How to properly prepare for your business expansion in Brazil?
Many international companies are looking to Brazil as an opportunity for expanding their business and grow worldwide. We always say that the process of legalizing a foreign brand in the country is complex and bureaucratic. That is why starting a new business some steps that will guide your company through all the necessary processes to consolidate your presence in the country.
In this article, we have listed 7 steps for your company to follow when preparing your business expansion in Brazil.
1. Understand customs regulatory laws and their impact on your business model
The first thing to know before any export to Brazil, whether directly for a buyer or to establish a stock locally is that contrary to what is done in many countries, you will not be able to just deliver your goods by yourselves and you will need a local entity in Brazil with import capacity.
Indeed, the main explanation for this is the need for an import permit called RADAR to do customs clearance.
A foreign company is not authorized to obtain this RADAR permit and only a Brazilian company will be able to process the customs clearance of the products.
Concretely, this means that you, as foreign company, cannot deliver DDP to your customer or a warehouse / fulfillment center.
In terms of the business model, this means that you must adapt to this reality, focusing on buyers with the ability to import, finding a distributor (often for each state), working with one or more local partners such as Importer of Record and Fulfillment provider, or open a subsidiary to obtain the necessary authorizations.
2.Check the regulatory standards of your project
Unfortunate, Brazil has its unique standards with often little to no recognition of the international standards commonly used in the world. Brazil currently ranks last (141/141) in the World Economic Forum’s 2019 Global Competitiveness Report for “Burden of Government Regulation.”
Consequently, this means that even if a company has already tested its products and successfully met technical requirements through a International recognized method, it may still be necessary to re-test and re-certify those products to meet the technical proper requirements used in Brazil.
This mainly concerns products related to health, cosmetics, electronics and related to food and agriculture.
It will therefore be necessary to refer to the directions of the competent public bodies:
- ANVISA for sanitary and cosmetic products.
- INMETRO / ANATEL for electronic and telecommunication products.
- MAPA for food and agricultural products.
These regulations apply to both the products and the companies that distribute them.
And some take a long time to get. Be aware of the needs of your project and the deadlines for each step.
For example, obtaining ANVISA for its subsidiary will surely take a year before it can be operational. Knowing this, you might prefer to find a local partnership first before making this investment of time and money.
3. Learn how to navigate through the complex Brazilian tax system
When an international company is interested in a potential expansion in Brazil, one of the first points of attention must be that of the projection of operational costs and to have an idea of the possible prices at the end of the distribution chain.
Indeed, doing business in Brazil requires deep knowledge of the local environment, including the high direct and indirect costs of doing business, commonly referred to in Portuguese as the “Custo Brasil” or “Brazilian Cost.” The World Bank’s Doing Business 2020[N11] report ranks Brazil 124 out of 190 countries in terms of ease of doing business.
It is highly recommended to work with a local partner to understand Brazil’s complex legal and regulatory system to make accurate forecasts and build a correct business plan.
You will have to study and understand more about some important costs and taxes to open your operation in Brazil, such as:
a. Understand the level of authorities (Federal, States, City).
b. Understand the corporate taxes regimes.
c. Identify the import duties paid at customs clearance and understand which are the taxes only related to import and taxes also applied locally.
d. Understand the mechanism of tax recovery.
e. Understand the parameters that will impact the taxation of your sales.
f. Understand the direct taxes on legal entity.
g. Be aware of possible taxes incentives.
4. Plan supply and distribution chain taking into consideration the size and the tax system of Brazil
Brazil is a giant and its infrastructure is not yet at the level of regions like Europe or North America.
Logistics costs can quickly drastically reduce your operating margin if the supply chain is not well planned.
Also, tax burden may change according to supply and distribution chain of your goods.
The choice of certain logistics tools such as bonded warehouses or a certain distribution chain can considerably change the situation and optimize your initial investments.
Take the time to study several possible scenarios with the help of a local specialist who has a comprehensive understanding of the different ins and outs of each model.
5. Do not have the arrogance to think you will be able to adapt your marketing without a local vision
Many brands believe they can reach Brazilian consumers using the same methods and codes used in their existing market.
Brazilians are very attached to their cultures (in the plural given the diversity of the country), very communicative online and creative.
A marketing team, even Latin, even speaking Portuguese (but not “Portuguese) Brazilian, working remotely without living the local codes will not be able to speak with consumers effectively and create enthusiasm for your brand.
Brazil has the fifth largest population of social media users worldwide and the second-largest out of Asia, only second to the United States. Such a vast market represents a land of opportunities for multiple online social networks (source www.statista.com)
It is an essential communication channel for brands in Brazil. Who should be taken seriously and without seeming condescending.
6. Consider human relationships
Whether with your distributor, your supplier or your employees, you will have to work and maintain your human relationships to ensure your success.
It’s a soft skill often underestimated in a country where business is done first with the human being in front of you rather than the corporation and can both lose and gain great opportunities on a simple feeling.
7. Think long term
A famous saying goes: “Brazil is not for amateurs”.
And in this, he implies that Brazil must be thought of in the long term. The time to assimilate its complexity, to develop in stages without wanting to skip them at the risk of “jumping in the deep end”.
Successful development will make it possible to take advantage of a continental market with strong dynamism and growth potential.
A tip, therefore, take the time to prepare this market with care. A few lost months of planning will be worth gold when operations are launched.
Do you want to know more about how to open and consolidate a company in Brazil?
