International Internet companies are entering the Brazilian market
Over the past years, a growing number of Internet companies from all parts of the world have joined the Brazilian market. And they have decided to stay. Being the largest market in South America and one of the biggest also on a global scale, Internet startups and also established online companies have chosen to set up their own offices in Brazil or have established strategic partnerships with local companies to enter the Brazilian Internet market.
About 150 million of the country’s 210 million inhabitants are Internet users and most of them (over 100 million) are active on social media (mostly Facebook, Instagram, Pinterest, and Twitter). 60 million Brazilians have already made the experience with online purchases calling the attention of international e-commerce providers.
Global Internet players in Brazil
When companies are looking into market entry strategies to approach new customers in other parts of the world they take a number of variables into consideration before opening they own physical office in the country. The same goes out to Internet companies interested in market entry strategies for Brazil. The larger the company, the larger the customer or user base and the more personal the relationship between company and clients the more likely the company is to set up legal structures and office space in the country. And this, of course, means hiring local professionals.
It is the case for large Internet companies like Amazon, Facebook, and Google who have shown very high interests in the Brazilian market. Due to complex structures of the Brazilian business environment and its legal requirements, the big 3 of the Internet have physically established themselves in the country. While Amazon’s activities are still limited, Facebook’s Messenger, WhatsApp, and Instagram are among the most used apps in Brazil.
Market entry options for international e-commerce companies
The Brazilian e-commerce sector has received substantial investments from international companies (besides Amazon as mentioned above). One example is Germany’s Rocket Internet which has introduced some of its retail business models from Europe to the South American market. In Brazil, they might run under different names than in other parts of the world. Nevertheless, the businesses themselves are mostly identical (ex Dafiti/Zalando).
A large part of the big e-commerce providers in Brazil is in fact Brazilian. Nevertheless, a lot of international small and medium-sized e-commerce providers are eager to join South America’s biggest economy. For most of them, it is challenging to provide goods and logistics from outside the country due to import taxes and procedures. For this reason, a market entry for them also means establishing physical structures or starting joint-ventures with local businesses.
Comparing the numbers of Internet users and e-commerce clients it becomes obvious that there are still about 90 million individuals who have Internet access and are still to enter the world of online shopping. Not to mention another 60 million that Internet providers are willing to add to their customer portfolio and who subsequently can become e-commerce clients as well.
International Internet startups in Brazil
Besides supplying online customers with physical goods a number of international online startups has also decided to open up their own offices in Brazil. Among them are Airbnb, Uber, and Spotify, just to mention a few of the larger known companies. For startups that are working almost exclusively online a market entry strategy for Brazil does not necessarily include moving or locally hiring employees. In fact, numerous startups have no interest to spread themselves physically over the globe to address customers in a different country. Since one of the characteristics of online businesses is to be accessible from any place in the world.
While this idea makes sense for some parts of the world, others follow different rules and different legislation. While it is possible to manage certain business procedures exclusively online it can become difficult for example when payment models are involved. In many countries (and Brazil is one of them) credit card payments and especially international credit card payments are not feasible for every Internet user. Besides that, international credit card payments are notably taxed so that users might refrain from using international Internet services that are not legally based in the country. Different than international e-commerce providers who often need a more complex infrastructure, pure online startups just need a legal registration for their business in Brazil without the necessity of being physically present on a permanent basis in the country. For this reason, many startups decide to work with local representatives or consultants who take care of legal and tax issues for them in Brazil while continuing to operate their business from their own office in any place of the world.
How to join the Brazilian market?
Market entry strategies can differ a lot depending on the characteristics and objectives of a company. Characteristics can be understood as the size of a company, the type of products or services, and the customers they attend, their structure and business culture and more. Traditional industrial companies use very different approaches than service providers and Internet companies do. And also among Internet companies, there are remarkable differences some of which have been mentioned before already (for example Internet startups vs e-commerce providers, larger Internet holdings vs small and medium-sized enterprises).
The size of a company also reflects on the possibilities to set up internal specialized teams to develop comprehensive market entry strategies for each country, often in cooperation with global consulting companies. One example is shown in KPMG’s Market Entry Strategy Paper for Brazil which can be downloaded here.
In this document, KPMG pre-defines a number of steps companies need to address when developing their own market entry strategy. Among them are:
- identify the market (which markets, segments, marketing efforts)
- independent incorporation or through intermediaries
- develop sourcing opportunities (develop products or acquire them locally)
- choose forms of investment (local partnerships, joint-ventures, acquisitions)
- decide on tax models and accounting
- setting up a business plan for the coming years
- evaluating business office locations (regions, cities, neighborhoods)
The situation for Internet startups and SME online businesses is certainly very different mostly due to the nature of their activities and different size of their budget and human resources. Internationally well-positioned technology firms (and others) that have entered the Brazilian market in the early 21st century are calculating with investments of at least a few million USD or EUR along the first years to get a respectable market share. Some are doing so for a time frame of 10 years or more.
Small and medium-sized startups and Internet companies are dealing with a much lower budget of a few thousand up to 400 or 500 thousand USD/EUR to enter a new market. Also, their staff often does not have the necessary international experience to embrace the complexity of new markets, cultures, societies. Apparently, comprehensive models like the one demonstrated above are helpful orientations but the daily routines and challenges for SMEs and startups are different than those of large size companies. Therefore, SME Internet companies and startups are usually developing their own processes in cooperation with local partners.
Internet companies with an investment budget of up to 500.000 USD or EUR often do not consider opening up a complete infrastructure in Brazil. Instead, they focus on local incorporation procedures to get a legal basis via joint ventures or local business partnership agreements. And then go over to establish their brands in the country, develop their sales and marketing strategies and initiate communication with their new customers.
Developing market entry strategies in Brazil involves a number of variables. Among them are the size and type of a company, its individual objectives and experience on the international level and of course the budget available to invest in Brazil. While large industrial and sales companies tend to invest high amounts to set up a complete business infrastructure in a representative environment, small and medium-sized companies use a step-by-step strategy to get into the market without necessarily having to open their own office as the first but maybe the fourth or fifth step, if at all. Especially Internet companies and startups that are used to constantly work through virtual networks instead of conventional physical presence develop individual market entry strategies that fit their own profiles.