Entrepreneurship in Brazil

by Sarah Peaceman March 26 2013, 23:33

Bolivians, mainly members of affected indigenous groups, protested the Brazilian construction company OAS’s project to build a road through a remote Bolivian indigenous territory. Meanwhile, citizens of Argentina, Paraguay, and Guyana also worry about Brazil exerting influence across their borders. These neighboring countries are not as large or as wealthy as Brazil. Additionally, Brazilian-run businesses have been buying and building on significant portions of land in those neighboring countries. Given that “big business, foreign investment, a huge consumer appetite, and the prospects of oil” dominate Brazil’s booming economy it is easy to overlook the fact that Brazil is surging ahead as an entrepreneurial leader.


The spirit of entrepreneurship is alive and well in Brazil. Luiz Carlos Barboza, technical director of the Brazilian Micro-Enterprise and Small Business Support Service (SEBRAE), reports that the increase of new companies in Brazil is directly related to Brazilians’ growing entrepreneurial spirit. “Currently, small and medium size-enterprises (SMEs) are responsible for 96% of the jobs in Brazil and comprise 98% of all companies in the country.” Finally, 13 out of 100 Brazilian residents are involved in a start-up; and the 2007 Global Entrepreneurship Monitor named Brazil a leading entrepreneurial country.


Another mark of the rise of successful entrepreneurial companies in Brazil is that United States venture capitalists are starting to take notice. As entrepreneurship becomes more accepted as a viable career path, investment firms pour more capital into these start-ups. Additionally, failure is becoming less stigmatized, and young Brazilians see compatriots returning from the United States, choosing to operate, instead, in Brazil.

 

Seeing fellow Brazilians find great financial success through start-ups is especially important for potential Brazilian entrepreneurs. A good example of an entrepreneurial role model is André Esteves, who, at 43, has amassed a fortune estimated at $3 billion. Esteves worked his way up the ranks and eventually ran the investment bank, Pactual. “After running Pactual for four years, Mr. Esteves sold it to UBS for $3.1 billion in what was at the time the largest deal in Brazil’s financial sector.” Surprising many, Mr. Esteves bought back UBS Pactual for $2.45 billion in 2009— less than he had sold it for three years earlier. It was renamed BTG Pactual and continues to have high levels of growth. Such successes fuel Brazilians’ entrepreneurial spirit.

 

Not only are the entrepreneurs stepping up to start new businesses, forge new paths, and grow their start-ups, but the Brazilian government is also actively helping out. This support of start-ups shows Brazil’s awareness of the impact new, growing businesses have on both employment and innovation. Even though Brazilian entrepreneurs contend with difficult bureaucratic hurdles, especially significantly more red tape than exists in other Latin American countries, the government “sees them as a key engine of job growth.” (For an informative chart regarding the amount of time it takes to start a business in Brazil, as well as Doing Business 2012’s rankings of various factors of ease of conducting business in Brazil, see http://www.doingbusiness.org/data/exploreeconomies/brazil.) The government passed legislation in 2004 allowing federal university professors a temporary leave to create start-ups. Further, the government's Financing Agency for Projects & Studies (FINEP) has launched its largest start-up-support project ever, PRIME, a program which hands out about $65,000 to start-ups, selected by 18 incubators, focused on innovation. Incubators are groups of start-ups all housed in one building, or overseen by one supervisor, to encourage the smaller companies to work together and share ideas. This set up also allows investors to visit with and learn about several start-ups at one time. The PRIME program seeks to help 10,000 companies over four years.

 

Support for start-up incubators is important. According to the World Bank’s sponsored Infodev partnership of aid agencies, “75 percent of companies that [are] supported by incubators are still operating three years later.” Infodev is a partnership of international aid organizations housed at the World Bank and runs incubator programs in 86 countries that have generated more than 220,000 jobs since 2002.  The incubator network has grown from 136 in 2000 to 400 today. International development agencies see business incubators as a spur to technology and entrepreneurship. "This can be a tool for development for jobs creation, and . . . a way to maintain the engine of economic growth.” Most incubators are affiliated with universities, which also highlights the importance of public universities in governmental support of start-ups.

 

Ebusiness in Brazil, in particular, has seen noteworthy growth recently, and this online activity provides an opportunity for significant small business and entrepreneurial growth. (However, it is interesting that even with the rise of ebusiness, “Nasdaq does not have a single Brazilian Internet company listed, and the country’s own exchange has very few.”  Given that many business people relate the strength and success of a business with its value on the market, it is notable that Internet companies and entrepreneurial projects have not yet attained a prominence in that area.) Ebusiness revenues from January 2011 through June 2011 were between 5.2 and 5.5 billion dollars. This six-month period’s revenues are more than the revenues for the entire year of 2008, and show about 20% growth in the sector versus the previous year’s numbers from the same time period.

In this time period, four million first-time users completed an online transaction. 61% of these new users earn less than $1,870 per month, showing that middle and lower income consumers have started to shop online. From 2006 to 2009, about 45 million members of the middle class started using the Internet. More entrepreneurs are starting businesses that combine social networking with commerce, and as smartphones become more popular, e-commerce will develop even further. Currently only 9% of the Brazilian mobile phone market consists of smartphone users compared to smartphones comprising 40% of the mobile phone market in the United States.  

Brazil’s market, while growing, is not perfect. “Coming off a year in which it recorded its highest growth in a quarter century, Brazil is faced with rising inflation, an overvalued currency and an industrial sector losing competitiveness to cheap Chinese imports.” Additionally, economists fear that a surge in spending, coupled with low interest rates, could lead to even higher inflation. These concerns could lead to new and increased challenges for small businesses just starting out. A country with such rapid growth and high levels of inflation may cause investors to hesitate before contributing funds. For better or for worse, Brazil’s economy has slowed to about 3.5 percent growth, which is about half of last year’s growth. Additionally, retail stores have reported reduced sales. Perhaps this is why the growth in ebusiness and focus on start-ups is so important.

Entrepreneurs can also develop ways of helping poor communities through cooperatives and associations of production workers. For example, Ashoka, a non-government organization that works in 63 countries, opened its largest office in Brazil. Because of the success of this type of entrepreneurship, and because of the demand for the products from these cooperatives, this market is growing. In this way, entrepreneurs have opened up new markets in innovative ways. (For further discussion of the various cooperatives set up to create and market handcrafts, see: http://www.culturalexchange-br.nl/mapping-brazil/fashion/fashion-retailing-brazil/appriciation-handicrafts)

Overall, entrepreneurs in Brazil have a productive environment for growing their start-ups. The government has provided support through legislation and grants. Venture capital firms have taken notice of start-ups as an opportunity to invest. Ebusiness is expanding dramatically throughout all spectrums of the socio-economic classes. Mostly, the country’s culture is embracing and promoting a general spirit of entrepreneurship. At the same time, the government is promoting this entrepreneurial spirit by nurturing it, providing incentives, and recognizing the positive contributions entrepreneurs are making to the economy and to the country. With this much encouragement, socially and from the government, Brazil is poised to continue innovating and expanding its impact on the global economy.

 
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