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The process of Globalization contributes to the growth of imports and exports worldwide. It provides the possibility for the companies to work more efficiently and to increase their revenues. More and more companies are seeking to enter new markets worldwide.
International Logistics, Inc. also considers this strategy to be potentially beneficial for its performance. This document contains a business plan for International Logistics, Inc.’s regarding the export of its goods to a new destination (Brazil). Brazil was chosen as it is an emerging market; the detailed description of it can be found below.
Brazilian Market Overview
The Federative Republic of Brazil is Latin America’s largest economy. It occupies the territory of 3,290,000 square miles, borders with 10 countries and has a 4,650 miles’ coastline. At the same time, Brazil is the world’s fifth largest country. The population of Brazil makes 202 million people and it is the sixth country in the world by population’s quantity. The country’s Gross Domestic Product (GDP) in 2013 was US$2.3 trillion, and showed annual increase of 2.5% in 2013. The country is forecasted to become by 2020 the fifth-largest world’s consumer market. During the recent 10 years, Brazil has implemented policies that control inflation and contribute to the economic growth.
Brazil is 116 out of 189 countries in the 2014 World Bank’s Doing Business Report. Exporters to Brazil have to deal with some challenges. Exporting firms admit an unclear system of customs, unpredictable and high tax burdens, high tariffs, and an overburdened legal system as the most significant barriers that one may come across while arranging business in Brazil. The Government of Brazil has worked-out the Brasil Maior (Greater Brazil) plan that foresees an increase in the trade protections, such as tax breaks beneficial to domestic manufacturers, local content demands and high tariffs.
Thus, the Government of Brazil is protecting domestic manufacturers by means of establishing corresponding regulations and laws. Of course, it is unfavorable for the foreign companies that are going to enter the country’s market. But the competitive conditions and right approach can be very helpful in coping with this problem.
Openness to Investments
Brazil is open to foreign direct investments (FDI) and encourages it. In 2013, new FDI into the country made approximately USD 64 billion and Brazil usually gets around a half of South America’s incoming FDI. According to information of the Brazilian Central Bank, the highest FDI stock in Brazil has the U.S. (by 2010 - $104 billion). Although there is a friendly environment for FDI in Brazil, complex tax, local content, and strict requirements still exist. However, usually, these issues apply to both foreign and domestic companies without discrimination. Long- and Medium-term economic perspectives remain positive.
In the Transparency Index of International's Corruption Perceptions Brazil ranked 72nd (out of 175) countries in 2013. Inside South America, the country ranked ahead of Colombia, Peru, Argentina, Suriname, Bolivia, Ecuador, Paraguay, Venezuela, and Guyana and ranked behind Chile and Uruguay. A former president of Chamber of Deputies, former staff chief of Lula President, and 24 other public state officials were convicted in the trial that is a positive step in the fight with corruption. The country participates in the Organization for Economic Cooperation and Development (OECD) Anti-Bribery Convention and Brazil is an OECD Working Group on bribery’s member. The country has regulations, penalties and laws to corruption, but the effectiveness of them is not sufficient yet. Corruption is a problem in business dealings with some state authorities, particularly at the municipal level.
Thus, the corruption level in Brazil is still rather significant. But the government makes efforts to decrease it. It is possible that the corruption will be reduced within the next some years. At the moment, the recommended approach is to use the local intermediaries’ assistance with the purpose to cope with the possible issues.
Brazil has a private sector that is large and dynamic. The sector of manufacturing made in 2009 around 28% of GDP, the services sector - 65.3% and agriculture - 6.7%. Brazil’s work force in 2009 was around 21 million of people (six main cities).
Relationship of Government and Business
Before 1990s, government’s investments played a leading role in the financing of Brazil’s economic development. Government made a lot of investments in oil exploration, petrochemicals and mining, steel plants, and also in hydroelectric projects, ports, telecommunications and railways. However, after 1990’s, the government established a privatization program. Privatizations related mainly to the petrochemical, some chemical industries and steel, telecommunications and energy, mining, and state-owned banks.
Brazil’s Trading Partners
Main trading partners of Brazil are the European Union (EU), the United States, Argentina and other countries of Latin America, Japan, Saudi Arabia, South Korea and China ('Doing Business in Brazil 2014 Country Commercial Guide for U.S. Companies', 2014).
Exports and Imports
As far International Logistics, Inc. is going to export high tech equipment to Brazil, it is necessary to do a research regarding Brazil’s import rules and regulations.
