Joe and Claudia Low have written a great introductory read on business culture in Brazil.
Joe wrote the first part of the book – a general overview of Brazilian business culture. I am sure that Brazilians and those with a deep knowledge of the country can find things to quibble with. But overall Joe does a reasonable job and shows that he has paid some dues.
As a gringo executive, sporting the expensive car, foreign demeanor and good shoes, he went through the seemingly obligatory car jacking.
Claudia’s section of the book is the really useful and important part of the book even if it’s a bit tedious for the beginner. She generously shares a lot of knowledge that lawyers and Brazilian experts typically provide at a substantial price. So just having her listing of Brazilian taxes, types of corporate entities, foreign exchange regulations and immigration visas should be a big help for those who have the patience, interest or need to understand.
Still, even while providing a very good overview, the new investor in Brazil or the new immigrant will still need help in getting things done. Regulations and enforcement change all the time, often at the whim of the official. As Joe and Claudia point out, Brazil is increasingly online. Brazilians have the second largest number of users both Facebook and Linked In.
The shift to doing things online has created easier access and greater transparency.
But there are still mountains of red tape. Claudia’s section covers a lot, if not everything, in some detail. For instance, she lists some 17 items, all duly signed, sealed, translated, interpreted and made “official” that need to be submitted to the Board of Trade (Junta Comercial) just to request the opening of a company.
Although, I find the title “They Don’t Speak Spanish in Brazil” a bit grating, it does point out the lack of knowledge regarding Latin America and Brazil. The problem is that while the title actually addresses the stereotype, it may ultimately reinforce looking only at the clichés and the obvious. Joe readily and often entertainingly explains his own “gringo” mistakes as well as those of associates.
He starts the book with some of the usual appeals to Brazil’s grandeur, its potential, and its past failings. He lists, not completely, some of Brazil’s cycles of boom and bust referring to coffee, rubber and concludes with the affirmation: “This time, it’s different.” He supports this by listing Brazil’s diversification of exports, but overstates the role of industry and deemphasizes the return to commodity exports driven by Chinese demand. He fails to note that Brazil’s industrial sector has been losing ground internationally for the past two decades.
Fortunately for Brazil, Chinese demand for iron ore, soy beans, pulp, oil and other items sold by the ton has sustained a favorable trade balance while industry has suffered. The authors correctly recognize some reduction in Brazilian inequality mainly through the growth of a new middle class. However, they fail to mention the importance of political democratization, some progress in institution building and then only mention the “Plano Real” stabilization program in passing. The examples used – such as the number of Ferraris – the number of millionaires, Brazilian consumer spending in Miami, and the cost of real estate actually represent the bubbly nature of Brazil’s economy and may not have a lasting character. Mentioning the growth of private debt and people falling behind in their payments, as well as the number of repossessed Fiats, probably should be stated as the cautionary side to the optimistic take. Joe say: “It’s a whole new world.” but many Brazilians would say, “Nem tanto.” (Not so much.)
Certainly the World Cup, the Olympics and the associated major events are important for Brazil’s ego. However, we can only hope that Brazil does not wind up with a headache afterwards.
Moreover, the recent street demonstrations, involving over a million people, show that Brazilians are unhappy with only the trappings of the World Cup. Protesters are demanding greater spending on education, health, transportation and services to match the so-called “FIFA standard”.
In the following paragraphs I will go chapter by chapter providing hopefully a useful summary as well as some additional remarks.
Chapter 2 – “Practical Strategies for Engaging the Market” correctly argues that Brazil is different. It also stretches the argument that Brazil is unique. In writing a guide to doing business, the authors want Brazil to be different. Here they point out and give a series of anecdotes about Brazilian class rigidity and how perceptions are altered depending on one’s position in the social hierarchy. In the chapter, they note the growth of Brazil’s middle class but then point out the class based differences. So although a new middle class is emerging, businesses must take into account Brazil’s class divisions. Here they pick up on the work of Brazilian ad agencies and marketers who have roughly divided Brazilians into 5 classes ranging from A to E, with classes C and D representing the groups that began emerging with stabilization in the 90’s and became more or less consolidated in the last 10 years of Worker Party governments. With all of the talk of the leveling taking place, Brazil still has one of highest indexes of income inequality. Class consciousness and discrimination continue to impact society and are dependent upon maintaining and enforcing differentiation based on race, wealth, access, patterns of consumption and other class-based characteristics and behaviors. Race and racism are examples of this pattern but are not discussed in the book.
