This should have been a banner year for Brazil, the B in BRICS for fast-moving emerging economies, with the world’s attention turning to Rio de Janeiro, host of South America’s first Olympic games. Yet the country is tetering on economic and political disaster, wracked by financial scandal and looming impeachment against its president.
By the end of 2016 Brazil’s economy may be eight per cent smaller than it was in the first quarter of 2014, when it last saw growth. GDP per person could be down by a fifth since its peak in 2010 which is not as bad as the situation in Greece, but not far off.
How Brazil got itself into this state and how it might get itself out (making hard decisions about pensions) is outside the scope of AV, but the context has unavoidable consequences for any company seeking business in the country.
“In 2014 at the time of the soccer World Cup the economic and political outlook was favourable, with forecasts for economic and social growth,” says Jose Fonseca, commercial director at Savana, Clear-Com’s local distributor. “The recent problems have placed the advertising market in a very different condition with depressed revenues and investments.”
Daktronics opened an office in São Paulo in 2012 to capitalise on the pending World Cup and Olympics and expected demand for airport advertising, DOOH and government infrastructure spend. “Leading up to the World Cup the economy was very prosperous and Daktronics was awarded four stadium projects, two of which were used for the World Cup,” reports international market manager, Ben Aesoph. Since then the Brazilian Real has experienced massive decline against the USD.
Exchange rate woes
In March 2011 the exchange rate was $1 to $1.6 BRL. This March the rate was $1 to $4 BRL. “This exchange makes it very difficult for foreign companies to sell products in Brazil,” says Aesoph. “We are seeing fewer opportunities in all segments of our business in Brazil. The OOH market has the best prospects there, but is certainly not where it was in 2011-2013.”
The legacy impact of global events on local AV is debatable since most of the equipment is temporarily imported and executed by non-Brazilian companies. “Local companies are not investing too much in new AV equipment,” notes Peter Lindquist, ceo at KJPL Arbyte, a Dataton Premium Partner in Brazil. Citing projector imports down by 40 per cent, he adds: “The economic and political situation has a direct influence on the AV market and makes it difficult to do any long-term planning.”
German national Hans Ulmer founded Absolut Technologies in 1998 and says the industry is in the worst state he’s seen. “It is difficult to close business. Everyone is holding budgets because we don’t know the outcome of things like the impeachment process, or whether the exchange rate is going up and down.”
Much of the upgrades in consumer and professional equipment, for example in displays and the national broadcasting and telecoms infrastructure, occurred prior to 2014.
“Sales of displays were high during the World Cup since soccer is the national passion but with people losing their jobs or fearful of losing their job the Olympic Games will not have as much impact,” suggests Carlos Bellei de Siqueira, NEC Latin America. “This holds for professional Large Format Displays also. The population is saving money.”
According to InfoComm’s 2014 Global Market Definition and Strategy Study, Brazil accounts for about 30 per cent of the Latin American AV market, which is estimated to grow to roughly $6 billion in 2016, up from $3.8 billion on 2012. InfoComm estimates that the market has been growing at around 13 per cent – faster than in many other parts of the world.
Now, says InfoComm’s Rodrigo Casassus Coke, CTS, senior director of development for Latin America, Brazil’s economic crisis has led to a freezing or downsizing of projects, especially in the integration and event markets.
Not all is gloomy, though, if only because, as BroadSign’s director of marketing and business development, Stephanie Gutnik puts it, Brazilians are a resiliant and positive people. Not for nothing is this the home of carnival.
“Even though the prospects are not fantastic, we believe in a couple years time it may be back to normal,” she predicts.
The longer term prognosis may actually indicate growth. “Brazil’s is actually a great economy. The current economic situation is mainly due to political mismanagement,” says InfoComm’s Coke. “Companies and entrepreneurs will be eager to invest once the situation has been resolved, which some say could happen within the next 24 months.”
So what should AV firms be preparing for today? According to Coke the Brazilian AV market is sometimes characterised by the idea that less planning goes into projects than in other countries. “Especially in the rental and staging area, there’s a certain degree of informality to the business,” he says. “Brazil shares with the rest of the Latin American AV market the fact that AV buyers do not usually consider AV a major purchase and tend to cut costs due to a lack of understanding about AV technology.”
