Strategies for Success: Doing Business in Brazil Today by Gabrielle Trebat, Director, Brazil and Global Practicies, McLarty Associates. Presentation featured at the 2nd International Conference: Brazil: A pathway into the future from the Emerging Markets Institute at Cornell University's Samuel Curtis Johnson Graduate School of Management and Better Brazil

1. STRATEGIES FOR SUCCESS:
DOING BUSINESS IN BRAZIL
TODAY
Cornell Club, NYC
September 20, 2012
Gabrielle Trebat, McLarty Associates

2. Brazil Political Scenario
2
 Nearly 30 political parties, govern in fragile
coalition
 Weak and unwieldy Congress, heavy use of Presidential
Decrees
 Dilma with nearly 80% approval
 October 2012 midterms
 Lula looms – 2014
 Corruption still a factor
 Mensalão impact
 Active, but not overly sophisticated, media
 Practical populism = Dilma
 Desire to be global stakeholder
 Must succeed with social development goals, Games,

3. Market Opportunities
3
Rise of the Middle Class - class C expected to reach 113 million in 2014
Opportunities in renewable energy, Oil & Gas - Pre-salt exploration
11th ANP round approved by President Rousseff and announced –May 2013
Pre-salt bid round – November 2013
Agribusiness Belt boom
IT and Digital Inclusion
Rio 2016 Olympics: RJ State estimates 2011-2016 investments to reach US$50 bn through
PPPs
 Rail/Road/Port concessions - $66 billion package announced in August
BNDES to provide funding for 80% of concessions
 Next round of airport privatizations – 3Q 2012
 State/Municipal level projects
Recife, Curitiba and Maringa (Parana) success stories

4. Assessing the Business Environment:
Focus on Industrial Policy
4
 Concerns with deindustrialization, competitiveness
 Strengthening of Brazilian Real
 China competition
 Rising labor costs
 Global slowdown
 Desire to bolster industrial and human capacity
 Buy Brazil
 2010 “Buy Brazil” policy - 25% price benefit in government procurement
 2011 Plano Brasil Maior “Greater Brazil Plan” aimed at supporting local industry, trade-
related measures
 2012 New Tariffs on 100 products, IT Maior
 Local content requirements
 65% local content requirements in oil & gas
 Brazil seeks the best technology that is “Made in Brasil”
 Job creation the goal, but want tech transfer
 Need for partnerships/joint ventures with local companies

5. Brazil’s relationship with foreign
investment today….
5

6. Assessing the Business Environment:
Talent, Tax
6
II. Opportunities for Technical Partnerships
 Urgent need to improve STEM higher education levels
 Science Without Borders program to fund 100k Brazilian students seeking advanced degrees in STEM
fields at U.S. universities. Early commitment to fund students and/or provide internships received from
Boeing, Ch2MHill, Praxair, GE, Varian and Amgen among others
 “Hire Brazilian” quota requirements - and lengthy visa process for bringing in highly skilled
foreign talent - exacerbates talent shortage and introduces element of unpredictability in
project planning
III. Onerous Tax Regime
 Highly complex and burdensome; highest amongst Latin American nations for income,
corporate and VATs
 While corporate tax rate at 34% is comparable to developed countries, the lack of tax
consolidation gives rise to differing – and competing – levels of tax requirements at federal,
state, and municipal levels. Foments “fiscal wars” among states vying for investment (i.e.
ICMS and “guerras fiscais”)
 Receita Federal (Brazilian IRS) resistant to simplifying tax code for fear of losing much-
needed revenue to fund pension system, social programs, infrastructure projects
 Note: the U.S. has no bilateral tax treaty (BTT) with Brazil

7. Assessing the Business Environment:
Infrastructure
7
IV. Infrastructure
Infrastructure bottlenecks, inefficiencies hamper growth….
And contribute to logistics costs reaching 12-15% of GDP in Brazil, compared to 5%
average in countries like USA and Germany
Only 6% of Brazil’s roadways are paved, compared to 54% in China and 80% in
Russia
 ….while demand builds
Rise of class C has increased demand for cars and household products,
overwhelming capacity of roads to deliver the goods and warehouses to supply them
Rising number of commodity exports snarling traffic in booming agribusiness belt
Number of passengers using Brazilian airports rose 75% since 2007
 But every challenge presents an opportunity….
In August, President Rousseff announced a $66bn concession package for rails,
roads, and ports to be financed by BNDES. Additional package for airports and
additional ports expected in September. While good news, be aware that….
Delays can be expected due to environmental licensing process, internal
auditing procedures
State bureaucracies could slow execution of project

8. Assessing the Business Environment:
Trade Facilitation
8
V. Trade Facilitation
Progress in recent years….
 Remessa Expressa
 Green Lane Pilot Project Viracopos-Miami
 US-Brazil Commercial Dialogue
Brazil-US Business Council Customs Modernization Working Group:
 Adoption of universal risk management procedures, more consistent enforcement of
taxes and duties
 Trusted Shipper Program – Authorized Economic Operator
 Upgrade Airport Cargo Infrastructure – insufficient personnel, poor physical
infrastructure
 Reduction of 60% flat import tariff on express imports, raise stringent value limits on
express shipments. No duties or taxes or formal documentation for shipments valued
at less than $200.
 Facilitated customs treatment of critical industrial imports through automatic

9. Key to Success in Brazil
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 Consider partnerships/joint ventures with Brazilian firms
 Merck forged a partnership in 2012 with Brazilian drugmaker Supera
Farma Laboratorios to jointly market 30 products.
 Ch2M Hill and Metodo Engenharia form a partnership in 2010 to
develop projects in the oil & gas sector
 Consider acquisition of a Brazilian companies
 China’s Lenovo purchased last week Brazilian electronics
manufacturer CCE for R$300 million as part of its strategy to become
Brazil's top manufacturer of personal computers and unseat
Brazilian-owned Positivo
 Offer technology transfer, technical training, and/or local R&D activity to
win procurement bid
 France and Brazil signed a tech transfer accord in 2009 to build four
conventional subs and one nuclear sub with DCNS SA and
Odebrecht

10. Key to Success in Brazil
10
 Image matters - have an active government relations presence
 Increasingly, Brasilia is where decisions are made that create market
opportunities, impact investment trajectories, or otherwise alter the business
environment
 President Rousseff has prioritized a closer working relationship between Brasilia
and the business community (e.g. CEO competitiveness “kitchen cabinet”)
 Leverage industry associations
 They carry clout/have access with government officials and offer cover for
conveying key messages without appearing to cater to parochial interests
 Focus on the second tier firms
 The top 5-10 Brazilian firms in your sector don’t necessarily need US Partners;
the next tier do
 Top Brazilian firms are interested in partnering in the U.S. and elsewhere
beyond Brazil
 Remember the states
 States and municipalities have money and greater flexibility for doing deals
than the federal government

11. THANK YOU!
gtrebat@maglobal.com