Conducting Business in Brazil: Economy and Market Overview

Introduction to the Brazilian Economy

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

Current Business Conditions in Brazil

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

Several political parties dominate the Brazilian landscape, including the Brazilian Democratic Movement Party, the Liberal Front Party, the Progressive Renewal Party, the Brazilian Social Democracy Party, and the Liberal Party, among others (Lomheim, 2004). Corrupt politicians and a lack of public support for predominantly military rule led to a decline in support for political parties over the last decade, alongside the existence of more than thirty political parties overall within the nation (Lomheim, 2004).

A majority of the economic and business activity that occurs within Brazil is concentrated in southeastern states, including São 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). Many manufacturing cities are located in the northern region of Brazil, though that area is generally less populated than others. From an agricultural perspective, the most prominent products associated with Brazil include sugar cane, coffee, soybeans, and orange juice (Kullman, 2004).

Brazil is well noted for its rich agricultural, mineral, and industrial resources, making it a significant commercial opportunity for U.S. exporters (Kullman, 2004). As recently as 2003, Brazil imported more than eleven billion dollars' worth of U.S. goods and services (Kullman, 2004). Export products are diversified and include telecommunications equipment, safety and security equipment, pharmaceuticals, and pollution control mechanisms (Kullman, 2004).

Brazil is considered a viable business destination in part because of the strong relationship it shares with the United States. The two countries share many moderate economic policies, and there are currently reforms and legislative initiatives in place designed to promote free trade with America (Kullman, 2004).

Rideg and Price (2003) note that a discernible cycle exists within Brazil that can be analyzed to determine the most optimal timing for business opportunities and new ventures. They describe Brazil as having a "diversified industrial base and resolute private sector," while also noting 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).

Brazil's status as the tenth largest economy in the world makes it appealing to many foreign investors. However, it has also experienced pronounced business cycles, which can be tracked based on economic growth trends and changes in currency values (Rideg & Price, 2003). Investors willing to investigate the market should identify the best points for entry and exit in order to maximize profits (Rideg & Price, 2003). Local capital 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 (Rideg & Price, 2003).

Though investing in Brazil carries risk, as it does anywhere, the potential for reward is also considerable. This is evidenced by companies such as Telecom Italia Mobile and LG Philips, both of which invested several hundred million dollars in the country and are now well positioned to capture millions of additional customers (Rideg & Price, 2003). The key to business success is market entry timing, and observing best practices from competitors has been cited as a guiding approach for investors (Rideg & Price, 2003).

References

CC Consulting. (2004). Brazil — business and social etiquette. CC Consulting Limited.

Kullman, P. (2004, July–August). Opportunities in Brazil. Export America, 5(6).

Lomheim, C. (2004). Doing business in Brazil. Thought Software and Consulting.

Rideg, T., & Price, J. (2003). When is it time to go into Brazil? Reading Brazil's business cycle. Tendencias Media Cycle.