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Executive Summary

BACKGROUND Brazil is one of the developing economies of the world. With a GDP of $2.253 trillion (as per World Bank data) and a population of 198.7 million (World Bank data), the World Bank classifies it as country belonging to the upper income level group. Currently as per the World Bank data the GDP per capital (current US $) for Brazil is $11339.5.The increase in per capita income is spectacular when we compare it to the GDP per capita in the year 2000 of $3694.4(current US $). This increased income levels has also left with the Brazilian population a higher disposable income. Coupled with high number of people with internet access, makes Brazil a good prospect for Ecommerce. As per World Bank data almost 50 people out of 100 have access to the internet. Having access to internet is something different and actually spending time on the internet is different. Even on this parameter Brazil scores well. On an average a person spends 26.7 hours per month online. The world average is merely 16 hours. Compared to U.S.A which is not only a developed country and ranks as the number 1 country with e-commerce opportunity, it is just 5.3 hours short. Brazil ranks as the 7th country with highest online population ahead of China (8th) and India. So Brazil is a country with a burgeoning middle class population and they have internet access. What ranks most important after these two are credible payment systems for online payment. Credit cards and debit cards transactions have become popular replacing the Boletos (A Boleto is a ticket like payment method. People can print them from the websites and there is a bar code printed on the boleto.The customer can use the same to perform a transaction at the nearest bank and upon confirmation the online retailer started shipping the goods).Between 2004 and 2007 the number of credit cards doubled. The infrastructure in terms of web design and anti fraud mechanisms is improving. Finally come logistics. Logistics are important in the sense that the goods ordered have to be sent to the consumers address and if the logistics cost are high then the online players cannot keep a healthy margin or cannot provide free shipping of the goods. In Brazil the logistics costs are very high. As per one World Bank study, the logistics cost account for 15.4% of the Brazilian GDP. Lack of paved roads adds to the problem. Also no truly national third party logistics exists and there are shortages during peak seasons. So logistics require improvement.

E-Commerce Present Scenario Brazilian e-consumers amount to 42 million in 2012. Southeast Brazil (Brazils richest region) accounts for more than 58% of the total e-commerce but the North-East Brazil is driving consumption. Right now as northeast contributes only 7% of the total e-commerce but the market is growing as much as 8 percent as fast as southeast. Traditionally buyers touch and feel a product before purchasing the product but in E-commerce this cannot be done. E-commerce requires building trust and poor servicing act as a dampener. In Brazil 30% of the internet users follow retailers online. Brazilians are one of the most active members on social networking sites like Facebook. In Brazil companies like Magazine Luiza one of the largest online and Offline Retailers are leveraging F-commerce. (Doing business via social network sites like Facebook)

As per Euromonitor, the online retail break up is as follows:


Electronic Appliances Apparel 23% Media Toys and Games Food and Drink 1% 4% 2% 3% 10% 6% Home Improvement and Home care Other 50% Furniture and Homeware Beauty and Personal Care

(Source: EuroMonitor; other includes consumer health care products, tobacco products, pet products, sports equipments, watches, sun glasses) The absence of worldwide major e-commerce players is an issue. EBay only operates Paypal payment services in Brazil. Amazon has restricted itself to the online book store operations only. Although E-Bay has an 18% stake in MercadoLibre, the largest online player in Brazil. Once the big boys enter Brazil a lot can be hoped for. In E-commerce, one gets to reap profit slowly later and for that the organization should have deep pockets. Currently the top online players include submarino.com.br, netshoes.com and dafiti.com.br.

The Way Forward


Brazil is going to host FIFA World Cup 2014 and Olympics 2016.Without a doubt two of the biggest sports events in the world. In the preparation for these big events there would be a lot of investment and improvement in infrastructure. Investments especially into construction of roads and stadiums would create jobs. Although the visiting tourists would not be have a significant impact on e-commerce retail but online travel bookings and hotels would surely peak. From the above pie-chart we can see that apparels form an important product already and this is surely going to increase. With the sporting events around, fans would definitely like to wear their favourite sports players jerseys and buy other sports equipments. In totality with the number of Smartphone users increasing, it would have a positive impact and also m-commerce would rise. With features like AIRTEL Money which has already been introduced in India, similar offerings in Brazil would add to new payment features making online buying more convenient and easy.

