November 2013 Article
The challenge of bringing your business to Brazil
By Jerome P. Santos
“If it were easy everyone would be doing it”. This quote is a pretty accurate match for those international businesses looking to set up shop in Brazil. Starting a business in Brazil can be challenging, but, there are steps that can be taken to make the process less stressful and to allow for more efficient use of time and capital. Brazil continues to present a variety of attractive business opportunities. These opportunities are being perpetuated by the growing middle class, the exploitation of natural resources such as petroleum, natural gas, and minerals, the continued growth of agribusiness, a growing number of technology startups, and a focus on infrastructure development. However, establishing effective operations in Brazil for a foreign business is not for the faint of heart. I have had the experience of both assisting other businesses from abroad to establish their operations in Brazil, and of installing, maintaining and growing my own.
The economic activity of any country, including Brazil, is shaped by the laws, regulations and institutional arrangements put in place by the government and institutions. Some of the challenges to opening your business in Brazil are the labyrinth of bureaucratic and legal steps required to start a business, the cost and excessive time to comply with regulations and product registrations, a convoluted tax system, difficulty to enforce contracts, elaborate labor laws, the long process of closing a business, and even complexities of opening a commercial bank account.
The World Bank has compiled the following list of indicators that determine the ease of doing business in a particular country:
• Starting a business (procedures, time, cost and paid-in minimum capital to open a new business)
• Employing workers (rigidity of employment index, redundancy costs)
• Enforcing contracts (procedures, time and cost to resolve a commercial dispute)
• Resolving Insolvency (the time, cost and outcome of insolvency proceedings involving domestic entities)
• Getting credit (strength of legal rights index, depth of credit information index)
• Registering property (procedures, time and cost to transfer commercial real estate)
• Protecting investors (strength of investor protection index: extent of disclosure index, extent of director liability index and ease of shareholder suits index)
• Paying taxes (number of tax payments, time to prepare and file tax returns and to pay taxes, total taxes as a share of profit before all taxes borne)
• Trading across borders (documents, time and cost to export and import)
• Dealing with construction permits (procedures, time and cost to obtain construction permits, inspections and utility connections)
• Getting Electricity (applications and contracts with electricity utilities, all necessary inspections and clearances from the utility and other agencies until the external and ﬁnal connection works).
In a review of 185 countries using these criteria, The World Bank ranked Brazil number 116 on the ease of starting a new company. It is clear that the Brazilian government needs to implement reforms to help attract more international business but that will be a slow process.
So, is Brazil worth the risk of investing your international business development capital? The answer is yes, if you can mitigate the risk. Business opportunities will continue to grow in Brazil through at least 2016, the year of the Rio Olympics. If your company is interested in exploring the business possibilities in Brazil, you should first reach out for expert business development and administrative advice and service. I have often worked collaboratively with the commercial services department of the US embassy and consulates in Brazil. Annually, they organize several trade missions focusing on the various business industries in Brazil. A consistent piece of advice that embassy and consulate staff give to these visiting American companies is to find a local and experienced business advisor before making a significant investment within Brazil. A good local business advisor can help identify quality local partners, administratively comply with Brazilian laws and regulations, and to avoid business land mines. Small, medium, as well as large businesses can establish operations in Brazil and be successful by starting small, bringing in local partners and listening. In several cases, business contracts can be awarded prior to the need for major investment.
Setting up your business in Brazil will require patience, commitment, and good advice. The rewards for following these good practices can be significant. Some foreign investors are coming to this realization. Taking the time to be properly prepared and informed on what to expect when opening a business in Brazil will allow the development of appropriate operational and investment strategies. This planning will help your company’s adaptation to the Brazilian business culture and can make your decision to build your business in Brazil one you won’t regret.