Manufacturing in Brazil: Three Elements for Success

Projected to maintain its position as the sixth largest economy in the world through 2020, Brazil is a very exciting emerging market and offers great opportunities for growth companies with global aspirations. According to World Business Culture, an IMF (International Monetary Fund) report indicates that Brazil leads all other South American countries in terms of infrastructure and technological development. The country also has a stabilizing economic and political landscape, something that plagued Brazil for years. Combine these facts and it is easy to understand why Brazil attracts a higher percentage of total global foreign investment year on year.

In terms of the Electronic Manufacturing Services (EMS) industry in Brazil, the 2011 edition of the Worldwide Electronics Manufacturing Services Market reports that in 2010, the EMS industry expanded by more than 35 percent. While the EMS market in the country is fairly large, the total available market for electronics products is almost three times as extensive.

Even with a compound annual growth rate (CAGR) of 9.3 percent, Brazil still poses significant risks and challenges to companies looking to tap into this growth. Complicated taxes, complex supply chain logistics and high costs contribute to manufacturing challenges in Brazil.

Taxes & Government Relations

The Brazilian tax system is very complex and imposes a variety of taxes charged at the federal, state and municipal levels. Considering the complexity of the system, as well as the ever-changing legislative environment, foreign investors are advised to seek professional tax advice before structuring investments in Brazil.

Companies with plans to introduce its products or services in Brazil should also undergo a comprehensive tax analysis. With each product, the decision to localize depends on several variables with the tax code being at the foundation.

The Brazilian government is making efforts to reduce the bureaucracy associated with tax obligations to facilitate tax compliance. However, although, public administration has improved in recent years, inefficiency and significant bureaucratic procedures are still a reality in Brazil.

Partnering with an EMS company that has the know-how to effectively navigate customers through these complex issues is key. An EMS company the leverages established relationships with the regional government ministries in Brazil and trade organizations, such as the Brazilian Electrical and Electronics Industry Association and Electro Science Brazil can also help to reduce customer risk while maximizing opportunities.

Supply Chain & Logistics

Geographically, Brazil is half a world away from the supply chains in Asia, taking nearly 45 days for materials by boat and about 14 days for customs clearance. Such a long lead-time between supplier and factory can put production schedules and deliveries at risk.

In addition, expanses of rain forests in the lowlands of the Amazon in the north, plateaus and mountains in the south and the Andes in the west shape the geographic face of the South American country. As a result of the difficult terrain, the infrastructure in the rain-forest region of the north is poorly developed.

An EMS company with a global footprint can help companies manufacturing in Brazil to manage complexity by working with experts in multiple regions to move material efficiently around the world. Those with special customs agreements can expedite customs clearance. Better yet, EMS companies with on-site customs clearance can avoid risks and bottlenecks created by seasonal demand or customs strikes.

Manufacturing & Quality

Although an emerging economy, Brazil is not necessarily a low cost region for manufacturing. While companies hope to increase their competitiveness, reduce taxes and gain access to the local market by localizing their manufacturing, establishing an individual factory requires large capital outlays and significant risk.

Choosing an EMS company that has implemented Lean Six Sigma manufacturing principles and is committed to driving out waste, increasing process speed by always viewing processes through the customers’ viewpoint can cut manufacturing costs significantly.

Learn more about Jabil’s tax, supply chain, logistics and manufacturing expertise in Brazil.