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  • 1. The Boyden Report: BrazilWalking on the big stage: The ‘New Brazil’
  • 2. The Boyden ReportWelcome to the latest edition of The Boyden Report,a series designed to provide a deeper understandingof the global market for talent. At Boyden, we work closely with global companies to craft their executive strategy. But that strategy must be continuously re-evaluated. What works in one region may not be effective in another. Each market has its own management dynamics. The Boyden Report is designed to help you navigate this complexity in the ever-changing global market for talent. Each report will provide you with the context to make sustainable strategic decisions about your executive team. Our series includes reports on India, China, and Latin America. You can find these by visiting our website at www.boyden.com. In this report, we look at another key market that is emerging as one of the fastest growing economies in the world – Brazil. There is suddenly a sense of real excitement about this market. Perhaps seen as the laggard amongst the ‘BRICs,’ Brazil is now recognised not only as a sporting venue – hosting the World Cup in 2014 and the Olympics in 2016 – but as a serious business opportunity. Brazil has benefited from globalisation, without suffering the consequences experienced by other countries in the global recession. In fact, many of the executives we talk to on a daily basis told us that Brazil was the ‘safe port in a storm’. In this report, we explore how Brazil came to be an unlikely ‘global hero’ and what this means for growth prospects in the near future.
  • 3. ContentsPart 1: Brazil’s time has comeIntroduction“Brazil is a ‘serious country’”Global growth prospects in BrazilBarriers to growth – real or perceived?New Brazil in a new global contextPart 2: Avoiding sand: New Brazil’s solid foundationsFoundations of rock, not BRICEconomic diversityA robust financial systemTransparency and stability support a greater role in the G20A well-managed economyA battle-hardened executive classPart 3: New Brazil’s opportunity driversThe consumer marketBrazil’s emergence as an energy superpowerConstruction and infrastructurePart 4: The Boyden View: Hiring in BrazilUnderstanding ‘O jeitinho brasileiro’The Boyden View on hiring in BrazilAppendix3
  • 4. IntroductionA significant shift in Brazil’s global stature is underway. Yet, remarkablylittle has been published about the country since the financial crisisthrew Brazil’s considerable strengths into relief. Here, we present theviews and insights of senior business executives – the majority ofwhom lead Brazilian subsidiaries of multinationals – to hear why theybelieve Brazil is now walking on the big stage. Participants in our research include the following The view ‘from the ground’: business leaders, whom we sincerely thank for the Boyden perspective generously sharing their time and personal perspectives: The Boyden office in Brazil is witnessing the • Luiz Calil, President of Caterpillar Brazil – winner of daily transformation of Brazil. John Murray, ‘Best Company to work for’ in Brazil, in the 2009 Great Partner and head of Boyden Brazil says, Place to Work Institute rankings “I never before witnessed such optimism here • Francisco Itzaina, CBE, President – South America of as I do today”. Rolls–Royce International • Gaetano Crupi, President & General Manager in Brazil Will Penney, a long-term Partner in the country of Abbott, a global, broad-based healthcare company, observes that, “Brazilians always used to joke devoted to the discovery, development, manufacture, that they lived in the eternal ‘country of the and marketing of pharmaceuticals and medical future,’ but it seems that our ‘future’ has now products, including nutritionals, medical devices, and arrived”. diagnostics. The acquisition of Solvay Pharmaceuticals is part of a strategic plan to diversify and grow their Other partners, Sönke Böge, Joel Garbi, presence in emerging markets including Brazil and José Pedro Rossi are seeing a flood of • Mark Pitt, President of Sherwin Williams in Brazil. international and local investment, including Sherwin Williams is the largest producer of paints mid-sized German manufacturers, retail and and coatings in the United States. It is an $8 billion consumer companies, and local investment multinational, with 80 branches in Brazil into infrastructure and ports. Chris Corcoran, • Klaus Pavel, President of Aachen-Laurensberger Partner at Boyden Brazil and former President Rennverein (Chio), largest horse show in the of Goodyear subsidiaries in Brazil, Mexico, world; Chairman of RNA Automation, an international and Chile sums up this sense of boundless manufacturing company based in Germany; Founder of opportunity when he says “Brazil is truly the FUNDACAO PAVEL, a large social project in Brazil caring place to be”. for and educating children; Consul of the Federal Republic of Brazil. Mr. Pavel was brought up in Brazil • Chris Wall, Business Specialist for Brazil, UK Trade and Investment • Richard Taylor, CEO of Taylorenergies Business Development; Chairman of CleanStar Brasil Bioenergia Ltda; former President of BP in Brazil and founding Director of the International Business Academy for Development delivering executive education between the UK, Brazil & China Boyden is proud to be able to present views ‘from the ground’ in Brazil and to spread the sense of opportunity and momentum that is so palpable across the country. 4
  • 5. Part 1: Brazil’s time has come “I see Brazil as a fantastic country in the future. I wish I was thirty again. I think it’s a place to be. It has come of age”. Francisco Itzaina President – South America of Rolls-Royce InternationalThe ‘sleeping giant’ is awake at last. For many years “Brazil is a ‘serious country’”business commentators have seen enormous potentialin Brazil, but there has been a sense of disappointment President Lula’s words, spoken when travelling inthat realising this has been hampered by economic Europe in late 2009, were not just the words of a proudand political instability. In 2006, Goldman Sachs, the President campaigning for greater global recognition.creator of the ‘BRIC’ moniker went so far as to raise Brazil has fundamental economic strengths. It has athe question, “Should Brazil still be part of the BRICs?” vast and growing consumer market, it is rich in valuableThe answer today is a resounding “Yes”. The World commodities such as soya, iron and oil, and it has theEconomic Forum’s Competitiveness Report 2009–2010 world’s largest freshwater resources. Furthermore,shows that Brazil has advanced eight positions in the Brazil is a world leader in clean fuel technologies suchWEF’s ranking since the previous year, overcoming as ethanol and biofuel. Its land could support threeRussia for the first time and partially closing the gap times more agricultural activity than it does today. Withwith India and China. The extent to which Brazil has, in the world’s fuel and food resources increasingly underfact, broken away from other BRIC countries is explored threat, Brazil is in a strong long-term position.more fully in Part 2 of this report.From an international perspective, events over the Did you know?last two to three years have reset the conventionalview of ‘success’, exposing cracks in the Western 1. Brazil had the world’s best-performing majorworld’s financial systems and leaving governments to currency against the US dollar in 2009, with a 36 ponder vast debt levels. In retrospect, Brazil’s stability, percent advance, according to Bloombergeconomic viability, and political solidity are viewed froma different perspective. Not one bank has collapsed, nor 2. Brazil was home to the world’s largest IPO in 2009. has any major corporation been bankrupted. Not one Santander Brazil’s IPO valued the bank’s Brazilian centavo has gone into propping up the financial system, subsidiary at more than the whole of Deutsche Bank and a rapidly executed tax-break package from the worldwidegovernment minimised the effect of global recessionon consumer spending. As Chris Wall, UK Trade 3. São Paulo is among the world’s top five futures andand Investment’s expert on Brazil says, “In previous options markets, by volume tradedfinancial crises, it’s been the case that when the UnitedStates caught a cold, Brazil caught the flu. For the first 4. Brazil was home to the world’s fastest-growing cartime ever, the United States has caught the flu and market in 2007-2009Brazil has had the sniffles”. 5. Brazil was a major source of stability for multinationals in the global recession that started in 2007. Revenues generated in Brazil were used by a number of multinationals to ‘shore up the balance sheet‘ 5
