Brazil: An untapped market for software sales?

“What do you know about shipping product into Brazil?” When I think of the conversations I have had with our appliance customers over the last several years, this question makes a regular appearance.

Brazil’s rapidly growing IT market (estimated at $191 billion) and developing infrastructure have been appealing to our small and large customers alike, in markets from broadcast media to security.

It is easily apparent why this market is so interesting, but it can actually be more taxing than one may think due to multiple factors.

Read on if you are considering shipping product into Brazil and want to know the challenges of selling and deploying your technology there.

Why is Brazil so expensive?

A large percentage of MBX customers ship internationally, and we have deployed to over 130 countries, so we are no stranger to global logistics.

However, when it comes to the most expensive countries to ship to, Brazil is at the top of the list. In many cases the cost to deploy acts as the initial barrier for selling into Brazil.

In short, the vast majority of the increased costs come from federal duties, import taxes, VAT and state level duties and taxes that are levied on imports.

Overall, these factors can tack on costs up to 50 per cent above the overall solutions resale value. Combine this with an extremely variable regionalised tax bracketing system, and you begin to get a feel for the depth of the financial issues involved.

But let’s dig deeper than the cost.

The cost considerations do create an obstacle, but we argued that such a large untapped market needed further evaluation. We had to understand the intricacies of Brazil’s IT community to verify the opportunities and scope.

We worked with an outside research company to engage with US and European OEMs, as well as IT decision makers in Brazil.

We learned that several other critical factors outside of price played a part in truly understanding Brazil, and ultimately these factors should hold weight in any decision to market there.

3 things to be aware of if you are considering targeting Brazil

1) Go-to-market strategy

The channel is a very important part of the picture.

Of the IT decision makers we talked to during our research, 74 per cent stated that local third parties were involved in the sale and installation of purchased product.

The direct sale owns only a small piece of this market. It becomes substantially more difficult if your strategy is to sell into the country rather than having local feet on the street, due to the heavily favored relationship-based business that thrives in Brazil.

Even with a local partner we learned that install timelines were regularly being missed, increasing costs to OEMs and end users alike. Brazilian IT decision makers ranked missed deadlines as one of their top three challenges.

A number of the US and European OEMs we talked with have experienced, or are wary of experiencing, channel challenges in Brazil. Finding, qualifying, and investing in a capable and trusted local agent would be key to success.

2) Preference for homegrown products

Locally-developed products help support the country’s struggling infrastructure.

The recently re-elected Rousoff Administration has laid out a strong preference for the country to use products created in country.

There is a distinct strategy to increase the number of homegrown products supporting the country’s infrastructure. This includes driving more product into the cloud. Less reliance on US cloud-infrastructure services and migrating to Brazilian-based services are part of this directive, with the government’s favored partners leading the way.

We expect to see the private sector become more committed to Brazilian products as the country continues to invest in and build out its own technology offerings.

In a country with a growing preference for local product, be sure to do your research to ensure that your product can own a space in the market and that its potential revenue is worth the risk and fees it will take to import it.

3) Economic Instability

Brazil’s economy is in turmoil

By all accounts Brazil’s economy has taken some tough hits of late, and they seem to keep on coming. It has borrowed heavily in efforts to develop its infrastructure for the World Cup and 2016 Summer Olympics, but unfortunately the anticipated continued growth failed to materialise.

This has driven Brazilian public debt to a record high, leaving the country in a situation where it may need to borrow more money to reenergise the stalled economic development. This has kept the financial markets guessing if Brazil can increase its debt enough to fund the gap.

Pair this instability with low personal safety and education ratings, according to the OECD index, as well as the potential impact of a slowing Chinese economy on the overall Latin American region, and you can see why so many eyes are following the progress of this story.

For those debating whether or not to deploy systems into Brazil, the unstimulated economy and uncertainty looking forward should be taken into consideration.

Outlook

So, what are the net results of our research about shipping product into Brazil?

We know that deploying directly from the US to Brazil is expensive and logistically difficult, but that importing product is currently the least risky option if you don’t already have a strong channel set up. For MBX customers, it’s the main method used.

We also know that economic instability and the increasing interest in homegrown products are discouraging for foreign companies considering making larger investments into the region.

These factors should be taken into deep consideration before a decision is made on whether or not to deploy product into Brazil.

Brazil remains an area of interest for MBX and our customers, and we will continue to watch it closely. If you have thoughts on this subject or want to know more about our research and findings, leave a comment, I’d love to discuss.

Chris Tucker is director of business development at MBX Systems.