Letter IEDI n. 1219—Overview of Brazilian Exporting Companies
Recently, the Secretariat of Foreign Trade (Secex) of the Ministry of Development, Industry, Trade and Services (MDIC) released the interesting study “Profile of Brazilian Exporting Firms: an Overview,” which the IEDI discusses in this Letter. The theme is of great importance, given the need for Brazil to integrate more and better into world trade.
Based mainly on data from Secex/MDIC and the Annual Social Information Report (Rais) of the Ministry of Labor and Employment, for the period 2010–2020, the study presents a comprehensive profile of Brazilian companies from all sectors that export.
It details aspects such as the proportion of exporting companies, their location, the preferred destination markets. Likewise, the study examines how the dynamics of entry and permanence of these companies in international trade occur and how they differ from other firms that do not export.
In 2020, there were just over 2.8 million companies active in all sectors of economic activity in Brazil. For this same year, Secex's records computed a total of only 24,931 exporting companies, 2/3 of which in manufacturing.
These numbers mean that about 0.88% of all active companies sell abroad. It is a very small fraction, to be sure, but it is important to note that there has been a favorable evolution in the last decade, since in 2010 the percentage was 0.78%.
From a comparative point of view, the small number of exporting companies is not only a Brazilian problem, but also a Latin American one. ECLAC data for 2015 show that the fraction of exporters was 0.43% in Colombia, 0.74% in Chile and even in Mexico, more integrated with the US economy, it was only 0.75%. For Brazil, ECLAC found a value of 0.68% that year.
In developed economies, whose companies have given rise to productive globalization and usually position themselves as leaders in global chains, this percentage is much higher, according to the OECD: 10.7% in Germany, 8.4% in the Netherlands, 7% in the United States, 5.2% in Italy and 3.5% in France, for example.
Among the factors with the potential to restrict the expansion of the number of companies that export in Brazil, the MDIC study highlights market access costs, such as tariffs, freight, compliance and marketing expenses, and the need for minimum levels of productivity and production scale. Although there is no consensus on the causal relationship, more productive firms tend to be more integrated into world trade.
In addition to these aspects, the authors also emphasize: the size of the domestic market, which reduces the attractiveness of foreign markets for companies; the high costs of the export process—despite recent improvement efforts, such as the creation of the Single Portal (Portal Único)— and the tariff barriers imposed by partner countries on Brazilian products.
In line with the predictions of the gravitational model used by the authors of the work, Brazilian exporting companies tend to prioritize destinations geographically closer to Brazil, with economies of relevant sizes and that do not impose restrictive tariffs on our goods.
Thus, in 2020, Latin America stood out as the region preferred by Brazilian exporters to ship their products to (61% of all firms). In addition, in the same year, 41% of Brazilian exporters sent their products to Mercosur member countries. However, other destinations have also proved attractive for our exporters.
Companies that sell to the United States, China or European Union countries already represent 60.3% of the total, that is, a fraction very close to those enterprises that serve Latin American markets.
From 2010 to 2020, the number of companies exporting exclusively to non-signatory countries of trade agreements with Brazil increased 55% against + 29% of those that sold exclusively to destinations with which the country has agreements. Economies without deals with Brazil jointly accounted for the purchase of 85% of the total exported by the country in 2020.
In other words, the study data indicate that exporting companies did not wait for agreements to be signed to diversify the markets served, but it can be assumed that this effort would have been much more widespread and would have had a greater impact on our exports if more trade deals had been negotiated and concluded by Brazil in recent years.
It is worth remembering here, taking advantage of the MDIC information, the reasons for which exporting matters. In general, the arguments in defense of greater trade openness and greater presence of Brazil in the world economy emphasize the positive effects on productivity and competitiveness derived from access to technologies and inputs through imports. While pertinent, this is only one side of the story.
As already discussed on other occasions, as in Letters IEDI n. 1157 "More and better global integration: an indispensable agenda for Brazil" and n. 1173 "Productivity: the Brazilian challenge" for example, selling abroad exposes companies to other competitive environments, giving rise to learning that tends to boost their skills and productivity. Therefore, exporting is also strategic for the country's development.
The MDIC study shows that, on average, exporting firms pay higher wages, hire more, and use a higher proportion of college-educated workers than non-exporting firms. These results are observed even when comparing companies that operate in the same sector of activity and have a similar size. In other words, exporting generates quality jobs in the country.
In addition, the authors also argue that selling to high-income countries enhances these effects, since companies tend to be even more productive and, therefore, can offer better wages than others. This may have occurred between 2010 and 2020 when the participation of non-signatory partners in agreements with the country rose.
Our foreign sales, besides being concentrated in a few companies, are also concentrated in a few regions. In 2020, 42.8% of exporters were located in the state of São Paulo and 11.1% in Rio Grande do Sul. That is, most exporters are in only two states.
Paraná (9.3%), Santa Catarina (9.1%) and Minas Gerais (7.5%) had relevant shares, too. As a result, the Southeast and South regions accounted for about 87% of Brazilian exporting firms in 2020, while the North, Northeast and Midwest had the remaining 13%.
Another interesting exercise: the authors combined Rais information with Secex export data and IRS registration data to determine the chances of a company becoming an exporter according to the time elapsed after the start of its activities and the chance of survival in the foreign market.
The results of the estimates show that most Brazilian firms never become exporters.
In the aggregate of all existing active companies in Brazil, the chance of a new one exporting as early as the beginning of its activities is only 0.03%; this probability increases gradually over time, but the chance of exporting after the first decade of activity reaches only 1.04%.
On the other hand, after overcoming the initial obstacles of insertion in the international market, which are not few, Brazilian firms have about a 65% chance of remaining in the foreign market after their first year as an exporter. This probability, however, drops significantly over time, reaching 29.3% after a decade.
The chances of exporting in the first year of operation are very low regardless of the sector, according to the study. However, over a decade, the extractive and manufacturing industries stand out among all economic activities and have more significant chances than the general average— 7.88% and 3.98%, respectively.
In addition, the probability of exporting is directly proportional to the size of the company. Those with 250 or more employees have a 5% chance of exporting in their first year compared to 0.03% for the total average. This chance rises to 22% in the first decade of activity versus 1.04% on average. In general, the larger the enterprise, the greater the chances of survival in the foreign market.
In summary: few Brazilian companies sell abroad, in general exporters are large and operate in the industrial sector, are located in a few regions of the country and serve closer destinations, although these have diversified beyond Latin America. But there is another characteristic: most companies export irregularly.
According to the study, consecutive and uninterrupted export periods have a median duration of 3 years. This relatively short time interval is, however, in line with international evidence, which shows that the median export period is 4 years for developed countries, 3 years for developing countries and only 1 year for least developed countries.
In terms of sectors of economic activity, exporting companies in agriculture, extractive industry and manufacturing have longer export periods than the general median: 6 years for the first two and 4 years for the last sector. Those classified in “other sectors”—mainly services, retail trade and construction —are the ones that pull the average down.
Also in this aspect, larger companies come out ahead. Those with more than 250 employees have longer periods of uninterrupted exports, with a median of 7 years, that is, more than twice the overall average.