  • 6. Part 1: Brazil’s time has comeBut the New Brazil has more than just relative more links with Brazil”. The US is now concerned thatstrengths. It has a sophisticated and durable financial its commercial links with Brazil are small. Many wouldsystem, a proven and stable democracy, a sustainable believe that Brazil and the US are doing great tradefuture – based, in part, on significant oil discoveries in but they are not. There is a lot of effort from the US tothe Santos Basin – and an impressive cadre of business really focus on Brazil, either via a bilateral agreementleaders and managers who withstood past turbulence or by tailoring a bilateral agreement that can be moreand joined the business world’s executive elite. meaningful to the United States and Brazil taking into consideration the constraints of MERCOSUL”.Brazil’s financial system is supported by BM&FBOVESPA – the second largest stock exchange in Exhibit 1 shows that out of the 50 largest companiesthe Americas after the NYSE; one of the largest and in Brazil, nearly 30 percent are headquartered inmost liquid foreign exchange markets in the world; Europe, nearly 60 percent are headquartered in Braziland foreign reserves standing at $200 billion. Brazil or elsewhere in the region and just 10 percent arehas a low inflation economy, interest rates that slightly headquartered in the United States.fluctuate around the 8 percent mark, a successfulregulatory model and investment grade government This chart shows that it is not only foreign multinationalsbonds. Its financial independence is marked by the fact that are prospering in Brazil. The number of ‘home-that in 2009 it was a net creditor to the IMF. grown’ multinationals is increasing, attracting attention not only to Brazil’s corporate capabilities, but also toBrazil’s ‘battle-hardened’ management class, trained the opportunities for global growth among foreignin a previously volatile business environment, is able multinationals. As Luis Calil, President of Caterpillarto cope with economic issues that would severely Brazil says, “Brazilian companies are prospering acrosschallenge executives in more mature markets. As Chris the world. They are exporting because they see theirWall says, for most executives, the global recession fortune in getting products out to different countries”.that started in 2007 did not look like a true ‘crisis’ Companies such as Embraer, Brazil Foods, and JBS, tofrom a Brazilian perspective: “Most executives will name just a few, are serious global players. Of Bostonsay, ‘What crisis?’ Don’t forget that we were living Consulting Group’s 2009 Global Challenger’s list, 14 ofthrough repeated crises in the nineteen eighties and the 100 top global challengers come from Brazil, detailsnineteen nineties. What started off in the early eighties of which are shown in Exhibit 2.as twenty five percent per month inflation, by the earlynineties was three percent a day. That is a crisis”. Itis somewhat telling therefore, that the CEOs of the The Boyden View:subsidiaries of the top 20 multinationals in Brazil are The battle-hardened management classall Brazilian. “In my 45 years in Brazil, I have never seenGlobal growth prospects in Brazil the Brazilian executive more in demand. When we were completing a search for a memberThe World Bank predicts that if Brazil continues on its of the Board of Directors of a major Americancurrent path, it will move from being the tenth largest Fortune 500 company, our client stipulatedeconomy in the world to the fifth largest by 2016. that the candidate must be a Brazilian. TheFrancisco Itzaina says, quite simply, “Any company reason was they wanted someone on thethat wants to be global, that is serious about its future board who could visualise the world throughgrowth prospects, has to be in Brazil”. the eyes of an emerging market and who succeeded in guiding their businesses throughHistorically, European businesses have taken advantage the repeated ups and downs of the Brazilianof strong cultural links with Brazil, leaving the US to market over the last fifteen years. You will seeplay ‘catch up’. As Gaetano Crupi, President & General more Brazilians on international boards in theManager of Abbott, observes, “Spain has been coming years”.investing in Brazil – look at telecoms and banking – andItaly is a major player in the automobile industry and John deMarmon Murray, Partner, Boyden, São Paoloin utilities. I think China is looking into making majorinvestment in Brazil, and France is trying to create 6
  • 7. Part 1: Brazil’s time has comeExhibit 1The 50 largest companies in Brazil (by sales figures for 2008) 22 out of 50 are foreign multinationals 5 are Brazilian challengers Company City/State Business Field Sales Country 1 Petrobras Rio de Janeiro, RJ Petroleum and Energy 38,441 2 BR Distribuidora Rio de Janeiro, RJ Wholesale (fuel) 10,567 3 Telemar Rio de Janeiro, RJ Telecommunications 6,311 4 Telefónica São Paulo, SP Telecommunications 5,699 Spain 5 Ambev São Paulo, SP Beer and drinks 5,344 6 Ipiranga Rio de Janeiro, RJ Wholesale (Fuel) 5,060 7 Volkswagen São Bernardo, SP Automobiles 4,791 Germany 8 Shell Rio de Janeiro, RJ Wholesale (Fuel) 4,382 UK/Holland 9 General Motors São Caetano, SP Automobiles 4,131 US 10 Brasil Telecom Brasilia, DF Telecommunications 3,913 11 Bunge Food Gaspar, SC Food and Drink 3,866 Argentina 12 Pão de Açucar São Paulo, SP Retailer 3,858 13 Vale do Rio Doce Rio de Janeiro, RJ Mining 3,628 14 Carrefour São Paulo, SP Retailer 3,628 France 15 Brasken Camaçari, BA Petrochemical 3,345 16 Esso Rio de Janeiro, RJ Wholesale (Fuel) 3,192 US 17 Texaco Rio de Janeiro, RJ Wholesale (Fuel) 3,175 US 18 Embratel Rio de Janeiro, RJ Telecommunications 3,167 Mexico 19 Cargill São Paulo, SP Food and Drink 3,163 US 20 Eletropaulo São Paulo, SP Utilities (Electricity) 3,056 21 Nestle São Paulo, SP Food and Drink 2,916 Switzerland 22 FIAT Betim, MG Automobiles 2,813 Italy 23 CEMIG Belo Horizonte Utilities (Electricity) 2,649 24 C.S.N. Rio de Janeiro, RJ Iron and Steel 2,573 25 VARIG Porto Alegre, RS Transportation (Air Carrier) 2,375 26 Unilever São Paulo, SP Pharmacy and Hygiene 2,319 UK/Holland 27 Souza Cruz Rio de Janeiro, RJ Tobacco 2,284 UK 28 Embraer São José Campos, SP Airplanes 2,243 29 Gerdau Porto Alegre, RS Iron and Steel 2,206 30 Usiminas Belo Horizonte, MG Iron and Steel 2,200 Brazil/Japan 31 Itaipu Brasilia, DF Utilities (Electricity) 2,184 Brazil/Paraguay 32 REFAP Canoas, RS Petrochemical 2,131 33 Casas Bahia São Caetano do Sul, SP Retailer 2,112 34 AGIP São Paulo, SP Utilities 2,108 Italy 35 Correios Brasília, DF Postal Service 2,074 36 DaimlerChrysler São Bernardo, SP Automobiles 2,022 Germany 37 Sadia Concórdia, SC Food 1,966 38 Light Rio de Janeiro, RJ Utilities (Electricity) 1,891 France 39 Copesul Triunfo, RS Petrochemical 1,891 40 Ford São Bernardo, SP Automobiles 1,890 US 41 Vivo São Paulo, SP Telecommunications 1,870 Portugal/Spain 42 Furnas Rio de Janeiro, RJ Utilities (Electricity) 1,757 43 Bunge Fertilizers São Paulo, SP Fertilizers 1,725 Bermuda 44 CPFL Campinas, SP Utilities (Electricity) 1,576 45 Cosipa São Paulo, SP Iron and Steel 1,573 46 Nokia Manaus, AM Electronics 1,550 Finland 47 Sabesp São Paulo, SP Utilities (Water & Sewage) 1,515 48 Perdigão São Paulo, SP Food 1,483 49 Basf São Bernardo, SP Chemicals 1,461 Germany 50 Copersucar São Paulo, SP Wholesale (Sugar & Alcohol) 1,448Source: Exame, Brazil’s Business & Economy Magazine 7
