Procurement Intelligence Unit

Brazil is one of the least trumpeted success stories of the noughties. The South American giant, better known for its famed football team than its desirability as a sourcing location, has quietly established itself as one of the world's fastest growing economic superpowers - and, as we move into 2010, the next decade is likely to see a rush of companies looking to do business in the country.

In contrast to the woes suffered by its near neighbour and great rival Argentina over the past ten years, Brazil has enjoyed almost unparalleled growth since 2000. And unlike many commodity-rich South American nations - most notably Venezuela under the erratic regime of Hugo Chavez - the comparative political and economic stability enjoyed by the country singles it out as one of the world's most ideal sourcing and outsourcing locations.

Despite a fall in Brazil's real GDP in 2009, which is widely expected to fall into negative territory compared to positive figures of 5.1% and 5.7% recorded in 2007 and 2008 respectively, the country is expected to bounce back strongly next year and beyond.

An increasingly impressive infrastructure, especially in air transport and shipping, has also been another factor in Brazil’s rise. It has the second-largest road system in the world and although the majority of its traffic is concentrated in a relatively small area - in and around its southern and central regions - the government has invested heavily in roads in the north of the country in an effort to provide a link with the more industrialised south.

The country's recent infrastructural improvements are likely to be significantly boosted over the next decade, as Brazil prepares to welcome the world for the 2014 football World Cup and the 2016 Olympics in Rio.

Combined with a talent pool that is the envy of both the developing and developed world, and a regulatory environment that remains conducive to foreign investment, it is easy to see why the country's economic future looks bright.

Those procurement operations looking to base themselves in the country, or lean heavily on Brazil for their sourcing requirements - and a doubling of exports in recent years suggest that a growing number of companies are - should, however, beware. As a recent Procurement Intelligence Unit Country Risk report found, when it comes to operating in Brazil, it pays to read the small print.

Despite the existence of 'no poaching' agreements between companies and a hike in incentives paid on top of salaries, Brazil, like China, suffers from high attrition levels – and nowhere is this felt more keenly than in the BPO segment.

There is also a huge discrepancy in wages across all industries, with the prevalent informal employment dictating that many workers still earn less than the minimum wage.

The average salary of US$8,000 in the BPO industry also contrasts sharply with the far higher salaries on offer in the fields of engineering, sales and, particularly, project management.

Inflation has also posed a significant challenge to procurement organisations in the recent past and, although falling domestic demand has seen inflation fall over the past 12 months, history suggests that this figure is unlikely to remain at this level for a prolonged period.

Foremost among the fears of those firms looking to invest and source in Brazil, however, are concerns over corruption in the country and a political system that is still prone to scandal. The 2008 corruption perception index, published by Transparency International, ranked Brazil 80 among the 180 countries involved. While the government has taken steps to try and combat the problem, there's little doubt that considerable work remains to be done.

Incursions into the country along Brazil's border with Colombia have also become more common in the past decade and, according to a recent Enterprise Surveys' study of 1,802 firms, 57% of respondents said that they felt crime, theft and disorder were still major barriers to doing business within its borders. And with the widespread disparity in social equality fuelling both political and labour strikes, as well as demonstrations in urban areas, the threat of disruption to supplies and day-to-day business activities remains very real.

When it comes to government procurement, further issues arise. Brazil is not a signatory of the WTO agreement on government procurement, leading to accusations that its government procurement practices lack transparency.

Tariffs - traditionally a major barrier to foreign trade in Brazil - have come down in recent years, but with the country ranked 87 among the 121 economies in the global enabling trade index (ETI), mainly due to its tariff structure, it's still clearly an area of concern. The country's custom procedures also continue to cause considerable consternation.

Despite these pitfalls and its disappointing economic performance in the past 12 months, Brazil is clearly a country on the up. And, as the next decade approaches, it's preparing to open its doors to the world.