimal solution, empowering you to focus on your core business. 

Examples of “The Custo Brasil”

A 60% tax on imported products with value higher than $50 USD

A $3000 USD value cap on individual imported products

The need for a local presence or partner to help protect revenue, as repatriating funds often requires up to 30% withholding tax

Numerous popular Brazilian credit cards are not enabled for cross-border transactions which requires merchants to use a domestic acquirer to achieve the desired conversion rate

To contract a domestic acquirer a local bank account or local partner is prerequisite

To open a local bank account a local entity is needed

53% of credit card transactions are based on installment plans or “parcelas”

The Brazilian economy is still heavily reliant on cash, reflected in the 35% market share of Boleto Bancário, a prefilled bank slip for both traditional and online purchases

Considerations when selecting a business partner for Brazil:

Select a partner with direct access to local payment methods

Able to remittance funds to your part in the world

Look for a tailored package for your product and industry

Use a partner that supports all steps in your e-commerce development strategy

 

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