Currently, there is a very positive scenario for the international e-commerce sector in Brazil today: more than 50 million items were ordered in the first half of 2017 alone, with sales totaling R$21 billion of which 48.2% were paid in full, up front. The same dataset shows that at least 25.5 million e-consumers made one or more online purchases in the same period.
Every indicator in this market is showing fast growth. The only detractor was regarding e-commerce prices, which fell 5.38% over the last 12 months, and this was actually a favorable factor for the market.
Falling prices – basically seen in e-commerce alone – eventually boosted e-consumer volume to post 10.3% growth against the first half of 2016.
And it’s not just the domestic market that is reporting positive numbers. At least 54% of e-consumers surveyed say they have already made at least 1 international purchase via direct importing. As a result, we are keeping a close watch on the growth of cross-border consumption.
Cross-Border Trading and the Brazilian Market
The Brazilian market is so large and its numbers are so attractive that it is hard to imagine that suppliers worldwide are not keeping an eye on developments here. But they have to tackle one major issue: Brazil has an extremely complex tax system. More than a few companies have attempted to set up operations here only to succumb to the difficulties arising from taxation and bureaucratic red tape.
Many people wonder how websites such as AliExpress are able to sell merchandise in Brazil and even accept payment by installment. It is often assumed that these websites are involved with gray-area trading or smuggling, however, we must remember that Brazil’s Simplified Tax Regime (locally known as RTS) allows consumers to directly import items worth up to US$50, free of tax.
Over that amount, so long as taxes are duly collected, individual consumers may import goods worth up to U$3,000 without having to use “Radar” (an obligatory item for commercial importers). Based on the fact that the average Brazilian e-commerce ticket came out to R$418.00 in the first half of 2017, this U$3,000 ceiling is more than reasonable to ensure feasibility for cross-border e-commerce.
The current situation is that many online stores would like to sell to Brazilian customers but few of them know how to do so directly from their own country without setting up a legal and physical structure here in Brazil. Breaking through borders is one of the Internet’s core features, so we expect this to affect every related sphere, especially in regards to e-commerce.
Websites such as Mercado Livre have already seen an increasing number of cross-border traders entering the Brazilian market. They can sell to Brazilian consumers as long as the items ticketed are less than U$50 by passing their orders on to a supplier in China who will then ship them directly to consumers.
Currently, in Brazil, there are several payment intermediaries who enable foreign companies to sell goods to Brazilian consumers, including arrangements for payment by installment, and then collect the money from these intermediaries in their countries of origin.
One example of this is Brazilborder, a Miami-based organization that provides a type of full-commerce arrangement for companies from all over the world to enable them to sell directly to Brazilian consumers, without the need for a commerce structure of their own in Brazil, all while offering delivery within 12 days.
Acting as a bridge connecting manufacturers to consumers, their operation includes a Portuguese-language website, along with customer service contacts in Brazil to run the entire process of collecting the appropriate taxes and shipping the product.
Points to Watch for Cross-Border Trading in Brazil
Obviously, an operation of this variety has serious consequences for the local market, and this creates concern for Brazilian companies threatened by trading of this variety. However, this post is not meant to focus on this issue, but rather to show how an operation of this scope is both feasible and legally compliant.
For an example of cross-border advantages for businesses and consumers, let’s look at the purchase of a BB8 (the mini-robot from Star Wars). Big toy stores advertise Sphero’s Star Wars VII-BB8 mini-cell robot at R$1,999.00, taxes included, plus the attached wrist model. The same product directly imported using a cross-border strategy would reach a Brazilian consumer for R$1,100.00, taxes included.
A Brazilian store could apply a 40% markup on its costs, sell this product for R$1,540.00 taxes included, meeting all legal requirements, and still undercut local traders in general.
If consumers can tap into this advantage, so can Brazilian retailers – some are already doing so on the Mercado Livre trading website, thus earning revenues from 100% legal cross-border trade.
There is no way of predicting whether this is good or bad news for Brazilian businesses, but the trend toward cross-border trading and direct importing by consumers is hardly likely to weaken or go away. Those who are better prepared and attuned to this type of e-commerce will certainly get more benefits down the road, so start thinking ahead to take advantage of the opportunities ahead with cross-border selling.