In the last decade, Brazil has shown up on international companies’ radar for offering a huge consumer market. Despite the economic downturn starting in 2014, fueled mainly by massive corruption cases and an adverse political scenario, the country continues offering outstanding opportunities in the e-commerce market for national and international companies.
The numbers indicate that this is not the best moment for traditional retail. According to the Brazilian National Confederation of Commerce (Confederação Nacional de Comércio), over 108,000 establishments closed their doors in 2016. However, the Brazilian e-commerce market continues to register double digit annual growth. In fact, the unfavorable economic situation, with consumers losing purchasing power, has fueled the e-commerce growth. More and more consumers research online to find the best prices and payment conditions.
The forecast for 2017 sees a growth rate between 12% and 15% for Brazilian e-commerce. With 54% of online consumers in Brazil having purchased at least once on international websites, according to E-bit, the Brazilian e-commerce market remains an excellent opportunity not only for local online businesses but for international merchants as well.
However, international merchants can face several difficulties to sell cross border into Brazil. The lack of knowledge about the local market particularities, as well as the consumer behavior, payment methods used, legislation, customs, tax structure and restrictions regarding currency exchange and international remittances can make entering in Brazil a challenge to foreign e-commerce businesses. Despite the difficulties, it is possible to succeed in conquering the Brazilian e-commerce market.
1. Start Selling Cross Border
The first step must be to start selling cross-border into Brazil. This way, the merchant has the opportunity to test the potential of their product or service in the Brazilian market. For this first phase, localizing the website and offering the buyer the possibility of paying with Brazilian payment methods is enough.
In fact, national payment methods are a must to reach a bigger portion of the consumers. Representing nearly 70% of all online payments, credit card is by far the most relevant payment method. However, the absolute majority of the credit cards issued in Brazil can only be used for payments in the country and in local currency. It is also worth noting that alternative payment methods, such as Boleto Bancário or other national payment options, are the choice of nearly a quarter of the online buyers at the checkout. The boleto is the most popular among the alternative payment methods, which can be justified by the high number of consumers who don’t own a credit card or even a bank account. There are estimated to be approximately 55 million Brazilian adults without a bank account in the country.
Furthermore, it is important to offer the option to pay in installments. Brazilians are used to financing their purchases and among those using credit card, 75% choose to pay in installments. Despite the average of 2.4 installments in the Brazilian e-commerce, according to E-bit’s Webshoppers a third of the consumers choose to pay in 4-12 installments.
In order to be able to offer these options at the online store, international merchants must partner with a local provider. Such services cannot be directly contracted with banks and acquirers in the country without a Brazilian entity. Therefore, partners such as PagBrasil are essential to boost sales in Brazil since they make it possible to receive payments in local currency (BRL), with a variety of local payment methods.
This first step is key to interacting with Brazilian buyers and understanding how they behave and what they expect from your business. With this information, foreign companies can define the best strategies to advance with the local operation.
2. Establishing Partnership with Brazilian Companies
Local partnerships are the next step to make international business growth in the Brazilian market viable. The main points to be taken into account are: import, logistics and marketing service providers.
Import and Logistics
Selling physical products into Brazil presents a specific difficulty for international merchants: the taxation of products upon arrival in the country. If the exemption limit is exceeded, usually the buyer has to bear the corresponding import taxes to receive the goods, which can result in products not being collected, as well as high chargeback rates for the merchant. A way to get around this problem is to import in large scale, using pallets instead of standard individual parcels. Afterwards, the local partner handles the distribution, making the process cheaper and more efficient. In this case, the local partner will be crucial to assist the international company in developing an efficient logistics strategy in the country.
Another factor that must be considered in this step is hiring local marketing, advertising and PR agencies. Knowing the market and its consumers is key to developing strategies for branding and products and services diffusion. The local agencies add great value in this regard, in addition to being able to develop communication in Brazilian Portuguese. For this reason, in order to be able to see efficient and large scale growth in the country, partnering with local agencies is a key point.
3. Investing in Local Infrastructure
The third step must be taken after a period of time acquiring knowledge about the market and working with local partners. Investing in local infrastructure is a hard process. The main ways to do so are: establishing operations by opening a Brazilian entity, or buying a local company. In both scenarios, it is essential to have legal and administrative support to meet the high complexity of all the national tax liabilities, as well as the country’s labor laws.
This can be a long and bureaucratic process, in which a local consulting firm will be needed. However, once an international company reaches a solid structure in the market as well as a high sales volume, this step might be necessary to consolidate the company’s position in the Brazilian market and continue growing.
It is worth noting that this third step is optional and international companies can opt to continue with the cross-border structure with the assistance of local partners if their business volume justifies the decision. Regardless of the decision, adapting to the market and understanding its needs is crucial to succeed in the country.
Besides offering a broad set of local payment methods, PagBrasil also provides market entry support for international companies looking to expand to Brazil. PagBrasil’s payment processing services can be used by international companies in the cross-border model, as well as by local online stores. For this reason, PagBrasil’s cross-border clients who decide to take the third step can switch to the national model easily, without the need to change the service provider or alter the technical integration.