How can SMEs from mature economies overcome liability of outsidership when doing market entry in Brazil? With a psychic distance perspective

Abstract

Brazil is a market with major potential, particularly in the renewable energy and the automotive sector. After identifying opportunities in Brazil, an investigation began on how to gain an insider position and establish local networks in Brazil. However, an empirical gap was identified regarding how network-building is carried out in Brazil and how cultural differences influence this process. Therefore, this study aims to explore how foreign SMEs from mature economies can establish local networks in the Brazilian market and how psychic distance affects the development of these relationships. Empirical data were collected from 10 respondents including company representatives and industry experts. The findings suggested several critical factors before entering the Brazilian market; previous international experience, strong entry nodes, market-specific knowledge, and engagement with business support organizations. After entering the Brazilian market, SMEs must be prepared to adapt to local conditions, collaborate with local stakeholders, exercise patience due to cultural differences, and actively invest in building trust with the partners. Through these efforts, firms can enhance their absorptive capacity, deepen their cultural knowledge, establish long-term partnerships, and develop personal relationships. Consequently, foreign firms are more likely to achieve high levels of trust and thereby overcome liability of outsidership.