Many look at Brazil and see an opaque wall of red tape; Scott Lewin saw opportunity.
The CEO of Invoiceware International is making the country’s infamous complexity work for his company, which helps multinationals make sense of often-convoluted compliance processes in Latin American countries.
Brazil is the poster child for bloated bureaucracy. The country ranks No. 120 in the World Bank’s Ease of Doing Business rankings – behind such countries as Nicaragua and Ukraine – largely thanks to a byzantine tax code and a labyrinth of laws that makes registering a business take an average of 102 days.
Sometimes, these complexities can provide zones of hidden opportunity for the companies willing to brave a few hiccups along the way, executives said during a discussion organized by Global Atlanta within the Georgia Tech Brazilian Students Association’s inSight conference Nov. 20.
“One word about doing business in Brazil that sticks with me is, ‘It’s complicated,’ but one man’s complication can turn out to be another man’s opportunity,” Mr. Lewin said.
He gave an example: In Brazil, the simple process of fulfilling an order requires a form to be generated and sent to the government registering the transaction before the goods can be shipped. Without that approval, companies can have their goods seized by the authorities and are subject to fines of up to four times the value of the order. Mr. Lewin has designed systems to help firms comply with mundane regulations that seem superfluous but can throw a wrench into their operations, he said.
“We are now processing $85 billion worth of invoices every year. That tells you what a big problem this is for companies,” Mr. Lewin said.
Juliano Saldanha Vargas, vice president for WEG Electric Corp., said part of the problem is that firms have their expectations out of whack.
He shared an example in the opposite direction: WEG is a Brazilian firm, and to enter the U.S., it sent two intrepid young employees to set up a new base in Rochester, N.Y., near a supplier. After a blizzard buried them under seven feet of snow, they realized the error of their ways and chose a site at the opposite geographical extreme: Ft. Lauderdale, Fla.
“Wonderful place for a vacation, but not necessarily for selling electric motors manufactured in Brazil,” Mr. Vargas said. The firm eventually landed in Duluth, where it now has its North American headquarters.
“The big problem we have is we don’t have the patience to plan,” he said.
Similarly, U.S. firms look at Brazil as a monolithic market, failing to take into account regional variation in a place with 200 million people that’s more of a continent than a country.
With a history of European immigration, Brazil’s southern states like Rio Grande do Sul are better known for precision manufacturing, whereas financial services are based out of Sao Paulo, software in Recife and the energy in Rio de Janeiro. Manaus, an Amazon city, has become a hub for incentivized manufacturing. This is a country that farms more coffee than any other and is home to untouched rainforest tribes but also has gleaming factories where Embraer makes top-of-the-line passenger jets for global markets.
AirWatch by VMWare, an Atlanta-based entrepreneurial success story in mobile-device management software, has found a foothold in Brazil’s technology chain. At first, the orders trickled in, but they turned to a flood after two watershed developments: AirWatch first found capable resellers, avoiding all the hurdles of setting up a local operation. Then, when VMWare acquired the company earlier this year, it instantly gained multiple offices in the country.
Now? “We sell like water,” said Regina Nunes, Airwatch’s Latin America account executive, who noted that Brazil is a 25-30 percent bigger market for the company than Mexico, often cited as an easier market for U.S. firms.
But partners don’t always come easy. Mr. Lewin of Invoiceware said that without language capabilities, it was really hard to know whether his own advisers were always working in his best interest. Billy Hall, CEO of Newfields Consulting, found that seemingly everyone in Brazil claimed to have “connections” that could help jump bureaucratic hurdles.
“If you’re a businessperson going in and you’re really testing the water, be extraordinarily aware of the despachante, the arrangers, the people who can ‘smooth the path’ for you. I tried that route, and it was the primary source of my pain down there,” Mr. Hall said. “My personal experience was that it’s a great way to spend a lot of money but at the end of the day have nothing to show for it.”
After that expensive lesson, he began tackling the problem by hiring Brazilian students as interns in the U.S., later putting their bicultural expertise to work in leading his Brazilian offices. Using this “untapped human resource” was a solution praised by multiple members of the panel.
Robert West, principal at Atlanta-based law firm Wasserman West, which focuses on Latin American market entry, said companies shouldn’t let anyone make their decisions for them, but they should seek sound advice in a place as complex as Brazil. Partnerships with local firms can sometimes expose foreign companies to liability they knew nothing about. Employees can sometimes sue their employers again even after winning the case initially, deciding after a second victory which judgment to accept.
“Look for strategic planning that minimizes your exposure and maximizes your rights and gives you the strongest position should you have to defend yourself legally,” Mr. West said. In areas such as intellectual property, for example, it’s a lot easier with good contracts to recover damages in the case of infringement than in some other markets like India and China.
Before the panel moderated by Global Atlanta, the inSight conference featured speeches by Hermano Telles Ribeiro, consul general of Brazil in Atlanta; Kirk Bowman, Georgia Tech associate professor of international affairs who teaches a popular course on soccer and global politics; and Lucia Jennings, long-time president of the Brazilian American Chamber of Commerce Southeast, another organizing partner of the event.
