That’s what FT’s Joe Leahy has recently written in his column, illustrating the outrageous costs of everything in Brazil: shining your shoes in NY costs US$5 while in Sao Paulo costs US$6 (equivalent to BR$10).
But what’s the impact of the “Custo Brazil” for corporations? According to the article, this is the conundrum businesses face:
“Brazil is a high-growth market in terms of opportunities for revenue expansion but it is on average a low-margin market in terms of profitability, particularly for companies in the start-up phase. The new chief executive will quickly realize that his or her success or failure in Brazil will depend on managing the expectations of the company’s overseas bosses. The trick is to persuade them to invest in the country’s growth while also counselling patience when they demand to know why margin growth is not, at least initially, matching that of other emerging markets.”
Here is what an unnamed international officer has said:
“I know that Brazil is key to our long-term growth strategy, but my biggest challenge is that for every additional percentage point of growth that we see from Brazil, our overall regional profitability declines.”
It is estimated that the average net margin in Latin America is 10.5 per cent, or nearly a third of gross margins. In Brazil, net margins are 5.4 per cent, or nearly one-seventh of gross margin. Hence, it is a safe bet that “even though the São Paulo shoe shiner is earning more per shine, the cost of his brushes and polishing creams are a lot higher than for his brother in New York.“