Chapter 3 addresses the issue of safety in Brazil (often perceived as an issue related to race). And though I found the stories entertaining, they are just that – amusing stories – and not much more. Basically, Brazilian cities are risky places statistically. Statistically, you are more likely to have something bad happen to you there than in the US or Europe. This applies to petty theft, muggings, car accidents, kidnappings, getting shot, getting raped and so many other street crimes.
This is the so-called Brazilian reality. Is it unavoidable and can it get better? These are real questions. The authors have partially address the problem with the stereotypical advice not to wear your expensive watch, not to look like a gringo and know before you go. There should be more to say and there is but unfortunately, it becomes academic and boring. Like a lot of things in Brazil, security needs to be dealt with at the level of better schools, better services and the creation of the idea of equal access. This takes time and is not very interesting at least from a journalistic point of view.
In all my years in Brazil, including those chasing “pivetes” (street kids) who stole my children’s backpacks, I have been relatively fortunate and avoided any really bad situations. Having said that, neither I nor Joe and Claudia live in Brazil any longer.
When you are there, you lock everything and look over your shoulder. That is just the way it is. Slowly things are improving and killings per hundred thousand residents are dropping below Bagdad and Kabul levels, but they are still high. Improvements in policing are taking place but the justice system is still lagging and painfully slow and unequal.
Chapter 4 starts with the book title – “They Don’t Speak Spanish” and it raises the issue of ignorance, mainly that of foreigners with regard to Brazil, and the short cuts we all use to help us through our daily lives to “understand” and “interpret”. The point is that we do not speak Spanish in Brazil nor do we speak (at least well) many other languages.
Although Brazil received waves of immigrants in the 19th and early 20th century, the second and third generations have pretty much lost the tongues of their forefathers. Thus my Scheibe relatives from Germany in southern Brazil no longer speak German. My Japanese brother-in-law speaks no Japanese and the sons and daughters of the Italians know nothing more than “tutti buona gente”. So the conclusion for the business executive is to learn Portuguese (it is not a particularly difficult language) or have an able Brazilian interpreter.
I like Joe’s Chapter 5 a lot. Here he presents the idea that Brazil is open for business and has ample opportunities. This is certainly true. Brazilians are creative, many have an entrepreneurial spirit and there have been some real immigrant pioneers who developed native Brazilian industrial complexes. Still most Brazilians feel the weight of government and the better educated have always had the opportunity to avail themselves of lucrative public posts. Thus Brazil is known as the land of lawyers (pais dos bachareis). When I was a young man, young women aspired to marry a functionary of the Banco do Brasil as he had lifetime employment, excellent benefits including a country club, and full retirement at a suitable income level. Today, this same mentality is prevalent and people flock to competitions for public positions. Typically, women now have well over half the seats in university courses, score best and seek public sector employment because of the generous benefits. Public sector employees retire with pensions that are typically five to eight times the value of regular benefits for employees of the private sector. The end result is that working for the government often trumps entrepreneurship. Security, status and decent pay trump risk taking. Nevertheless, opportunities abound and almost anything that you start in Brazil and work seriously at will have a chance for success even in manufacturing.
Chapter 6 – “The Daily Grind” goes over the difficulties one faces in living your life and figuring out how to get things done at home and business. These range from recruiting the right people, competition for skilled workers in Brazil, schools, health care and security. Joe points out in this chapter that concerns are real, i.e., companies often spend inordinate amounts on security because public security is not up to par. The same can be said for schools and health care. Brazil has centers of world-class competence in virtually every area; however, the problem is that these places of excellence are not replicable and there is little redundancy that typifies access available in developed countries. There will always be, for example, at least one heart transplant surgeon of note and reputation, but his cost may be too high and his line too long. The end result is that Brazilians may recommend Miami or Cleveland or go there themselves.
