Market Opportunity

Home to half of South America’s population and one of its emerging market economies, Brazil is a nation with many prospects for investment. According to euromonitor.com, the number of Brazilian households with annual disposable income over US$10,000 and US$15,000 continues to grow at over 30%, and from 2002-2006, consumer spending in Brazil increased 9.7% in real terms. The Brazilian economy’s healthy GDP growth rate of 5.4% in 2007 suggests sustained future prosperity and continued growth in consumer spending. The United States is Brazil’s largest trading partner, comprising 16.2% of its imports at an estimated nominal value of $19.5 billion f.o.b. in 2007. With the Brazilian real steadily appreciating against the American dollar, Brazilian importation of U.S. goods should only strengthen in the future.

Another market opportunity for reaching potential customers is direct marketing. Brazil has an excellent postal service, and direct marketing is a proven way to reach over 35 million middle-class Brazilian consumers. Online marketing will be discussed later in this report. Lastly, U.S. firms should emphasize the quality of their products in order to compete successfully with possible lower prices offered by Chinese and other country’s imports to Brazil.

On the other hand, limitations do exist in the Brazilian economy. Brazil maintains a highly unequal income distribution, a pressing problem for its society. 9.3% of the workforce is unemployed and 31% of Brazilians live below the poverty line. The top ten percent of income earners constitute 44.8% of consumption. In addition, crime, drug abuse, poor public education, and environmental degradation are prevalent. Black and gray markets hamper tax collection and promote technological and consumer goods piracy. Furthermore, an overloaded legal system has led to low enforcement of business law and long delays in hearing cases.

Best Industry Segments

Brazil requires significant investment in virtually all areas of its economy and infrastructure, providing compelling opportunities for American firms seeking expansion into foreign markets. Insurance is the largest imported good as $5.9 billion in U.S. insurer participation was issued in Brazil in 2005. $3.8 billion in computer software and $2.8 billion in computer hardware was imported from the U.S. in 2006. Brazil will purchase a projected total of $3.3 billion in oil and gas equipment from the U.S. this calendar year. Other industries among high demand in the Brazilian economy include medical equipment, airports products, and telecommunications equipment, whose estimated import values from the U.S. for 2007 are $792 million, $671 million, and $641 million, respectively. In addition, Brazil represents the tenth largest pharmaceutical market worldwide, with an estimated $624 million in imports from the U.S. this year alone. And due to recent increases in consumer spending, American companies should consider exporting their consumer products to Brazil.

Regulatory and Tariff Landscape

Significant trade barriers exist in Brazil. High tariff rates in many areas, from 0-35%, stem mainly from the Import Duty (II), Industrialized Product Tax (IPI), and Merchandise and Service Circulation Tax (ICMS). Challenging customs regulations such as import licensing also inhibit expansion into the Brazilian market.

Online Marketing Profile

The Brazilian people compose the sixth largest population of internet users worldwide and thus there is enormous potential for success for internet marketing in Brazil. Its fifty million routine web navigators represent 3.6% of the global online community and crossover with consumers from Portugal. A recent article from searchenginewatch.com asserts that first quarter 2007 revenue from online advertising in Brazil grew at an annualized 32% compared to 2006 revenue. However, difficulties remain in the acceptability of credit cards for e-commerce transactions.

Popular Brazilian Search Websites

According to seroundtable.com, the search engine market shares in Brazil are as follows: Google Brazil (google.com.br) boasts 55.8% of search queries, MSN Brazil (br.msn.com) accounts for 30.2% of searches, and Yahoo! Brazil (br.yahoo.com) includes 11.9%. Other search sites of note are Terra (terra.com.br) and UOL Busca (busca.uol.com.br).

Summary

Many American companies find that the opportunities for increasing revenue through internet marketing in Brazil outweigh the risks. Portuguese is the eighth most popular language among internet users and thus marketing in Brazil, with its relatively high purchasing power compared to other South American countries, is a very lucrative potential business venture. However, despite the Brazilian market potential, important challenges remain for U.S. businesses seeking to expand into Brazil. Until high import duties and online credit card acceptability issues are addressed, GLOBALeMARKETER.com ranks Brazil as a Tier II market for global online expansion.

– With contributions from Michael Kuchta