11th February, 2019
Commodities trading firm Louis Dreyfus expects faster switching between sugar and ethanol production in Brazil, with more flexible mills leading to “dramatic” price-driven shifts.
A gigantic new market in which to sell your product and/or service sounds fantastic and is a great way to grow your business, but there are some risks involved. Conducting market analysis, understanding the market, preparing an export plan, making the right strategic choices and arranging to accommodate any additional capital requirements are all essential steps that you must take before committing to anything.
Brazil has a population of over 190 million people and that's a huge market by anyone's standards. That said, the average income in Brazil is significantly lower than for example Australia. Australia has a PPP1 per capita income of US$38,900 whilst Brazil's is US$10,500. This distorts even further when looking at the income distribution in Brazil which is heavily skewed to a relatively small percentage of the population.
Developing a clear comprehension of the culture, customs and economic conditions of Brazil is essential to be a successful exporter to Brazil. Braanz Consulting provides an overview of these items and a quick online search will help to provide some more information. Austrade and New Zealand Trade and Enterprise(NZTE) also provide access to information on market and industry sectors, studies and economic reports about Brazil.
However visiting Brazil is still the best way to get an understanding of the market. Doing so enables you to speak with potential clients, partners or distributors, look at your competition and understand local distribution options and relative advantages. Visiting trade shows and events specific to your industry while in Brazil is a great way to get a feel for the local market and potential for your business to export.
An export plan allows you to address and capitalise on your business' relative strength, weaknesses, opportunities and threats in exporting to Brazil. It will help you by defining your objectives and the methods you plan to use to reach them. It should address which areas you are targeting, the long and short term volume levels you are aiming for, your capacity to deliver those volumes, how you will do so, what representation model you plan to use and how will you will market and distribute your product or service. The final part of your export plan should include a tool for evaluating your results in exporting to Brazil and modify your plan if needed.
Developing a solid business in Brazil will require a long-term commitment, but the benefits for your company can be substantial. Whilst already a large market, Brazil's economy continues to grow at a staggering rate and this provides ample reason for your business to address the market early and grow with it. Entering the Brazilian market should not be seen as a method of addressing sluggish sales in your local market(such as those brought on by the global economic crisis) as succeeding will require the dedication and commitment that only a long-term strategy can provide.
It's easy to get caught up in the hype of such a large market, however we generally recommend that new exporters to Brazil focus on specific regional areas to begin with. São Paulo state alone is a huge market, accounting for 45% of Brazil's GDP.
You may have to adapt your product, price and promotional campaigns to reflect conditions in Brazil, including cultural influences, the Portuguese language, buyer preferences, engineering standards or product regulations. Your pricing strategy needs to take into account market demand, competition and costs such as tariffs, custom fees and shipping and insurance.
Exporting to a new market can stretch budgets in any business so both short and long term financial planning is essential. As well as the basics such as product costs, shipping, insurance, etc, you may also need to look at potential capital expansion to meet the demands of the Brazilian market. Ensuring a plan is in place to address these items before you start is a sound way to prepare yourself and your business.
1Purchasing power parity is a measurement of a currency's value based on the buying power within its own domestic economy.