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Since Brazil is an emerging economy there are many things to consider when discussing the ease of doing business in the country. The ease of doing business is a rank that measures an economy’s position to the best regulatory practices. Brazil was ranked 124th out of all economies for ease of doing business. Compared to the United States who ranked 6th overall. Brazil’s ease of doing business index reached 59.1 out of 100 in 2020. Some of the topics taken into consideration when calculating this score are ease of starting a business, dealing with construction permits, getting electricity, registering property, paying taxes, trading across borders, and enforcing contracts. Brazil scored high in ease of starting a business, getting electricity, trading across borders, and enforcing contracts. Although Tesla would have a harder time doing business in Brazil than the company has had in the United States, it is still possible for Tesla to be successful in Brazil. There are some things to consider when deciding if Brazil is the right country for Tesla to invest in. The first being that Brazil is still a developing country and still have underdeveloped parts of the economy.
There can be many complications that arise when trying to do business in a developing country. Brazil has one of the most complex bureaucracies in the world, which would require someone with immense knowledge of the country to navigate. The customer base in Brazil is not as mature as those of developed countries which is something Tesla needs to take into account. Another thing to consider is that there is still corruption and bribery that happens in some parts of Brazil and organized crime is a large problem in some of those areas. Taxes are also more complicated in Brazil. There are over 90 different taxes and duties charged in Brazil. A new system called Esocial has increased the short-term complexity of reporting taxes in Brazil. Brazil has strict labor laws which as laid out in 900 articles and are typically difficult to navigate. Breaking these labor laws could lead to fines and a bad reputation. Brazil is the 21st largest exporting economy in the world but many companies still face complications when exporting and importing goods. High taxes and duties might make it too expensive for Tesla to export. Overall, the ease of doing business in Brazil will be a learning curve for Tesla if they decide to do business in Brazil. Brazil will definitely be harder to do business in than the United States, but Tesla might reap more benefits if they persist and overcome the barriers that come with doing business in Brazil. Doing business in any new country has its obstacles at first.
When deciding if Tesla doing business in Brazil is a smart move it is important to look at the advantages and disadvantages of FDI (foreign direct investment). The first advantage is Brazil is rich in natural resources. Brazil is considered a key raw material supplier to other countries such as the United States, Argentina, and China. Some of their top exported natural resources include Iron and ethanol. With Tesla having more access to resources close by it would lower to cost of making the vehicles and doing business. Brazil has a very stable emerging economy with many big industries such as the automobile industry playing a big part in that growth. There are many automobile companies that do business and have factors in Brazil such as Nissan, Honda, Hyundai, Mitsubishi, Chrysler and Audi. All of these companies have been successful in Brazil which it is a good indicator that Tesla will as be successful if they decide to do business in Brazil. With all of the automobile companies in Brazil there is a lot of competition, but Tesla brings something new to the table. There is still a huge growing demand for cars in Brazil and the resale market for cars is even a big industry in Brazil. The increase in the technology sector and increase in infrastructure is a very encouraging sign for investors. This indicates that the economy is only going to get strong and better in the years to come and that the country is keeping up with the increasing demands.
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One of the disadvantages of foreign direct investment in Brazil is the political instability. When a country is political instable it is riskier to do business and to invest because there is so much uncertainty. Even today, there have been many officials that were tied to criminal activities. Brazil also depends heavily on exports which means they rely heavily on external financing. Bringing Tesla to Brazil would bring an internal money source to the country helping the economy to grow. Another advantage of foreign direct investment in Brazil is easy international trade. Tesla would face less importing and exporting tariffs if they were to do business in Brazil. Also, it would bring an economic boast to Brazil which could help the developing country by creating new jobs and opportunities. Another possible advantage for Tesla would be tax incentives. The government sometimes gives companies tax breaks or incentives that encourage a company to do business in the country. It makes the company more willing to do business in the country while also benefiting the country by creating jobs and helping stimulate the economy. There are many advantages and disadvantages of foreign direct investments for Tesla to consider when doing business in Brazil. Tesla has to decide what is important to their company when doing business in Brazil and what aspects they are willing to give up in order to reap the benefits for investing in Brazil.
