Launching a new business in Brazil has never been described as ‘easy’. But, in recent years as Brazil continues to slip downward on the World Bank’s ‘easy of doing business‘ rankings, foreign investors are starting to wonder – is the red tape ever going to end? Brazil slipped to 126th position on the most recent World Bank rankings, which included analysis of business conditions in 183 countries around the globe.
According to the report, it takes 13 procedural steps and 119 days of work to start a business in Brazil. In Singapore, by contrast, companies can expect to have their business up and running in a space of three days.
Analysts often advise IT companies willing to launch a business in Brazil to pair with local service providers and study the market fully before investing serious time, money and effort. The biggest barrier, clearly, is Brazil’s bureaucracy its red tape. “The Brazilian market offers lots of opportunities for foreign players in different segments, but they need to learn about the condition of the local market, especially in terms of regulation and taxation. The taxation system is quite complex,” explains Cláudio Gonçalves, professor of MBA in Risk Management at Trevisan School of Business and CEO of Planning Consulting firm in São Paulo.
Pairing With Local Players
He suggests multinational players that they wrap up partnership or cooperation agreements with established local IT companies to gain quick access to the Brazilian market. The next step would be to buying stakes in a local firm. The third option, according to him, is to fully acquire a Brazilian counterpart.
“That is a strategic way of dealing with the local industry and players,” he says. “And it facilitates a lot when you have local partners that are used to the bureaucracy and the high burden of taxation.”
Daniel Plá, business professor at Fundação Getúlio Vargas in Rio de Janeiro, seems to have a similar suggestion to make. “Taxation rules in Brazil are extremely complex. A foreign player will find it difficult to rent the right place to establish an office, for example. The best option, if possible, is to partner with a local player that is already active,” he said.
Mapping out the local market and knowing about local competitors are two important factors that foreign companies need to consider, they pointed out.
Gonçalves has cited the example of Totvs, a local software maker focused on providing IT solutions to small and mid-sized Brazilian companies. After its IPO in 2006, the company went on a buying spree, acquiring smaller IT companies one after another. Totvs today controls 53 percent of the Brazilian IT services and software market, according to the Gartner.
In January this year, Totvs purchased W&D Participações, owner of PC Sistemas, a CRM service provider with an annual turnover of US$ 26 million and more than 1,500 clients in Brazil.
Another good example is Citrix, an American company that specializes in computer virtualization. Citrix has partnered with 75 local entities to develop and deliver its solutions and, according Valor Econômico, it is seeking to partner with more companies.
Juan Pablo Jimenez, Citrix VP for Latin America and the Caribbean, has reportedly stated that the Brazil is the biggest market for his company in the whole of Latin America.
“The forecast for Brazil is a growth of around 30% and 40%, while in the region, the percentage is expected to be between 25% and 30%,” he told to reporters recently.