In Chapter 7, Joe addresses the infamous “Brazil Cost” with a focus on corruption and the Brazilian tradition of the “work around” (jeito or jeitinho). He correctly talks about “labyrinthine bureaucracy” going hand-in-hand with corruption. While the emphasis is correct, it leaves out a great deal about “custo Brasil” such as the poor infra-structure, the crumbling public education system especially at the primary level, the precarious health care institutions that most people depend upon and the confluence of the results produced by deficient meeting of basic needs. The current popular movement on the streets of Brazil is both a cause and a result of a broadly defined “custo Brasil.”
In dealing with the issue of corruption, Joe points out its ubiquitous nature but, at the same time, recommends keeping your hands clean. That is certainly good advice. He knows how to act but fails to teach the gringos how to do so. Thus his example of the lady working at the local DMV with a modest salary but somehow being able to travel to Europe frequently and enjoy the finer things in life illustrates Brazil’s rotten bureaucracy but then he backtracks and says, in effect, well things are not actually so bad nowadays because of computerization. So we are left not really knowing where and how corruption works.
It is a given that corrupt activities are by nature hidden and thus difficult to prove. Nevertheless, the basic mechanisms are exchanges of money and favors outside the “normal” course of business. I would suggest Joe should add an example or two here, such as the case where the business man loans his beach house to his banker in return for the guarantee of favorable treatment for a loan. Is this corruption? Maybe not. Another example, having to kick back 10 percent to a buyer with cash discretely left in a drawer. Is this corruption? Yes, and it does take place routinely.
Joe uses a quote from Jo Soares, an intellectual and prominent TV comedian and talk show host. Soares says that Brazil did not invent corruption, but it did invent impunity. It would have been interesting for Joe and Claudia to delve into the institution building process (especially the legal angles (Claudia’s field) to explain why so many corrupt acts end “in pizza”. That is – nothing happens and there are no consequences.
In talking about the “jeito” or the Brazilian work around alternative, Joe cites a great example of getting a visa fix. It is a nice story and things are done within the bounds of the regulations in exchange for a future favor. What Joe fails to explain, is that the jeito is pretty much only available to those who have something of value. This something may be material or it may be symbolic, but the main point is that there has to be a symbolic transaction that 1) enhances the power or status of the person providing the solution; and (2) involves the dependency and obligation of the party receiving the favor. At some point, dues, in some form, may be collected. So the jeitinho is a way around, a way of getting things done in complex bureaucratic settings, but it also is a symbol of inequality and a means of preserving the status quo. As Brazil gradually becomes more democratic (admittedly a long process), the jeitinho is less ubiquitous but still remains embedded in the Brazilian mindset.
Chapter 8 starts Claudia section of the book and she, starts by analyzing the contradictions and issues women face. First, she makes the almost obligatory comment on the elegance of Brazilian women (as compared say to the US) and their care in how they present themselves especially in a professional situation. I found resonance with my own feeling, however, there is certainly a class -based bias present. Women who can afford (and even many who might not be able “to afford”) buy expensive cosmetics and enjoy substantial salon time. Brazilian women like to look good and this is especially true of middle and upper class women. As Joe and Claudia correctly point out, Brazilians show great concern about projecting status and positioning themselves as distinctly as possible in their desired location in the social hierarchy. Brazilians will live 8 to a room, go hungry, and make great sacrifices to achieve, show and preserve “status”. Brazil’s position as the world’s largest cosmetic market after the US and Japan reflects “class and status” consciousness. Foreign women will at times admire and at other times rue these actions.
From a business perspective, I find Claudia’s legal and procedural contribution the most cogent and important aspect of the book. However, let me emphasize that her points reflect a contradiction that runs through the whole book. Joe and Claudia want us to know how Brazil is special, different and unique. At the same time, Chapter 9 states “Not difficult, Just Different” in regard to tax law, but this is a recurrent theme in their study. Brazil really is a difficult place and certainly not an easy place for beginners or the naive.
From my perspective tax laws are convoluted pretty much everywhere but Brazilians are masters at studying, inventing and copying every possible new or old tax for its use in Brazil. Brazil’s tax burden is as high or higher than any developed country. But the system delivers precious little in return.
As I write this Brazil, has just gone through two weeks of tumultuous public demonstrations clamoring for, among other things, better use of tax dollars as in education and health.
