There is a sea of factors for a company to consider when they send an expatriate to manage a foreign office or enter a foreign market. If the company fails to consider any of these factors, the experience might be detrimental to its success. When doing business in Brazil, it is no different.
Sometimes, companies fail to correctly assess the market, learn about the culture, or adapt their business practices of those more common in Brazil. All these can negatively affect the company’s market entry strategy.
You have probably heard the “when in Rome” saying. Well, it also applies at the business level. Continue to read about the 5 most common challenges and mistakes to avoid “when in Brazil”.
Let’s get into it!
Top 5 Risks of Doing Business in Brazil
There is always some level of risk on everything we do in life. Companies need to be aware of all risks that pertain to a foreign market to fully develop a market entry strategy.
Let’s dive right into the most common risks of doing business in Brazil.
1. Brazil is Still a Developing Nation
While the term “developing nation” is associated with rapid growth, it does not mean that every industry is being developed. In fact, it means that many areas of the economy are underdeveloped.
Some of the areas that remain undeveloped Brazil’s economy include consumer base, regulatory environment, and sphere of investment.
Additionally, in terms of infrastructure, Brazil remains underdeveloped compared to fully-developed nations. With the 2014 Fifa World Cup, hosted in Brazil, the government aimed to improve infrastructure. Nevertheless, Brazil ranks 107 out of 144 in terms of infrastructure.
Companies should always take in consideration factors such as infrastructure that affect levels of development. Low infrastructure development means your company might have issues with distribution across the enormous nation.
Laws and regulations have not been able to catch up with the fast growth of the economy. This presents many risks to foreign companies trying to do business in Brazil.
The World Bank released its 2020 annual report. This report evaluates aspects such as ease of doing business, dealing with construction permits, registering property, and paying taxes.
Brazil currently ranks 125 out of 190 countries. This shows there are considerable improvements to be made on laws and regulations to make it more attractive to foreign companies.
Not too long ago, Brazil was in headlines across the world for a major corruption scandal that involved CEO’s and government officials across Latin America and the world.
With so many regulatory agencies in the political system, it comes as no surprise that corruption and bribery are main issues when doing business in Brazil. The country ranked 76 in the Transparency International’s corruption index.
While the issues persist, the Brazilian government intends to improve this through initiatives such as the integrity programme. With this initiative, the government is trying to show more transparency by sharing where public resources are applied. e
4. Local Labor Force
With a participation rate of about 62%, unemployment in Brazil is close to 12%. According to Forbes, the labor market is imploding. High inflation rates make prices fluctuate, and jobs in the manufacturing sector are disappearing.
Labour unions are big in Brazil! Make sure you are aware of how labour unions work and the scope of what they can achieve.
It is highly advised to foreign companies to review Brazil’s labour laws. Heads up: they are 900 total articles that are difficult to navigate. Otherise, your company might fall victim to fines and a tainted reputation.
5. Export and Import Barriers
Brazil is the 21st largest exporter in the world! You must be thinking that duties and restrictions must be low. Unfortunately, this is not the case.
Imports have decreased annually by almost 20%. Businesses are often faced with complications with custom duties. Containers are held in port for up to 71 hours to ensure all documentation and processes are completed.
Overall, high custom duties make exports too expensive for the Brazilian market to afford.
Now that you know the main complication in the Brazilian market, let’s explore what companies can do to ensure a smooth entrance into the Brazilian market.
The Don’ts of Doing Business in Brazil
As with every market, Brazil has some shortcomings. But, foreign companies are also to blame for their failures in the market because they take an ethnocentric approach.
Here are 10 don’ts of doing business in Brazil.
Always keep in mind that Brazil is a DIFFERENT country. Every country, and even regions within the same country, has a different culture. We have to be aware of these differences and how to be respectful towards each other’s customs.
Ready to Penetrate the Brazil Market?
While we acknowledge that this market isn’t easy, with the right strategy and angles, you can make a big impact in the region.