Brazil a tough nut to crack, but worth the effort, says trade expert
The Brazilian government has been rated by the World Bank as the fourth-worst bureaucracy in the world to deal with when starting a business, with the required paperwork taking an average of 155 days. Its track record for working with companies to shut down their operations is even worse; it takes an average of 10 years to close a business in Brazil.
Why trade with a country that has a stifling bureaucracy and no significant trade agreements with any other nation? Well, it is the world’s 12th-largest economy, with an emerging middle class who are eager to buy consumer goods, says John Harris, minister counselor for commercial affairs with the U.S. Embassy in Brazil.
“If you succeed in Brazil, the rest of the continent is probably yours,” he told a group of about 50 business people who attended the “Building Your Business in Brazil” forum last week at the John and Mary Pappajohn Education Center. The event was sponsored by the Greater Des Moines Partnership and the Midwest Agribusiness Trade Research and Information Center, in conjunction with the U.S. Commercial Service and Des Moines Area Community College.
With a gross domestic product of $598 billion last year, Brazil’s economy is smaller than that of Texas. However, it’s America’s 14th-largest trading partner and the most significant country in South America, Harris said.
“It’s a new consumer market that’s appearing,” said Harris, whose office last year guided nearly 600 U.S. companies in investigating potential business ventures in Brazil, a level of inquiries second only to India.
Additionally, because the value of the Brazilian currency, the real, has remained stable over the past several years and is strong relative to the dollar, U.S. goods can be more competitive in Brazil, he said.
Brazil’s ongoing expansion of its agricultural base into the tropical interior of the country has prompted most of the major agricultural companies, including Deere & Co., to establish a foothold there.
Deere first entered the Brazilian market in 1979 following two years of negotiations in a joint venture with a well-known local combine manufacturer. In 1996 the joint venture began making tractors, and the companies began co-branding their products. By 1999, Deere fully owned its Brazilian operations and marketed the products under the John Deere name.
“What was extremely important to Deere was sticking to its core values,” said Martin Mundstock, a Brazilian who directed Deere’s operations in that country before moving to Waterloo two years ago to manage the company’s Iowa tractor works. “Our relationship with our partner was good, because we both shared the same values.”
For those companies willing to invest in Brazil’s future, the place to build a factory is in the developing interior, he said. “You won’t get all of the infrastructure, but you’ll get the advantage of future growth,” he said.
Principal Financial Group Inc. is another company with a significant Brazilian presence. In 1999 its subsidiary, Principal International, formed BrasilPrev, a joint venture between Principal and Banco do Brasil, the country’s largest bank. The company provides for the retirement needs of employers and individuals, mainly through the sale of defined contribution plans.
Kent Myers, a senior financial analyst with Principal International, was among those attending last week’s conference.
“Anything that’s available about Brazil, we’re interested in seeing,” he said.
Allen Patch, director of the U.S. Export Assistance Center in Des Moines, is the local contact for Central Iowa companies that are interested in investigating international trade with any country. The U.S. Commercial Service office of the particular country in which a company seeks to do business also can provide specialists with expertise in virtually any industry, Harris said.
“Many companies go to Brazil first, because the potential is so great,” he said. “But it’s not an easy country. Others decide to go to Mexico first, because it’s so close. Whatever you do, come to Commercial Service first.”