Facts (Based on research)


#Fact-1: By 2015 mobile penetration is expected to reach 85%. #Fact-2: Internet Penetration is not exclusive to the elite class and more than 50 percent of the population have access to the internet. #Fact-3: 87% of the internet users belong to any one of the social networking sites compared to the global average of 70%. #Fact-4: Brazil has one of the highest penetrations of Twitter. #Fact-5: About 30% of Brazils internet users follow retailers socially compared to the 12% in Britain. Companies like Magazine Luiza one of the largest online and Offline Retailers are leveraging Fcommerce. (Doing business via social network sites like Facebook) #Fact-6: Required Ecosystem for e-commerce is developing from web designs to anti fraud mechanisms. Credit card payment systems are replacing boletos. #Fact-7: Cultural issues at work. People want to touch and feel the product before buying.But poor service is also taking its toll. #Fact-8: Brazil traditional retailers account for most of the e-commerce market but online players are growing. Top three players are present online only: submarino.com.br, netshoes.com, dafiti.com.br. #Fact-9: Tax system is extremely complicated and costly. Brazilians are used to paying in instalments and that means retailers have to finance many purchases. (McKinsey Report: Brazil Briefing: Where is the E-Commerce market going ? ) #Fact-10: 2011: Total Revenue from E-commerce: $11 Billion - 2010: 8.6 Billion. Nominal Growth of 26%. #Fact-11: 32 million or 41% of the online population have bought at least some product online. #Fact-12: Number of hours the average Brazilian spends surfing the web has also increased to an average of 26.7 hours per month. #Fact-13: Main sectors which attracted Brazilian e-commerce in 2011 were those of electronic appliances (15 percent of total sales), computers (12 %), electronics (8%) and fashion and accessories (7%). #Fact-14: According to Brazils Telecommunication National Agency (Anatel), for every100 people there are 116 cell phones in Brazil. However, Smartphone are still underutilized in Brazil. (Forbes report: Brazilian E-commerce is Booming.) #Fact-15: The middle class now constitutes about 53% of the total population in 2012 compared to 38% of the population in 2002.Middle class would drive consumption. #Fact-16: There are 200 million mobile lines although as of now only 1.3% of Internet traffic is done on devices other than computers. Forty percent of that percentage of Internet traffic is done on tablets. #Fact-17: As for B2C e-commerce, of the $43 billion we said was spent in Latin America, $ 22 billion went to Brazil, and its the only country in the region where e-commerce represents more than 1%

