I am back from Brazil and after spending a week there and attending the ABRIN toy show. I can see why Brazil should be of interest to any toy company thinking of expanding its foreign markets. As I wrote in an earlier posting: “The Carlyle Group, one of the world’s biggest private equity investment firms, has taken an 85% stake Ri Happy, the largest toy chain in Brazil. Their reason: Because they see they Brazilian toy industry as having major growth potential.
I understand why the Carlyle Group thinks so. Brazil now has the 7th biggest economy in the world; the fifth largest population and a high birthrate. That is the perfect template for a great toy market.
Entering the Brazilian toy market is, however, not so easy. Why, because it functions differently than many other markets.
David Diesendruck, the owner of Redibra which is a major licensing agency in Brazil, was kind enough to educate me on the Brazilian market. He told me that Brazil is different than the many other countries when it comes to cable television and movie theatres. In the US and much of the rest of the world, we have become accustomed to tying in with children’s movies and popular cable television shows. That’s because cable is almost universal and movies demand huge audiences.
Not, however, in Brazil. Only 15% of the Brazilian population is wired for cable. And then there is
the movies, Brazil has only 3,000 theatres (there are 30,000 screens in the US (according to the National Association of Theatre Owners). Bottom line, whether it’s one of the Toy Story movies or a show from the Disney Channel, there is just not enough awareness for a Brazilian toy manufacturer to take on a movie or cable related license.
Don’t look to traditional television networks either. It seems that of the two major networks; one does not carry children’s programming and the other one has a major rleationship with Time Warner and only handles that company’s properties.
There are, however, some home-grown licenses that are very popular. “Galinha Pintadinha” (The Blue Chicken) to name just one. Upwards of 300 million people have seen the Youtube videos. Bottom line, anyone coming in may want to take a hard look at the Brazilian intellectual property that is available and see how it fits with their products.
Government plays a big part in Brazilian life. Many of those I spoke with talked of heavy taxes and regulations. They also spoke of the high tariffs on goods not made in Brazil. It’s not just government at the federal level. It seems that the tax burdens vary by state and there are 26 of them. ABRINQ, the Brazilian toy association, can be a big help in following the rules and understanding compliance.
The only companies allowed to show at the ABRIN toy fair are those that are corporate citizens. That means that if a company is not, they either don’t show or do so through a Brazilian distributor. Distributors are important in Brazil, as foreign companies depend upon them for their intimate knowledge of the markets, the regulations, the costs and the customers.
Things simply cost more in Brazil and toys are no exception. Non-value added costs like taxes and tariffs combined with the additional layers of distribution mean that higher priced toys can be out of reach for many consumers.
What can you do?
When I talked about how confusing it all seemed; those with whom I spoke said that they, as Brazilians, found it pretty confusing as well. As a result, it seems that the wisest course of action is:
- Contact ABRINQ, the Brazilian toy association. They are very connected with the toy sector and can provide a great deal of information and guidance.
- Hook up with a distributor. At this point, it’s just too complicated for a western company to go it alone.
- Consider outsourcing some production to Brazil for sale in the domestic market.
- Look into incorporating in Brazil. It will make you a part of the Brazilian toy community and will get you a spot at the show.
Breaking in will be a challenge but in a few years it may be one that you are glad you took on. Let us know if you are active in Brazil or thinking about getting in.