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International Trade/Offshore Manufacturing/Sourcing/Export/Import/Consulting Market Entry Varies in BrazilAlmost any market entry approach is open to U.S. companies seeking to tap into the huge Brazilian market - direct sales (import), agents, distributors, partners, joint ventures, licensing or start-ups. The appropriate form, according to the advice provided by a group of experts polled by A.I.M. Communications, depends largely on the product or service, as well as the international experience of the U.S. company and its sales goals.The one constant in the experts' advice, however, is to find and use competent experts on Brazil. In other words, don't go it alone. "All standard international forms of business relationships are recognized in Brazil," says Ed Arias of Atlanta-based Broadview Overseas. "It is difficult to freely state which form is most appropriate since it largely depends on the product or service, as well as the maturity of the business and the probable market penetration. "Small companies with financial and manpower restraints usually rely on agents or distributors to sell their products," Arias adds. "This form of distribution is most favored by companies that have limited overseas market experience or exposure. There are low investment risks and this form permits penetration into a foreign market which otherwise would be impossible. "A company that has done its due diligence and has invested in a serious market analysis for its products would most likely prefer to enter into a partnership or joint venture," he adds. "This permits it to have a participation in the development, marketing and growth of the product, and allows it to invest capital or know-how in the venture, maximizing growth potential. "Many times, it is preferable to license the rights to a local manufacturer rather than enter into a possible competitive situation with the local company," Arias says. "Whichever form of business venture is decided on, in most cases it is best to sin on the conservative side until experience and results are obtained." The importance of market research was stressed by several of the experts. "Do your due diligence and homework first!" stresses Jim Cotton of James Cotton & Associates in Atlanta. "Engage an independent adviser to help with initial stages of market entry and strategic planning. When ready for implementation, the product will dictate the distribution channel. Basically, the channel that has proven successfulÊin the U.S. or Europe will prove successful in Brazil."
Joint Ventures/Licensing Licensing agreements are common forms of accessing the Brazilian market. Use of a competent local attorney in structuring such an arrangement is advised. All licensing and technical assistance agreements, including trademark licenses, must be registered. A major concern of foreign companies trading with Brazil is protection of intellectual property rights is often inadequate and uncertain. Brazil is a signatory to the Paris, Bern and Universal Copyright conventions on intellectual property rights (IPR) protection. Most of the country's statutes on IPR are consistent with Western standards. However, serious gaps exist regarding patent protection for pharmaceuticals, trademarks and trade secrets. Legislation is before Brazil's Congress to address most of these issues. "A firm doing business in Brazil must carefully watch its trademark rights," cautions Harold Marquis of the Atlanta law firm of Deveau Colton & Marquis. "Licensees, distributers, agents and sometimes purchasers will file trademark applications on your firm's trademarks. You should consider using a trademark watch so you will be able to oppose any such trademark application. "If they succeed in securing registration, it generally requires legal action to stop the pirate," he adds. "Your agreements should bar the Brazilian party from filing a trademark application on your firm's trademark or anything confusingly similar. Also bar them from incorporating using your name." Some issues of concern to foreign patent holders are slow processing of patent applications, the federal judiciary's uncertain application of patent law, and the potential for arbitrary interpretation of compulsory licensing requirements.
"Even unopposed trademark registrations take years to issue," says Taube Ponce, former international manager of Atlanta-based
Brazil does not have a statute that specifically provides protection to trade secrets or know-how. There is only an indirect form of protection, normally of five-years' duration, derived from the unfair competition section of Brazil's Industrial Property Code.
Companies established in Brazil are now virtually free to negotiate technology transfer contracts. INPI will no longer express an opinion on the terms on which a company has negotiated a technology transfer agreement. However, contracts still have to be registered with INPI, a process that should take no longer than one month.
Steps to Establishing an Office
"The more critical issues are usually related to starting a business without a local partner who knows the lay of the land," says Haroldo Fleischfresser, a financial businessman in Brazil. "Selecting the right partner, as in any other country, is also critical. Specific expertise, track record and business ethics are probably the more important issues to be looked at."
Branch offices are difficult to form, whereas corporations (sociedades anonimas) and limited liability companies (limitadas) are relatively easy to form. Capital registration with the Central Bank is required for access to foreign exchange, capital repatriation and profit remittance.
"Office space and personnel is quite expensive in Brazil," according to Cotton. "I strongly recommend against this exposure, at least in the beginning. Go slowly and carefully. Be absolutely sure you need an office because you will have to staff it!"
Brazil's minimal capital requirements are nominal in general, but are significant for establishment of financial institutions. When selecting the site of an investment, potential local investment incentives should be carefully considered, as should tax considerations.
"Taxes change, so it is essential to get an up-to-date briefing by your tax consultant," advises Roger Scovil, former president of Lockwood Greene International. "Two issues that we are not used to in the U.S. are value-added tax (VAT) and withholding tax for services. To make sure we did not have these taxes withheld from our invoices billed from the U.S., we added a standard clause to each quotation for services: 'This price (or these prices) are net of all local taxes such as value-added, sales and withholding taxes.' Check to make sure the contract you sign or the purchase order you receive accepts this concept."
Trading Companies
In Brazil, trading companies are called empresas comerciais exportadoras, companhias comerciais, or companhias de comercio exterior. They are set up to give small and medium-sized manufacturers the same operational flexibility as large manufacturers in promoting Brazilian exports, especially of non-traditional exports.
Whichever form of market entry is selected, the bottom line for U.S. companies, our experts say, is to do your homework before entering the Brazilian market. Common sense and long-term approaches are a good idea, too.
"Your Brazilian partner will be more appreciative of you if you demonstrate concern for his business and not just turn tail indicating that your business plans were just opportunistic under certain economic conditions and not long-term," says Arias of Broadview Overseas. "The loss of trust and confidence in the other party is one of the leading factors in the failure of international business transactions, especially when dealing with franchises, representatives or joint ventures."
The People
Women should be aware that it is common for Brazilian men to stare at them or make comments as they walk by; women should not respond in any way to such actions. Brazilians can be opinionated, and the vigor with which they argue for their convictions often leads foreigners to believe they are angry. Visitors should not be offended by such behavior. Brazilians tend to view time more as a sequence of events rather than hours, minutes and seconds. For this reason, they may appear to have an extremely casual attitude about time.
Franchising
"Franchising in Brazil is a booming industry," says Eduardo Goldszal of the Miami office of KPMG Peat Marwick. "There is a large demand for the 'U.S. brand image' that most franchises carry. There is a market for smaller, not-so-well-known franchises that bring know-how and new technology to the market place."
Franchising agreements are required to be registered with INPI when they involve trademark licenses, technical assistance services or any other form of technology transfer necessary for the development of a franchise project. All agreements that provide for remittance of royalties abroad must be registered with INPI.
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