Brazil is often considered a challenging market for foreign companies to enter. This article will be looking at the four most common challenges that foreign companies have to adapt to when establishing operations in Brazil. These challenges should be taken into consideration, especially when developing a business plan, but are definitively not a barrier to be successful in the market.
Just 30 years ago there were very few goods and services imported to Brazil. The country has changed their approach to foreign products relatively fast, although compared with markets like North America and Western Europe it is clear that Brazil is still a highly protectionist country.
The most obvious sign of protectionism in Brazil is the import tariffs. Brazil does not apply import tariffs equally for all imported goods, there are for example no import tariffs applied to goods originating from other Mercosul countries.
The regulatory framework is normally similar for Brazilian and foreign products although the regulators tend to establish routines and processes that aim to certify the standards of foreign products before they are commercialized. Examples include the Brazilian Telecommunications Regulator known as Anatel, which requires telecommunication equipment to be tested and homologated in Brazil.
Special credit line access and “Buy Brazil” acts as other ways in which the Brazilian government indirectly discriminates against foreign imports by requiring Brazilian content in the financed products.
Although Brazilian policy may be seen as protectionist, foreign companies operating in Brazil are generally given the same treatment as local companies. Businesses and investors that choose to establish production in Brazil will be treated equally to their Brazilian owned competitors.
This is the most common topic brought up when one asks about challenges of doing business in Brazil. The reality is that the total tax burden in Brazil is not much higher than in Western Europe, however the application in different.
Brazil favors indirect taxation, and due to the decentralized nature of the country, the taxation structure tends to be complicated. To add more complexity, each state and municipality have jurisdiction over specific taxes making it common for tax wars between different areas.
The government also engages in specific tax negotiations with companies that consider establishing activities and generate jobs in their areas. The general rule of thumb is that the tax burdens are lower the further you get from metropolitan areas.
The bureaucracy in Brazil is a result of a highly decentralized and hierarchic government divided into multiple hierarchical levels, in addition to bureaus, councils and administrative agencies at multiple levels. The fight against corruption has also added more bureaucracy to the Brazilian government.
However it is not just in the government that bureaucracy problems are reported. Privatized bureaucracy can be as extensive as government bureaucracy. Private service providers of utility services, communication services and financial services are subject to strict regulatory oversight and have therefore adopted many of the same bureaucratic routines as the government.
Do not underestimate the time needed to operate and conduct business in Brazil.
Qualified staff are hard to find and even harder to keep in Brazil. Many countries see increasing staff turnover these days, however Brazil is still one of the countries with the highest staff turnover.
Staff retention in Brazil is very industry dependent, the average in some industries like Media and Advertising can be as low as a couple of months while in other industries like Mechanics and Engineering can be several years.
Studies suggest that financial compensation and distance from home to work are the two main factors for Brazilians to change jobs. The challenge for the employer is that Brazilians often change jobs to get a higher salary rather than ask for a raise from their current employer.
Due to staff turnover, companies in Brazil often tend to be more task oriented and rely less on key people than North American and European companies.