APPENDIX 29
Memorandum submitted by the Professor
John Child, Chair of Commerce, Birmingham Business School, University
of Birmingham
This submission is divided into four parts:
Summary, Source of Evidence, Evidence, Recommendations
SUMMARY
This submission is concerned with exporting
to Brazil by small and medium-sized enterprises [SMEs]. It is
informed by my recent research on the experience of British SMEs,
including the assistance they have received from UK Trade and
Investment and other agencies. The language difference and the
complex nature of Brazilian regulations were the factors perceived
by SME executives as presenting the greatest barriers to exporting
to Brazil. Their ability to overcome these and other difficulties
depends greatly on securing personal assistance in Brazil, in
the form of agents, partners or local staff. While most of the
SMEs had received some help from one or more trade promotion agencies,
their evaluation of its utility varied greatly. Market information
services tended to be valued less than other services, largely
on the grounds that the market research offered was too broad
to suit the firms' specific market niches. On the other hand,
companies new to Brazil appreciated the way that UKTI, especially
its staff in Brazil, could provide a firsthand appreciation of
business possibilities there and help them to develop relevant
business contacts. Among the recommendations offered are that
UKTI should take steps to increase awareness of business opportunities
in Brazil, prioritise activities that help SMEs to access relevant
networks both in Brazil and the UK, and reduce the confusion among
SMEs about how to access its services.
SOURCE OF
EVIDENCE
1. This submission derives from the findings
of a recent study of 32 small and medium sized UK enterprises
[SMEs] which were exporting to Brazil. Interviews were also conducted
with 21 members of UK agencies involved with facilitating SME
exports to Brazil, including UKTI, chambers of commerce and sector
associations. The research was funded by the Economic and Social
Research Council [ESRC] and was completed in June 2006.
2. The sector distribution of the 32 SMEs
was:
— Other (chiefly engineering and
consultancy): 16.
3. In the main, the companies were committed
and experienced exporters. Only nine had less than 50% of their
sales deriving from exports. Brazil, however, did not account
for much of their overseas sales. Excluding one very small company
with all of its sales coming from Brazil, the highest percentage
of total sales by value from Brazil for any company was 15%, and
the average was under 4%.
4. The following issues were investigated:
4.1. how the firms had accessed the Brazilian
market,
4.2. problems they had encountered and how
they had addressed these, and
4.3. the assistance received from UKTI and
other agencies such as chambers of commerce.
EVIDENCE
5. Brazil is generally recognized as a difficult
export and investment environment (eg World Bank data on "Doing
Business" in different countries).
6. For SMEs, access to the Brazil market
depends greatly on being able to establish appropriate personal
contacts in Brazil ("networking"). Such contacts provide
valuable informal knowledge that can contribute importantly to
success in an unfamiliar market like Brazil which has distinct
regulatory systems and business practices.
7. The language difference and the complex
nature of Brazilian regulations were the factors perceived by
SME executives as presenting the greatest barriers to trading
with Brazil. A common example of the latter concerns is the delays
imposed by Brazilian customs officials. These disrupted delivery
schedules and were reported as being encouraged by opportunities
for corruption. SMEs that had established offices in Brazil, particularly
in the oil and gas sector, encountered major complexities and
restrictions in areas such as local employment regulations.
8. The SMEs had failed to find a solution
for as many as 35% of the 111 specific problems they mentioned.
As a result, four of the 11 firms in the oil and gas sector have
decided to withdraw from Brazil.
9. In some cases, problems were resolved
by stepping around the rules—for example by entering Brazil
as tourist in order to avoid the normal delay in obtaining a business
visa. Just over half the problems mentioned were being handled
through the assistance of Brazilian agents and distributors, or
in some cases through the direct employment of Brazilian staff
with appropriate competencies and contacts. This reinforces the
significance of paragraph 6 above.
10. All but five of the 32 companies had
received some export-related assistance from one or more trade
promotion agencies. Seventeen had joined a trade mission to Brazil.
Thirteen had received some market research or other information
on Brazil. Twelve had received assistance in establishing business
or social contacts in Brazil generally though a UK consulate or
chamber of commerce in Brazil. A few had also been helped in finding
interpreters for visits to prospective customers, and two companies
had attended courses on exporting run by an agency.
11. The companies' views on the value of
agency services divided quite dramatically. Approaching one-half
of them (44%) took a negative view and only one quarter (25%)
had a clearly positive view. The remainder (31%) found agency
services useful to some extent.
12. SMEs require information on the highly
focused market segments that they serve and on very specific sets
of potential business contacts. Many evaluated UKTI's market information
services negatively, largely on the grounds that the market research
offered was too broad to suit their specific market niches. In
some cases, the firms found that they could access relevant information
themselves from the Internet or via their existing sector contacts.
