Brazil 102: Welcome to El Dorado
Last week, I presented an overview of some of Brazil more elusive key problems, and how an erroneous perception of the country has kept Brazil blind for a long while. Now, it is time to focus on how Brazilian over-regulated market and the country giant starved consumer base come together to create a peculiar commercial ecosystem.
First, a quick market overview. Most industries are dominated by established local companies that benefit from the government protective stance. Most of those have grown comfortable and just optimize for profit as they charge excessive prices for mediocre goods and services.
Foreign brands, on the other hand, are subject to heavy taxation and barriers when they try to establish a presence in the country. Trying to repeat their success there with the same strategy used in other countries has been the downfall of many companies. Doesn’t look promising, right? Beware, things aren’t always as they seem.
The truth it that Brazil is ripe with opportunity for those who are willing to properly understand and take advantage of the country singularities.
Audi. Apple. Ralph Lauren. In Brazil, those and many more corporations get the unique chance to reach a whole new level. They are so out of reach for most of the population there that can be considered luxury brands instead of premium. Allowing them to operate accordingly.
That is where true opportunity unveils itself. In Brazil, it is possible to achieve crazy returns with a small and/or simple operation. How? The answer lies within the country consumer base.
There are ~210 million Brazilians, over 12x the population of Chile. Avid consumers with access to credit and that have been starved of quality products and services for a long time. People familiar with most premium brands and willing to pay a lot for anything that isn’t easily accessible in the country.
Such an avid consumer base allows companies to compensate for the country excessive taxation with ridiculously high prices. Actually not just compensate but profit more as they operate with higher margins. I.e.: A regular MacBook priced at 1099 USD in the US costs over 3000 USD there.
Also, there is no need to directly face off against the established companies. It is possible to coexist as a more luxurious alternative to the local brands. And simply thrive in a market where many strong competitors fail to see opportunity.
Brazil can be considered a real life El Dorado, the mythical Inca city. Elusive and hard to reach but filled with an astonishing number of opportunities and riches for those who unveil its secrets. All of that at the expense of the population, of course. Whose purchasing power and quality of life are undermined by the abusive ongoing prices.