Low-cost preferred
Pricing is the number one purchase decision criterion for pro-AV in Brazil. Low-cost solutions are preferred and Chinese pro-AV products are readily available. According to InfoComm specific products or brands are not a major consideration in the overall solution.
“The market is very sensitive to price,” confirms NEC’s de Siqueira. “The market wants displays and related solutions but you must match their expenditure capacity besides showing clearly the value for their money.”
Margins are squeezed further by notoriously high import taxes which are levvied for some products at 70 per cent on top of cost, insurance and freight. “If an international AV company is looking to do business here they have to deal with very strict import laws epecially when dealing in hardware,” says Gutnik.
For Ulmer, importation is a science. “You need financial and logistical skills,” he says. “It takes at least 30 days to get a product into the country and it will cost double by the time you’ve done so. If you have to send a faulty product back outside the country and you want to re-import it, this will take 60 days, so it’s advisable to keep spares and products here in case of any damage.”
Absolut Technologies, a visualisation and high tech collaborative environment specialist and member of the Global Presence Alliance, has had many years experience of this and says it can typically get product imported in 15 days. “We have an office in Miami where we consolidate all the hardware and ship once a week to Salvador or whereever we need it. It is very hard for anyone not familiar with how Brazilian laws and beaucracy work to establish a business here. But once they do there is an appeite for AV innovation.”
The number of variations of invoices required for one job can be up to 450, says Ulmer. “You need invoices depending on the type of company you are selling to, a national invoice and others for a particular state (Brazil has 27 states). Instead of presenting it on Excel or Word you have to use official online government systems and they will immediately start charging taxes as soon as they receive it, so you’d better make sure your accountancy and planning is right.”
For this reason Fonseca reports that the biggest problem in Brazil is after-sales support: “Because of the difficulties with legislation and shipping of equipment for repair out of the country, it is close to fundamental to have local customer support.”
Nonetheless, Brazil is a vast country with 300 cities and 5,550 municipalities. São Paulo is the country’s financial centre replete with stock exchange (BOVESPA) and the HQs of the biggest banks. Google launched its latest digital entrepreneurship campus there in February, the first start-up community in South America. The state capitals, such as Brasília, Belo Horizonte, Recife, Florianópolis, Curitiba, and Porto Alegre “each has its own distinct market, large enough to sustain growing local companies in every segment of our industry,” says Coke.
In de Siqueira’s opinion the greatest beneficiary of the current crisis are the touristic cities (Rio, Salvador, Florianopolis, Gramado, Búzios). “The exchange rate helps attract tourists, and also helps domestic tourism because the Brazilian currency versus foreign exchange in general does not favour Brazilians to travel outside the country.”
Partner locally first
Local contacts suggest that AV firms wishing to enter the market should start by partnering with a Brazil company (probably in São Paulo). Once established, AV firms are in a better position to look for partners with firms in other regions.
“In a continent where the language is predominantly Spanish, having an ability to converse in Portuguese is advantageous,” says Fonseca. “If, on one hand, this hinders integration, on the other hand it represents an enormous market for the production of national content and will favour those companies who hire local people.”
There is a shortage of skilled pro-AV experts in Brazil, something that the TecnoMultimedia InfoComm Brazil, in its second year, is intended to address. The skills shortage represents an opportunity for multinationals willing to invest in local labour development, training and education. “Manufacturers and SIs who have successfully expanded into the region know that this is what it takes,” says InfoComm.
“Quite often we have to find solutions within a short time-frame, so I would define our section of the market as more innovative,” says KJPL’s Lindquist who was involved in outfitting the Museum of the Portuguese Language in São Paulo and the Imperial Museum in Petropolis. “We have been involved extensively in the fixed installation market, such as museums, where the focus is always on finding a good solution, and not necessarily the latest technology.”
Culturally, there is a “curious constrast” between the willingness of Brazilians to be perceived as innovative people in almost everything they do, “and the conservative business decisions that most business people make, especially regarding investment on technological equipment,” finds Osvaldo Toshimitsu, Daktronics’ regional manager.
Ulmer agrees that Brazilian AV “tends to copy everything from US or Europe” adding: “In technology terms we are one to two years behind. For example, everyone in Europe is talking about Microsoft Surface but Microsoft won’t release it here for another year. Brazilian AV companies are adopters of technology.”
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