Claudia’s listing of Brazilian taxes at federal, state and local levels is daunting even for those of us familiar with Brazilian law and business practices and she states, rather blithely, “You see? Once you start listing the various taxes, you begin to understand that taxes in Brazil are quite similar to taxes in other countries. There’s no mystery or magic”. Unfortunately, I am afraid to say that most Brazilians, while accepting the system as a given, still find it somewhat un-penetrable as is illustrated in Claudia’s own statistics that “79% of the companies operating in Brazil did not take advantage of the VAT-type credits there were entitled to. Fifty-six percent know they have miscalculated the state VAT. This wasn’t intentional: they simply didn’t know.” (Chapter 9) So the conclusion is that, yes, Brazil’s tax and business systems are one of the most complex and convoluted and there is no getting around that.
Chapters 10 to 12 deal with; income taxes (corporate and individual) (Ch. 10), employment related tax law (Ch. 11) and taxes related to operations, import/export, services and transactions (Ch. 12).
As you may begin to imagine, Brazil’s tax and bureaucratic structures justify its last place rankings among major industrial nations as to the ease of doing business. I am not going “chover no molhado” (rain on what is already wet) as Claudia does a great service in listing and giving examples and even justifications for all of these procedures. Granted, they are not impossible but come close. Any Brazilian executive knows that an auditor can almost always find or invent a questionable issue, which will result in fines or a bureaucratic battle to prove and defend your rights. In Brazil, tax lawyers abound and are highly paid, if not always respected. The best piece of advice, which the authors emphasize, is you need to know and you need to go in with your eyes open. Implicitly, they say it might be wise to hire Claudia or someone like her. In Brazil, everyone in business needs to have a trusted tax advisor and accountant.
Claudia and Joe provide important information if you are able to wade your way through. I personally found the chapters quite readable but I know the whole alphabet soup they are talking about. It is something that takes time to learn and needs to be experienced in practice. My suggestion is to skim these chapters seeking to gain an idea or general familiarity and then go back to them as reference points as you are discussing and planning your activities with your legal and accounting help. It is daunting but then again that is the Brazilian way. Millions of Brazilians are handling these issues on a day-to-day basis as they run their businesses or interact in the market place. Of course they have to and the foreigner can always opt out.
A further note on this topic is that Claudia works through, in Chapter 12, an example of achieving different landed costs on imported goods by properly choosing a port of entry with a more favorable state tax (ICMS). As the authors point out, tax laws change all the time and the federal government is working diligently at passing legislation to eliminate this tax loophole, at least in theory. This “jeitinho” is still working, but has, I believe, a limited shelf life.
Legal corporate entities are the topic of Chapter 13. The most commonly used are the “sociedade anonima” (SA) and the “limitada or Ltda.” The former is more typical of a publicly traded corporation and the Ltda. is similar to the limited liability corporation. Their examples of how these are set up are instructive and give a good point of guidance for beginners in talking to advisors. They also list a number of less commonly used forms of incorporation including the very popular “micro-empresa” which many white-collar professionals use. The main limitation on the micro-empresa is that it cannot invoice more than 360,000 reais or around 150,000 dollars per year. The procedures for registering these entities are explained but this task is probably best left to trusted advisors who will do the footwork. Writing up the articles of incorporation is an important step and I think needed a bit more extensive treatment. These articles define and limit activities and lead to tax and union affiliations both on the worker and owner levels. Once these are written, changes basically require redoing the whole process and can be expensive so it is important to try to think out what your company plans to do and at what level. For example, if you are a manufacturing company, but later decide you want to import and export, you may have to revise your articles of incorporation before you can engage directly in foreign commerce.
Money Matters is the topic of Chapter 14, which deals with banking, foreign transactions and more taxes. One thing that I would have liked to see explained is how foreigners can open a bank account. Unfortunately this issue, which I think is important, goes unaddressed. Claudia explains taxes on foreign capital, profit remittances and payments. Regarding the latter, she opportunely notes that when Brazilian companies pay foreign firms or consultants they must deduct 15 to 25 percent of the payment as withholding tax. This is obviously an incentive to set up shop in Brazil or a disincentive to provide services in Brazil as a foreigner. She gives an example where a company charges 100,000 reais but only receives 85,000 due to the withholding. Perhaps she should also address how this 15% deduction might be recovered.