  • 8. Part 1: Brazil’s time has comeExhibit 2Brazilian members of Boston Consulting Group’s 100 Global Challengers 2009 Company Brief profile > Camargo Corrêa Group One of the largest conglomerates in Brazil, with activity in construction and engineering, footwear, textiles, infrastructure, building materials and real estate; 2007 revenues of $6.4 billion; a significant presence across Latin America, and Spain. Camargo Corrêa doubled in size from 2005-2007, and its international revenues are estimated to be increasing even faster. > Coteminas Companhia de Tecidos Norte de Minas (COTEMINAS) and its subsidiaries operate as a textile company in Brazil. It manufactures cotton thread; finished and semi-finished fabrics for home use; bed linens; tablecloths; bath towels; and wearing apparel, including T-shirts, socks, and underwear. > Embraer One of the largest aircraft manufacturers in the world, focusing on specific high growth segments in commercial, defence, and executive aviation. It has achieved a top position worldwide in regional jets. Embraer was Brazil’s largest exporter from 1999 to 2001 and the second largest in 2002, 2003 and 2004. By December 2009, it employed more than 16,000 people, over 90% of whom are based in Brazil. > Gerdau Leading company in the production of long steels in the Americas and one of the major suppliers of specialty long steel in the world. Now has an industrial presence in 14 countries: Argentina, Brazil, Canada, Chile, Colombia, the Dominican Republic, Guatemala, India, Mexico, Peru, Spain, the US, Uruguay, and Venezuela. > JBS-Friboi JBS is the largest the largest beef-sector company in the world, producing chilled and fresh beef, processed beef, as well as fresh and chilled pork. The company is the world leader in terms of slaughtering capacity – 51.4 thousand head/day. JBS has a presence in 100% of the world’s consumer markets, thanks to its production structure, with plants in four of the main beef-producing countries – Brazil, Argentina, the US, and Australia – and to its leadership in exports, which reach 110 countries. > Marcopolo Among the top manufacturers of bus bodies and components. Marcopolo manufactures the bodies for a whole range of coaches, including microbus, intercity, and touring coach. Marcopolo produces over half of the bus bodies made in Brazil and exports its coaches to more than 60 countries. > Natura One of the leading Brazilian manufacturers and marketers of skin care, solar filters, cosmetics, perfume, and hair care products. > Odebrecht Group Owns a global construction contracting company, Construtora Norberto Odebrecht, that provides engineering and constuction services in most of South America, as well as Central America, the US, Angola, Portugal, and the Middle East. The group also owns petrochemical company Braskem, exporting petrochemical products from Brazil to over 50 nations and every continent. Odebrecht invests in transportation infrastructure in Portugal, and mining and oil ventures in Africa. It also provides oil production services in the North Sea. > Perdigão Now registered under the corporate name, Brazil Foods, Perdigão is one of the biggest foodstuffs companies in Latin America. It is the third largest company in the butchery of poultry in Latin America, and is amongst the ten largest pig butchers in the world, whilst it is also one of the leading Brazilian companies in the area of milk collection. It is a company that operates on an international scale with its products reaching more than 110 countries. It is currently undergoing a merger process with Sadia. > Petrobras Energy company in oil and oil byproduct exploration, production, refining, marketing, and transportation, both in Brazil and abroad. It has more than 100 production platforms, 16 refineries, 30,000 kilometres of ducts and more than 6,000 gas stations. > Sadia Sadia is currently undergoing a merger process with Perdigão, one of the world’s leading producers of chilled and frozen foods. Established in Brazil in 1944, today Sadia is the market leader in all its segments. It is also Brazil’s main exporter of meat-based products. Sadia’s brand name has been voted the most important and valuable brand among all Brazil’s food brands. > Vale Vale is a multinational mining corporation and one of the largest logistics operators in Brazil. In addition to being the second-largest mining company in the world, Vale is also the largest producer of iron ore, pellets, and second largest of nickel in the world. Vale also produces manganese, ferroalloys, copper, bauxite, potash, kaolin, alumina and aluminum. In the electric energy sector, the company participates in consortia and currently operates nine hydroelectric plants. > Votorantim Group Among the top five producers of zinc globally, Votorantim Group operates in sectors demanding intensive capital and a large scale production, such as cement, mining and metallurgy (aluminum, zinc and nickel), steel, pulp and paper, concentrated orange juice, and self-generation of electricity. It also operates in the financial sector, through Votorantim Finance, and in new business it invests in biotechnology, information technology, and specialty chemical projects and companies. > WEG One of the largest manufacturers of electric motors in Latin America. Source: Boston Consulting Group; websites of cited companies. 8
  • 9. Part 1: Brazil’s time has comeDespite the global financial crisis, Brazil received However, the real barrier is one of perception. ForUS$ 12.6 billion in foreign direct investment (FDI) in international executives who forged their careers atthe first half of 2009, according to information supplied a time when Brazil was reeling from oil shocks, debtby Brazil’s Central Bank. Although the value is lower than defaults, and hyper-inflation, there is still a perceptionthat recorded for the first half of 2008, analysts such as barrier. As Chris Wall says, “I speak to executives ineconomist Luís Afonso Lima, president of the Brazilian very large companies, household names on occasion,Society of Studies on Transnational Corporations and whose experience of the Brazilian market andEconomic Globalization (Sobeet), take a longer view, therefore their approach to Brazil is based on theforecasting the result for the year as the third highest in chairman’s own experience in the 1980s when they hadthe decade, lower only than 2007 and 2008, when the their fingers burnt ... There’s a belief that it’s still thevolume of funds hit record highs. Brazil of the 1980s and 1990s ... It’s a failure to grasp the new Brazil”.Looking forward, this interest from foreign multinationalsis set to continue. Luiz Calil observes, “Brazil by itselfis attracting more and more multinational or global The Boyden View:companies”. The New BrazilGaetano Crupi adds, “Everybody is investing. GE isannouncing investments. General Motors was on the “German industry has rediscoveredfront page of a business newspaper saying that every Brazil. We are seeing mid-sized Germansingle real of profit from Brazil will stay in Brazil because manufacturers expand their Brazilianof how the market is performing. It’s just a matter factories at the same time that new groupsof keeping up with these announcements in major are coming in for the first time. The oilnewspapers”. and gas boom, the Olympics, and the civil construction surge have all contributed toBarriers to growth – real or perceived? the renewed interest as well as opportunities to offer new technology, but the overridingSome companies, notably mid-sized companies, remain stimulant for new investment is a perceivedhesitant about Brazil. Why? As the Portuguese saying stability for growth and a strong internalgoes, “Não há bela sem senão”, meaning colloquially, market”.“There’s no such thing as perfection”. As is the casewith every market, the picture in Brazil is not all rosy. Sönke Böge, Partner, Boyden, São PaoloIn the World Bank’s ‘Doing Business’ survey – whichranks countries on the ease of setting up and runninga business there – Brazil is ranked 129th out of 183countries. However, it is worth noting that this survey isused as an indicator for start-ups and small businesses,rather than as a measure for larger businesses that havethe resources to facilitate expansion plans.In terms of geographic mobility, the advantage Brazil has New Brazil in a new global contextin its high volume of agricultural land comes at a price.Transport infrastructure, across a country that in terms Economists have warned us for years that the worldof size is ranked 5th largest in the world, is inhibiting stage is fundamentally changing due to globalisationBrazil’s commercial advances. As for access to finance, and the growth of emerging markets. But the financialcredit is very expensive and only the government will crisis has accelerated the impact of that process,lend for long periods, and even then, not to everyone. exposing the weaknesses of Western governments andTaxation is complicated, with different tax systems in economies as compared with the relative strengths ofdifferent regions. The legal system is also complex, countries such as Brazil.making commercial disputes best avoided. 9
