So this Thursday, the FIFA World Cup kicks off in Brasil with the host country playing against Croatia at 4:00 EDT. It's an incredibly exciting time for Brasil, a country so passionate about the game. To call it a national pastime is insufficient. It's everything. For the next month or so, Brasil provides the stage for the world to watch. What the World Cup will also allow us to do is realize how little we actually know about this amazing country and its promise on so many levels.
From a commercial standpoint, Brasil has offered potential for success for foreign manufacturers for only about the last 25 years. Up until that time, Brasil was very isolated. Commodity rich and with a population of approximately 200 million people, Brasil was as self sufficient as a country could be. If it was being used in Brasil, chances are very good that it was being made in Brasil. Times have changed, and the evolution of Brasil is occurring very rapidly, relatively speaking. From 2000-2010, millions of households climbed out of the poverty level and the current decade is seeing a dramatic increase in the middle class and affluent levels.
As the country is maturing rapidly from a socio-economic perspective, it has also opened the doors to foreign manufacturers. While this transformation has not gone as smoothly as it could have, it is happening nonetheless, and it is improving from year to year. Brasil represents an exciting marketplace for the discerning manufacturer. With the proper strategy, it can yield strong results for many years. Due diligence and patience, however, are critical for the process.
Looking at the following rankings for Brasil (out of 189 countries ranked), one might ask - "Why in the world would we be interested in establishing a commercial presence there?"
2014 Rankings by Topic:
Starting a Business - 123rd
Registering Property - 107th
Getting Credit - 109th
Paying Taxes - 159th
Trading Across Borders - 124th
Enforcing Contracts - 121st
Overall Ease of Doing Business - 116th
Source - http://www.doingbusiness.org
So why should manufacturers have a keen interest in Brasil? The country currently enjoys the 7th ranked economy in the world, and it's climbing. Brasil's GDP can realistically surpass both the UK and France in the coming years, making the country a Top 5 global economy. The consuming class is undergoing explosive growth, and it is happening right now!
Looking at the Brasilian marketplace from the outside, we see a country that has some high entry barriers There are high importation costs for distributors, a complex importation system, and the acknowledgement that, of those distributors who CAN import, only a small percentage of them are willing to do so. To enjoy the benefits of a multiple distribution network, establishing a local presence is necessary. If YOUR Company wants to be in Brasil, you will literally need to BE there. Without a local presence, you will suffer from:
Limited local inventory
Limited Sales / After-Sales Service capability
Limited price control
Limited market development capability
No control of your brand image (IP issues abound)
Obviously, this is not a formula for sustained commercial success.
With a local presence, you will not only be able to avoid the negatives listed above, but you will also be able to:
Identify the best distributors for your products and services
Benchmark the local competition (there are many Brasilian manufacturers to consider)
Introduce the appropriate product mix (not all of your offering may be suitable for the Brasilian market)
Add sales resources appropriately (due to high employee costs, you will need to do this in a carefully measured fashion)
Establish a local training center
Another major challenge is lead times associated with shipping and customs logistics. Product shipments from the US to a non-affiliated Brasilian distributor can easily take more than a month. To counter this, it is recommended that manufacturers take advantage of Brasil's sophisticated Bonded Warehouse system. There are many advantages to this approach, especially early on in the manufacture's approach to Brasil. A bonded warehouse allows you to:
Move your products immediately from the Brasilian airport to the bonded warehouse, reducing the customs clearance process time by up to 2-1/2 weeks.
Manage your inventory with more flexibility. Though the products are sitting in a warehouse located in Brasil, they have yet to clear customs. That allows manufacturers to return inventory to their home country much easier.
Enjoy more working capital, as customs duties are deferred until the products are cleared from the bonded warehouse.
Bonded warehouses offer much more than just storage space. Companies can pay the bonded warehouse to have their personnel perform such tasks as repacking, shipping, and invoicing. These job functions should be investigated, as the costs associated with paying your own employees can be very high. Once foreign manufacturers have become established and have a good understanding of their inventory turns, they can transition more inventory to a company-owned warehouse, moving the products closer still to the ultimate customer. This learning curve takes time, but it is critical for success without overspending in the early days.
There are other issues, as well, and they all deserve attention to ensure that YOUR Company gets off to the right start when considering establishing a commercial presence in Brasil. If you were in Brasil this week, it would be a costly mistake to wear an Argentina jersey. If you want to be in Brasil for business purposes in the future, there are many other costly mistakes to avoid!
If you are considering entering Brasil or any other Latin American market, contact Brand Performance to learn more about the process. We have lived through it, and there are many valuable lessons to be shared.
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