Import in Brazil is a subject to a number of taxes and fees that are, usually, charged during the customs clearance process. There are three taxes that account for the import to Brazil costs: the Import Duty (II), the Industrialized Product tax (IPI) and the Service and Merchandise Circulation Tax (ICMS). In addition to these charges, several other smaller taxes and fees are applicable for imports. In Brazil, cumulative calculation basis is used for most of the taxes.
Import duty. The import duty is a federally-mandated product specific tax calculated on the basis of CIF conditions (Cost, Insurance, and Freight). As a rule, in Brazil the range of import duty rates is between 10-35%.
Restrictions and Controls
Export and import transactions in Brazil are monitored by the Foreign Trade Chamber (Secretaria de Comércio Exterior or SECEX), the Ministry of Development agency. Brazilian importers and exporters must register with the SECEX to get an Exporter and Importer Registration (Registro de Importadores e Exportadores or REI), before making international transactions. Enrollment is made automatically during the first import or export transaction. For those willing to export goods out of and import goods into the country, it is also necessary to register in RADAR (a system provided by the Brazilian Federal Revenue Service). If a Brazilian company is properly registered with the state, federal and local tax authorities, the RADAR registration can be received in 3-6 months from the date of application. Few imports and exports are forbidden or restricted. Certain imports are subject to a quota control. License can also be necessary sometimes for transactions with the used goods (including capital products) and for animal and human health products. The used consumer products’ import is not allowed for commercial purposes.
As a rule, no prior licenses are required to make an import transaction. Such transaction has to be registered in the SISCOMEX electronic system to receive an import declaration (DI) for the goods to manage customs clearance. In case when a prior license for import is required, it must be received before dispatching goods to Brazil; this license is usually valid during 90 days after goods’ dispatching to Brazil. The exporter should verify the prior license using the imported goods’ tariff code. After getting the import license, the importer should arrange an Import Declaration (Declaração de Importação – DI) and register the shipment in the SISCOMEX system to organize the process of customs clearance ('Doing business in Brazil', 2011).
Transportation from the U.S. to Brazil
The objectives are as follows: integration of railway and highway networks with waterway network; signage improvement; road capacities’ expansion; railway network’s expansion; axle load control on trucks.
Logistics. Brazil has one of the world’s highest costs of logistics. The World Bank estimated in 2010 that the structure of distribution cost includes around 31.8% of expenses for logistics. It includes warehousing, administration, inventory, transportation costs and legal requirements. This document also shows that costs of logistics represent about 20% of country’s GDP (twice that of the U.S.)” (export.gov/, 2012).
As International Logistics, Inc. is a manufacturer of high tech equipment, it is recommended for it to use mainly air transportation to deliver the goods to Brazil. In case the company establishes its office in Brazil, it will only need to deliver products from the airport to its own or rented warehouse. This transportation as well as distribution throughout the country can be performed using automobile transport. In case International Logistics, Inc. works with the partners or dealers in Brazil, the peculiarities of transportation may depend on the delivery conditions according to INCOTERMS. For example, if the shipment is going to be delivered on CIF conditions, the dispatcher will chose the way of transportation. If it is EXW, the purchaser will decide on the transportation.
Generally it is recommended for the company to use predominantly air transport for low-weight shipments. In case of heavy shipments, marine transport can also be used. However, the company should be aware that marine transportation foresees more damage risks and high tech equipment is usually very sensitive. It is not recommended for the company to use rail transport in Brazil, as it is not reliable and similar companies rarely use it.
Supply Chain Assessment
After the research of the Brazilian market and before exporting the products to this country, it is recommended for International Logistics, Inc. to assess its supply chain and check whether it meets the demands of the new export region and whether it is able to successfully supply everything necessary for the shipments.
Today there are many ideas and methods how to assess the supply chain. It is recommended for International Logistics, Inc. to choose the one that addresses the following aspects:
General company information of each supplier (workforce profile, facility information, employment relationship);
Environment (management systems and training, greenhouse gas emissions and energy usage, water management, air emissions, packaging, waste management, other raw materials, pollution prevention, transportation);
Social (workplace management, forced labor, health and safety, child labor and young workers, freedom of association and collective bargaining, discrimination, harassment and abuse, hours of work, compensation);
Governance (accountability, supplier management, grievance and remediation, disclosure, stakeholder engagement).
The same scheme can be useful in case the company will need any products and services from the local suppliers in Brazil.
As the rest of the Brazilian economy, the financial sector feels the volatility in world markets for commodities and capital effects, but flexible exchange rate, strong macro- and micro-prudential policy frameworks, high capital and profitability, sound balance sheets, and ample liquid assets, provide significant mitigants of risk. Regardless of the declining systemic risks, the tests for stress and global financial crisis suggest that the Brazilian financial sector is resilient to different shocks, especially to households; the quick increase of credit is making vulnerability pockets, which have to be carefully monitored ('Brazil: Financial System Stability Assessment', 2012).
