Brazil
Setting up an Overseas Office in Brazil
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Brazil Entering the Market
Various routes can be used to enter the Brazilian market, from direct export sales from UK headquarters, to opening up an in-country office, to investing in the set up of local manufacturing (or services provision) capability.
Below is a high-level analysis of some of these options.
Market entry route: Export from UK / Set up of representative office
Benefits:
- Little investment required
- Ability to ‘test’ the market for products and/or services before commitment
Challenges:
- Market perception of lack of commitment, and Brazilian preference to build a relationship with a local supplier
- Consumer requirement for after-sales support (parts and services) may reduce market appetite
- Does not meet local content requirements
Market entry route: Acquisition
Benefits:
- Market perception of commitment
- Ability to provide higher level of service
- Instant access to market channels, skills and relationships
- High level of local content is more attractive to customers
Challenges:
- Capital investment
- Integration challenges
- Cultural and operational
- Does the parent company have the in-house skills to manage a Brazilian subsidiary effectively?
- Need for extensive due diligence given complexity of Brazilian labour and tax systems
- Potentially difficult to divest if things don’t work out
Market Entry Route: Joint Venture (JV)
Benefits:
- Lower capital investment than acquisition
- Market perception of commitment
- High level of local content is more attractive to customers
- Ability to provide higher level of service
- Instant access to market channels/skills and relationships
Challenges:
- JV integration challenges: cultural and operational
- Governance (shared control) challenges
- Does the parent company have the in-house skills to govern a Brazilian JV effectively?
- Need for due diligence given complexity of Brazilian labour and tax systems
- Potentially difficult to divest if things don’t work out.
Joint Ventures
Forming a JV with a local company can significantly support a UK company looking to do business in Brazil. This can support in navigating the country’s somewhat complex and bureaucratic fiscal, labour and legal system.
It is an increasingly popular form of market entry in Brazil and elsewhere, but it should not be chosen lightly.
Advantages include:
For UK companies:
- Lower capital investment: the capital investment required to start up a JV will be typically lower than to acquire an existing business
- Political: local authorities are likely to look favourably on UK companies that partner with Brazilian companies and could potentially offer preferential conditions to set up business
- Practical: it is more effective to learn from a partner who is familiar with Brazil’s complex business environment and who speaks the language (Portuguese) and understands the culture
- Risk mitigation: having a local partner can help a UK company to avoid the myriad risks of non-compliance that could significantly impair its ability to do business. It may also provide the UK firm with a ‘natural buyer’ for their stake, should they at any point wish to pull out
For Brazilian companies:
- Growth: partnering with a UK company may give the Brazilian company instant access to a wider range of products and services, enabling it to expand its market niche and explore new opportunities. It may also give joint access to markets outside of Brazil
- Funding: a UK partner may bring the funding that might not otherwise be available to support expansion
- Technology: a UK partner may instantly give the Brazilian party access to technology that will enable it to strengthen/differentiate its offering
- Succession: most mid-sized companies in Brazil remain family owned and thus place importance on succession planning. Partnering with a UK company may open up opportunities for development of the ‘next generation’ in a professionalised environment
Key considerations:
Before forming a JV, both UK and Brazilian companies should give careful consideration to the following:
Partner selection: Selection criteria should include strategic fit, alignment of objectives and product/services, and a ‘cultural/personality’ fit amongst the teams that will implement and operate the JV. Rigorous due diligence should always be undertaken (both at corporate and shareholder level).
Implementation (and operations) plan: Both partners should work together to develop a joint implementation plan with clearly defined roles and responsibilities, deliverables and timelines. Should seamlessly flow into an ongoing operational plan.
Exit strategy: Having a clear exit strategy, defined and agreed upfront, is to the benefit of both parties. Parent companies’ circumstances and strategies may evolve over time in a way that is not consistent with the JV’s goals.
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