Brazil offers many excellent business opportunities for foreign companies. With a population of 169 million inhabitants, 81% of whom live in urban areas, these opportunities resist to the instabilities in the economy and the constant changes in direction made by the government. Last year the Brazilian retail market had business totaling up to US$ 63 billion, of which 1.73 billion through e-commerce. This segment is growing at an extremely high rate (23.7% from 2002 to 2003) and it already involves 3.4 million consumers, 50% of which have had their first purchase by this system for the first time in 2003!
The technology and telecom markets are growing at considerable rates; for example, broadband access services grew last year by 42%, reaching up to 983 thousand users, with a forecast of 1.8 million in 2004, 2.3 million in 2005 and 3.1 million in 2006. The most widely used access system was ADSL (Asymmetric Digital Subscriber Line), with 83% of the total of users. When we analyze the numbers of the cellphones market we also find remarkable growth rates; the number of units has surpassed that of fixed terminals with a total of 45.6 million users in 2003, with a forecast of 52.5 million in 2004 and 58 million in 2005.
How can a foreign company enter the Brazilian market and share this spectacular growth, while at the same time reducing to a minimum the risks of operating in an unknown market?
The search for specialized support is of fundamental importance in any operation start in Brazil. This is a country with an extremely large territory, divided into 27 states; each region has its different customs, patterns of behavior, and a different economic outlook. Many foreign retail companies have been extremely successful, like McDonald’s, Microsoft and Symantec – but, on the other hand, many companies have failed, such as KFC, Subway, Arby’s , OfficeMax, etc, due to a lack of knowledge about the peculiarities of Brazil’s economy and the behavior of the Brazilian consumer.
The establishment of a network of POS (points of sales) of computers technology and telecom with a nationwide coverage is extremely difficult in Brazil; instead of large store chains that cover the whole Brazilian territory, what we have is a large number of highly scattered small companies that operate only on a regional level.
In this case you need to find a large number of regional business partners, and this makes the formation of a network even more difficult. Many companies start their activities through distributors that operate in Brazil promising a growth of the brand name in the Brazilian market, but this is by no means a guarantee of certain success. We should have in mind that the ever tighter budget margins with which the distributors are operating do not allow the development of typical activities that are necessary when introducing and distributing a new product, especially in a highly competitive market such as Brazil. It becomes difficult or impossible to aggregate value to the product; the operation on a “moving boxes” basis is the only thing possible. Therefore, the presence of the manufacturer in Brazil, either directly or indirectly, is of fundamental importance in the positioning of a brand name at the POS and with the final consumers.
The retail market in Brazil has its doors wide open for companies that offer products with a high technical quality at competitive prices. However, we shouldn’t forget that the preparation of a careful and thorough viability study, before starting any operation, is absolutely essential for the successful launching of a new business in Brazil.