Export opportunities in Brazil
Frederick Davidson has a knack for unearthing opportunities in hard-to-service countries. For more than a decade, his company, Vancouver-based Energold Drilling Corp., has sold its modular drilling-rig technology to mineral extractors in resources-rich emerging economies. One of the first markets the firm targeted was Brazil. “The size of the market and suitability of our rigs for the local conditions made it ideal,” the president and CEO explains. So did the fact that local suppliers were using dated technology.
The circumstances were ripe for a firm with cutting-edge technology to fill the gap, and Energold did just that. Today, Brazil represents 10% of the firm’s $55 million in annual sales. And Davidson estimates that Energold’s sales in the country will grow by 15% annually in the years to come. “Brazil is a large and rapidly growing market,” he says. “It is an obvious target for aggressive companies with a global reach.”
Davidson isn’t alone among Canadian CEOs seeking their fortune in South America’s most populous country. The reasons are simple. Brazil boasts the world’s seventh largest economy, with GDP of US$2.2 trillion in 2010. And, unlike most major economies, Brazil is expanding quickly; GDP growth topped 7% in 2010. That dynamism is driven largely by youthful demographics. Just 6.7% of Brazil’s 193 million citizens are older than 65. The country’s middle class also is growing rapidly, driving up demand in a range of sectors, from household goods to automobiles.
The country known for its love of soccer and samba also is growing enamoured with foreign suppliers. Growth has simply outstripped the ability of domestic firms to find talent and ramp up production quickly enough to deliver the products and services Brazilians want. “Brazil has the potential to produce almost everything, but it needs more of everything to maintain growth,” explains jean Cardyn, Export Development Canada’s regional vice-president for South America.
It helps that Brazil is warm to foreign suppliers from more developed countries, particularly nimble, innovative companies capable of filling the product and service void that has emerged in sectors ranging from mineral extraction and oil and gas production to IT services and business consulting. For Canadian SMEs—particularly those with the patience to make long-term investments—this translates into prime opportunities to provide world-renowned insight, technology, goods and services to hungry Brazilian buyers.
Perhaps it’s unsurprising that trade relations between Canada and Brazil have strengthened in recent years, thanks to milestones such as Prime Minister Stephen Harper’s visit last August. Canadian exports to Brazil reached almost $2.6 billion in 2010, up from about $1.6 billion in 2009, making the country our ninth-largest export market. Leading the charge are machinery, paper products, mineral fuels and oil, and electronic equipment, as well as specialized goods and services, including aerospace components and mining services.
Sheriff Thaver believes the opportunities in Brazil are by no means contained to these sectors. Thaver, CEO of Toronto-based consultancy To Be Canada, which assists Canadian companies in establishing operations in Brazil, highlights the possibilities for Canadian green technology and construction firms as Brazil spends a projected $215 billion on infrastructure over the coming decade. This could cover everything from affordable homebuilding in support of a major, government-backed effort to remove residents from the country’s festering favelas to improving access to electricity and potable water for the more than 40% of Brazilians who lack access to proper sanitation.
Furthermore, Brazil intends to spend another $30 billion on infrastructure investments slated for much-needed amenities such as accommodation and urban transit as local governments gird for the onslaught of athletes and visitors for the FIFA 2014 World Cup and 2016 Summer Olympics.
In addition, notes Thaver, Brazilians lack the knowledge and technology to develop information and communications infrastructure. That’s not to mention opportunities in the health-care field—everything from supplying doctors and nurses to constructing hospitals—as Brazil’s government works to address the medical needs of a fast-growing population. Other hot industries include shipping, ocean rig construction, education (particularly for the millions of Brazilians who want to learn English) and both cyber and physical security systems. Thaver points out that these are all areas in which Canadian small and mid-sized businesses excel.
Avigilon Corp., a Vancouver-based manufacturer of high-definition surveillance systems, tapped into Brazil’s burgeoning demand for security technology a year ago. (The nation’s crime rate is notoriously high, and on the rise.) “They’re embracing new technology in Brazil, so I would encourage companies with marketable systems to build new business there,” says Bryan Schmode, Avigilon’s vice-president of global sales. Brazil is now an important part of Avigilon’s growth plans for many reasons; among them, says Schmode, is that the country serves as a beachhead for expansion into other fast-growing Latin American countries.
For all the opportunities in Brazil today, the country can frustrate impatient exporters. As much as Brazil welcomes foreign companies, it doesn’t always make it easy for them to set up shop. According to Darlene Duggan, president of Halifax-based trade consultancy Duggan International Group, import tariffs can reach 100% on some goods, while trade logistics and Brazil’s tax system can be virtually impossible to navigate without the help of local specialists in law and accounting.
For that reason, Duggan, a former trade commissioner, struck a partnership with a local when she decided to establish a presence in Brazil. Going it alone was not an option. “Brazilians don’t do a lot of coldcalling like we do in Canada,” she explains. “You have to be introduced by a mutual contact, develop a bit of a relationship first and see what you have in common before doing business.”
Duggan adds that intermediaries are helpful in navigating other differences between the two countries, too, including language (while many Brazilians in senior positions speak English, those lower in the ranks rarely do) and work ethic. “Canadians are very orderly and detailoriented; we love our paperwork,” she points out. “Brazilians are looser in how they do things.” Navigating these differences can be costly. Davidson estimates that Energold has spent upward of $1 million on legal, accounting and other regulatory fees since setting up in Brazil. That’s a maddening expense, especially since the rules are enforced only sporadically. While Energold’s fastidiousness has seemed burdensome at times, it could prove advantageous as the country’s tax-enforcement system matures. And, despite the challenges, Davidson has no regrets about Energold’s expansion in Brazil; he still views it as critical.
Energold’s experience exemplifies the need for any firm to perform a cost/benefit analysis before doing business in Brazil. “There’s no gain without pain,” says Thaver. Whether you’re interested in setting up an office in Brazil or simply exporting to that market, Brazilians are looking for a long-term investment from foreign firms. But the potential payoff, in Thaver’s view, is huge: “Once a firm establishes itself, it will probably get a return of 200% to 300% more than it would investing in North America.”