  • 10. Part 1: Brazil’s time has comeAccording to politicians, business leaders and other In terms of financial management, Chris Wall notes,drivers of opinion, Brazil is expected to emerge from “Europe has tended to sit in judgment on Latin Americathe global recession in better economic shape than in the past. Brazilians are very aware of the irony ofmost of the other G20 countries. As Richard Taylor, that now”.CEO of Taylorenergies Business Development says“The G20 is now the main global forum for international It is clear then that Brazil has focused on strengtheningeconomic development and Brazil is seen as one of its domestic position, rather than pursuing a strategy thatits leaders”. Francisco Itzaina observes that, “Brazil is involved international risk. In the next section we explorebecoming an international player. It’s globalising its own how the foundations of the country have been madeeconomy”. The New Brazil is a different place, and the secure, the phenomena driving major opportunities forattitude of business leaders and politicians around the multinationals, and the dynamics of hiring, retaining andworld is changing. developing senior executives in the New Brazil. “Europe has tended to sit in judgment on Latin America in the past. Brazilians are very aware of the irony of that now”. Chris Wall, Business Specialist for Brazil, to UK Trade and Investment. 10
  • 11. Part 2: Avoiding sand: New Brazil’s solid foundations Foundations of rock, not BRIC “Brazil is at a different level of development, on the development curve, than the other BRIC countries,” says Francisco Itzaina, President – South America of Rolls-Royce International.Lumped together in the ‘BRICs’ (Brazil, Russia, India security and predictability to expatriate families, oftenand China), Brazil’s advantages can be overlooked, the top priority for executives on the ‘global fast track’.such as its more sophisticated social systems, andinfrastructure, political stability, and democratic Politically, Brazil has achieved stability in the formparticipation in politics, cultural and religious unity, of a robust, established democratic republic. “Brazillinguistic homogeny and economic stability and has become now, I wouldn’t say ‘mature’, but it hasdiversity. The ‘BRIC’ acronym itself is a Western embarked upon maturity in terms of its democracy andconstruct which can be counter-productive in linking the relative consolidation of the strength of itsBrazil with other emerging markets that carry greater political institutions”, comments Mark Pitt, Presidentpolitical and economic risk. of Sherwin Williams.Exhibit 3 shows a more detailed classification of In terms of economic and financial infrastructure, Brazilemerging economies, based on analysis by the FTSE is also more advanced. As we will explore later, theGroup. Brazil is clearly distinguished from other banking system and financial markets are large, stable,countries in the BRIC grouping, with countries such as and relatively mature. President Lula has asserted,Hungary, Poland, Mexico, South Africa, and Taiwan its “No country in the world has the fiscal soundness thatmore appropriate ‘peers’. Brazil has”.What does Brazil’s different ‘emerging status’ meanin reality? Exhibit 3 Brazil as an ‘Advanced Emerging Economy’The provision of healthcare is one example of how ahead of the RICsBrazil is more advanced in terms of social infrastructure.As Gaetano Crupi explains, “The healthcare system The FTSE Group distinguishes Brazil from Russia, India and in Brazil is well established when compared to China China on the basis of national income and the development of market infrastructure. It classes Brazil as an Advanced and India ... you have a public health center in place Emerging Market, along with countries such as Poland, in every state and every city. There is a very good Mexico, and South Africa, whilst relegating Russia, India and distribution system. The number of drugstores is high China to Secondary Emerging Markets, along with Pakistan, Indonesia, Columbia, and Morocco.but the number of hospitals may not be enough yet,but compared with Russia, India and China, it is a totally The Advanced Emerging Markets are:different ball game”. • Brazil • Hungary • Mexico • Poland • South Africa • TaiwanUS and European executives working in Brazilian The Secondary Emerging Markets are:subsidiaries therefore enjoy a lifestyle that few would • Argentina • Chile • China • Columbia • Czech Republic see as that of a nascent emerging market. As a • Egypt • India • Indonesia • Malaysia • Morocco • Pakistan • Peru • Philippines • Russia • Thailand • Turkey‘foreign posting’ there is much to recommend Brazil.For example, in religious and linguistic terms, there is Source: FTSE Global Equity Index Series Country Classificationremarkable unity for a country that is more than twoand a half times the size of India. This brings a sense of 11
  • 12. Part 2: Avoiding sand: New Brazil’s solid foundationsEconomic diversity Exhibit 4 Economic activity and diversity across Brazil“There really is a high degree of economicdiversity. And I think that is really oneof the strengths during a crisis”, saysRichard Taylor.Perhaps the most significant advantageBrazil has over its emerging market‘competitors’ is the diversity of itseconomy, shown in Exhibit 4. Whilecommodities and natural resources areimportant, the Brazilian economy does notrely on just one or two key industry sectorsto fuel growth.Brazil’s natural resources are considerable.Oil revenues are set to multiply as the‘pre-salt’ potential of the Santos Basin isexploited. Brazil’s iron ore, manganese,bauxite, nickel, uranium, gemstones, wood,and aluminium resources are also significant.These resources are fuelling industrialgrowth around the world. As Gaetano Crupisays, “China needs commodities and manycommodities are coming from Brazil”.Brazil’s diverse industries range fromautomobiles, steel, and petrochemicals to Source: University of Texas, Austin, USAcomputers, aircraft, and consumer durables. Spotlight on the Aviation Business Two success stories in the Brazilian Aviation industry: Embraer and Azul Embraer is a major success story in aviation. Since privatisation in 1994 Embraer has turned itself into the world’s biggest manufacturer of mid-range passenger jets. Some 96 percent of the company’s revenue now comes from exports to commercial airlines in China, India, Poland, Britain and the US. But it is not the only success story in aviation. Richard Taylor cites the amazing growth story of Azul, the low cost airline, as a good example of “an organisation where they think that the opportunities and the scale of the opportunity in Brazil more than offset the challenges of working here”. Azul was set up by a Brazilian-born US citizen. By June 2009, six months after beginning operations, Azul had the third largest market share of the Brazilian domestic airline market, after TAM and Gol Airlines. 12
