Smith International Legal Consultants, P.A.

With recent reports of the PC market underperforming, some companies are looking for growth in other places. And according to the CEO of Intel, this place is Brazil. So what are some of the key features of the PC market in Brazil? And because this is a legal blog, what are some of the legal considerations for companies in the PC market in Brazil?

As recently as 2008, Brazil was the fifth largest PC market in the world. Browsing old articles on CNET, the writers highlight some of the issues spotted on this blog previously, such as access to capital, which is already changing. Intel seems to have consistently been optimistic on Brazil, and as PC sales soared in 2009 and 2010, Intel estimated Brazil would become the third largest PC market in the world. The biggest retailer in Brazil is Positivo, which has targeted its products at the growing middle-class, keeping it ahead of its foreign rivals. Now, Brazil trails only the US and China, making it the third-largest PC market in the world.

Part of the success of companies like Positivo stems from the policies we discussed regarding the Pão de Açucar/Carrefour transaction; the Brazilian government has enacted policies creating a favorable environment for Brazilian companies. Positivo has prepared a rather complete table of the different tax incentives and structures that apply to the Brazilian PC industry. In sum, Positivo and other Brazilian PC manufacturers benefit from a tax structure that requires foreign PC manufacturers to pay an average of 43% in taxes, while Brazilian manufacturers pay on average 2.75%. This is a substantial advantage, and it is one Positivo foresees the Brazilian government maintaining into the future.

What are some of the legal implications facing PC manufacturers and other companies related to the PC market? Some of the clearest examples are the tax incentives and related requirements for Brazilian PC manufacturers. This has lead some companies to look at mergers with Brazilian companies in order to access the Brazilian market. As recently as 2008, Lenovo and Positivo were in talks about a merger, and although the merger was called off, one of the factors supporting the merger may have been the tax incentives for Brazilian companies.

Other legal issues to consider when expanding into the PC market or any other are the type of legal entity and the method for entering the market. Normally, there are four main options: direct export to Brazil, sales through an agent or distributor, creation of Brazilian subsidiary, and joining with other companies in a joint venture or consortium. Each of these methods has its own pros and cons, which will discuss in another post. But they remain the primary ways for entering the Brazilian market.

Companies focused on the tech industry often worry about IP protection and enforcing licensing agreements, and according to the WTO, Brazil has made major strides in this area. There are some special concerns regarding licensing contracts, and to be enforceable against third parties, licenses of technology must be registered with the Brazilian Patent and Trademark Office.

While there are many other legal issues related to the PC market in Brazil, it is clear the market is growing substantially, and for companies like Intel, it may hold the future to remaining profitable as the US economy sputters.

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