Brazil offers great opportunities for cross-border merchants looking to expand into new markets. The largest e-commerce market in Latin America, representing 42% of the industry’s revenue in the region, has experienced a rough economic recession in recent years. However, the downturn didn’t impact the e-commerce industry, which continued to grow while most economic sectors suffered losses, including the traditional retail segment.
Over a quarter of Brazil’s population purchased online at least once in 2017, spending a total of BRL 47.7 billion (USD 14.5 billion). For 2018, the segment’s revenue is forecast to increase by 12%. With 140 million very active internet users, who spend an average of 9h 14min per day online, the potential for the country’s e-commerce industry is undeniable. Furthermore, Brazilian consumers are also used to buying from international websites. Last year, 22.4 million online buyers purchased cross-border.
Despite the exciting numbers, there are a series of challenges for merchants who decide to enter the Brazilian market:
- Geographic extensions
Brazil is huge. The country covers 47.3% of the land area of South America. To put things into perspective: the distance on roads between New York and Los Angeles is 4,500km, while in Brazil the distance from Recife, on the east coast, to the west border, is 5,300km. The country’s size is bound to generate logistics challenges for merchants selling physical goods.
Furthermore, such a vast territory also means a heterogeneous population. Therefore, businesses are required to adjust to specific needs from consumers in different regions.
- Complex tax legislation
Among 190 countries ranked by the World Bank on its Ease of Doing Business index, Brazil holds the 184th position when it comes to time spent paying taxes. Businesses need 1,958 hours per year to file and pay their taxes in the country. Other than that, the tax legislation in Brazil suffers constant changes and updates. For instance, between 1988 and 2013, a total of 309,000 tax regulations were edited. The image below shows a book created by lawyer Vinicios Leoncio which contain all the tax regulations he collected over the course of 23 years. The book has 42,266 pages, weighs 7,530 kilos and is 2.1 meters high. Currently, over 20,000 of those regulations are still being enforced.
Photo by Fabiana Aragão/ Advocacia Vinicios Leoncio (19/03/2014)
- Restricted access to local payments
Businesses that do not have a local entity in Brazil have restricted access to domestic payment methods. Because of that, the majority of international merchants start their operations in Brazil simply by accepting card payments. However, they are inevitably faced with decline rates of up to 70%. About 30% of cards issued in Brazil, even Visa or Mastercard labeled ones, are enabled for cross-border payments, which justifies the high decline rates. Let’s not forget alternative domestic payment methods, such as boleto bancário and online banking transfer, cannot be accessed by international companies either.
Setting Up a Cross-Border Operation to Overcome the Challenges
Setting up a cross-border operation based on establishing partnerships with local players for payments, logistics and marketing is often the best way to succeed. Check out our 6 tips to get started:
- Localizing the website: it is hard for the consumer to trust a business if they cannot understand what it says. A localized website not only will increase the sense of trust on the part of the consumer but will also help them navigate through your website and have a better shopping experience.
- Offering domestic payment methods at the checkout: making domestic payment options available are not only a must to reach a larger number of consumers, but also help increase consumers’ trust on the store. As mentioned, the access to domestic credit cards, installment payments, boleto bancário and other alternative payment methods available, is restricted for international merchants. Therefore, partnering Brazilian payment service provider, such as PagBrasil, is necessary to follow this step.
- Interacting with consumers: in order to define the best strategies to further extend their operations in Brazil, businesses must understand their consumers´ behavior and expectations. Therefore, interacting with the consumers is a key point for that.
- Investing in local marketing: once businesses know their consumers, investing in marketing specialized to the country is crucial to take the business to the next level. For cross-border merchants, partnering with local marketing, PR, and advertising agencies is often the best option. Not only are they capable of developing the communication in Brazilian Portuguese, local agencies have sufficient knowledge of the market to define the best strategies for branding, and products and services diffusion.
- Working with local logistics partners: those businesses out there selling physical goods will benefit from having a Brazilian logistics partner. This way, they can import on a large scale, using pallets instead of standard individual parcels. This will not only cut their costs but also make the operation more efficient. Another upside of working with local logistics partners is that this can save buyers any additional import fees that might apply as well as reduce delivery time.
- Providing adequate customer support: having personnel who are fluent in Brazilian Portuguese is essential. However, it is not enough to meet Brazilian consumers’ expectations. To give buyers a local feeling when reaching out to the customer support area, businesses should also be available on different channels, such as phone, email, Facebook and even WhatsApp, and provide quick and detailed responses.
After mastering these six areas, some businesses decide to go local and open a Brazilian entity. Others, on the other hand, opt to continue relying on the cross-border structure with the assistance of local partners. There’s no right or wrong on how to proceed.
Regardless of the direction taken, it is essential for merchants to take into account that success can only be achieved by adapting to and understanding the market needs. Although the challenges can seem scary at times, there is no reason to throw in the towel. Companies that can overcome such hurdles will unlock the doors to a giant and less competitive market, where very profitable business can be developed.