Crossborder (dropshipping) Vs Local stock models for your E-commerce sales in Brazil

  1. Crossborder (dropshipping) Model 

Many international sellers wish to ship their products individually directly from a warehouse abroad to their Brazilian consumers. 

It is possible? Yes 

But they will face some challenges:

  • International freight: Individual international shipment costs are much higher than bulk shipment and unfortunately the taxes in Brazil are calculated on a CIF base, meaning on the value of the product + international freight. Therefore, not optimizing the international freight may turned you uncompetitive. 
  • Prices: International sellers will not be able to inform the total final price to your customers, because you cannot include the taxes. By law, the final customer is responsible for the collection of taxes, while the international sellers are prohibited to pay these taxes on behalf of them. 
  • Taxes: As mentioned previously, your customer will be responsible for the taxes on the CIF value. With the cross-border dropshipping courier method, taxes to be paid are 60% to 95,6%. Not a good surprise!
  • Payment: There are only a few payment gateways offering crossborder payment solutions with purchase in local currency (Reais) by the Brazilian and reception of payment in USD or EUR. Most Brazilians only pay with local currency.  Moreover, not all Brazilians have a credit card and are used to very specific payment methods in Brazil such as Boleto Bancário, PIX or Parcelamento (installation payment). Few cross-border gateways of payment allow this type of payment, which is nevertheless crucial for the conversion of sales.
  • Delivery time: upon arrival at the airport in Brazil, the products will have to wait weeks before to be treated by the “Brazilian IRS” (Receita Federal Brasileira). 
  • Tracking : Beside the long wait at customs, within customs there is no tracking of the product, leaving you blind as to the progress of the clearance. 
  • Exchange and return: no possibility to exchange and return the products 

In consequence, such model will impact the business of international sellers in such way: 

  • Brand reputation:

Long delivery time, loss of tracking of the product, payment of additional tax to release the products from customs, no possibility of exchange and return.. the recipe for a bad shopping experience! Brazilians are very active on social media and consumer complaints website such Reclame Aqui. Your brand may quickly receive bad reviews that may damage your reputation.

  • Finance

With long delivery times and additional taxes, many buyers will ask for cancellation of the purchase. Foreign sellers face a high rate of chargebacks with big issues to get back their products.

Who will sell with a cross-border dropshipping model to Brazil ?  

Products below USD 50 CIF value (Product value + international freight) are not taxed.

Even though the benefit is only granted if the shipment takes place between two individuals, without commercial purposes, the truth is that in practice international sellers often manage to escape the control of customs. 

Therefore, companies looking for volume of low-cost products ready to assume the brand reputation risks and chargeback rate due to delivery time and lack of exchange-return option will find the crossborder dropshipping model a good solution to expand in Brazil.

And especially those interested in distributing their products on marketplaces such Mercadolivre, Americanas, Amazon..

Companies that desire to protect their brand reputation and find a solution that meets their customer needs, will look for setting-up a local stock. 

  1. Local stock for e-commerce model 

The natural development for brands with a reputation to defend and needing to offer a perfect shopping experience to their customers to penetrate the market is to set-up a local presence in Brazil. 

And a local presence requires the establishment of stock in the country. 

However,

Brazil is somewhat specific in terms of trade regulations and a foreign company cannot export its product and custom-clear it from abroad to deliver it to a fulfillment center. Indeed, managing a local stock in bonded warehouse from your headquarter abroad as it exists in Asia, Europe and USA is not possible in Brazil. 

You need a Brazilian company with an import license (RADAR) to do so. 

If not, your products will remain stuck at the customs with no chance to reach the warehouse. 

What are the solutions then?

If you cannot set-up your own stock remotely, the solutions are: 

  • Find an Import of Record (IOR) with e-commerce fulfillment capacities 
  • Open a subsidiary and get your import license. 
  • Find a distributor

All are relevant depending on the loss of control or the investment you are ready to assume. 

Nevertheless, you should be aware that opening a subsidiary in Brazil is quite long and costly and probably not a risk you would like to take without having tested the market responsiveness. 

In summary, the Brazil is a protectionist country applying non-tariff barriers (RADAR) pushing international companies to set-up a local subsidiary to expand in the country. 

However, on the other hand it is extremely difficult to open and run a business here. 

Therefore, finding the right partner, either an Import of Record (IOR) or a distributor  for the first stages of your development is probably crucial for your success.

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