That phrase “Go West, young man” was a nineteenth century quote from American author Horace Greely, who believed the farmlands of the west would provide an ideal place for people to succeed.
In the 21st century, market researchers view Latin American markets, particularly Brazil, in a similar light.
But should you hitch up your wagon and head to Brazil to expand your business? Is it an undertaking only for the industry giants, or are there opportunities for small to mid-sized companies? How do you even begin to expand your operation abroad?
To find answers, we tapped the insight of the research firm Alexander Watson Associates, and also looked to Latin American Specialist Hamilton Costa for a boots-on-the-ground perspective.
Brazil is Booming for Labels
Before we get to the label market, here are a few facts about Brazil: Brazil (officially the Federative Republic of Brazil) is the largest country in both South America and the Latin America regions. It is the world’s fifth largest country, both by geographical area and by population (198.7 million). The Brazilian economy is the world’s seventh largest by nominal GDP and the seventh largest by purchasing power parity, as of 2012 (source: Wikipedia).
South America’s 398 million people represent 5.7% of the global population, and Brazil accounts for over 50% of the regional population. According to purchasing power parity, the region represents around 6% of global GDP at $4.74 trillion.
Latin America is often mentioned as a hotbed for growth. According to Alexander Watson Associates, “The South American label market represents one of the fastest growing label markets in terms of growth rate. Brazil is the dominant player within the region and is the powerhouse of growth in regional label volumes.”
According to Hamilton Costa, the general manager at ANconsulting, it’s the emergence of a vibrant middle class from this population that’s driving label consumption. “In the last 15 years, more than 30 to 40 million people have become part of the middle class,” he says. “We’re getting to a level where people can start buying things they couldn’t buy before.”
Hamilton works with printing companies in the USA, Canada, Colombia, Argentina and Brazil. Based in San Paulo, he’s an expert on the Latin American market.
“Cities are beginning to expand, beyond just the large metropolitan areas like Rio and San Paulo,” Costa says. “That means more opportunities for new products, such as beauty products and hygienic products. More products mean an increased need for logistics, such as label printing.”
AWA’s research indicates the label boom in Brazil is for real. Consider Brazil’s rankings:
- 4th in terms of Foreign Direct Investment (FDI)
- 3rd largest soft drinks market
- 3rd largest producer of beers
- 9th largest pharmaceutical market
- 10% of global sales of beauty products
South American demand for labels grew by an estimated 4.5% in 2012, and Brazil was the major component and growth drivers, with beverages being the major growth segment.
That accounts for a lot of labels, but there’s another trend AWA notes that makes the Brazilian story even more compelling: Gross Domestic Product (GDP).
“In general, the growth of label markets in ‘developed’ regions such as North America and Europe approximates to GDP,” AWA reports. “In ‘developing’ markets such as South America, label market growth is often a multiple of GDP, and ‘emerging’ label forms such as heat shrink sleeve or pressure sensitive formats in such regions may have volume growth that are several multiples of GDP compared to the more established formats such as cold (wet) glue applied labels.”
Costa notes that even though Brazil’s GDP has slipped lately, the market is still fertile ground, due to the growing middle class.
Expanding Doesn’t Mean Conquering
Back in Horace Greely’s day, westward expansion might have involved tearing across the frontier and laying claim to your own patch of manifest destiny. Expanding into Brazil’s emerging but established economy will require a different strategy.
First, Costa believes companies that want to develop business in Brazil must think in terms of partnerships, not acquisition or even opening your own company.
Like the United States, Brazilian label printers are a fragmented market. Consisting of many small to mid-sized companies, they service local markets, which is precisely why they’re so attractive to brand companies.
The successful strategy into Brazil involves setting up a partnership with an establish label printer in the region, and then moving forward with either more regional alliances, or mergers and acquisitions as the business and political climate permits.
What are some of the typical obstacles that would prevent opening your own business, or simply acquiring one that’s already there? Here are a few:
Disputed valuation. Many owners of Brazil’s small to mid-sized family-run companies believe their organizations are worth more than the number on their valuation.
Brazil’s onerous tax system. The Brazilian tax system can be extremely difficult to work around. It creates unique accounting challenges, such as necessitating that a buyer creates reserves to deal with unforeseen tax issues.
Brazilian bureaucracy. We tend to gripe about American red tape, but Costa says Brazil takes it to entirely new level. “For an American business to actually open a company, with the right licenses and documents, would be a huge cost,” he notes.
Perhaps one of the most significant hurdles is the cultural difference, particularly in regard to how Brazilians conduct business.
“You also have to develop the right kind of trust,” Costa says. “You must have a good personal relationship. You have to be able to look someone in the eye and assure them that you will not fail.”
Sounds familiar, doesn’t it? I’ve noted time and time again that it’s not the financials that cause merger and acquisition deals to fall apart; it’s the disregard for company cultures and synergistic relationships.
That’s domestically. When you reach out internationally, you have company cultures and national cultures to work through. It’s why international expansion is generally pursued by big companies with the resources to work through the details.
Let’s assume your company is willing to undertake expansion. You understand the need to build relationships, partner with Brazilian businesses, and work within the country’s tax and political system. But what do you do to take the next step? How do you even make first contact with a company in Brazil?
The game is still all about connections. Thanks to the internet you can instantly connect with anyone, anywhere, anytime. But this type of relationship is not a cold call (or a Skype call) away.
It takes time to network with the proper people to make inroads abroad. Ironically enough, I’d recommend you start domestically. In an increasingly connected world, it’s amazing how many people you know that actually have contacts overseas.
Hamilton Costas was referred to me by several contacts I made at PRINT 13. The connection occurred because I made it known I was interested in setting up business relationships in Latin America.
What types of networks do you want to build? Costa recommends building relationships with local consultants and banks. Conduct your due diligence, and approach the relationship in the same way the Brazilians conduct themselves: You want to partner with someone you can look in the eye and be certain they can deliver.
Most importantly, you’re going to need to pack that bag at some point and visit the country. While the internet has made the world a smaller place, it’s still face-to-face contact that opens the door for opportunity in Latin America. lnw
Rock LaManna, President and CEO of LaManna Alliance, helps printing owners and CEOs use their company financials to prioritize and choose the proper strategic path. He can be reached at Rock@RockLaManna.com.
Let’s say you follow Hamilton Costa’s words of wisdom, and business opportunities arise. What type of etiquette should you follow as you seek out an engagement?
Greetings: Greetings and exits are important. Expect a firm handshake, for quite a long time. It’s common for men and women to greet each other with a kiss on each cheek. The key point is to not be hasty; these entrances and exits can take a while, so build that into your schedule.
Meetings: Be conservative in your dress. Don’t be surprised if your Brazilian counterparts arrive late. It’s not as much of an issue as it is back in the US. If you’re in Sao Paulo or Rio de Janeiro, give yourself plenty of time to get through the traffic.
Negotiations: Adhere to our advice in the article; partner with a local firm, so you don’t have to learn the Brazilian legal system the hard way. Expect to negotiate with people, not corporations. Be patient, as a great deal of time will be spent reviewing the details.