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Taiwanese Business Frontier

Brazil Beckons


Already an important source of the world's raw materials, Brazil is taking shape as a new frontier of business opportunity, an increasingly important market for companies, and fertile soil for enterprising Taiwanese business people.



Brazil Beckons

By Monique Hou
From CommonWealth Magazine (vol. 425 )

To most countries around the globe, Brazil is a distant world. The 10 to 30 hour flight time needed by most people to get to the South American country tests travelers' endurance and for many is simply unbearable. But Brazil's relative seclusion has not dampened the urgency with which entrepreneurs are trying to capture a share of the country's burgeoning market.

Best Time in Brazil's History

Over the past four years, foreign direct investment (FDI) in Brazil has grown between 25 percent and 84 percent annually. Growth in foreign investment in Brazil's stock market hit 430 percent at its peak during the same period, though it contracted 98 percent in 2008 because of the global financial crisis. In the first five months of 2009, foreign investment in the equity market is once again on the rise (see Table).

"This is the best time in Brazil's 100-year history," says Taiwanese expat Han-Sun Chien, a former professor in the Department of Atmospheric Science at the Universidade de Sao Paulo and currently the president of the Federation of Overseas Chinese Associations.

In the 1980s, Brazil was the world's biggest foreign debtor, but a change in the country's thinking transformed its fate. After repositioning itself in the 1990s, the resource-rich country became the world's granary, forest, ranch, quarry and supplier of clean energy.

Since 1990, Brazil's exports have grown every year and risen by double digits in each of the last six years.

In 2001, Brazil's trade balance turned from a deficit to a surplus, and the surplus has expanded steadily since then. Once the world's biggest debtor, it has now turned itself into a net creditor nation and its foreign exchange reserves have accumulated rapidly to US$206 billion as of June 2009. Based on the speed it has added reserves, Brazil could catch up to Taiwan's US$310 billion in forex reserves in fewer than five years.

Competing for Brazil's Resources

One of the most startling trends to anybody reporting on Brazil is the invasion of foreign countries competing for Brazil's resources. Japan has already built or is in the process of constructing more than 80 ethanol plants there, having leased more than a million hectares to grow sugarcane to be converted into ethanol that is shipped back to Japan. 

Brazil is the second largest producer of silk in the world, but its production of the precious material has been booked entirely by Japan. The United States negotiated unsuccessfully to import oil from Brazil and then moved to importing Brazilian ethanol. Even investor George Soros's Quantum Fund bought three ethanol factories there. The U.S. paper industry also leased a huge plot of land to grow eucalyptus trees that are used to make paper. China has furnished Brazil with aid to build a rail line dedicated to transporting Brazilian iron ore, copper, aluminum and other mineral products to seaports for export to China.

Brazil is also currently the only country in the world that has successfully developed a clean energy market on a large scale.

Sugarcane, beetroot, corn, wheat, and other crops can all be converted into ethanol, with sugarcane converted the most efficiently and at the lowest cost. But almost all of the ethanol used by American cars is made from corn, and that used in Japan comes from rice.

Brazil also stands as the only country that has successfully integrated ethanol technology into its automotive industry on a large-scale and stressed the convenience of motorists in using the fuel.

Aside from imported cars, almost all cars produced and sold in Brazil now run on ethanol, and the biofuel accounts for 48 percent of all fuel used by cars in the country. A key element of Brazil's success is the gift of being able to grow massive amounts of quality sugarcane, an advantage that most other countries cannot duplicate.

Taiwan's Opportunity in Brazil

The development of Taipei's relations with Beijing has left many wondering if Taiwan will become too reliant on China. President Ma Ying-jeou said recently that Taiwan's export-oriented economy cannot be changed dramatically, but markets can be adjusted.

Outside of the Chinese, European and American markets, Taiwan's relatively low-cost, high-quality goods should also have good prospects in emerging markets with big populations and strong consumption power, such as Brazil, India, Russia and Indonesia.

"The areas where Brazil is weakest are all areas where Taiwan is strong," says Tony J.C. Chyou, the manager of Taiwan Trade Center Brazil Ltda., Taiwan's trade promotion office in the South American country.

In its current stage of development, Brazil sorely needs information technology, auto parts and assemblies, light industrial tools and machines, and mid-price consumer goods, all of which Taiwan can furnish competitively.

"Taiwan's finished products and components are extremely important to Brazil's information technology sector," says Mario Roberto Branco, general director of the Brazil Electrical and Electronics Industry Association's International Affairs Department. Over the past three years, Taiwan's exports to Brazil have grown by double digits, and among them the top two export categories have been monitors, and IC boards and electronic components.

Not only big projects are thriving in Brazil, however. Smaller enterprises, such as the business started by Taiwanese businessman Hui Chen Der, have blossomed in the inviting commercial environment. Hui has built his own brand of China-made umbrellas, and he now imports 40 to 50 containers of product per year.