  • 13. Part 2: Avoiding sand: New Brazil’s solid foundationsThe economy is also driven by agriculture and forestry, More than half of this comprises pastureland that canmanufacturing, chemicals and a strong services be converted to other agricultural uses, while about aindustry, notably banking and insurance. quarter remains unexplored.The industrial sector is particularly significant, In the long term, Brazil’s ability to feed and fuel itselfaccounting for 30 percent of GDP. The shipping industry and others puts it in a very strong position, particularlyis large and growing. Francisco Itzaina says, “The in an era when energy and food security are widespreadshipping industry was practically dead at the end of the concerns. For Francisco Itzaina, “Food production is1990s. Now there are probably between twenty and one of the elements that will lead the internal Brazilianthirty thousand people working in the shipyards”. economy in the future”.Brazil’s agribusiness has enormous potential forexpansion. According to Agriculture Ministry estimates,aside from Amazonian forest reserves, Brazil has 388million hectares of quality agricultural land. Spotlight on the Agribusiness In the past decade, Brazil has strengthened its lead as one of the world’s agricultural powerhouses, aided by market liberalisation, a more competitive local currency, higher government financing, and sustained productivity advances. Global soybean exports Million metric tons • Over 90 percent of Brazil’s poultry exports are Other concentrated in just 10 companies that have 100 Other South America invested heavily in what are now some of the Brazil 80 most modern production facilities in the world Argentina United States 60 • Brazil is the largest beef exporter and second- largest producer of beef in the world. It is also 40 home to the world’s largest commercial cattle 20 herd – totalling roughly 290 million head 0 1990 1995 2000 2005 2010 • Brazil has been the world’s largest coffee 2015 2019 producer and exporter since the mid-nineteenth century and now accounts for about 30 percent • Soybeans are Brazil’s fastest-growing shipments, of global exports and Brazil is set to challenge the US’s position as the world’s largest exporter in the next decade • Brazil produces over 50 percent of the world’s orange juice and Brazilian producers control • Brazil is the world’s leading exporter of chickens, about 80 percent of the international frozen sugar, coffee, beef, and orange juice concentrated orange juice market. Brazil is also an important producer and exporter of many • As much as 40 percent of the world’s chickens other foods, including pork, tropical fruits, corn, come from Brazil, and this figure is expected to cotton, forestry products, and tobacco rise to a 48 percent market share by 2018, according to US Department of Agriculture estimates 13
  • 14. Part 2: Avoiding sand: New Brazil’s solid foundationsA robust financial system To give one example, before the 2007 global financial crisis took hold, the hedge fund industry in Brazil was“During the entire world economic crisis – and this is growing at a staggering pace, from $92 billion in 2002a very strong signal – during the entire crisis there was to $750 billion by the end of 2007. The pool of talentnot one single financial institution that went bankrupt in reflects this: there are an estimated 142 private equityBrazil. Not one”, says Gaetano Crupi. and venture capital fund managers who manage 181 funds with investments in over 500 local companies inBrazil’s financial services market is today one of the a broad range of sectors.most developed among the emerging economies. Transparency and stability supportThe strength of Brazil’s financial institutions goes a greater role in the G20back to the mid-1990s when the country confrontedits own successive economic crises. This set in Brazil’s banking system is unusually transparent. Themotion fundamental changes in economic policy and bank settlement system operates in real time, so allperformance. banks know their cash positions at any given moment and the central bank has an overall picture of theSince then, the entire financial services system has liquidity in the system. As Gaetano Crupi explains,developed substantially, particularly in the last few “This is a huge advantage not only for the government,years: foreign exchange, mutual funds, hedge funds, but for companies and individuals doing business. Fromcredit and bond markets have all thrived amid Brazil’s an IT perspective in the banking system, there is noeconomic growth and stability. faster and better process system in the world in terms of cashing a cheque today and putting it in your account in thirty-five minutes the same day”. The Boyden View: Executive Search in a multi- faceted emerging economy Another unusually transparent area of the system is in the fund management arena. All onshore funds must provide daily liquidity reports to Brazil’s Securities “The COO of a global food ingredients and Exchange Commission (the Comissão de Valores company asked me about the availability of Mobiliários-CVM), disclosing the net asset value of their world-class executive talent in Brazil. His firm funds, albeit with a 48-hour delay. At the end of every is now investing here and upgrading its local month funds disclose what they were holding 90 days management team. The answer was easy: in the ago. The data is freely available to everyone on the last twenty years Brazil has developed a superb CVM’s website. The hedge fund industry is also subject talent pool. Of course finding and hiring the to the same regulation, making Brazilian hedge funds best person is always a challenge, but there are unusually transparent. lots of professionals out there who are well- schooled, balanced, versatile, and with solid Other elements of regulation have helped stabilise the leadership skills. system. A key reason for the sector’s resilience is a high capitalization requirement – the minimum capital These days it is rare for an international adequacy requirement in Brazil is 11%, compared company to have expatriate managers, unless with 8% under the Basel regulations that other banks it is just part of plan to develop a particular around the world follow. New rules for publicly-traded individual. Talent is nicely distributed across companies brought in by the São Paulo stock exchange the main sectors of the Brazilian economy, and (BOVESPA) in 2002 have benefitted equity investors, when there is a momentary supply/demand with fair treatment of minority stakeholders enshrined disequilibrium, talent flows easily between the in law; under current guidelines it is illegal to issue sectors”. shares that pay out different amounts to different holders in the event of a takeover. William Penney, Managing Director, Boyden, São Paolo In the light of its successful regulatory model, Brazil is seeking a greater role in global reforms being discussed under the auspices of the G20. 14
  • 15. Part 2: Avoiding sand: New Brazil’s solid foundationsIt has specifically requested from the IMF greater The Boyden View:involvement in global regulatory discussions and is Brazilian Financial Services talentseeking an enhanced leadership role in the Fund itself.There will be many opportunities for growth within “The Brazilian Financial Service market is strong,the financial services sector. Gaetano Crupi sees and largely ignored the financial crisis thata number of specific opportunities arising: “Brazil disturbed the developed world. This market iswill retain a very strong financial services industry. dominated by large national banks that alreadyCommercial and investment banks are strengthening, hold positions amongst the largest internationaland I think associated with that, solid engineering banks. Major international banks are also presentand infrastructure will be needed ... It is likely that in Brazil and their positive performance has,mortgages are going to regain some buoyancy and I in fact, helped improve the worldwide resultsbelieve that European business leaders are looking at reported from the head office.Brazil more closely than they have ever before”. The Brazilian currency, the Real, has been strong and has also contributed to the confidence and credibility of Brazil amongst foreign investors. This confidence has grown as investors realised the Brazilian banking regulations are and have been strong and effective in keeping the Brazilian banks out of trouble. With this said, the financial market is healthy and active, presenting excellent opportunities for specialised talent”. José Pedro Rossi, Partner and Head of Financial Services Practice, Boyden, São Paolo Spotlight on the financial ecosystem in Brazil • Brazilian banks – both private and public – rank among the largest in the region. For example, Itau Unibanco is Latin America’s largest bank, the ninth largest bank in the Americas, and the 12th largest bank in the world. At the end of March 2009, Brazil’s banking system was larger in terms of market capitalization than the UK’s and that of every other EU member country • The Brazilian foreign exchange market – in both spot and derivatives trading – is large and liquid, which makes the Real one of the most traded emerging market currencies • Brazilian investment funds – notably, the country’s pension funds – are significant players in the asset management industry, with nearly R$1.2 trillion (US$515.6 billion) under management, or about 40 percent of Brazil’s GDP • Brazil’s pension fund industry was the eighth largest in the world at the end of 2008 • São Paulo’s futures and options market is one of the five largest in the world by volume traded • The BM&F BOVESPA is Latin America’s leading stock exchange and the second largest in the Americas after the NYSE. It offers a broad range of financial products for trading equity and commodity-based derivatives Source: Boston Consulting Group, October 2009 15
