Caveat entrepreneur:

beware of bureaucracy in Brazil

Rangri

Brazil, the world's second-largest developing economy after China, has a vibrant startup scene along with a population that’s tech savvy, open-minded and hungry for innovation.

Internet penetration has doubled over the past four years, and there’s an average of 1.4 phones per person – 22 million of them being smartphones. The country is experiencing a huge influx of ambitious entrepreneurs from abroad like never before.

While it’s an exciting time for entrepreneurship in Brazil with endless opportunities, the country faces a problem dating back to colonial times: its behemoth bureaucracy.

The 2013 World Bank's Ease of Doing Business index ranks Brazil poorly at number 130 out of 185 tracked economies, down two spots from the previous year. The bureaucracy reflected in this ranking makes for an expensive and time-consuming experience for entrepreneurs trying to figure out how to work around it.

Some of the challenges

Bureaucracy permeates all aspects of business in Brazil, starting with opening a company: a process which takes 13 procedures and 129 days, on average. Foreign entrepreneurs have to face additional hurdles. One of which includes obtaining a visa. This requires a minimum investment of R$150,000 and a commitment to hire at least 10 Brazilians within two years. It is also necessary to find a business partner. While sole proprietorships are now possible, they are a new category and are difficult to establish. In response, many foreign nationals attempt sidestep this difficult process by buying a recently-incorporated company instead.

Unfortunately, this is only the beginning. Once the business is operational, the amount of procedures related to establishment, reporting, labor laws, taxes, permits, and other issues can be intimidating. Complying with the laws and regulations is difficult and subject to unpredictable legal changes that can affect operations dramatically on a regular basis.

What to do

Doing business in Brazil takes a willingness and ability to dedicate sufficient resources—both money and personnel—to market entry. A certified accountant and corporate lawyer are recommended from day one in order to allow entrepreneurs to focus on innovation instead of paperwork. Additionally, a despachante—a middleman or facilitator of business transactions—is highly recommended. A despachante has the insight and ability to get through the system with greater ease.

In general, it is recommended that foreigners develop good relationships with local entrepreneurs and small business owners. Business in Brazil is all about personal relationships. These connections not only help newcomers understand the nuances of the country’s bureaucracy, but also accelerate business success in general.

Sebrae—the Brazilian Service of Support for Micro and Small Enterprises—is recommended by many as a good place to start. Also, social networking sites such as LinkedIn have become the default method for getting virtual introductions and meeting professionals in Brazil. But, don’t stay virtual. Your best business relationships will develop with a conversation over food and drinks. It’s a great way to do business and decompress after dealing with so much red tape.


Learn more about Flavio Masson and Rangri>>

 

The views of third parties set out in this publication are not necessarily the views of the global EY organization or its member firms. Moreover, they should be seen in the context of the time they were made.