Milking Brazil

As we begin the “golden decade” (as the next 10 years have been called, at least in Rio de Janeiro), full of such events as the Military Games, Rock in Rio, the World Cup, the Olympics and others that are sure to come, I wonder how well Brazil is protecting itself (the Buy Brazil Act aside) against the onslaught of foreign companies which have all surely been slipped their permanent green cards. Sure, there’s tycoons such as Eike Batista at the forefront, but can he do enough (and more importantly, will he, since he seems to be quite cozy with China)?

To express my point, I feel the need to bring up a real example of my fears, which happens to have taken place in Jamaica. The Jamaican dairy industry was going very well, even 10 years after the country’s anti-IMF government ended up needing a loan from the IMF in the late-70’s. With the loan, of course, eventually came terms and conditions. In the early-90’s, however, the IMF required that Jamaica lower its tariffs on imported (and heavily subsidized) dairy products, particularly that of powdered milk. Of course, doing so would completely ruin the national dairy industry but as the government saw no alternative, they accepted the terms of the IMF. What resulted was that Jamaicans, already strapped for cash, preferred to purchase the cheaper powdered milk instead of supporting their own people and industry, though at a higher price.

What does the above example have to do with Brazil? Well, providing foreign solutions for everyday products and services creates reliability on them, which in turn takes business away from national companies. One argument could be made, from the point of view of the multinationals, that they are merely filling a void left in the market. Another argument can be made that work is being given to Brazilians in the kinds of companies in the picture at the top of this post. While both might have some truth to them, I still don’t see the current situation in Brazil as a positive one, even in the face of a booming economy.

The logos above weren’t randomly thrown together, I selected them myself and all, save the bottom three, reflect foreign companies that operate in Brazil (the bottom three are either scheduled or rumored to begin operations in Brazil in the future). In my experience living in Brazil twice, I saw time and time again, Brazilians choosing the “chique” companies over the national ones and it almost seemed that the marketing power of the multinationals could somehow improve the taste of the food and the look and feel of other products. In some cases, yes, Brazil needs to build up its own industries but before that, a line needs to be drawn, one that shows what Brazil is doing on its own and what Brazil could be doing on its own.

I just hope that the “golden decade” will not follow long-established patterns of foreigners fattening their pockets on the riches of others. The problem is companies with unlimited funds can easily divide and conquer. With economics, the promise of status or even friends and the ability to enter the home and more, many people are left rather defenseless to their tactics. Even in the face of what I would deem soft war techniques, I would hope the Brazilian people will learn to say “no” more often. Perhaps the rise of Brazil will lead to looking inwards to the talents and qualities that Brazil already has.

Originally written for Street Smart Brazil

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7 thoughts on “Milking Brazil

  1. I do not think Brasil will go down the wrong path towards First World status. Already the Chinese have been told that Brasil will not suffer the same fate as Africa. Strong unions and a history of protectionist politics will make it very difficult-and costly-to change Brasil into The USA or the EU.

    I just hope open trade will mean more choice at better prices.

  2. Adam,

    I would not share the same fears as you do at all…
    Most of these foreign products are a novelty at first but usually fade away into failure.
    Starbucks coffee is a joke, they have horrible taste for coffee, they do well in the US because they offered a cool ambiance and Americans really have poor taste for coffee, any dirty water crap will do, and people are quick to pay 5 bucks to be seen with a Starbucks cup and “think” they look cool, Starbucks is struggling in Brazil already.
    McDonald’s is an exceptional success, but they have “Brazilians” their menus a lot, which is partly why they have been so successful.
    Burger King has been trying to take off for years with no clear positive results.
    Walmart is growing because they have money to buy up smaller Brazilian chains and they sells mostly Brazilian products anyway. They are such a strong world power that it is really hard to compete with them. When they first entered Brazil in the 90’s they were sued by Nestle and Coca-Cola because they were selling their products cheaper than those companies paid to produce the items, making all the other retailers angry at Nestle and Coca-cola, causing a big stirrer…
    Blocbuster has it’s days counted, both in the US and Brazil.
    Pizza Hut has struggled since the 80’s, Brazilians don’t really even considered them a PIZZA place, they are a real novelty, people go to Pizza Hut to see how Americans eat, however it never becomes a part of their routine.
    Applebees and Outback are also novelties, they do not appeal to the Brazilian taste at all, folks go once and rarely ever return. I doubt you will still see them around in 5 years, unless they start serving higher quality meals and adapt to the Brazilian palate.
    Subway entered Brazil once in the late 80’s, went out of business and just returned. I wish them well, maybe they learned a few things from McDonald’s and they have a good shot at doing well because they offer healthy options for sandwiches. Just keep in mind Brazilians don’t consider a sandwich a meal, it is probably a snack between meals, but never a real meal.
    MAC makes really high quality stuff, my sisters are crazy for them. I just don’t know if they are planning to manufacture stuff in Brazil which would give them a chance to be competitive price wise or good luck if they think they can get away with high priced, high taxed imports. Brazil has some mean competition from locals who also produce high quality stuff for affordable prices, it would be interesting to see what strategy they are choosing to grow in the country.
    I think Brazil can only benefit from new Airlines entering the landscape, they need competition in that department, desperately.
    Cold Stone! Great idea, if you can’t sell ice cream in Brazil you shouldn’t be in the Ice Cream business to begin with, hope they do well, I think there is room for a half a dozen more foreign companies making ice cream in Brazil.
    Great post!

    Ray

    • Hi Ray

      Thanks for the detailed comment. As much as most are novelties or Brazilianized, it may just set a precedent for many more foreign companies to follow suit, especially now and in the coming years. Big companies buying out little ones worries me no matter where it happens in the world. My post is really about hoping people are aware of the possibility for ruin, that one day Brazilian born companies might not be able to compete in certain sectors. The next decade will be interesting.

  3. Sure, I totally understand you point! And no, I don’t think Brazilians are aware of the risks.
    Perhaps if Brazilians see what happen to some American industry after the super opened policies that drove many of them out of business people would think…nah, maybe not, they will be worried about the pagode on the closest buteco ;) or who are they going to beach with on the next holiday… :)
    However, there is some reaction from Brazil already, the Shoe industry, once a powerhouse in Brazil had HUGE losses in recent years due to cheap Chinese import and the Brazilian Congress already passed some new laws imposed stiff tarifs to slow down the ivasion of cheap Chinese shoes imported into Brazil.

  4. If they are they can follow the usual tax dodging paraiso fiscal offshore model you are right.

    If they have to submit to the eyewatering, painful, nervegrinding, purse emptying mill of municipal state and federal taxes and ficalisacao — then good luck to them. They will be sucked dry.

    I imagine the reality is halfway.

    I am drinking a Brahma “brewed in Luton” while typing this so I guess the tide flows both ways………

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