• Brazil, with a population of 190 million, is by far the largest country in Latin America and Hong Kong's second largest export market in the region. As one of the BRIC economies, the country has the second highest per-capita GDP, just slightly behind Russia but much higher than India and China.
  
  
• Thanks to the commodity boom and successful fiscal and monetary policies in recent years, Brazilian consumers are now able and willing to spend more to raise their standards of living, especially for the 40-million-strong middle class, compared to 30 million in Russia.
  
  
• Brazilian consumers are looking for products of better design, quality and price. They are generally aware of the fact that most "made by Hong Kong" products are made in the Chinese mainland, but they perceive these Hong Kong products to be of better quality and trendier design.
  
  
• Hong Kong companies can ride on their ability in delivering products with fancy design and good quality at competitive prices, while focusing on mid-to-high-end products to avoid the intense competition in the low-end market, especially in the sizable "informal" market.
  
  
• But the challenging business environment in Brazil, coupled with the tyranny of distance, may pose some obstacles to certain Hong Kong traders, who are thus advised to find Brazilian buyers here in Hong Kong, for instance, in trade fairs and exhibitions, as an alternative to setting up a direct presence in Brazil.

A Rising Star in the Emerging World

After the economic and financial crisis during 2001-2003, the Brazilian economy has regained momentum in recent years. As mapped out by Goldman Sachs, Brazil, along with Russia, India and China, is dubbed as one of the BRIC economies, which is forecast to undergo rapid economic development and further strengthen its role as a dominant global supplier of raw materials such as soy and iron ores.

Against the 30-million-strong middle class in Russia, the growing middle class in Brazil, constituting over 20% of the households or 40 million inhabitants, presents a more promising picture for Hong Kong companies which have a strong competitive edge in mid-to-high-end products. Furthermore, thanks to falling interest rates, consumer credit has kept expanding in recent years, providing Brazilian consumers with greater liquidity for consumption.

Judging from the recent economic growth rates of the four BRIC economies, Brazil may be considered relatively slow as compared with the others. However, given its relatively high level of economic development and the fact that it enjoys the second highest per-capita GDP, which is only slightly behind Russia but much higher than India and China, Brazil promises a high consumption power, indicating plentiful potential for market expansion for Hong Kong companies specialising in mid-to-high-end products.

Export Opportunities for Hong Kong Companies

Brazil, with a population of 190 million, is by far the largest country in Latin America and Hong Kong's second largest market in the region, behind only Mexico. In tandem with Brazil's economic growth, Hong Kong's trade with Brazil rose rapidly in the past few years. In 2006, Hong Kong's total exports to Brazil rose by 17%, followed by another 10% in the first eight months of 2007.

Despite the presence of a broad-based industrial sector, the country's quest for better prices, greater variety and trendier design has caused a strong demand for a wide range of manufactured goods. Hong Kong and mainland products therefore become very attractive in the eyes of Brazilian consumers. Hong Kong companies look set to have the strongest competitive edge in consumer electronics, in particular computers and telecommunications products. Other electronics-related products, including household appliances, auto/motor parts and accessories, as well as security and safety products, are also well sought after. Electronics and electrical products aside, textiles, clothing, footwear, toys and games, jewellery, timepieces and spectacles are among other potential products.

In general, Brazilian companies are aware of the fact that most "made by Hong Kong" products are made in the Chinese mainland. But as they perceive these Hong Kong products to be of better quality and trendier design, Hong Kong companies can capitalise on their flexibility and capability to produce on an ODM basis, apart from OEM production. On the other hand, Hong Kong companies should focus on the mid-to-high-end market to avoid the intense competition in the low-end market segment, especially in view of the sizable "informal" market in Brazil.

Hong Kong as a Platform for Brazilian Trade with China

In line with their growing interest in sourcing from China, more and more Brazilian companies are looking for Chinese suppliers. However, most of them are not familiar with China's business environment. Riding on its advantages in languages and extensive trading experience with the Chinese mainland, Hong Kong can therefore serve as a risk manager for Brazilian companies to source from the mainland.

In addition to selling mainland products to Brazil, Hong Kong companies can increase their contacts with Brazilian companies interested in selling to China, with a view to acting as a partner to facilitate marketing and distribution. Among many others, agricultural and mineral products, meat and edible meat offal, as well as leather products, are believed to have good potential in China, and cooperation with Brazilian companies can be sought.

Challenges and Recommendations

Doing business with Brazil is not an easy task. While Hong Kong companies are eager to develop the Brazilian market, they have to prepare both psychologically and financially for the heavy domestic taxes and import duties, bureaucracy, corruption, cumbersome customs clearance, language barriers and violence and crime in Brazil, which may pose great challenges for Hong Kong traders, not to mention the tyranny of distance.

Against this backdrop, Hong Kong companies, as an alternative to setting up a direct presence in Brazil, can take advantage of trade fairs and exhibitions in Hong Kong to meet Brazilian buyers. In fact, there are a growing number of Brazilian buyers coming to Hong Kong fairs and exhibitions for sourcing and networking. As an illustration, 619 Brazilian visitors came to the Hong Kong Electronics Fair (Autumn Edition) 2007, up 35% against the previous year.

This new report is available at TDC's Retail Outlets. It can also be purchased through the TDC Bookshop section in the TDC's trade portal: info.hktdc.com.

For the Press Release, please go to TDC News & Speeches.