Benefits of locating in Brazil Brazil presents one of the prime opportunities for the potential investor: The current

t population of approximately 190 million (according to the data published by U K Trade & Investment in Brazil: Land of Opportunity 2008). Rural urban migration and the spread of modern agricultural methods are bringing an increasing p roportion of the population into the market for manufactured goods. The Brazilian public is highly receptive to foreign brand names, which can demand a premi um price over competing domestic products. Has a democratic government. Has the largest healthcare market in Latin America. Has environmental industries that are valued at US$ 5 Billion. Has a modern telecommunications and banking system. Is the worlds 10th biggest economy. Is one of the socalled BRIC markets. razil is 35 times the size of the UK and is the worlds 5th largest country. As far as the a ctual establishment of an operation in Brazil is concerned, the potential foreign investor wil l have no difficulty in obtaining skilled professional assistance in preliminary stages, and w ill find that due to the large industrial base few problems are encountered in locating a joint venture partner or a suitable manufacturing facility. Investors may seek assistance in the following areas: To determine whether a market exists for a par To determine whether a market exists for a particular product, there are several competent c onsulting firms with wide experience in market research. Several of these consulting firms are associated with the major multinational consulting companies. Similarly, plant location studies and industrial design services may be undertaken, and ther e is an adequate supply of competent engineering expertise. Assistance is available for locating possible jointventure and equity participation partner s. Labour in Brazil is plentiful and there is a good supply of skilled and disciplined productio n workers in the principal industrial centres. Skilled local management is readily available and at a cost well below that of the expatriate executive. Raw materials and energy supply are easily obtainable, without interruption. The marketing and promotion industry is well developed and media advertising is used extensively. The potential foreign investor is, of course, interested in the longterm prospects. In this r espect, the most important feature of Brazil is that it is a truly developing country. A few of the factors that should ensure an expanding market for manufactured goods and for services are the following: Population growth and demographic factors, as previously described. A flourishing, exportoriented agricultural base, with a huge potential for expansion of la nd under cultivation and the improvement of crop yields by the increased use of irrigation a nd fertilizers. The existence of vast, untapped mineral wealth and massive investment projects currently i

n progress to exploit those resources. The development of energy source alternatives to imported oil, including harnessing hydro electric power and expanding the use of ethanol and gas. The growth of an urban working class with expanded disposable income. Overall, the best advice for potential investors in Brazil is to look to the past experience an d future plans of foreign companies that already operate here. From the smaller foreign co mpany that has found a niche for its particular product line or technological expertise to the major multinational corporation whose Brazilian operation is among the largest of its intern ational subsidiaries, the general message will be clear: Brazil is an option that is hard to ove rlook for the longterm investor. Structuring the business Foreign investors may enter the Brazilian market directly - through a branch or a subsidiary - or through third parties by means of distribution and sales representation activities. Distri bution and sales representation are, in most cases, cost saving when compared to the incorp oration of a local branch or subsidiary. However, these alternatives may bring lack of contr ol to the foreign investors over the way the third parties distribute or sell their products in B razil and deal with their trademarks. Both distribution and sales representation activities m ust be ruled by written agreements to be entered into between the foreign investors and the local third parties. Before entering into such agreements, it is recommended that the foreign investors register their trademarks with the Federal Intellectual Agency (INPI). Branches As mentioned above, foreign investors may enter the Brazilian market directly, through a b ranch or a subsidiary. Although some multinational corporations originally set up their Bra zilian operations through a branch (especially commercial aviation businesses), the most co mmonly used entity is the Limitada as a controlled subsidiary. In order to set up a branch in Brazil, foreign parent companies must first apply to the Feder al Department of Trade Boards. The President can, by decree, give the governments appro val for incorporation. The company must support its application by sending amongst other information: evidence of its regular incorporation in its country of origin; the companys articles of association or bylaws; list of the members of all administrative bodies; the company act which approves the opening of a branch in Brazil; the company act which defines the share capital in Brazilian currency, the parent company assigns to Brazilian operations, unless the parent company is not a business company; proof that the company has appointed a representative in Brazil with express powers to acc ept the conditions required for the authorization; and the last financial statements. Taxation Contrary to the international mainstream, Brazilian tax law does not contain the permanent establishment concept and does not provide clear guidance regarding the potential tax impa cts of having foreign entities carrying out business in Brazil. There is also a lack of guidan ce from the tax authorities and we are aware of only a few administrative precedents (tax as

sessments) on the matter. Maybe because in certain cases, the tax burden on nonresidents income is even higher than the eventual residents taxation that a permanent establishment characterization would generate. For instance, while residents corporate profits are taxed a t a combined 34% rate, gross nonresident service fees are taxed in general at 25% (withhol ding income tax and CIDE, if applicable). Also, the NBCC (new Brazilian civil code) prohi bits foreign entities to operate in Brazil without authorization. In principle, authorization is granted by means Investment in Brazil of the set up of a branch, which is taxable in Brazil i n the same manner of a Brazilian legal entity. Nevertheless, the followi Tax treaties Brazil has signed double taxation treaties with various countries. The main method of tax re lief under the treaties is the foreign tax credit. The existing treaties offer very limited oppor tunities to reduce or eliminate withholding taxes on payments abroad. Additionally, tax spa ring clauses are also found in most treaties in force. Brazil has double taxation treaties wit h the following countries: Argentina, Austria, Belgium, Canada, Chile, China, South Korea , Denmark, Ecuador, Spain, the Philippines, Finland, France, the Netherlands, Hungary, Ind ia, Israel, Italy, Japan, Luxembourg, Norway, Portugal, Paraguay, the Czech Republic, Slov akia, Sweden and Ukraine. Competing with low cost competition To successfully compete with low cost competition, the European furniture industry has focused on developing competitive advantages: 3 exible production that allows customized products high quality speci cations and advanced technology superior design development of other than price based values (branding, buying experience) integration of pre- and after-sales services quick distribution with minimal stock holding. The cost pressure on furniture manufacturing in Western Europe is high, and the price of wood is a critical factor. Companies look to Eastern Europe for lower-priced wood raw materials. A second strategy to reduce cost is outsourcing the production of semi- nished and nished furniture components

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Venturing into the furniture industry of Brazil Brazil (known officially the Federative Republic of Brazil) is the largest country in South America and the only country with a Portuguese-speaking population in the Americas. It is the world's fifth largest country measuring in a geographical area of more than 8.5 million kilometers square with a population of approximately 192 million.

