sweet little lies

Trends of Doing Business in Brazil in 2011

Co-Founder
The Brazil Business

Updated

2 October 2011

This article outlines the trends of doing business in Brazil in 2011 and gives insights about how the market will develop throughout the year.

Ever since the big depression in the 1930s, Brazil has been the country of the future. In 2010 people started to talk about the future being already here.

Brazil's extreme growth over the last years has been heavily fueled by an increased price of commodities and the fact that the country handled the global recession in 2008 and 2009 in a good way.

Trend 1: Credit is Easily Available

Credit has never been so easily available in Brazil as it is today. Credit is not only granted to people and organizations that are able to manage them, but a lot of the credit provided can be defined as “sub-prim” to poor households.

Programs like Minha Casa, Minha Vida are dedicated to create a “sub-prim” credit market for real estate. The government stimulation of unsecured credit to the lower classes create a gap in credit conditions, as the middle-class is never able to get conditions in the open market that are even close to the ones offered to the lower-class.

After the purchase of Brazil's third largest bank (Unibanco), Banco Itaú acquired the position of Brazil's largest bank, that until 2009, used to belong to Bradesco.

Banco Itaú and Bradesco are primarily competing to win the business of the 49% of the Brazilian population who currently are not bank costumers. One of the most important competitive products is unsecured credit through credit cards.

Trend 2: Politicians are Turning Left

2011 is the first year with Dilma Roussef as president and the conditions for businesses are suffering. Just 5 months into her presidency she has already:

Decreed a tax increase affecting international bond sales and loans with an average minimum maturity up to 360 days;
Applied the higher tax to renewed, renegotiated or transferred loans of up to two years;
Increased the taxes on foreign investor's fixed-income purchases.Previously, companies would pay a 5.38% tax on loans up to 90 days and zero tax when the duration exceeded three months.

Foreign companies need to watch out for political changes that over time can make Brazil a less attractive market.

Trend 3: The Country Goes Mobile

Fueled by a larger demand for online services and malfunctioning struggling last-mile infrastructure, Brazilians are turning to their mobile phones and mobile broadband in huge numbers.

Already in 2010, there were more mobile broadband connections in Brazil than wired the broadband ones. Every prediction assume that the trend will continue for many years and 2011 will be the year when there will be more people with access to Brazil broadband connections than clean water pipes in Brazil.

Although the mobile phone density in Brazil is impressive, it is important to keep in mind that the purchasing power of the consumers still does not allow more than 15% of the subscribers to have post-paid plans.

Trend 4: The year of Facebook

It was no surprise for Brazilians that in April 2011 Facebook surpass Orkut as the leading social network in Brazil. Over the last years Facebook has been quickly catching up on Orkut as the market leader in Brazil.

The relation of competition between Facebook and Orkut has been related to social status: for long Facebook was seen as the social network for the middle and upper class, while Orkut was the social network for the working class. It would be wrong to say that the shift in balance from Orkut to Facebook makes Orkut irrelevant, but it for sure forces more and more Brazilian companies to diversify their social media strategy.

Trend 5: Apple Arrives!

After Steve Jobs publicly criticized the Brazilian taxation policy, it seems that 2011 will be the year when Apple will start the production of devices in Brazil.

For many years Apple products were inaccessible in Brazil and the few iPods that were available had price tags that made you cry.

A couple of years ago Brazil got the first Apple certified reseller in A2You and the sale of Apple products started to increase at the same time as prices decreased to the European level.

With a production facility in Brazil, Apple will be able to increase the margins on their sales in Brazil and it will also give them room to decrease prices if necessary (unlikely, but still).

Apple already has relations with all the mobile carriers in Brazil and we can expect the number of iPhones sold in 2011 to by fare exceed the 2010 number that was less than 1 million devices.

Trend 6: Economical Bubble

When something looks too good to be true, maybe it is. Analysts and businessmen alike started to talk about the Brazilian bubble. Both the international attention and the money fueled into the economy may create a situation that aspires to be called a bubble.

The question that will be raised is what happens the day foreign investors stop pumping money into the economy and the day commodity prices begin to fall. Brazilians' hope is that their recent discovery of oil will ensure their long-term financial growth, but it might not be enough. We will for sure be hearing much more talking about the economical bubble in Brazil in 2011.