Brazil’s Tech Execs are in for the Long Haul

I spent last week in São Paulo meeting with GMs of Brazil and Latin America based there. Among the highlights was a working breakfast with eight country and region heads of US technology and telecom companies. My colleague Antonio Martinez shared the LATAM research team’s latest outlook for Brazil and the region, and we had a robust discussion about the Brazilian business environment and its proper place in the Latin America portfolio. Here are a few of my top takeaways:

  • Tech has outperformed other industries recently in Brazil, but individual corporate performance divides largely by maturity in the market. Established firms are more impacted by the overall economy’s slowdown, but Brazil’s massive size still allows for rapid growth for tech companies that bring something innovative to the market.
  • Brazil’s fragmented tax regime is the biggest headache for country managers. The complexity of state and local tax codes (companies must comply with >200 taxes!) adds to the cost of doing business and impedes companies’ ability to expand into fast-growing cities beyond the highly developed southeast, especially in northern states where millions of people are taking on middle-class spending habits and governments continue to invest heavily in infrastructure. From the LATAM perspective, Mexico’s simple, if higher, tax rate looks better and better.
  • Country managers are in an uncomfortable dialogue with corporate headquarters. Top execs in the US are used to the BRICs story and are having a hard time wrapping their heads around the constant flow of downward revisions in the government’s growth forecasts. Everyone around the table believes in Brazil’s medium term growth prospects (on a 4-5 year horizon), but managing expectations for 2013 is tough. Particularly challenging is helping HQ understand currency volatility and inflation.
  • Horror stories about Brazil’s political culture were abundant. “Labor litigation is becoming a monster.” “The political mentality is: for the friends, everything, and for everyone else, the law.”  But frustrations aside, the group was unanimous in its belief in Brazil’s long-term opportunity and commitment to invest. The lessons learned and innovative practices shared around the table – some of which our clients may well see in case studies later this year – were the true highlight of the session.

Next week I look forward to sharing insights from a similar executive breakfast I’ll be attending in Shanghai, discussing the long-term outlook for China.

 

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