With such vast resources, the country has ample room for diversity and development in the various industries and sectors including the furniture industry. The Brazilian furniture industry currently comprises more than 16,398 small, medium and large domestic capital companies (in its majority) that have generated more than 208,584 jobs. The central-south zone of the country is said to be the epicentre of the countrys furniture industry. The Brazilian furniture industry has traditionally been known to be self-sufficient. As such, seeking out opportunities for market penetration has constantly been an uphill task faced by many furniture retailers and manufacturers from Asia and Europe. However with the city of Rio de Janeiro due to host upcoming events like the 2014 FIFA World Cup and the 2016 Olympics, prospects for the furniture industry are looking bright with industry insiders predicting demand in the hospitality sector for more hotel developments and refurbishment of existing hotels will skyrocket. This potential development has already sparked a growth of excitement in many eager retailers and manufacturers around the world, with many of them looking to this as a golden opportunity for them to share a piece of the pie. To top it off, the retail and furniture consumption in Brazil is expected to boom over the next few years. The furniture and furnishings sales in Brazil has grown by 5% in 2009 to reach over R$18 billion (U$ 555,435,224.08). After the financial crisis, sales recovered rapidly due to the easily available credit terms given to the consumers. Retailers are optimistic that 2010 sales will post a CAGR of almost 5% in constant value terms.

Stats figure Brazil furniture consumption

The Brazilian Furniture Trade stats

SFIC supported by IE Singapores IMAP Scheme and Overseas Centre, seeks business partnerships in Brazil Tapping into the great mass of potential in the Brazil market, SFIC together with IE Singapore and SPRING Singapore led a group of 20 delegates from 10 companies in March to further develop business opportunities in Brazil. The trip was also aimed at picking up on the progress made during its last exploratory mission organised in conjunction with the inaugural Abimovel show in August 2009. The objectives of the mission were to allow Singapore furniture companies to establish links and build up relationship with key Brazilian furniture stakeholders with the purpose of forging further collaboration and partnership, as well as extending invitations to participate in the next IFFS/AFS. It was also a good opportunity for the Singapore furniture companies to leverage on their capabilities to meet or supplement the needs of the Brazilian market, as well as reaffirm Singapore companies position as the preferred sourcing partner/supplier via their multiple manufacturing locations. Throughout the eight day program, the delegates met up with industry insiders ranging from trade fair organizers, associations, manufacturers, and retailers to hotel group agents. The networking opportunity greatly benefited delegates with some receiving and/or working out collaborations with local Brazilian firms.

Movelsul Brazil is the biggest furniture tradeshow in the Latin American region

Italinear and Todeschini deal with imported good quality components from overseas markets.

Said Mr George Chew, one of the missions delegates, Chief Executive Officer of Sitra Holdings (International) Limited, I personally felt this mission trip to Brazil was an eye-opening introduction to the Brazilian furniture industry. During one of our visits, I was very impressed by the creative concepts and designs of some of the Brazilian companies. It is also quite an experience to witness how some of the companies are able to display a wide range of products choices. This is something which our Singapore furniture companies should look into and explore in the near future." The risks & considerations in the business prospects of Brazil While there is no doubt that Brazil will attract a huge swarm of business seekers around the world, but like all great business opportunities, investing in the country also carries some risks and considerations. Brazil holds one of the highest amounts of bureaucracy required in any South American market in terms of company set-up. The time taken by a company operating in Brazil to prepare, file, pay or withhold its tax obligations was 2,600 hours according to the World Bank's Doing Business 2010 report. This is by far the highest in the world and around 13.0 times as high as the OECD average. Additionally, Brazil has one of the highest corporate tax rates in Latin America, at 34.0% in 2010. This has made operating costs substantially high, which may directly affect the profit margins of many businessmen who wish to venture in Brazil. Another factor to consider is how the country perceives foreign imports. Most Brazilians dont have much exposure to foreign products, thus many of them are not receptive to materials such as new wood species. Brazilian wood species such as Pine and Eucalyptus are preferred Therefore, if tropical wood furniture is supplied to the market, there is a need to educate the Brazilian consumers about the strengths and qualities of Asian tropical wood before the products will be well-received in the market. Finally, Brazilian manufacturers understanding of Asian Furniture industry is limited to mainly China and many are not familiar with Vietnam, Indonesia and Singapores capabilities and superior offerings. As a result, Singapore companies are often mistakenly associated with China, which is perceived as production ground for low quality and cheap furniture. Due to this lack of awareness, Brazilian companies are hesitant to work with Singapore companies. It will take time, patience and cultivation for individual companies to establish partnerships and trust with their Brazilian counterparts in order to get a break from such misconceptions.

Nevertheless, the future of Brazils furniture industry is bright. Moving forward, Singapore furniture players who have plans to penetrate into Brazil can look to working with translator s or local agents to overcome the language barrier. SFIC will also continue to collaborate closely with IE Singapore to educate the Brazilian companies about Singapore and Singapore furniture manufacturers capabilities to reduce fear and encourage partnership.