How to do business in Brazil - Corporate Buyer’s Guide

Some time ago, I received a call from a friend; a Professor from an important International Business School. The call was about an education program for a European industrial conglomerate that wanted to learn about Brazilian business environment. Part of the program was to understand the buyer-supplier relationship and I was invited to share my experience with this group of C-Level executives. As being a procurement professional in Brazil has its particularities, as dealing with inflation, high cost of capital, exchange rate, I thought that sharing that experience with a larger LinkedIn audience would be a good idea.

They asked me some interesting questions:

How do you handle exchange rate for imported goods? This is a difficult one! First rule is to recognize that exchange rate will be volatile, than you are ready to design a plan. Some companies can pass on exchange rate, so this is a matter of control the timing and inventory of imported goods. Other companies have fixed R$ pricing so they need a strategy, could be a local source for part of the production, could be risk sharing agreements with your suppliers, this strategy could limit some of your losses and gains as well. In addition, there is the hedging, could be financial or could be natural hedge by exporting.

What about inflation? Do you have inflation indexes on your contracts? I think Brazilians master the technique of dealing with inflation. I always had the supply side pressure for inflation driven price increases, and almost 100% of the cases the formal supplier request comes with the supported Consumer Price Index (CPI), that was 2 digits in some years. However, as CPI is a weighted average of prices of a basket of consumer goods and services this could not always be real cost increased incurred by the supplier. It is recommended to get a clear view of suppliers cost breakdown and keep track of relevant cost drivers for your major suppliers. There are interesting Brazilian service suppliers that tracks and help companies with cost drivers.

Does contract exist? Contracts are not as popular as in US for example, I would say Brazil is less formal than global average but supplier agreements are getting more popular on recent years. Usually for services, when labor is involved, there is a formal contract as for large amounts as well. Format and wording could be as standard as “General terms and conditions” or totally customized.

Is it easy to setup a procurement organization with fluent english speaking professionals? As for many years, I worked in close collaboration with INBRASC, now LiveU, as Professor, Vice President and Advisory Board, it was easy for me to discuss the Brazilian procurement labor market. And yes, you can find global skilled level people fluent in English, but it will come with a reasonable premium on salary.

Hope this can be useful to the ones looking to establish an operation in Brazil (M&A, green field) or just looking to import from.