  • 16. Part 2: Avoiding sand: New Brazil’s solid foundationsA well-managed economy In addition, Brazilian executives’ ability to navigate the complexities of the taxation system and certain“It was Lula’s predecessor who stabilised the currency elements of government bureaucracy makes them moreand Lula came to power intent on steering the economy effective in multinational organisations abroad, despitein the same solid way,” says Chris Wall. barriers that would seem insurmountable to others. Francisco Itzaina also suggests that multinationalsPerhaps burned by experiences in the past, Brazil’s have used Brazil as a training ground for management,leader has recognised that common sense and good when he says, “There is a good reason why a lot of thebrains are more important than political leaning, when multinational companies that have been operating hereit comes to running the economy. When President Lula for years are sending their executives to be trained intook over from Cardoso in 2002, he did not change the Brazil”.economic team. Not only are Brazilians highly skilled in handling externalAs Gaetano Crupi puts it: “He is a very intelligent man. complexity and economic volatility, they are alsoHe never changed the leadership of the economic technically valued. As Mark Pitt comments, “Brazil hasteam. He kept the president of the Central Bank and been able to export a lot of executives, especially inhe didn’t bring on any ill-prepared people. He surrounds the manufacturing and finance areas ... (for) engineershimself with smart people”. coming out of school, Brazil is probably as good as Korea, China, India”.In the thick of the global crisis, the government keptconsumer spending up with tax breaks on cars, This is, in part due to an entrenched culture of aspirationhousehold electrical goods, and construction materials. in the country, a diverse economy that has been fostering technical expertise in different areas, fromThe current administration has also opened up a agriculture to hydro-electricity over many decades anddialogue with the business community. As Mark Pitt world-class universities in São Paulo and Rio de Janeiro.says, “The current President does talk to business, issensitive to the issues, and listens to business leaders. In conclusion, the foundations are strong: politicalHe doesn’t always react the way business wants but, and financial stability, economic diversity, and strongthere is a much broader and deeper dialogue than ever leadership throughout government and privateexisted before and I think that will probably continue organisations. But it is the powerful forces that arewith the next President”. driving the New Brazil that are claiming the attention of multinationals across the world.The Brazilian government has steered its waythrough the global economic crisis and beyond.Although many in Brazil and abroad question theLula government’s prolific public sector spending, formany the government have demonstrated a long-termcommitment to managing a stable, robust economy andreducing its debt burden.A battle-hardened executive class“Anyone today who is thirty-five or over has cut histeeth in dreadful times in Brazil. They don’t take thestability that they have now for granted and they are notgoing to,” says Chris Wall.Brazilian executives have been forced to grow andadapt in extraordinary economic circumstances,something which gives them a depth of experience,adaptability, and flexibility that is not necessarily sharedby their more sheltered European and US counterparts. 16
  • 17. Part 3: New Brazil’s opportunity driversThere are three major factors attracting those looking As Gaetano Crupi explains: “Once people have accessto Brazil for future growth: first, the size of the to money, they can afford out-of-pocket expenses atconsumer market; secondly, the development of world- a drug store, for example ... . The hospital business isclass industries such as energy; and thirdly, greater definitely a place where the market is expanding.interaction with global entities – economic as well as There is a lot of room for growth. That is why wesporting. Francisco Itzaina sums it up, “The opportunity have seen a lot of mergers and acquisitions in theis there for anybody who wants to grab it”. healthcare industry”.The consumer market“You have twenty million people who suddenlyhave purchasing power. We are talking about basicallytwenty million people that have been moved eitherfrom a Class D to a Class C, or from a Class C to B”,says Gaetano Crupi.Brazil is the fifth most populous country in the world,with over 190 million people. The commercial point,though, is that there is a growing class of millions whohave purchasing power for the first time, and a small The Bolsa Familia wealth redistribution programmebut powerful class at the top of the pyramid with a has contributed to this phenomenon, lifting some 30strong taste for luxury goods. These evolving consumer million people out of poverty, by providing financialgroups present a huge opportunity for Brazilian aid to poor Brazilian families on condition that theircompanies and multinationals. children attend school and are vaccinated. Still poor by global standards, this group has significant collectiveThe shift in purchasing power has been truly dramatic. purchasing power. As Chris Wall says, “It has suddenlyThe Fundação Getulio Vargas business school (FGV) created a lower middle class of people with some kindcalculated that the number of people in ‘Class C’ of disposable income, that they didn’t have before ... .shifted from 42 percent to 52 percent from 2004 -2008. They have a surplus at the end of the month, andThe Class C population is described as people with a whether that is thirty dollars, or less, they suddenlymonthly income of roughly $600-$2,500, who have jobs become consumers for the kinds of things that you andin the formal economy, and who have access to credit. I take for granted. Brazil has suddenly got a market forIn a country of 190 million people, that’s an addition of popular cheap family cars, flat screen TVs, PCs, mobileroughly 20 million consumers with purchasing power in phones”. Companies in Brazil have taken advantagejust four years. The effect on all consumer goods and of this market, structuring finance packages to suitservices industries has been and will be dramatic. Just payments of around thirty dollars a month.one example of the impact of the growing consumermarket is in the healthcare market. 17
