Case Study
How Komatsu Ltd. Has Reduced Customs Costs
In the previous three series, we introduced business barriers, which companies entering Brazil
encounter, including a high-cost structure called “Brazil costs” that is caused by the nation’s
extremely complicated indirect tax system for imports, presented as countermeasures against these
barriers the use of a special tariff system, and showed excellent business opportunities in the
MERCOSUR market. This time, we will introduce a case of cost reductions using the special tariff
system.
Status of Komatsu do Brasil Ltda
Komatsu do Brasil Ltda was established in the city of Suzano, Sao Paulo in 1975 as the Komatsu
Group’s first overseas production base. Since then, Komatsu do Brasil has established a solid
position in the Brazilian market, played a major role in the country’s history of construction and
development over many years, and participated in the nation’s important undertakings, including
roads, railways, airports, power plants, petrochemical complexes, as well as large-scale
infrastructure, agriculture and mining projects.
To do business with a wide range of customers at home and overseas, Komatsu do Brasil needed to
obtain approval under the RECOF regime (Industrial Warehouse under Computerized Control
Customs Regime), and comply with the standards stipulated by the Brazilian Federal Revenue
Service. In addition to observing the requirements provided for by the regulations of the RECOF
regime, particularly the duty of accountability for the products admitted under the scheme, the
company needed to optimize import and export processes to enable close control and cost reduction.
Issues in using the RECOF regime
To perform all controls required for the RECOF regime, report necessary information to the
Brazilian Federal Revenue Service, and get approved, it was inevitable to link data between the
company’s internal ERP (Enterprise Resource Planning) package system and the Brazilian Federal
Revenue Service’s system. It was difficult to manually perform these processes.
As a result of pursuing the way to automate the above procedures through systematization, Komatsu
do Brasil has succeeded in the automatic data linking between the internal ERP package system and
the Brazilian Federal Revenue Service’s system by introducing external software. Under this
automated framework, the company now gets approved for the RECOF regime.
Further benefits of the systematization
It has been found that the software introduced to obtain approval also can be used to improve
business processes and reduce costs. Specifically, the import control system, the ERP package
system and the internal web-based tools are fully integrated. This makes it possible to upload
invoices on the KDB website, which interfaces with the import control system. The whole import
process is completed automatically with as little manual input as possible, generating all forms, such
as import declarations, domestic invoices and state tax collection slips.
Moreover, the export control tool is also fully integrated with the company’s ERP package system,
ensuring that after sales orders and domestic invoices are issued. This information feeds into the
export control system, where export registrations, export clearance declarations and other documents
required for customs clearance are generated.
As a result of system integration, the company cut import lead time by about 30% and costs with
customs brokers by about 90%, as well as improving reliability of operations.
In the previous series, we showed the barriers that companies entering Brazil encounter, and the
countermeasures against such barriers using the special tariff system. However, when using the
regime, it is recommended to have a viewpoint of systematization, too, which results in gaining
further merits in addition to reduction in tariffs.
Note: RECOF regime (Finance Bureau Rules No. 417 dated April 20, 2004)
A special treatment for the production of exported products in the areas related to the information and communications, aircraft,
automobile and semiconductor industries. When the RECOF requirements are fulfilled, the payment of the import duty (II),
industrial product tax (IPI) and social contributions (PIS/Cofins), which should be normally paid upon the importation of
components, raw materials, etc., will be suspended. When purchasing domestically manufactured products, the payment of IPI and
PIS/Cofins will be suspended. If products, which use imported or purchased components and raw materials, are exported, suspended
taxes will be exempted.