of the GNP. Brazil is predicted to be the fourth largest e-commerce market in the world in 2015, with 4.3% of global spending. It is currently in seventh place. #Fact-18: According to the Associaao Internauta Brazil webpage, consumer distrust is increasing due to the lack of e-commerce legislation. The 2002 Civil Code missed the opportunity to advance in that sense. Only articles 428 and 434 refer to the issue indirectly, by regulating legal contracts be they verbal, written, solemn or electronic. Even so, there doesnt seem to be any regulation on the legal validity of digital signatures and digital certificates. #Fact-19: In 2011, the average consumer spent 350 BRL ( 145), and according to data prepared by eBit in ecommerceorg.com, the highest selling categories online in Brazil are household appliances (15% of total sales), software (12%), electronics (8%) health and beauty (7%) and fashion and fashion accessories (7%). #Fact-20: The Institute for Applied Economic Research study Online Sales in Brazil: an Analysis of User Profiles and Trade Industry Supply points out that the largest percentage of Internet users that shop online are from the South Eastern part of the country: 23%, followed by the south (20%), Northwest and Central West (19% each), and the Northeast (12%). The percentage of online shoppers in urban areas is higher than in rural areas: 20% compared to 9%. With regard to socioeconomic groups, the majority of online shoppers are in group A, the upper class (59%), followed by group B, the upper-middle class (33%) and group C, the middle class (13%), which according to the IBGE (Brazilian Institute for Geography and Statistics), is most of the population. Five percent of of online shoppers belong to groups D and E (lower middle class and the lowest socio-economic level, respectively). The majority of Internet users that shop online (29%) are between 35 and 44 years old. The age groups that include 25 to 34 and 45 to 49 year olds both represent 26%, while 16 to 24 year olds comprise 18%. On the other hand, the percentage of men that shop online (22%) is higher than women (17%), and the majority (41%) says they have a higher education. #Fact 21: Brazil still has some problems to address before it is totally prepared. The World Bank ranked it 126th in the June 2011 report Ease in Doing Business. Companies that conduct online transactions are more likely to be scammed by hackers. While 23% of companies worldwide were victims of foul play last year, in Brazil it was 32% #Fact 22: Brazil is a purely consumption driven economy. Credit card and debit card usage of 72% but still growing at 24% owing to debit cards. In 2011 debit card and credit card transactions were equal in number, however the use of credit cards for high priced purchases nearly doubled the amount moved by credit ($ 201 billion) compared to debit ($ 104 billion). Instalment buying helps revive growth; it also threatens to overwhelm banks with higher losses when over-extended consumers take on more debt. #Fact 23: That said, 2013 data from IBOPE Mediajust published in BlueBuspaints an even more potent picture of mobile Internet in Brazil. According to IBOPE, 52 million Brazilians can access the Internet via cell phones. Out of this total,20 million Brazilians access the Internet using a Smartphone. (How to Enter Brazils Online market: www.emarketservices.com)

Fact 24: Gender and Age Group of the Internet Users. (Research produced by IBOPE Media in partnership with Nielsen)

Females, 47% Males, 53%

12-17, 10.5% 50+, 26.8% 18-24, 11.6% 12-17 18-24 35-49, 25.6% 35-49, 25.50% 25-34 35-49 50+

Fact 25: Consumption forms about 60% of the GDP.(World Bank)

Estimation (Based on research)


#Estimation1: The number of e-commerce consumers should become at least 70 million by 2016. Based upon the data available from the year 2010 to 2012:

E-Comm Users Over The Years


2014, 60 2013, 51 2012, 42 2011, 32 2010, 23 2015, 66 2016, 70

2009

2010

2011

2012

2013

2014

2015

2016

2017

For the Year 2012 the number of e-consumers was 42 million against 32 million in 2011.A growth of 10 million in just one year. Even by pessimistic estimates, as is shown by the tapering of the above graph, it can easily be approximated that Brazil would be having at least 70 million e-consumers. The improvement in internet penetration fuelled by the growth in the number of Smartphone users definitely the number would rise beyond the 70 million mark by 2016.By 2014 the Brazilian econsumers would be around 60 million (The data points for the years 2013-2016 have been approximated.)

#Estimation2: The E-commerce industry should be around Brazilian Real 32 million. The data available for the value of the e-commerce industry is shown in the table below: YEAR 2009 2010 2011 2012 E-Commerce Value (Brazilian Real)in millions 10.8 15.2 18.7 23.4

The average growth data based upon the available data is 4.2 million Brazilian Real. At this rate the Brazilian E-commerce at the year 2014 would be of around Brazilian Real 32 million. Again this is the minimum since FIFA World CUP would definitely push the growth rate upwards.

REFERENCES: 1> 2> 3> 4> 5> 6> 7> www.pfsweb.com/blog/7-things-to-know-about-brazil-ecommerce www.emarketer.com/Article/More...Join-Brazils...Ecommerce.../1009725 www.worldbank.org www.oecd.org www.forbes.com/.../brazils-e-commerce-is-booming-record-breaking-fig www.baybrazil.org www.ibope.com.br/

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