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Written by Quinn Smith
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Wednesday, 10 August 2011 16:17 |
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One of the surprises for many US investors looking at Brazil is the relative difficulty of opening an entity. In the US, creating a corporation or a limited liability company has become so frequent and simple that many expect this same level of simplicity in other countries. In Brazil, opening a company is quite difficult and often puzzling. There are higher costs, more forms, and more time necessary. While some investors may feel repelled, there are many good reasons to slog through muck and open a Brazilian subsidiary. In our experience, here are a few:
- Access to capital. As noted in prior posts, access to loans in Brazil can be much more difficult than in the US. Interest rates are higher, and banks often require more pledged collateral. Even when a company is looking for a rather large loan with good credit, the terms from the lender can be much more unfavorable than expected in the US. A Brazilian subsidiary faces a different reality: BNDES. The BNDES is a state-owned bank in charge of providing financing for certain sectors to help spur the Brazilian economy. Interest rates are much more competitive, which lowers borrowing costs and increases margins, both good things for business profits.
- Access to people. Brazilian business culture still highly values pesonal relationships. Seeing your customers and business partners on a frequent basis can go a long ways towards building a successful future. With a Brazilian subsidiary, the commitment to local business culture will often increase as the foreign business has a visible presence.
- Access to markets. Certain sectors of the Brazilian economy are open only to Brazilian companies, and a Brazilian subidiary can open these doors. For example, the importation of equipment for lease normally needs to be done through a Brazilian company. When one considers the costs of shipping to Brazil, opening a Brazilian subsidiary and applying for the right permits can be a big advantage. There are other types of bids open only to Brazilian companies, and some sectors of the market, like airline ownership, require Brazilian participation. A Brazilian subsidiary can bridge these gaps.
While each company's plans can vary, there are definitely reasons for opening a Brazilian subsidiary, especially if the investor wants to get involved in areas targeted for expansion by BNDES and public bids. With the recent announcement of several new initiatives to encouarge the growth of small to large Brazilian companies, now may be a good time to open a Brazilian subsidiary.
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