  • 18. Part 3: Avoiding sand: New Brazil’s solid foundationsFor the new middle classes, credit is also becoming It’s amazing; São Paulo has more than seventysteadily more available. Consumer credit has grown by shopping centres – the highest number in Brazil and,28 percent each year in nominal terms over the past for that matter, in the world”. Tiffany, the jeweller, hasthree years. Loans for bigger items, such as cars and more stores in São Paulo than anywhere else in theapartments became available for the first time, as part world and over the years, Louis Vuitton’s global profitsof a series of reforms carried out in Lula’s first term. have peaked in São Paulo.Meanwhile, at the top end of the market, there is a Overall, the consumer market from bottom end, cheaplarge and growing consumer market for luxury goods. goods to top end luxury is huge and growing andAs Luiz Calil points out, “We have the second biggest the trend is set to continue, as shown in Exhibit 5.dealership for Porsche in the world; we have the Goldman Sachs predicts that consumer spending willsecond biggest dealership for Lamborghini in the increase by 4 percent in 2010, compared with a flatworld; we have the largest fleet for instance, for consumer spending figure for advanced economies.aeroplanes for agriculture in the world; we have the Over the long term, Goldman Sachs predicts thatlargest fleet of helicopters in the world. As for personal Brazil’s income per capita will continue to rise, and theconsumption, São Paulo is the city that has the highest multinationals and Brazilian companies best positionedconsumption of Italian wine in the world; I think we to take advantage of that growth will be the globalhave one of the highest levels of consumption of leaders of the future.Champagne in the world. 18
  • 19. Part 3: Avoiding sand: New Brazil’s solid foundationsExhibit 5: A strong consumer marketEmerging Market consumption should be strong in 2010 Income per capita expected to continue to rise12 Average growth 2009 – 2010 (%) 80 000s USD 7010 60 8 50 6 40 30 4 20 2 10 0 0 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050-2 EM Brazil World Germany France Japan Adv. Econ US Italy Mexico UK Spain-4 Source: Goldman Sachs (Exhibit shows adapted charts)Brazil’s emergence as an energy superpower Exhibit 6: “We have discovered incredible resources of oil, to the Brazil’s potential position in global oil productionpoint that Brazil could probably climb the ladder to one 250of the five or six largest producers of oil in the world.And maybe even higher than that, depending on how 200big this layer of oil is,” says Francisco Itzaina. 150Oil 100 50Petrobras announced in 2007 that it had discovered 0one of the world’s largest oil fields in the Santos Basin Saudi Iran Iraq Kuwait Brazil UAE Venezuela Russia Libya Nigeria Kazakhstan US China Qatar Mexico Algeria Brazil Angola Norwayin the Atlantic Ocean. Although the actual volumeof recoverable reserves is still unknown, it couldboost Brazil’s reserves from 14.9 billion barrels ofoil equivalent (boe) to some 100 billion boe, making Source: Credit Suisse and FIESPit the largest oil discovery in the world in the last 20years. Once the pre-salt layer is exploited, according toCredit Suisse and FESP (the Federation and Centre forIndustry in São Paulo), this discovery is likely to propelBrazil from the 16th largest oil and gas-producing nation– currently among Algeria, Mexico and Angola – to the5th largest in the world, up amongst the oil-producingnations of the Middle East, as shown in Exhibit 6.Whilst the government has ring-fenced the pre-saltareas for extraction by state-owned Petrobras, there willbe plentiful opportunities for multinationals to benefitboth in the non-pre-salt areas and as non-operativepartners in the pre-salt zone. As Chris Wall explains,“The Petrobras corporate plan was considered by manyto be the largest in the world when it was launched.They’re spending one hundred and seventy four billiondollars, or thirty billion dollars a year over the next 19
  • 20. Part 3: Avoiding sand: New Brazil’s solid foundationsfive years. They are spending on ships, on rigs, on A lot of the salt is in ultra-deep water, and as thesubmersibles, on pipelines, all the things you can exploration moves deeper and deeper the more theimagine, education and training in the oil and gas sector, technology will need to be developed.safety and all the rest of it ... in some cases there is a60 percent requirement for local content. In other cases Brazilian start-up OSX Estaleiros, part of the EBX groupthere is a zero requirement”. owned by Brazilian billionaire Eike Batista, is already on course to supply ships and other equipment to the oilAs Richard Taylor summarizes, “There will be many, and gas industry, having raised R$2.5 billion (US$1.37many opportunities for small companies, medium-sized billion) in an IPO in the first quarter of 2010.companies, and large multinational companies to besuppliers to the operated fields”. Spotlight on opportunities in oil for multinationals: Wellstream There are mid-sized multinationals which have already taken advantage of the opportunities presented by Petrobras’s oil discoveries in the Santos Basin. Wellstream is one such example. Wellstream is a flexible pipeline manufacturer that came to Brazil in 2003. It became the first company to qualify products for operation in 2,000 metres water depth following many years of work in technical cooperation with Petrobras. Wellstream is based in Newcastle in the UK, and now have a manufacturing facility in Niteroi, Brazil to take advantage of growing market demand in the region. Richard Taylor says, “Now the Brazil operations are I think the most profitable and biggest operations that they have in their portfolio”. Renewable energy The Boyden View: opportunities for small, medium and large sized multinational companies It is not only oil and gas that make Brazil such a significant energy player. As the rest of the world struggles with rebalancing their renewable energy “The Brazilian economy ‘emerged’ some time credentials, Brazil has been investing in hydro-electric ago for large global companies. They are all here, plants and ethanol fuels for cars for 30 years. Brazil and generally well-structured. Now it’s more sources more than 80 percent of its energy from interesting to see the way small and medium big hydroelectric projects. Despite objections from firms are flocking in. They often start with a sales environmental groups, there are plans to build two or technical assistance activity and expand from new hydroelectric plants on the Madeira River in the there. At Boyden we have a substantial activity Amazon region and a further plan to build a dam at in helping such smaller firms find their very first Belo Monte on the Xingu river (Amazon region). people here”. William Penney, Managing Director, Boyden, But it is really the ethanol-fuels that have attracted São Paolo the world’s attention. Brazil has the largest and most successful ethanol industry in the world, based on 20
  • 21. Part 3: Avoiding sand: New Brazil’s solid foundationshome-grown sugar cane, not on food grains as in many and cheaper. Definitely Brazil will become a leader inother countries. that area”.Following the oil shocks of the ‘70s, which doubled Brazilian innovation has enabled flex-fuel technologyBrazil’s import bill within a year and triggered to become workable and affordable. The Brazilianuncontrolled inflation, the government made mandatory subsidiaries of Bosch Magneti Marelli and Delphithe use of ethanol blends with gasoline. Last year, 94 Automotive Systems have been instrumental inpercent of all new cars were ‘flex-fuel’, with engines developing flex-fuel technology.that allow for either gasoline or ethanol or any choiceof the two, depending on the driver’s choice. Brazil is The latest innovation within the Brazilian flexible-fuelnow the world’s largest ethanol exporter and its second technology is the development of flex-fuel motorcycles,largest ethanol producer after the United States, as with the first flex motorcycle launched by Honda inshown in Exhibit 7. March 2009.As Richard Taylor says, “Brazil has reached a world There are big opportunities for growth and investmentleadership position here ... it will probably be at the in this area.forefront of new innovations as well”. Francisco Itzainaechoes this when he says ,“You find this country George Soros invested $800 million in ethanolleading the world in sustainable energy technology. distilleries through a local subsidiary, Adecoagro; theMany things that are being done today are an incubator Cargill Group bought 63 percent of Cevasa, the largestfor the technology that will change the years ahead”. ethanol plant in Brazil; and the US’s Global Foods will invest US$1 billion to construct ethanol plants. RichardGaetano Crupi notes, “Brazil has more patent protection Taylor points out that there is “a big opportunity to havefilings in energy and agriculture than pharmaceuticals more bio components in trains, buses and electricityor any other area. So there is a lot of investment there generation equipment”. Most public transport isand there is a lot of technology and it is getting cleaner running on fossil fuels, but could be run on biodiesel. 21
