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Qzone

Reaching new heights of success in Brazil’s electronics market

Brazil’s continued prosperity and optimism provide excellent opportunities for electronics firms in a highly competitive environment. How Hong Kong companies and exporters can better serve the country’s sustained quest for quality products thus becomes a very spellbinding question! Given the sheer share of electronics to Hong Kong’s exports, reaching new heights of success in Brazil’s electronics market is of particular importance.

Sustained quest for quality imports

Despite the presence of a broad-based industrial sector, the country’s quest for better prices, greater variety and superior design has engendered a strong demand for a wide range of manufactured products. This is one of the reasons underlying the accelerated growth of imports (42% in 2010) rather than exports (32% last year).

As if to underline that fact, Brazil’s imports of consumer goods, accounting for 17% of the total figure, grew by 46% last year, outperforming the growth of 42% of the country’s overall imports.

Dominating the export roster, Hong Kong electronics, including both finished goods and parts and components, look set to have the strongest foothold in the Brazilian market, followed by watches and clocks.

The country is host to successive major sporting events – football’s World Cup in 2014 and the Rio de Janeiro 2016 Summer Olympics, so its sizeable young population (comprising almost one-third of the population under the age of 20), ensures that electronics products will definitely become increasingly sought after in the run up to those events.

How has Hong Kong been performing?

Indicative of the economic and consumption boom in Latin America’s largest economy, Hong Kong’s exports to Brazil came back and surpassed its pre-crisis level in 2010, after a staggering decline of 29% in the recession year of 2009.

Recording a growth rate of 41% in 2010, far higher than Hong Kong’s overall export growth of 23% over the year, Brazil has shown Hong Kong companies and exporters once again its sustained quest for quality products.

Hong Kong’s exports of selected products to Brazil

(US$ million)

2008

2009

2010

Value

% Growth

Value

%Growth

Value

% Growth

% Share

Total exports

1,645

+23.6

1,172

-28.7

1,657

+41.3

-

Electronics^

1,169

+25.3

764

-34.6

1,118

+46.3

67.5

Watches and clocks

73

+43.1

60

-18.1

116

+92.4

7.0

Gifts and premiums*

133

+16.5

103

-23.2

113

+10.6

6.8

Toys and games

85

+17.6

72

-15.3

79

+9.0

4.8

Clothing

21

+41.4

18

-15.4

26

+44.0

1.

^ Includes finished electronic products and parts and components of electronic products
* Includes items covered in other categories
Source: Census and Statistics Department, HKSAR Government

Importance of parts

Accounting for more than two-thirds of Hong Kong’s total exports to Brazil, electronics – including consumer electronics and various parts and components – comprise the most important sector for Hong Kong companies. But they have to fight for success, with more demanding Brazilian consumers and tougher product safety requirements.

Being one of the founding members of Southern Cone Common Market (Mercosur) and a major supplier of consumer electronics in Latin America, Brazil’s sizeable domestic market and preferential access to Mercosur countries – Argentina, Paraguay and Uruguay – have boosted the well-established production base, clustered mainly in the state of São Paulo and the Manaus Free Trade Zone.

Many internationally recognised electronics companies such as Motorola, Sony, Samsung, LG and Huawei have established manufacturing facilities in Brazil. This trend is coupled with the government’s policy to increase digitalisation and has been the driver for the growth of Brazil’s imports of telecommunications products and computers over recent years, also giving rise to strong demand for related parts and components.

In 2010, Brazil’s imports of electrical and electronics products totalled US$35 billion, up 40% from US$25 billion in the recession year of 2009. With the country’s rosy economic prospects and growing spending, it is forecast that imports of electrical and electronics products will increase by a further 18% to more than US$41 billion in 2011.

Major imports of electrical and electronic products by broad category

Brazil

Source: ABINEE (Brazilian Electrical and Electronics Industry Association)

Also worthy of note is the ever-growing interest in sourcing from China. Thanks to the wide variety of goods and competitive prices, China has become Brazil’s biggest import source for electrical and electronics products. It captured a market share of 35% in 2010, surpassing the combined total of the EU (17%) and US (11%).

Major sources of imports of electrical and electronic products

Brazil

Source: ABINEE

Given Brazil’s high import taxes on finished electronics products, more than half of its imports of electrical and electronic products are components. Basically, manufacturers import electronics parts and assemble them into finished products in local factories. These products will then be considered “made in Brazil”. Given the tax exemption to consumption and manufacturing, the most important electronics production base in Brazil is said to be the Manaus Free Trade Zone.

Major imports of electrical and electronic products by items (US$ million)

Brazil

Source: ABINEE

Against this background, Hong Kong companies can make more exploratory moves in the market for electronics parts and components, including motherboards, storage devices, video and sound cards, hard drives and power supplies for computers, and handsets, housings, face plates and cords for telecommunications equipment.

Computers for all Brazilians

The relatively low ownership levels of electrical and electronics goods, except for colour TV sets and refrigerators, are indicative of opportunities for Hong Kong exports. With the benchmark interest rates, Selic[1], being kept at a low level, the demand for durable electronic and electrical goods has become even more robust in recent years.

The government’s fiscal incentive is considered an important factor underpinning the sales growth of durable electronic and electrical goods.

The programme “Computers for All”, created in 2005, has particularly helped bolster computer sales and household penetration in the country to 14 million units or 35% in 2010, up from 5.6 million or 19% in 2005. Other programmes such as the implementation of new Telecenters, “One Computer per Student” and “Broadband at Schools” have greatly improved the country’s Internet connectivity.

The renewal of the “Computers for All” scheme in 2009, including a continuation of tax benefits and BNDES (Brazilian Development Bank) loans for retailers to accumulate stocks of computers to speed up the purchasing process, is expected to keep the growing trend of computer penetration going beyond 2011.

Brazil

Shopping for computers and telecom equipment has become a hugely popular pastime in Brazil, where digital inclusion is a key policy priority.

According to ABINEE, the market for computers grew 17% to 14 million units in 2010, compared with 12 million units in 2009. Some 6.9 million of these were desktop computers (as in 2009), but 7.2 million were notebooks and netbooks (a 39% y-o-y increase). As of 2009, 35% of Brazilian homes had computer access, compared to only 15% in 2003.

With the rapid growth of the computer market, Brazil has become one of the world’s most promising markets for personal computers (PCs), attracting computer giants such as Lenovo to accelerate their expansion in the country and consider acquisition of local manufacturers such as Positivo Informática, Brazil's largest PC maker.

Depth in the appliances market

Ownership of electronics and electrical appliances

Brazil

Source: Euromonitor, IBGE

For other finished electronics products such as household appliances, the situation may look tougher, given high import duties and anti-dumping charges. However, Hong Kong companies interested in the market of household appliances in Brazil, the second largest category among the country’s total electronics and electrical imports, can take another approach to the market.

They can consider partnering with local Brazilian manufacturers or importers to trade in semi knock-down (SKD) or complete knock-down (CKD) products. Although this may be rather minor help in terms of the assessment of import duties (II), Hong Kong companies, can thus circumvent the anti-dumping duties that Brazil has imposed on China-origin electrical appliances, including electric smoothing irons (US$4.82 per unit) and table electric fans (45.24% on CIF value).

 


[1] Selic, the Banco Central do Brasil's overnight lending rate, was 12% in May 2011, far below the recent peak of 26.5% in 2003.

Content provided by Hong Kong Trade Development Council
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