Brazil: sell cross-border or go local?

Ecommerce businesses looking to expand internationally encounter an outstanding opportunity in Brazil. Despite having faced an economic downturn in recent years, the country’s ecommerce industry continued booming while the traditional retail segment was sailing in the opposite direction. In 2017, a quarter of the country’s population purchased online and ecommerce revenues grew by 8%, reaching a total of BRL 47.7 billion (USD 14.5 billion). For 2018, the segment is forecasted to see a growth of 12%.

Brazil is the largest ecommerce market in Latin America, representing 42% of the industry’s revenue in the region. The country’s 140 million internet users are very active online, granting Brazil globally a third ranking, with an average per person of 9h 14min of daily time spent online, according to the 2018 Global Digital report by We Are Social and Hoostsuite. Furthermore, Brazilians are avid social media users, being engaged for an average of 3h 39min per day. Facebook gathers the highest number of active users, 130 million.

It is also worth noting that, each year, more and more Brazilian consumers purchase directly from international websites. In 2017, 22.4 million online buyers purchased cross-border, an increase of 6% compared to 2016, according to the latest Ebit’s Webshoppers report.

However, merchants who wish to enter the Brazilian market are usually facing a series of challenges:

• Geographic extensions

Brazil has continental dimensions. For instance, the distance on roads between New York and Los Angeles is 4,500km, while in Brazil the distance from Recife, on the east coast, to the west border, is 5,300km. Therefore, logistics for certain physical goods can be a challenge.

Apart from the large territory, the country has a heterogeneous population, which requires businesses to adapt to specific needs from consumers in different regions.

• Complex and “dynamic” tax legislation

According to the Ease of Doing Business index by the World Bank, businesses need a whopping 1,958 hours per year to file and pay their taxes. Brazil holds the 184th position among 190 countries in that ranking. As another example of the “dynamic” situation regarding tax legislation in Brazil, between 1988 and 2013, a total of 309,000 tax regulations were edited. The image below illustrates the complexity:

Photo by Fabiana Aragão/Advocacia Vinicios Leoncio (19/03/2014)

The book pictured, created by lawyer Vinicios Leoncio with information he collected over the course of 23 years, has 42,266 pages, weighs 7,530 kilos and is 2.1 meters high. Currently, over 20,000 of those regulations are still being enforced.

• Restricted access to domestic payments

Companies without a local entity in Brazil have restricted access to domestic payment methods. Most international merchants start their operations in Brazil accepting card payments and are faced with decline rates typically of 70%. This happens because only about 30% of cards issued in Brazil, even international labels like Visa or Mastercard, are enabled for cross-border payments. Furthermore, access to alternative domestic payment methods, such as boleto bancário and online banking transfer, is also limited to local companies.

How to overcome the hurdles?

Often, the best way to overcome these hurdles is to set up a cross-border operation based on partnerships with local players for payments, logistics and marketing. Undoubtedly, the first step to get things started is to localise the website and then make local payment methods available at the checkout.

Domestic payment options are a must to reach a larger number of consumers. In order to make domestic credit cards, installment payments, boleto bancário and other alternative payment methods available, international merchants must partner with a Brazilian payment service providers, such as PagBrasil, as it is not possible to have a contract directly with banks and acquirers in the country without a Brazilian entity.

Once the first step is taken, businesses should start interacting with Brazilian buyers so as to understand their behavior and expectations. With this information, foreign companies can define the best strategies to advance with the local operation and further extend their partnerships in the country.

At this point, investing in marketing is key to taking the business to the next level. However, merchants must understand how to market their products in Brazil. Partnering with local marketing, PR and advertising agencies is the best option. In addition to being able to develop the communication in Brazilian Portuguese, local agencies have sufficient knowledge of the market to define the best strategies for branding, and products and services diffusion.

Companies selling physical goods can also benefit from having a Brazilian logistics partner. Importing on a large scale, using pallets instead of standard individual parcels, can cut their costs and make the operation more efficient. Furthermore, by relying on a distribution center in Brazil, businesses save their customers any additional import fees that might apply and can reduce delivery time.

Giving a local feeling to the customer support area is also important. Other than having personnel who are fluent in Brazilian Portuguese, to meet Brazilian consumers’ expectations, it is also essential to be available on different channels, such as phone, email, Facebook and even WhatsApp, and provide quick responses.

Sometimes, after gathering more experience in the market, businesses opt to go local and open a Brazilian entity. However, there are no limitations to continue relying on the cross-border structure with the assistance of local partners.

Regardless of the direction taken, adapting to and understanding the market needs are key ingredients for success. Merchants who can overcome the hurdles, which might scare them at first, end up opening the doors to a colossal and less competitive market, where they can develop a very profitable business.

About Bianca Lopez

Bianca Lopez is Marketing Manager at PagBrasil. She has a Bachelor’s Degree in Public Relations from Universidade do Vale do Itajaí and a Master’s Degree in Communication from Universitat de Barcelona. Bianca is specialized in Digital Marketing and Communication, with focus on the payment industry.

About PagBrasil

PagBrasil is an online payment platform for Brazil, with gateway and collection services. Its broad set of local payment methods includes the exclusive Boleto Flash with responsive technology. The company’s state-of-the-art infrastructure offers flexible integration methods, with extensions for Shopify, Magento, WooCommerce, VTEX, among others. PagBrasil has a full set of advanced services, including an automated split-payout solution for marketplaces, especially aimed at boosting online sales in Brazil.