The electric car market in Brazil is promising and is showing promising growth in the coming years. Brazil has had a hard time transitioning to cleaner vehicles in the past because of the lack of incentives for newer technology. In 2014 Brazil passed legislation that supported electric vehicle production. The green-car incentives program cuts import duties on hybrid car but didn’t come with any other perks or tax breaks. Although there are now more options for the Brazilian people to convert to electric vehicles, they still remain expensive and inaccessible in Brazil. With Tesla introducing their products to Brazil it would give them more options in order to purchase cleaner vehicles. Tesla’s vehicles are made with the middle-class consumer in mind and offers very affordable prices for electric vehicles which are much cheaper than other leading electric car companies. Transportation in Brazil is the highest CO2 emitter, making more emissions than industrial and residential sectors. Tesla bringing cleaner car options to Brazil could help decrease CO2 emissions and even boost public health in big cities. One of Brazil’s major exports is fuel sources like diesel, ethanol, and natural gas. This is a big reason that Brazil might be resisting the movement towards more electric vehicles.
Electric vehicles threaten one of the country’s biggest exports. Tesla would have to show Brazil that they are not a threat of their ethanol exporting. Tesla wouldn’t have any big impacts to their ethanol exporting to other countries. Bringing Tesla to Brazil would bring thousands of jobs and a boost to their economy. The electric car market is expected to grow to more than 80,000 units by 2020 showing promising growth for the future of the electric car market. This would be the ideal time for Tesla to introduce their products in Brazil because the popularity of electric cars is starting to take off and there is a lot of room for growth in the market. Brazil needs a company who are experts in electric cars to help grow this sector of the car market and to effectively market the cars to the Brazilian people. One of the main issues is that people in Brazil are under informed about the potential of electric cars in Brazil and the benefits of owning one. Tesla needs to work the with Brazilian government in order to create better incentives and perks for owing an electric car and make them more convent for people to have. Things like installing more charging stations around Brazil and giving tax breaks for people owning electric cars would entice more people.
Another factor Tesla needs to consider before doing business in Brazil is the easiness of trade in Brazil. Brazil is the top 25th exporter in the world and exported a total of $242 billion in 2018. With Brazil’s knowledge of trade and experience exporting and Tesla’s expertise of electric cars and automobiles would make a perfect partnership. Brazil’s formal and informal institutions will also play a role in Tesla bringing business to Brazil. Formal institutions include written laws, policies, constitution, rights and regulations that are typically enforced by officials in the country. Informal institutions are the unwritten social norms, customs and traditions that shape the behavior and thought of a person in the country. Some examples of informal institutions that are a big part of Brazilian culture is family and religion. Brazilians are very close to their families and that shows through all aspects of life. There are a lot of family run business in Brazil as well as 3 generation households. Religion is also an important part of life for most people in Brazil. Christianity is the most popular religion in Brazil and people tend to be very spiritual. 80 percent of Brazil’s population is affiliated with some sort of religion. Many holidays and celebrations are focused on religion. These informal factors have a big impact on the way that Tesla should introduce their products to Brazil.
Conclusion
There is a lot to consider when a business wants to introduce products to an international market. When weighing the advantages and disadvantages of Tesla introducing a product to Brazil it is important to look at several aspects of doing business in Brazil. The first being that is significantly harder to do business in Brazil than in the United States. Tesla would have to learn the regulations and requirements that come with having a business in Brazil. Another thing to consider is the differences in doing business in a developed economy verses an emerging economy. Although there are many barriers for Tesla doing business in Brazil there seems to be a lot of potential and promise from the Brazilian economy. The infrastructure in Brazil has been getting an upgrade recently which can also be another promising sign for Tesla. Tesla introducing products in Brazil seems like it would be a smart move as long as Tesla takes all of the necessary precautions.
References
- Doing Business in Brazil – World Bank Group
- Brazil – Import Tariffs – export.gov
- Brazil Business Guide – BCIU
- Ease of Doing Business in Brazil economy languishes near bottom of list | Emerging Markets.org
- Customs procedures for import/exportation Brazil | Santander Trade
- Doing Business in Brazil – Library of Congress
