For companies looking to grow across Latin America (LATAM), Brazil is often considered an important first market to establish a presence in. The country has a diversified economy, a large consumer base and considerable demand for international capital, expertise and technology.
The difficulty is that Brazil also has a demanding regulatory environment, with obligations at federal, state and municipal level. Portuguese is the main language of business and administration, which can add another layer of complexity for international companies.
In this Expert Q&A, Nik Zhukov (Managing Director, Global Solutions) and Olavo Guimaraes (Business Development Manager, LATAM) share their view of the market today, including where opportunities are emerging and where businesses may face challenges.
1. Why is Brazil an important market for companies expanding into LATAM?
Olavo Guimaraes (OG): The first layer of this answer is simple: the size of the Brazilian market. If you observe the size of the Brazilian market, it is almost the size of the rest of LATAM combined, so that already makes it a particularly important location for any company looking to grow in the region.
With more than 214 million people, Brazil has a significant consumer base.
The second point is the variety of its economy. Brazil has a very diversified industrial complex, producing everything from cars and aircraft to machinery and a wide variety of consumer goods. It is also a major producer of raw materials and has one of world’s largest food industries. That means there are opportunities across a wide range of sectors.
Quite often, companies will enter Brazil first, build their operation and develop an understanding of the market before pursuing further growth elsewhere in the region.
So overall, I would say it really comes back to the scale of the market, the diversity of the economy and the fact that Brazil can give companies a strong starting point for wider LATAM expansion.
Nik Zhukov (NZ): We think about Brazil as a country that has evolved massively over the past two decades. It was already a major consideration in the past. Now, the stronger focus on transparency and compliance regulations has made it more appealing for larger international firms to operate here.
I would say eight or nine out of ten companies, when they choose to enter LATAM markets, would select Brazil as the first platform to start their operations and then expand from there. But what the next country will be depends, firstly, on how successful they are in Brazil and, secondly, on the type of business they are planning to develop in the future.
2. Which sectors are creating the strongest business opportunities in Brazil today?
NZ: There are two sectors where we are seeing particularly strong interest from companies entering Brazil.
The first one is renewable energy. This is very much in line with government initiatives. The Brazilian government has introduced a number of regulatory changes and incentives that have helped make the market more attractive to companies in this sector.
Renewable energy is also a booming sector, not only in Brazil but globally. Many companies that are already established in Asia, the Middle East or Europe are now looking at entering the Latin America (LATAM) market, and Brazil is often one of the markets they consider.
The second sector is data centres, and anything related to technology and information technology (IT). More people and companies are using artificial intelligence (AI) these days, and as the use of AI increases, you need more bandwidth and larger, more advanced server capacity. And usually, if you need to build stronger server capacity, that creates a lot of associated business and jobs around it.
OG: I would also highlight agribusiness. Brazil is already one of the world’s leading producers and exporters of products such as soy, corn, beef, poultry, coffee, sugar and cellulose, so agribusiness remains an important part of the economy. But the opportunity is far from being limited to land acquisition and direct production of commodities. It’s connected to the entire value chain.
You have opportunities in logistics and storage, particularly because moving products from farms to ports can still be a major challenge. There are also opportunities in fertilisers and agricultural inputs, biofuels and biogas, traceability, carbon and deforestation compliance, and agriculture technology.
Brazil also has a well-developed startup and investment ecosystem, particularly in areas such as financial technology, software, AI and digital infrastructure. That creates opportunities both to invest in Brazilian businesses and to bring technology and expertise into the local market.
3. What makes doing business in Brazil different from other LATAM markets?
OG: The first consideration is the amount of time companies need to spend making sure they comply with legislation across the various levels of government. This can make day-to-day compliance demanding, particularly for businesses operating across more than one location.
That said, the country is now going through a significant tax reform. A dual value added tax (VAT) model is being introduced, and while this is expected to streamline the tax system, companies will need to prepare for the changes ahead.
There is also the language barrier. Here in Brazil, we speak Portuguese, while in much of the rest of LATAM, Spanish is more common. For companies that are used to doing business in countries such as Spain or Mexico, if they want to expand into Brazil, they need to make sure they can also operate in Portuguese.
