Brazil is one of the world's most exciting destinations for e-commerce businesses with international expansion plans, but the obstacles to entry are plentiful and the risks must not be underestimated.
Let's take a look at what you will be facing when you start to sell online in Brazil, and what you can do to optimize your chances for an enjoyable and profitable venture.
An e-commerce “El Dorado” …
Brazil is the largest economy in Latin America, and the eighth largest in the world. It is also the region’s most developed e-commerce market, and the online sector has remained robust despite the recent years' economic turmoil.
Of the 211 million people who live in Brazil, 55 million made at least one online purchase in 2017, a 15% increase from the previous year. With a larger e-commerce volume than Mexico, Peru and Argentina combined, it is no surprise that international e-merchants looking to expand into Latin America first set their eyes on Brazil.
… with elevated barriers to entry
While its sheer size and growth trajectory make Brazil an eminently attractive market for expanding e-businesses, it is also the region's most difficult country to enter.
The World Bank Group ranks Brazil as number 125 of 190 countries in the Ease of Doing Business Index, not the least due to the country's notorious bureaucracy. From opening a company (which can easily take 100 days) to importing basic equipment, the simplest tasks require approval from endless government officials and public notary offices.
Sadly, such levels of bureaucracy also create a fertile environment for bribery and corruption. While Brazil's Clean Companies Act is actually one of the toughest anti-corruption laws in the world, enforcement is inconsistent, and Transparency International's corruption perceptions index ranks Brazil 96th of 180 countries.
Corruption is particularly likely in the tax administration, and for good reason: a supremely complicated tax code makes compliance very difficult even for businesses with the best intentions.
In fact, Brazil has the dubious honor of topping the list of the world's most time-consuming tax regimes: the World Bank's Doing Business project estimates that it took businesses in Brazil an average of 1,958 hours to prepare and pay taxes in 2017. That is almost twice as much as in the second country on the list, Bolivia (for comparison's sake, the corresponding figures were 175 hours in the United States and 110 hours in the United Kingdom).
Add strict labor regulations, poor infrastructure and expensive real estate, and you have the main components of the infamous “custo Brasil”. The “Brazil cost” is very real, by the way: according to research firm Americas Market Intelligence (AMI), foreign entries typically take three times longer to reach positive returns in Brazil compared to other Latin American markets.
Cross-border trading = payment pains
With so many obstacles to establishing and running a successful local business, it may seem easiest to enter the Brazilian e-commerce scene by selling cross-border. Unfortunately, this strategy will drastically limit your addressable market, primarily because the majority of Brazilian online shoppers will not be able to pay you.
Two thirds of Brazilian consumers do not own a credit card, and even those who do may not be able to buy anything from your website: only about 20% of Brazilian credit cards are enabled for international purchasing.
As a result, international credit card payments represent only 20% of total e-commerce volume in Brazil. The vast majority of purchases are paid with one of a bewildering array of local payment methods, and this spend is unavailable to merchants who do not process payments locally.
Easing entry with the right payment solution
Here is the good news: solutions exist. E-commerce entry in Brazil can even be relatively easy, thanks to Worldline's Money Remittance service.
Money Remittance is a legally compliant business model which enables you to trade cross-border, but with all the benefits of domestic processing. A local partner acts as your "Merchant of Record", collecting local payments on your behalf and ensuring that Brazilian tax compliance rules are followed. You can offer your Brazilian customers a perfectly local experience, without setting up a local subsidiary or even having a local bank account.
And if for any reason you do need (or already have) a local subsidiary in Brazil, our Local Gateway solution can help you improve operational efficiency and accelerate growth.
To learn more about optimizing your payment strategy for successful e-commerce expansion in Brazil, download "The smart e-merchant's guide to unlocking profit in Latin America".