Chapter 15 deals with visas and immigration and outlines the complexity and the bureaucratic nature of the Brazilian immigration system. Tourist visas are easy to obtain but cost over a hundred dollars for US citizens, as Brazil is a diligent implementer of the law of reciprocity. If the US charges for an immigration service, you can bet that the Brazilians will have an equal or greater service charge. The authors recommend getting a business visa if you are going to Brazil on business. This is sensible advice but if you are not going to earn income and are only going to a trade show, a tourist visa is sufficient. The main thing Brazilian authorities are concerned about is getting their cut of possible income. Having said that, if you are in Brazil on a tourist visa and get into trouble for whatever reason, the Federal Police have the authority to “throw the book” at you. It used to be, and I imagine it still is quite common for English speaking foreigners to freelance as private language instructors. While people get away with this on a regular basis, it actually is a crime and can justify deportation with possible restrictions on return to the country. As the bureaucratic and, at time arbitrary place, that Brazil is, it is good the authors suggest covering all of your bases and being zealously legal. However, knowing Brazil as I know it, an auditor or a police authority, if so inclined or motivated, can always find something illegal or at least questionable that can create headaches. In this case you are guilty until proven innocent.
The authors prove this in their opening statement in Chapter 16. They quote from the renowned 20th century critic and journalist Paulo Francis: “Brazil is an insane asylum where the patients are in control.” Claudia uses anecdotes to describe bureaucracy and the legal system. She could have as easily said that it is slow, often ridden with favoritism, subject to manipulation and very ineffective as often plaintiffs die before receiving a final judgment. However, if you are going to be in Brazil, you have to play the game and you have to observe the rules as they exist and in the form that they are applied. This is one of the many areas that make Brazil challenging. And it is also one of the reasons why Brazilians call the country “the land of attorneys”. If you have a car accident, it is likely that an attorney will hand you a card before police show up. If the police drag you to the station, they may recommend an attorney stationed at the door as they direct you in. An auditor who comes to visit your place of business may hand you the card of a friendly tax attorney. So you need to be prepared and have your own people and own connections in place, otherwise you are likely to find yourself at the mercy of others quite willing to take advantage of a gringo perceived as wealthy, but unprepared. One part of this chapter that is worth perusing is the discussion of the “cartorio”. Brazil is also known as the “Estado cartorial” or the place where you are no one without being recognized by the public registrar. This is the place where “officialdom” actually confirms your existence and your ability to actually transact in the business world.
The authors’ “Afterword” was written before the current ongoing protests. So again to the outside world Brazil appears more and more convoluted with little idea as to how it is going to solve its problems and assume its preordained role as the country whose future has arrived. The pendulum again swings toward the problematic recurring decline and the persistence roadblocks that Brazilians have long faced but have only partially resolved. In the absence of the street movements, the Lows conclude with a rosy depiction of Brazil’s future, its growth, the mega events, the beauty of the country, the cordial nature of the people, the openness, the friendship and all the other good things that characterize Brazil.
I cannot fault them for this. I am always optimistic about Brazil and see the cup half full. Nevertheless, Brazil continues to struggle in its attempt to build a fair, equitable and functioning political and social system, its heritage, its elite and its own misperception as to its role and place in the world.
Joe and Claudia hope that Brazil has joined the frontrunners and placed its wounded pride and inferiority complex behind. I really think that rather than joining the frontrunners, Brazil continues to struggle with affirmation and a particular way of processing information that leads to distortions. Brazilians swing between pessimism and optimism, between hope and despair, between self-disgust and bounding pride. This tendency toward exaggeration can only change as the country becomes better educated, has better access to information and becomes competent in the processing of information about itself. Brazil is gradually developing a new narrative. But the shackles of the past are not easily removed or discarded. The new narrative involves knowing history and understanding the present.
Joe and Claudia make a contribution mainly to the foreign public in this direction. Brazilians may not need to read their book but it is always good that Brazilians like Claudia (and an American, like Joe) are caring enough to make the effort to educate and inform.
In my opinion, the authors have been successful in their undertaking and I hope that many foreigners and a few Brazilians will learn much more than the fact that Brazilians don’t speak Spanish.