I would also add that in terms of business culture, Brazil has its own distinctive characteristics when compared to other LATAM countries. And even inside Brazil, due to its continental size, you can find several different profiles and ways of doing business, from region to region.
Lastly, it’s also something to be considered the fact that from Porto Alegre to Manaus, it’s almost a seven-hour flight.
4. What should companies understand about Brazil's business environment before entering the market?
OG: Brazil is a large and attractive market, but it can also be a complex one to operate in.
There’s a term people use to describe this in Brazil: “Custo Brasil” or the Brazil Cost. It refers to the additional cost and friction that companies face when doing business in the country.
The tax system is a good example. As I've mentioned, Brazil is going through a major tax transformation, and for the next few years, businesses will need to manage elements of the old and new regimes at the same time.
NZ: Brazil can also be much more difficult from the perspective of what happens after a company is formed. As an example, in Brazil, it’s compulsory to maintain a 13th salary for employees. That doesn’t exist in many other locations. Many companies elsewhere may choose to provide it as an annual bonus, but that’s more of an industry expectation or a benefit that an employer provides to employees.
In Brazil, however, it’s a mandatory requirement. So, that gives a good perspective on the kind of things a company needs to consider.
5. From Brazil, which markets tend to be the natural next step for expansion?
NZ: I would say Argentina, although it really depends on the industry. If it’s an agriculture business or a trading business, I would say Argentina is usually a very logical next step. If it’s consulting or private equity, Uruguay is quite often a popular destination to consider after Brazil.
We are also seeing a stronger corridor developing between LATAM and the Middle East. There are quite a few Brazilian companies and other major regional players that are making moves to expand into the Middle East these days, including the United Arab Emirates (UAE), Qatar and Bahrain.
OG: There is also the U.S., which many Brazilian companies see as a natural market to move into once they are ready to expand. It is a much larger market, there is already a strong commercial relationship between the two countries, and many Brazilian businesses see it as a logical place to build their international presence.
6. What are the main challenges Brazilian companies face when expanding internationally?
NZ: Brazil is already a fairly demanding market when it comes to ongoing obligations and keeping a business fully compliant with local law. So, when Brazilian companies expand into another country, they typically find it easier to adapt to the regulatory expectations because they are already used to operating to relatively high standards.
However, there are a few requirements under Brazilian regulations that may involve declarations and additional filings when a local business expands overseas. That is something Brazilian companies need to take into consideration.
There is also support available through the Brazilian Chambers of Commerce in different countries. We are members of some of these chambers, and what we have seen is that they are actively supporting Brazilian companies going abroad. That helps to mitigate some of the challenges Brazilian businesses face during expansion.
7. Finally, what advice would you give a company expanding for the first time?
OG: Validate the opportunity before you invest. Brazil, for instance, may offer substantial potential, but the investment case needs to be evaluated against the realities of the market.
Depending on your business model, you may first consider using a distributor or an Employer of Record (EOR) solution to assess demand before making a larger commitment. Looking for Brazilian companies to partner can also be something valuable to be considered as a way to mitigate risks and speed up the growing curve.
Once you have greater confidence in the opportunity, you can then see whether establishing a more permanent presence makes sense. At that stage, decisions around entity formation, tax structuring, resident director requirements, payroll and ongoing administration become much more important, which our team at Hawksford can assist you with.
NZ: I would say you need to select the right partner. Over the past three decades, almost every government has made significant changes around transparency, compliance with local law, anti-money laundering (AML), countering the financing of terrorism (CFT) and other regulatory requirements.
As a result, there are a lot of things companies need to consider when going abroad to make sure they remain fully compliant. We’ve seen cases where the concern is not only the penalties, but also the fact that the business is delayed and cannot commence a project for six to 12 months.
A lot of that can be avoided by collaborating with the right partner firm that can provide A-to-Z support.
For example, when companies expand from Brazil to Singapore, or vice versa, we are already familiar with the requirements and business environment in both jurisdictions. This allows us to take a more comprehensive view, looking not only at what the company needs to consider in the new jurisdiction, but also at the implications in its home country.
The Hawksford Expert Q&A series features commentary on market developments and industry trends that matter to our clients. Our subject matter experts across Hawksford share their views to help businesses navigate change and make informed decisions. Subscribe to our newsletter to get the latest insights. All information presented in this article is accurate at the time of publication.
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