Production in Brazil Almost as Expensive as Europe

It might be surprising and paradoxical at the same time, but when it comes to business competitiveness, Brazil can be almost as expensive as developed European countries. A study recently published by KPMG shows that producing in the country is almost as expensive as doing it in places such as the United Kingdom and the Netherlands. According to the research, called Competitive Alternatives, it is more expensive to produce in Brazil than in any of the other of the so-called BRIC countries (Brazil, Russia, India and China) plus Mexico, which are some of the fastest growing economies in the world.

Producing in the South American giant is about 7% cheaper than doing the same in the US, while in China the same activity is 25.8% cheaper. India follows at 25.3%, then Mexico at 21.0% and Russia at 19.7%. You can review the entire list of countries considered in the research at the end of this post.

The equation is quite understandable when looking closer at the conditions of the Brazilian domestic market. Even though it is considerably cheaper to produce in Brazil than in the United States, the difference of costs in the South American country and in the mentioned emerging economies is quite large, which brings Brazil to a position on KPMG’s list that is closer to developed nations, such as the United Kingdom and the Netherlands, than to its emerging peers.

Hot Economy Faces Cooldown

The Brazilian economy is extremely heated, as is widely known, and its growth is structured on a sound basis. But the lack of qualified workforce and service suppliers, summed up with high production costs and a high tax burden, makes it much more expensive to produce in Brazilian territory than in China, India, Mexico and Russia.

“The salary level of the Brazilians, including minimum wage, are significantly higher than those in other countries that have seen an increase in Gross Domestic Production (GDP). Besides, the high tax burden also impacts the total costs of production in Brazil,” says Roberto Haddad, responsible for the International Taxation division at KPMG.

For Mark Goodburn, global head of Advisory for KPMG, many companies are seeking markets with high levels of growth to support and build an effective global supply chain for their businesses, but to take full advantage of them, it is necessary to understand certain local characteristics that might not be quite clear at a first.

Intrinsic Market Complexities

“The advantages of those markets are not only determined by costs, but also by the generation of value within them. With the technology explosion, the productivity capacity and the specialization in planning methods, such emerging economies have conquered a space they were not competing in before,” said Goodburn, commenting on the results. “Nevertheless, complexities in such markets can be intrinsic, from the costs of labor to taxation, making the preparation of a very well thought-out business strategy it mandatory in order to obtain success in such areas.”

In its research, the global consulting company includes costs relative to labor, taxes, real estate and public services in 110 different cities from 14 countries. It also takes into account costs that are not directly related to the main operations of the company, but that have an indirect impact on the costs of living of its employees – such as education, infrastructure and job conditions.

The following list specifies the difference in production costs per country as compared to the US (lower costs are shown in positive numbers):

China 25.8%

India 25.3%

Mexico 21.0%

Russia 19.7%

Brazil 7.0%

United Kingdom 5.5%

Netherlands 5.3%

Canada 5.0%

France 3.9%

Italy 2.1%

Germany -0.1%