In April 2023, Brazilian President Lula led a delegation of up to 240 business representatives to China, attempting to promote broader cooperation between the two countries in trade, investment, reindustrialization, energy transition, climate change, global peace, and security.
This is the most luxurious visit since China and Brazil established diplomatic relations in 1974 and upgraded to a comprehensive strategic partnership in 2012. State media not only referred to Lula as "an old friend of the Chinese people" but also compared this state visit to a "warm handshake" between the two largest developing countries in the Eastern and Western hemispheres, indicating the level of attention the Chinese government is giving to this matter.
As this country, known for its passion and openness, is in a delicate position of being courted by both the US and China, what kind of business value and consumer power does it hold for companies looking to expand overseas?
Brazil's Natural Advantages and Business Value
According to data released by the Brazilian Institute of Geography and Statistics, as of the end of 2021, Brazil's population was 214 million, making it the largest country in terms of population in Latin America. Its vast land area of 8.5 million square kilometers also puts it in fifth place in the world.
Brazil is rich in natural resources. For example, in terms of energy and metals, its niobium reserves are more than 4.6 million tons (confirmed), accounting for over 90% of the world's production; its iron ore reserves are confirmed to be 33.3 billion tons, ranking second in the world in terms of production; and its confirmed oil reserves are 1.53 billion barrels, ranking 15th in the world.
Although Brazil's average fertility rate has dropped to 1.65 births per woman, ranking 10th in South America in recent years due to economic development, its huge population still has a median age of around 34.3 years old, with 51% of the population being 34 years old or younger, making it a very young and vibrant country.
As the region with the highest urbanization rate in the world, around 87.5% of Brazil's population lives in cities, and its internet penetration rate has reached a staggering 77% (as of early 2022), with the number of social media accounts approaching 80% of the total population.
In terms of consumption habits and potential, Brazil's data may surprise many practitioners. According to Statista, the rapid rise of the banking industry and the arrival of the e-commerce wave in Brazil have enabled 40% of the population to have credit cards, with an average of 1.06 cards per person. In terms of age, not only did 41.5% of people over the age of 25 have cards, but even the 15-24 age group had a card holder rate of 37%.
Morgan Stanley analysis believes that Brazil's per capita spending on e-commerce retail is only USD 296, far behind emerging markets such as Mexico and India, reflecting its huge growth potential in e-commerce.
Chinese Companies' Ambitions in Brazil and Latin America
Using Brazil as the first piece of the puzzle to enter the entire Latin American market is one of the strategic plans for many Chinese companies when expanding into emerging markets.
During the Age of Discovery, Latin America was a colony of powerful European countries such as Spain and Portugal. The dominant languages are Spanish and Portuguese, and the dominant religion is Catholicism. The cultures are quite similar. Geographically, Brazil is located in the middle reaches of the Amazon River, with the east coast bordering the Atlantic Ocean and other parts bordering multiple South American countries, making it ideal for ocean and river transportation. Its Rio de Janeiro port is one of the world's three natural deep-water ports.
Therefore, Brazil's location advantage has made many Chinese companies eager to explore first. Huawei (华为) entered Brazil in 1999 and has invested over USD 1 billion, deploying over 40,000 4G and 5G base stations. Xiaomi's (小米) first Brazilian store opened in 2019, and according to Statista, its market share in Brazil reached 12% in 2022. Chery (奇瑞) invested hundreds of millions of dollars to build a factory in Brazil and is currently competing fiercely with BYD (比亚迪), a newcomer to Latin America. The latter has been growing rapidly. In order to enter the Brazilian market more smoothly, Didi (滴滴) spent USD 600 million in 2018 to acquire local ride-hailing software 99 taxi as a foothold to enter Latin America.
Other new entrants from China are also making frequent moves. From the current competitive situation, the popular tracks for entering Brazil's market include new energy industries, consumer electronics, online social, games, beauty and cosmetics, medical beauty, clothing, express logistics, and energy.
SHEIN is an international fast fashion giant that cannot be ignored. It started by hiring Marcelo Claure, former COO of SoftBank, as its President of Latin American Business, and recently announced plans to invest USD 150 million to build a supply chain in Brazil. According to SHEIN China, the company will integrate 2,000 local manufacturers in Brazil in the next three years, and will also accept local third-party sellers to enter the platform, fully promoting the SHEIN Marketplace platform model, using the small-order fast-reaction model to improve efficiency and reduce waste. By the end of 2026, SHEIN believes that 85% of its sales will come from local consumers.
Founded in 2016, Advance.ai (领创集团) is one of the earlier FinTech companies to go overseas in Asia. It provides solutions such as digital transformation, anti-fraud, and process automation for banks, payments, retail, e-commerce, the Internet of Things, transportation, and sharing economies, and has entered overseas markets such as Indonesia, Brazil, the Philippines, and Singapore.
Social players such as Tencent Games (腾讯游戏), ByteDance (字节跳动), and Kwai (快手) have also come to Brazil to mine opportunities. Tencent announced in June 2022 that it will open an office in Brazil and form a local team. Of the latter two, ByteDance has already taken advantage of local users' high stickiness to TikTok and is actively preparing to expand its e-commerce business to Brazil this year. Kwai's localization in Brazil has been very successful, and increased local exposure through sponsorships of events such as the Copa América and music festivals, as well as cooperative activities.
In recent years, both J&T Express (极兔速递) and Cainiao (菜鸟网络) have been laying out in Brazil at an exceptionally rapid pace. Cainiao International has built a fast delivery logistics network covering over 1,000 cities across Brazil, with an average delivery time of 2-3 days after local consumers place an order, and even achieving "next-day delivery" in core cities such as São Paulo. J&T Express's pace in Latin America has a sense of being steady and gradual. In 2022, it entered the Mexican and Brazilian markets and established a delivery network covering all 26 states and one federal district in Brazil.
What Preparations Should Chinese Companies Make When Going to Latin America?
Unlike the European and North American markets, the situation and policies in Latin America are often unpredictable. In Brazil, the presidency has changed hands between Luiz Inácio Lula da Silva, Dilma Rousseff, and Jair Bolsonaro over the past 12 years, with policies swinging left and right. The political situations in neighboring Mexico and Colombia are often influenced by drug trafficking groups. Therefore, for Chinese companies who want to cultivate in Latin America, it is necessary to attach importance to political and business relationships, be familiar with policies such as taxation, and be cautious about labor issues.
A senior industry insider who has provided services for Chinese companies going to Brazil for many years revealed to EqualOcean that the legal entity of a locally registered company in Brazil must be a local identity, and using foreign identity is inconvenient. Therefore, it is necessary to find reliable locals to act as agents, and some large companies will directly buy the target business company in the local area. In terms of taxation, due to the impact of strict inspections of tax-free cross-border parcels by some countries, Brazil has also reduced the tax-free threshold for small parcels from the original USD 100 to about USD 30.
Labor disputes are also a headache for some companies. According to the above-mentioned person, local laws in Brazil protect workers very well. For example, responding to emails or phone calls after work is considered overtime. If an employee resigns, any arbitration matters raised by them must be cleared by the company, otherwise the company must compensate. If there is any inappropriate language infringement against an employee, the company may face compensation several times higher.