Challenges, opportunities abound for companies looking to do business in Brazil

Doing business in Brazil is as enticing, profitable and challenging as ever.

Eyes remain focused on one of the world’s fastest growing economy as the World Cup and the Olympics near, however hurdles remain, including the cost of setting up a business and hiring good talent, the country’s lagging education system, and corruption within the highest level of government, said a panel of experts who’ve worked and lived in Brazil at WorldCity’s Global Connections on March 30.

The cost of hiring executives in Brazil could be prohibitive to some companies looking to expand there, said Marjorie Kean of Diversified Search.

As Latin America’s largest economy continues to mature, the link between Brazil and China will grow stronger, however, it will continue to look to the U.S., and particularly Miami, for consumer goods.

“There’s a whole number of strategic materials that are of interest to China. I think China will become the largest buyer of those kinds of products.” said Gene Rostov, CEO and president of E. Rostov & Associates, a cross-border investment advisory firm, about Brazil’s commodity exports.

“I think Brazil will continue to buy high tech and other kinds of products from the U.S.,” he added. “It could mean that there is less commerce of lower value goods coming going to Brazil, and possibly a reduction through the Miami, South Florida area as a transit point for freight.”

Meanwhile, companies looking to dive into the Brazilian market need to make the proper preparations, and realize the challenges they’ll face.

“You don’t go into Brazil and set up your own shop without investigating, I would definitely find a partner,” said Marjorie Kean, managing director for Diversified Search.

Beyond partnering with a local firm that’s well aware of the culture and how to do business, finding qualified executives to head Brazilian
subsidiaries is becoming increasingly competitive, due to the cost and constant churning of managers.

Internet and smart phone penetration in Brazil, while growing, still lags many countries with comparable sized populations and economies, said U.S. Media Consulting’s Bruno Almeida.

“From a senior executive standpoint, what would cost you here in the U.S. $100,000, will probably cost you close to $200,000 or $250,000,” in Brazil, Kean said. “There are many cases where general managers of subsidiaries earn more than the regional head based in the U.S.

“That has caused a lot of ill will and concerns, but that’s not going to change in the near future,” she added.

On top of that, she said, young, bilingual executives with advanced degrees are constantly being headhunted and sometimes jumping to new positions for the pay and prestige before they’re ready for the responsibility.

There’s also been a focus on Brazil’s infrastructure. As the government scrambles to finish infrastructure projects ahead of the Olympics and the World Cup Bruno Almeida, chief commercial officer for U.S. Media Consulting, said the country is still lagging in areas like smartphone, Internet and broadband penetration,

“Brazil was ranked the sixth largest country in the world, but when you look at those it’s not six, it’s top 50,” he said. “Internet penetration in Brazil is 40 percent, it’s double in other major markets and smart phone penetration is only nine to 10 percent.”

Lastly the panel looked at some of the higher level challenges facing Brazil, including corruption and government activism in the country’s economy.

Many of the structural changes people are looking for in Brazil, such as improved education and eradicating corruption, may requires decades, said Gene Rostov.

“You have people in government that are poorly paid, it always amazes me that people should be honest when they make a couple hundred dollars a month like a customs inspector who registers millions of dollars of cargo every day,” Rostov said.

Brazil’s President Dilma Rousseff has been fighting corruption since she took office and ousted many of the country’s top ministers in a variety of key departments including transportation and defense. Working these problems out of the system, however, will take more than just a few high profile firings, it will be a generational change.

“I see it as a 20 to 30 year project,” Rostov added. It “take a core of people who prosecute crimes, investigate the crimes and that’s not done overnight, it’s a generational process.

“I think 10 year would be optimistic,” he added.

Global Connections is one of seven event series organized by WorldCity to bring together executives on international business topics. The series is sponsored by Florida International University’s graduate school of business, Waterford at Blue Lagoon, Comcast and the Miami Marlins. The next Global Connections is set for May 27.