Similarly, support for participating in exhibitions was not seen
as useful unless these were focused.
13. The companies which had a positive view
of UKTI and other agencies were generally those with little or
no prior knowledge of Brazil, and no established contacts there.
Such companies benefited greatly from assistance in their first
steps in Brazil, such as obtaining first-hand appreciation of
the country and gaining access to relevant Brazilian agents and
customers, through trade missions, introductions, and sponsored
social events. Many companies were surprised at the sophistication
of Brazil and its market once they had been introduced to the
country. Compared to the media attention given to other rapidly
developing economies such as China and India, Brazil suffers from
outdated stereotyping and poor knowledge. UKTI and other agencies
could help importantly to fill this knowledge gap.
14. By contrast, companies which already
had some experience and knowledge of Brazil did not find agency
assistance to add much value.
15. The fact that it was companies unfamiliar
with Brazil which took the most positive view of agency assistance
indicates the value of identifying them as priorities for help.
Although these firms were experienced exporters, Brazil was a
new environment that presented distinct problems for them. In
the case of difficult export markets like Brazil, "new-to-country"
presents a case for assistance over and above "new-to-export".
16. However, trade promotion agencies cannot
be expected to do more than help SMEs get onto the right path.
At the outset, the firms have to do their own homework in terms
of clarifying their export plans and researching information on
their usually highly focused markets. Also it is the actions and
attributes of the firms themselves that have most effect in coping
with the challenges that arise. As already noted, one such action
was to secure a reliable and trustworthy agent or partner in Brazil
who could handle difficulties arising from language and regulations
as well as problems associated with differences in culture, education,
and business ethics. Another is to approach Brazil as a learning
process. Familiarization with Brazil, as indicated by the number
of years that the SME been dealing with Brazil and the percentage
of the company's sales exported there, enhanced the SMEs' ability
to cope with the differences in Brazil's business environment.
17. Companies that need to have a direct
presence in Brazil, like many in the oil and gas sector, said
that they would benefit greatly from the provision of explicit
advice on operational matters such as visas, customs regulations,
liability to taxes and duties, and employment regulations.
18. Interviews with both firms and agency
personnel suggest that it would be helpful agencies to foster
the development of domestic forums for the exchange of largely
tacit export-related knowledge on a regular basis among SMEs.
An example in the UK is the regional "export club".
These already operate in some regions, although limited take up
of the opportunities they offer is a problem. In Brazil, one of
the key benefits of British representation there is the provision
of an informal forum for meeting business people in consulates
or to obtain "word of mouth" information about a specific
Brazilian company, rather than the more formal benefits associated
with providing market and other information. For example, one
company learned in time through such informal contact that its
prospective Brazilian partner was blacklisted by trade unions.
19. A major problem lies in the lack of
knowledge, even confusion, among SMEs about the export support
facilities available to them. The newness of the UKTI "brand
name" and the frequent changes in organization and service
provision add to the confusion. This is handicapping agency engagement
with SMEs, which is vital if their services are to have full impact.
Recommendations
20. UKTI and associated agencies should
take steps to generate a greater awareness of business opportunities
in Brazil, and to publicise ways in which difficulties can be
overcome such as by highlighting successful case studies. This
type of awareness-creation has been done very successfully in
the case of China by the China-Britain Business Council. This
raises the question of whether a similar body might be helpful
for the facilitation of Anglo-Brazil trade and investment.
21. The difficulty, as well as importance,
of Brazil as an export market needs to be officially recognized.
For even though SMEs may already be experienced exporters, they
can benefit from advice and assistance in the case of Brazil so
as to get onto the necessary learning curve.
22. Priority should be given to the work
of UKTI and chamber of commerce staff located in Brazil. In particular,
they can help SMEs to become suitably networked with Brazilian
partners and provide advice on how cope with the operational problems
that arise. There appears to be more requirement for these services
than for market information.
23. Within the UK, encouragement of regional
"export clubs" and similar forums for exchange of experience
and mutual learning is recommended.
24. Steps should be taken to stabilize the
organization of trade promotion services in the UK, in order to
clarify what is available and how to access it. Greater promotion
of the UKTI "brand name" as the key trade promoting
agency is also recommended in order to increase awareness of its
services among SMEs that have the potential to export to Brazil
and other major emerging markets.
25. At the policy level, progress by the
Brazilian and UK governments on the removal of barriers to trade
and investment could be very fruitful in a number of areas that
present problems for UK exporters: obtaining business visas, opening
offices in Brazil and employing local staff, opening bank accounts
in Brazil, repatriating funds from Brazil, getting shipments through
customs, reduction of signatures required for important and export,
and simplification of the Brazilian tax structure. A double taxation
agreement between the UK and Brazil would also be an important
step forward.
21 September 2006
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