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Brazilian agrochemical market - Avoiding some common mistakes
Aug. 22, 2018
The most part of Chinese companies that I have met in the last years have suffered with the cultural differences and the high complexity environment present in South America, mainly in Brazil.
The list below summarizes some common mistakes that usually mean a huge waste of money and time:
1. To dislocate a Chinese executive without the proper experience to establish local relationships and without the corporate autonomy to close the deals;
2. To rent a luxury business office in São Paulo thinking that this decision will contribute to transmit to the market a reliability image;
3. Do not establish a local inventory to support the first sales
The idea of this article is to offer a guideline to companies that desire to capture the huge opportunities available at the Brazilian market and even at the neighbor countries like Argentina, Paraguay and Uruguay.
The agricultural market has a myriad of codes very similar than the Chinese concept of “Guanxi”, which includes the contacts, connections, familiar relationships and fundamentally the trust. Cultivating the rural “Guanxi" is absolutely essential to any input company to get good results here.
Considering that the agriculture is an intensive seasonal activity and presents different types of risks alongside of the cycle, it is easy to understand the importance of the relationship between the supplier and the farmer.
For this “Guanxi" to be effective, the company must adopt the same strategy of a long-term builder. In practical terms, this condition generates many advantageous that can be translated directly to a better predictability of demand and good alternatives to avoid risks.
At the agrochemical sector it is very common to observe that the foreign companies are often attracted to doing business in Brazil under evaluating the whole scenario, probably motivated by the high margins and expectations potentialized by the size of the market. At the same time, some executives underestimate the high transaction costs required to build a solid relationship network.
One of the best ways to reduce the distance and to improve the relationship with the farmers are just to take an apparently obvious decisions, such as to locate the administrative-commercial office close to the target regions where the products are applied and to hire commercial managers and sales agents with a strong connections. The expenditures will be certainly lower than in the big cities, but sometimes it will be more difficult for a Chinese executive to adapt its personal habits to a small city. Despite that, it is highly recommended to be aware of this necessity.
Some years ago, I have been interviewed by big Chinese company which desired to hire me as their responsible for the barter trade department in Brazil. The CEO at that time was very optimist with the Brazilian perspectives and asked about my willingness to move myself to Sao Paulo city in order to support the Chinese director that was being transferred to manage the South American operation. I explained him that my tasks would demand the presence where the transactions are made, which would be not possible to execute properly being far from the farmers and their production areas. The company has decided to hire a famous professional that built his career at the urban area. The result could not have been worst for this company, that have decided to left the country after to have lost some million dollars with bad deals.
The best way to build a solid relationship at this field is to choose a region inside of the country, where the product portfolio can be well developed in order to cover the fixed costs with a reasonable volume of goods (the principle of the Break-even point).
For this reason is not necessary to rent or even to invest at a luxury floor in São Paulo to transmit the image of reliability demanded by the market.
Much more intelligent is to organize a strategic stock at customs warehouses that work as a “free trade zone”, which allow a safety and low cost management to support the first sales for the resellers and/or end consumers.
Depending on the characteristics of the portfolio, it highly recommended to plan field trials at highlighted farmers that will help to generate technical and commercial reference about the product performance.
A successful commercialization in Brazil requires developing a solid trade finance strategy, taking the advantages of the low interest rates in China to guarantee an aggressive market-share.
After getting over the euphoria to have entered at a market that offers high profitability, it is quite important to know that the good results of a previous year not guarantee its continuity without risks at the long term. One of the keys to doing business in Brazil is being always prepared to deploy appropriate measures and sufficient resources to mitigate the risks and to adjust a volatile environment.
"The only thing certain and constant about Brazil is uncertainty. Managing risk is about dealing with uncertainty and the unexpected". I don't remember who the author of this phrase was, but I totally agree with him.
The future is bright for the Chinese companies that can sight beyond the short-term horizon.
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