Conducting business in Brazil

Brazil Business

Conducting Business: An Overview of Brazil

The Brazilian economy, considered the 10th largest in the world, is attractive to many foreign investors for a variety of reasons, including the relatively large consumer base. However fluctuations in the economy and the rise and fall of currency have prevented many big businesses from investing in Brazil. However, careful attention to business and economic trends as well as the rules and regulations that govern business operations in Brazil can ensure the success of even marginally lucrative endeavors.

Current Business Conditions Brazil

Brazil is considered the largest nation in South America with more than 160 residents and twenty six states (Lomheim, 2004). The Brazilian government is currently a federal republic that operates with a bi-cameral congress including a Senate and a Chamber of Deputies, with the number of deputy's representative of the population in each state (Lomheim, 2004).

There are several different political parties that dominate the Brazilian landscape including: Brazilian Democratic Movement Party, Liberal Front Party, Progressive Renewal Party, Brazilian Social Democracy Party and the Liberal party to name a few (Lomheim, 2004). Corrupt politicians and lack of support for a predominately military rule has led to a decline in public support for political parties in the last decade, as well as the existence of more than 30 political parties overall in the nation (Lomheim, 2004).

A majority of the economic and business activity that occurs within Brazil is concentrated in southeastern states including those of So Paulo, Rio de Janeiro and Minas Gerais (Kullman, 2004). The primary areas of business and manufacturing include (but are not limited to): automobile manufacturing, steel, petrochemicals, computers and aviation (Kullman, 2004). There are many manufacturing cities located in the Northern region of Brazil though generally this area is less populated than others. From an agricultural perspective the following items are most often produced and associated with Brazilian agriculture: sugar cane, coffee, soybeans and orange juice (Kullman, 2004).

Brazil is well noted for having rich agricultural, mineral and industrial resources, thus it is considered a commercial "opportunity to U.S. exporters" (Kullman, 2004).

From an economic standpoint Brazil as recently as 2003 imported more than 11 billion dollars worth of U.S. goods and services (Kullman, 2004). Export products are diversified and include telecommunications, safety and security equipment, pharmaceuticals and pollution control mechanisms to name a few (Kullman, 2004).

Brazil is considered a viable business risk in part because strong relationships exist between Brazil and the United States. The two countries share many "moderate' economic policies, and there are currently many reforms in place and legislative initiatives meant to help promote Free Trade with America (Kullman, 2004).

Rideg & Price (2003) note that a cycle is apparent within Brazil that can be analyzed in order to determine the most optimal time for business opportunities and new ventures. Brazil is described by the two analysts as having a "diversified industrial base and resolute private sector" however the authors also suggest that many swings are evident within the business economy. These fluctuations have according to the authors, "sent numerous multinationals packing, while transforming a few local speculators into billionaires" (Rideg & Price, 2003).

To its credit Brazil is considered the 10th largest economy in the world, thus it is still appealing and attractive to many foreign investors. However it has also experience many pronounced business cycles, which can be tracked based on economic growth trends and trends in currency values (Redig & Price, 2003). Investors willing to investigate the market should make note of what points are best for entry and exit in the market in order to maximize profits (Redig & Price, 2003). Local money is primarily credited with driving the growing economy, and as the authors point out the Brazilian economy is "no less risk averse" than any other country (Redig & Price, 2003).

Though there is risk involved with investing in Brazil (as with anywhere) the potential for rewards is also tremendous, as evidenced by Telecom Italia Mobile and LG Phillips, both who invested several hundred million in the company and are now well positioned to capture millions of additional customers (Redig & Price, 2003). The key to business success is simply market entry timing, and best practice observations from competitors has been cited as the answer to investor problems and concerns (Redig & Price, 2003).

Effects Conditions Business Operations

There are many business conditions that are considered specific to the country that foreign investors and travelers should be aware of. For one negotiation's in Brazil are generally considered very slow and much more personal that business interactions conducted in the United States (CC, 2004). Brazilian business is often conducted in Portuguese, the primary language of the nation, and executives often need an interpreter to conduct business (CC, 2004).

Customs tariffs currently exist, however the nation's president is currently working to establish a Free Trade Area to reduce the tariffs and increase market access particularly for U.S. exporters (Kullman, 2004). The GDP rose in 2002 and then remained stagnant in 2003, but in early 2004 once again grew approximately 2.7%, suggesting a lucrative market (Kullman, 2004).

The currency in Brazil however is considered weak and at this time Brazil does little international business with countries other than the U.S. (Kullman, 2004). In order to conduct business successfully within Brazil, foreign companies have to have knowledge of local customs and the environment as well as costs including tariffs, what is considered a 'difficult customs system' and a 'heavy and unpredictable tax burden' (Kullman, 2004). All of these may be considered obstacles to an effective and productive business relationship with Brazil.