In case the company will plan to sell other goods to Brazil, the perspective fields for exports and foreign investment include oil and gas, security and safety devices, construction and building, agricultural equipment, medical equipment, aerospace and aviation, IT, sporting goods, environmental technologies, retail and transportation.
The expansion of Brazil national oil company Petrobras’ plans may become among the world’s biggest business opportunities in the oil and gas sector until at least 2020. This company may increase purchase of certain foreign goods and services in order to move forward its projects (Export.gov, 2014). The above may include also high tech equipment. Therefore it is recommended to follow the tenders’ announcements of Petrobras.
The Doing Business and Investing in Brazil (2013), has elaborated some tips for exporters:
Import duties are calculated in accordance with the plan of the government to protect the local market and its foreign-trade balance;
Trade barriers are rather wide, established to protect the domestic companies against the foreign ones;
Exporters are encouraged to consult local consultants on tax and trade before the shipment’s dispatching;
It is recommended to employ a local agent, with the purpose to arrange successful customs clearance;
Duty deferrals are available in case of using specific tax regimes/customs bonded warehouses;
Customs valuation assessments have recently increased.
The wealthiest areas of Brazil, in which industrialization and modern economy take place, are the Southeast and the South. The Northeastern and Central Western parts are mainly agricultural and rather poor as economic and social strategies and programs have not been reviewed yet. The Northern country’s part, the one where there is the Amazon rainforest, possesses a low population density and is still unexplored virtually ('Doing Business and Investing in Brazil', 2013).
According to the information of INVESTMENT GUIDE TO BRAZIL (2014), the country is possesses the following characteristics:
Large local market. Brazil is the one of the largest consumer markets of the world, because it has more than 201 million of inhabitants, and it is rapidly growing. Brazil is expected to be the fourth-largest economy of the world by 2050. 40 million of consumers of products and services have joined a middle class since the year of 2003, ensuring growth across a variety of economy sectors. As of now, Brazil is the third-largest world’s market for beauty and healthcare products; 4th-largest for mobile phones, TVs and automobiles; third-largest for computers; and fifth-largest for medical products and equipment;
Energy powerhouse. The country has the world’s 10th-largest petroleum reserves and the largest oil discovery made in the Western Hemisphere in the last 30 years due to the pre-salt deepwater oil discovered on Southeast coast of Brazil; 2nd-largest manufacturer and biggest exporter of ethanol biofuel in the world; world’s biggest river basin and location of 12% of the planet surface water ('INVESTMENT GUIDE TO BRAZIL 2014').
Having checked the Brazilian economy information, it is possible to conclude that it is perspective to choose it as the new export destination. Taking into consideration the Brazil’s rich natural resources, it would be a unique opportunity to sell products to the local firms operating in this industry.
Baer, W. (2008). The Brazilian Economy: Growth and Development (6th ed., p. 1). Boulder: Lynne Rienner Publishers.
Barbosa Filho, N. (2004). Growth, exchange rates and trade in Brazil: a structuralist post-Keynesian approach. Nova Economia, 14(2), 77-78. Retrieved from http://www.face.ufmg.br/novaeconomia/sumarios/v14n2/140203.pdf
Brazil: Financial System Stability Assessment. (2012). International Monetary Fund, 10. Retrieved from http://www.imf.org/external/pubs/ft/scr/2012/cr12206.pdf
Doing Business and Investing in Brazil. (2013). Pwc, 15, 62. Retrieved from http://www.pwc.de/de/internationale-maerkte/assets/doing-business-and-investing-in-brazil.pdf
Doing business in Brazil. (2011). Ernst & Young Terco, 7-16. Retrieved from http://www.ey.com/Publication/vwLUAssets/Doing_business_in_Brazil_2011/$FILE/Doing%20Business%20in%2
Doing Business in Brazil 2014 Country Commercial Guide for U.S. Companies. (2014).Http://Www.Export.Gov/. Retrieved from http://www.export.gov/brazil/build/groups/public/@eg_br/documents/webcontent/eg_br_034878.pdf
Export.gov,. (2014). Doing Business in Brazil. Retrieved 3 February 2015, from http://export.gov/brazil/doingbusinessinbrazil/index.asp
INVESTMENT GUIDE TO BRAZIL 2014. (2014). Government Of Brazil, 11. Retrieved from http://www.brasilglobalnet.gov.br/ARQUIVOS/Publicacoes/investmentguidetobrasil2014.pdf
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