© shutterstock | Mauricio Fernandes

03.12.2019

HIGH HOPES

Brazil is opening up its markets. The government is working towards reform. Is the country about to return to economic growth?

By Dr. Charlotte Schmitz

Brazil survives on hope: the hope that the potential of this enormous market with more than 200 million people will one day be realized. Until now, protectionist policies have isolated the country from the world, but finally, Brazil has a chance of new market rules. Newly elected President Jair Bolsonaro plans to reform the tax and pensions system. In addition, the EU has reached a free trade agreement with the Mercosur states, of which Brazil is the largest.

"People always talk about Brazil’s potential, but we have not seen signs of a breakthrough yet," is the critical assessment of Dr. Susanne Engelbach, who monitors the Brazilian market for VDMA. In her view, the high cost of energy, steel and logistics have made it difficult to do business in the South American country in the past.

German companies historically have close ties to Brazil, with more than 1,300 German-Brazilian companies currently employing an estimated 250,000 people. The majority of Brazilian business is concentrated in the south of the country, around the mega-city of São Paulo - one of the world’s largest hubs of German business.

Impressing with innovative products

"Ten years ago, we labeled Brazil the country of the future," remembers Patrick Claassens from Kiefel do Brasil Eq. Ltda., a representative office of the German company Kiefel GmbH, which specializes in thermoforming. "We are still saying it." Kiefel had a tough start a decade ago, as the economic crisis of 2013 to 2016 dampened expectations. "It takes time to gain customers' confidence."

Today, Claassens is optimistic about the future. He expects Bolsonaro's government to reduce import duties, benefitting not just low-cost competitors from Asia. Claassens is certain that, "German mechanical engineering can be confident in itself. Our innovative products give us an advantage." The potential of the enormous American market is reason for Balluff GmbH from Neuhausen to commit to Brazil, too. The sensor manufacturer concluded a joint venture with a Brazilian partner 36 years ago, and Balluff Brasil has been the 100 percent shareholder since 2010. The plant in Vinhedo produces around 20 percent for the domestic market, as well as for exports to the USA and Germany.

Having its own plant protects the company from import restrictions. "Our strategic location allows us to serve both North and South America," explains Adriana Silva, CEO of Balluff Brasil. Four years ago, the company invested two million euros to bring the plant up to the very latest standard and streamline processes. Balluff is the only international sensor manufacturer to produce in Brazil. "In terms of production costs, producing in China would be cheaper," admits Silva. "But Brazil has too much potential to ignore."

Looking back, she is happy with how the plant expansion went. The trade war between China and the USA has not affected Balluff. While products from China are subject to high duties in the USA, those from Brazil are not. "We are now able to expand our Brazilian business," emphasizes Silva. She is also very aware of Brazil's enormous need for automation. "We are looking to Industrie 4.0." Silva took over the management of Balluff do Brasil in 2014, in the midst of the country's economic crisis. At the time, she watched companies put off investments until they knew when and how the government's plans would become reality. Silva is aware, she says, that President Jair Bolsonaro's pronouncements on the use of the rain forest have attracted a lot of international attention. But she remains optimistic: "I think that investment will be made over the next few years." She also sees opportunities in the free trade agreement with the EU, although patience is needed. "We do not know how long it will take to implement."

Investments have been put on hold, as Andreas Fobbe, Head of Department for the North and South America country group at ifm electronic GmbH in Essen, a manufacturer of sensors, controllers, software and systems for industrial automation and digitalization, has also noticed. Fobbe travels up to six times a year to Brazil, where ifm maintains an office in São Paulo with almost 70 employees. In addition, ifm has a logistics warehouse near Guarulhos Airport and two additional sales offices. "There are major projects in industry, but many have been put on hold because we don't yet know exactly how the situation is developing politically," explains Fobbe. He sees his company on a growth course. New customers had been acquired and turnover had grown. There is a need for optimisation in mining, for example, which is exposed to international cost pressure. The automotive industry in Brazil is also striving to produce more efficiently. Logistics continues to be a problem. Finding qualified employees is another challenge. There is especially a lack of English language skills. Professionals and IT experts expected salaries that correspond to the German standard. As a first step, Fobbe advises German machine builders who want to venture into the Brazilian market to cooperate with a local trading partner. "It reduces the risk."

Economic recovery coming

An economic boom is expected over the next few years, according to Rogério Amarello. He is Director of Samson Control Ltda. in São Paulo, which has been a subsidiary of the German company Samson AG from Frankfurt since 2003. "Now is the perfect time to invest in Brazil." The control valve manufacturer currently employs 25 people in assembly, customer service and distribution. "A presence in the country is important in order to keep delivery times short," emphasizes Amarello. One of the major challenges of the Brazilian market remains the import procedure.

"International investors are waiting to see what happens," notes Amarello. But he also stresses that, "We need them. New technologies, like German solutions for Industrie 4.0, help us grow. The free trade agreement presents a fantastic opportunity to create a market of almost a million people."

Different countries, different customs

Brazil is a young, modern and diverse country. Brazilians are famous for their friendliness. Doing business is even easier when one adapts to their customs.

 

Brazil is the only country in South America that does not speak Spanish. Knowledge of Portuguese is important for successful business, while English and a few words of Spanish are enough for tourism purposes.
Small talk is a vital part of business in Brazil. Be ready to talk about travel, family life and football, then drink a "cafezinho" before getting down to business.
Brazil is a champion when it comes to bureaucracy. An incorrect paragraph in a contract can lead to months of delay. Selling a machine or investing in Brazil takes a great deal of patience and flexibility.
Do not take every word your business partner says as gospel - they may simply be trying to meet your expectations or be polite. What people say may sometimes express more of an intention than a concrete fact.

Further information

VDMA Foreign Trade Department   |   Kiefel GmbH   |   Balluff GmbH   |   Samson AG   |   ifm electronic GmbH

Contact
Dr. Susanne Engelbach, VDMA Foreign Trade Department.