"They're cheap and good. They're really competitive," says Hui, who describes his business as being good, but would not reveal his profits. "I can't tell you. If I do, everybody will come."

For Kaohsiung County-based furniture hardware manufacturer Siquar Hardware Industry, Brazil accounts for nearly 30 percent of company revenues.

"The biggest edge our company has is me. Most Taiwanese businesses have a hard time developing the kinds of customers that somebody like me can tap into," says Siquar Hardware's representative in Brazil Mario Wang. Wang has lived in Brazil since moving there with his family when he was young, and because of him, Siquar Hardware's exports to the South American country have doubled annually for the past five years, making it the company's biggest export market, even if, as Wang says, "our products are generally 10 to 15 percent more expensive than those of our competitors."

It is not easy to build trust with Brazilians, but they cherish relationships, and once a relationship has been built, it is very solid, Wang says.

"Because of the service I provide, customers trust me. No matter how cheap Chinese companies are, they only communicate through the written word. Customers don't see them, but I'm different. I often visit customers and spend time chatting and having meals with them. As soon as there's a change in the market, customers will tell me, and I'll let headquarters know about it to meet their needs. This is all very important to our customers," Wang explains.

Hidden Perils

Peter K.H. Yang, the president of the Taiwanese Chambers of Commerce in Latin America, believes that no matter what Brazil needs, Taiwan can provide it. He says that in the rapidly growing Brazilian market, outsiders in any sector have room to thrive.

Yang, who is a distributor for Honda Motors in Sao Paulo's sixth district, now sells about 600 cars a month, four times the 150 cars a month he was selling four years ago.

In 2008, Brazil's car market became the fifth largest in the world, with more than 3 million vehicles sold. At a time when the global economy is floundering, Brazil "grew at a 20-percent rate in the first quarter of this year, unrivaled anywhere else in the world," Yang says.

Recently, Yang has joined with another Taiwanese businessman, Wei Yuan Chang, in importing GPS navigation systems whose circuit boards are made in Taiwan and assembled in China. The product line has sold so well that supply has fallen short of demand. According to Wei, a unit comprised of a stereo, DVD player, Bluetooth, computer, television and GPS sells for US$1,500 (about NT$50,000), which is "cheaper than the competition, but still allows a high profit margin."

Asked if by high profit margin, he meant at least 30 percent, Wei rolled his eyes. "In Taiwan, people ask about margins in terms of percentage points. In Brazil, you should ask about margins in terms of multiples," Wei says, revealing that his net margin is 250 percent.

Brazil may be the land of opportunity, but plenty of hidden perils exist. "There are many things about Brazil that are too ‘special,'" the Taiwan Trade Center's Chyou indicates. Brazil's tax system is complicated, the country is overly protective of workers, and it tightly controls foreign exchange. Customers also frequently do not pay their bills. 

A wave of Taiwanese enterprises has attempted to gain a foothold in the Brazilian market in recent years, but many companies have failed because they did not understand the country's special risks.

Brazil's Lucrative Middle-class Market

Brazil's market may be fraught with hidden perils, but with a population of 190 million people, steadily rising per capita income, and more than half the people (51.89 percent) now considered middle class, Brazil offers huge opportunities to both companies and individuals because it has many sectors in which supply falls far short of demand.

"That's especially true because Brazilians don't like to save money. They like to spend it," Chien observers. A survey on consumer attitudes in the BRICs (Brazil, Russia, India and China) conducted recently by polling organization AC Nielsen confirmed Brazilians' fun-loving image. The survey found that, after taking care of basic necessities, 50 percent of Brazilians spend their money on entertainment, and another 41 percent spend it on the latest high-tech gadgets. The numbers in both categories far exceeded the world average and were the highest among poll respondents in the four BRIC countries.

Currently, in Brazil almost all goods and services are either outlandishly expensive or inexpensive but of poor quality, with very little choice in the middle, according to the observations of Nakajima Wada, a Japanese businessman who owns a chain of 12 beauty parlors in Sao Paolo. The market for moderately priced products of good quality remains wide open, full of opportunity.

"Brazil is a great place for the wealthy to invest and for the poor to turn their lives around," says Taiwanese businessman Jerry Huang, who suggests that applying Asian ingenuity and a strong work ethic to fill the yawning gap in the middle of the market will yield a high rate of success.

"Taiwan is crowded. Brazil is spread out. Of course, Taiwan has an emerging market near it in China, but at a time when everybody is flocking to China, people with spirit and ability should take a look at the other side of the world," says Chien, who encourages young entrepreneurs to emigrate to Brazil and create a new world for themselves.

"Brazil is the only country in the world that doesn't have racial discrimination," Chien says. Even if one can't speak Portuguese, it's easy to learn, Chien insists, and once the language barrier is conquered, the opportunities are boundless.

Translated from the Chinese by Luke Sabatier

Chinese Version: 力用巴西