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Entry and growth strategies in Brazilian construction equipment market

2011

Roland Berger experts are supporting construction equipment manufacturers wishing to do business in Brazil – "the world's biggest building site", as Brazil's former president Luiz Inácio Lula da Silva put it in 2009. At the time, the country's government passed an extremely wide-ranging infrastructure improvement program worth some EUR 2.8 trillion to give Brazil's long-neglected infrastructure a boost. The program covers close to 900 projects in the fields of construction, infrastructure, and energy.

A new market entry study written by our experts from London, Sao Paulo and Munich now highlights the growth potential and market conditions in Brazil. With an estimated 15% growth per annum for the years 2010-2014, the country takes second place behind Asia in terms of growth forecasts.

The strong market dynamics in the country currently offer an attractive window of opportunity for foreign equipment manufacturers to enter the country and expand. Recent market entries, especially of Chinese players (XCMG, Sany, Liugong) have increased competition, but the Chinese are not yet strong enough to compete with the big players. Also, Brazil is heavily used as a hub for exports to other Latin American countries.

Another plus is Brazil's public financial credit support scheme FINAME, which offers attractive financing conditions provided that the company applying for financing relies on local sourcing for the most part. However, there are factors that tend to complicate business in Brazil: The country is a protectionist market with many customs and import restrictions, and its tax legislation is complex. Also, companies wishing to operate there will face strong regional differences in labor skills and huge distances to bridge.

Overall, the new study addresses eight major strategic aspects foreign construction equipment manufacturers need to consider in developing a growth strategy for Brazil: incentives and barriers, taxes, labor costs/quality, logistics, sourcing strategies, distribution channels, rental business and export strategies.

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