Doing business in Brazil: culture to local content
Brazil is not renowned for an easy, welcoming business climate; indeed, the reputation of the country is one of bureaucracy and rigidity. That being said, Brazil was the largest producer of liquid fuels in South America in 2012 and the 13th largest crude oil producer does have significant and substantial natural resources. Its hydrocarbon resources are economic fuel equal to cultural energy of samba and football. These natural resources attract companies from all over the globe, yet the lingering perception that this market represents a labyrinth of a thousand problematic hurdles keeps many away.
Despite this, many companies do arrive and succeed here in Brazil. EnergyBoardroom talks to some remarkable managers who explain the highs and lows of Latin America’s largest country.
Making the first step is, some might say, the hardest, and in Brazil, foreigners have to be able to cope with the Portuguese language and a culture that is as different as it is vibrant. “Brazil is not an easy market for overseas companies to enter, regardless of their resources,” comments Ian Wilkinson, Socio-Director of Petrolink. He emphasizes that before taking the plunge, businesses have “a great deal to learn from the legal set-up and the tax framework to the many unwritten conventions which are still very relevant to business in this market.”
Wilkinson stresses that there is more to consider than just legal differences, stating: “Many individuals are caught out arriving in Brazil because the country looks and often feels like a European state: there is not the same cultural distance that one might perceive between Europe and Asia. The differences here are more subtle than those one might encounter in Asia for example, but understanding the divergence between Brazil and Europe is essential to succeed. The catch all phrase of ‘cultural differences’ is key to business strategy and prominent amongst all the issues which must be considered by any business seeking to enter the Brazilian market.”
The solution, as ever, is eased by good personal skills. Brazilians tend to be expressive and show a patriotism driven by hope: an understanding of their country, its foods, its sports and its diverse cities can assist personal relationships, in turn easing the ability to undertake business. Communication is key to managing relationships with many parties and to allow flexibility in managing schedules – Brazil requires patience and consideration.
Håkon Ward of Kongsberg Oil and Gas Technologies (KOGT) underlines the necessity to connect, and the fundamental importance of this skill in staff who act as the ‘face’ of the business. He says: “Brazilian commerce is very much about personal relationships. One challenge KOGT faces in Brazil is that we are still few in number and this means more work needs to be done in connecting personal networks to a stronger, more widely known KOGT brand.”
“There is a great reliance on sales staff to properly reflect Kongsberg’s values. Kongsberg is a value driven company and this is an important factor when operating in new countries and strengthens Kongsberg’s reputation.” Brazilians will appreciate a reliable, consistent approach from incomers.
Johnar Olsen of Scana is a Brazilian native of Norwegian descent. He emphasises that integrity is a valuable asset in Brazil, which bolsters not only a company’s individual performance, but that of the industry as a whole. Combining Brazilian and Norwegian heritage himself, he states: “Norwegians and Brazilians laugh at the same jokes, and Norwegians receive a great deal of respect here in Brazil because the typical Norwegian’s courteous and humble nature melds well with Brazil’s very person-to person way of doing business.”
It is clear then, that being able to understand a Brazilian, both with regard to their words, their language and their more innate Brazilian qualities can assist companies doing business. However, this is not an insurmountable barrier to commerce because, as one executive in Brazil unequivocally stated: “Technical capability overrides business culture any day- people will find solutions together to get things done.”
Kjetil Solbrække, President of the Brazilian arm of the research institute Sintef, argues that Brazilian companies are “open to new technologies.” He singles out Petrobras for praise stating: “Petrobras is a brave company and is willing to try new things, or operate differently. They are also good at replicating operations and repeating successes.”
To state the obvious, having a unique selling point can be particularly advantageous in Brazil. Two imperatives fuel technological development in Brazil: the need to increase efficiencies in existing wells, and the need to reduce costs in the new, ultra-deepwater pre-salt domain discovered off Brazil’s coast.
Ian Wilkinson of Petrolink comments on the fact that most companies in the North Sea have already evolved efficiencies where possible because the margins have historically been squeezed in the UKCS arena. “These companies have technical operating and commercial solutions which are very applicable to the Brazilian market, and in that respect, these firms do offer significant opportunities to the Brazilian oil and gas sector.”
Wilkinson indicates the reason he thinks Brazilian companies will be ever more open to original thought, commenting “as the mean age of staff in Brazil falls, change is happening more rapidly and standards are moving more into alignment with global trends than with local ones.‘ For this reason change is coming to the Brazilian market- and it is getting easier for foreign companies to succeed.”
One of the most infamous elements of Brazil’s regulatory framework is the local content regulation (LCR), which the government is using to bolster indigenous manufacturing and industrial capabilities. These decrees do positively benefit Brazilian businesses, such as Asgaard, which operates under the protective umbrella of Brazilian law 9432, a law that grants Brazilian-flagged vessels priority in gaining new contracts. Patricia Coelho states “CAPEX in Brazil is extremely high and Petrobras is highly demanding. Asgaard has responded to this by equipping its fleet with Rolls Royce engines meaning that our vessels are equipped to deliver services to any company, in any location.”
This company illustrates some of the focus and strategic planning any business requires to operate in Brazil, regardless of origin: in this case, ownership of an asset can be moved outwith Brazil should business there prove to be unattractive.
The restrictions on foreign manufactured parts are not as monolithic as it might first appear. REPETRO, for one, is a way of bringing new equipment to Brazil, which will be used directly by oil companies. It waives importation tax, and helps outfit vessels and platforms more efficiently. This has clear use and application in improving the efficiency of the Brazilian oil and gas industry.
That being said, paperwork in Brazil still requires a meticulous, almost pedantic eye for detail, including applying for the REPETRO scheme. “Bureaucracy in the country is terrible,” states Leonardo Lima, General Manager of Blue Water Shipping. “Often, it takes more to satisfy the authorities than one’s own customers. Paperwork must be flawless otherwise delays can be incurred in receiving cargo from a terminal, which can then impact on storage costs.”
The principle battle for companies, however, is ensuring that they produce sufficient local content to avoid falling foul of government regulators. These local content requirements are spiraling ever upwards, requiring a greater proportion of projects to be built in Brazil. “At the moment, LCR is a punitive system,” says Denis Palluat de Besset, Managing Director of Total E&P do Brasil. He warns: “Those companies not achieving the level of LCR they committed to at the point of bidding face fines up to 60 percent of the value of what they will not have achieved in terms of Local Content commitment.”
There are some primary routes to cutting through the morass of regulation in Brazil. For the uninitiated, establishing connections through an experienced local agent, or connecting with a local player via a joint venture can be the simplest routes into the market. Establishing a branch can be time consuming and selecting a company for acquisition could require an understanding of the market gained only through time and experience in the country.
Article by Fraser Wallace
To read more articles and interviews from Brazil, and to download the latest free report on the country, click here.