  • 22. Part 3: Avoiding sand: New Brazil’s solid foundationsExhibit 7: Electricity and ethanol productionElectricity generation Brazil’s ethanol production* Global ethanol productionSource (Kw hours, bn) Barrels per day (000) % (2006) *Indicates small volume of biodiesel Total = 40bn litres Hydroelectric Nuclear Other renewables 400 Other Conventional thermal400 EU 8% 4% 350300 300200 US 250 46% Brazil 42%100 2000 150 1995 97 99 2001 03 2005 1997 98 2000 02 04 06 07 Source: EIA/Financial Times Source: EIA/Financial Times Source: Brazil Institute Wind The Boyden View: Local executives with expertise at putting together local teams There is also potential for more wind power. Brazil depends on hydroelectricity for more than three- quarters of its electricity, but authorities are pushing biomass and wind as primary alternatives. Wind energy’s “We advise US and European clients keen greatest potential in Brazil is during the dry season, so to invest in construction projects to hire it is considered a hedge against low rainfall and the ‘international Brazilians’ who can communicate geographical spread of existing hydro resources. well with headquarters. Not only this, but executives who are expert at putting local teams In December 2009, the Brazilian government conducted together – they need a combination of industry its first wind-only energy auction. More than 1,800MW expertise, recent local knowledge and experience of wind energy was contracted at $82.8 per MWh. in working with global companies. The proceeds of the auction will allow for the construction of 71 generation projects across five states Sometimes our clients want to bring a senior in the northeast and south of the country. The auction executive over from the corporate base to attracted a number of international players, including the oversee the investment. This can work, but local units of Energias de Portugal, Electricité de France, we put a lot of work in crafting these roles to Spain’s Iberdrola, EnerFin of the United States and make sure first, that the responsibilities and several Brazilian companies. expectations of the expatriate are very clear, and secondly, that the accountability of the Brazilian executive is realistic. When we review the final candidates, we then need to make sure, of course, that as ‘co-leaders’ they will work together well.” Jim Hertlein, Managing Director, Boyden Houston; Director Boyden World Corporation 22
  • 23. Part 3: Avoiding sand: New Brazil’s solid foundationsConstruction and infrastructure“Construction is going to be big, and not only for the It is not only Brazilian companies who are well positionedreasons of the Olympics and World Cup and so forth, to capitalise on these opportunities. The constructionbut also from a housing perspective.... Today hiring an market in Brazil is well developed and has a lot ofengineer is tough. There are not enough engineers out experience working with international suppliers, such asthere and so those are the technical jobs that are going Thales, Siemens, and Bombardier.to be in very high demand”, says Gaetano Crupi. The boom beyond the OlympicsThe Olympics 2016 It is not just the Olympics that are stimulating investmentThe Wall Street Journal’s Market Watch says that in infrastructure and construction. Boyden’s José Pedrosome estimates predict that the Olympics will bring in Rossi tells us, “local companies are investing heavily inas much as US$51 billion in investments. Not only is infrastructure, including port facilities”.there to be huge investments in the stadia and sportsfacilities, but also in airports, monorails, light railways, The investment in port facilities is particularly interesting.bus routes, and a high speed train from São Paulo to Bahia, for example, is investing in the creation of a newRio de Janeiro. Virtually every sector that is tracked port complex, Porto Sul, which will include a port, railway,by local and international investors is set to benefit in waterways, roads, and an international airport withsome way from the Olympics: steel companies, mobile industrial capacity. Bahia is also setting up an industrialphone carriers, airline operators, and media companies naval centre in the Bay of All Saints, which is the secondfor example, are expected to benefit. biggest navigable bay in the world and the biggest deep water gulf in Brazil. The enterprise will be aimed at theThe fact that the country will also host the 2014 FIFA construction of petroleum platforms, including semi-World Cup gives Brazil further incentive to upgrade submersives, Floating, Production, Storage and Offtakeits infrastructure. The Brazilian government have (FPSO) ships, drilling platforms, oil tankers, and otheralready launched its flagship investment programme types of vessels.aimed at stimulating economic growth and developinginfrastructure. Announced in 2007, the Accelerated Overall, the opportunities for Brazilian and foreignGrowth Programme has allocated about US$300 billion multinationals in Brazil abound, on the basis of the vastfor the next four years and a further US$200 billion for and growing consumer base, the potential of Brazil bothinvestments post-2010. as renewable and petro-chemical energy power and the innumerable opportunities that come from both OlympicIn the rail sector, for example, the Brazilian Government fever and wider economic growth.has pledged to the region US$4 billion in the lead-up tothe World Cup. 23
  • 24. Part 4: The Boyden View: Hiring in Brazil Understanding ‘o jeitinho brasileiro’ “Egos flourish in a different way in different parts of the world”. Francisco Itzaina President – South America of Rolls-Royce InternationalIn order to understand talent in Brazil, one has to and Italian are still spoken alongside Portuguese.understand “o jeitinho brasileiro” – meaning the Gaetano Crupi points out that, “During the militaryBrazilian Way. The Brazilian Way is a unique formula, years, France was the one really hosting all theredolent with European and immigrant influence, philosophers and thought leaders from Brazil. So thatmorphed into its own unique South American form. link always existed”.As Chris Wall says, “Brazil is mixture of Germans andItalians and Spanish and Portuguese and Arabs from Chris Wall calls Europe Brazil’s ‘muse’: “Brazil tendsthe Middle East, not forgetting the huge population of to look towards Europe much more than it tends toBrazilians who are descended from the slaves which look towards the United States as its muse in industrialwere brought over from Africa to work on the sugar development culturally and commercially”.plantations, and the large population in São Paulo whichis descended from Japanese immigrants. All mixed up The relationship with the US is interesting.together, all the result of waves of immigration over An Economist article suggests that Brazil and thethe last 100 to 130 years”. São Paulo is the largest United States have more in common than they realise,Italian city in the world, for example: home to 6 million with the relationship involving egos in a differentItalians, whereas the entire metropolitan area of Rome, way. As Gaetano Crupi puts it, “Brazil does not likethe largest city in Italy itself, is home to a maximum the ‘young child syndrome’, they do not want to beestimate of 3.7 million people, according to the OECD. dependent on the US”.The entrepreneurial spirit is strong. Chris Wall observes So, to take Francisco Itzaina’s axiom, that “egos“There is this drive. Don’t forget it’s the new world flourish in a different way in different parts of the– people whose immediate relatives left Europe for world”, drawing upon Brazil’s executive talent meansBrazil, took a risk, and so they tend to be people who understanding what makes egos flourish in differenthave grown up in a culture of ‘can do’. And a culture contexts, cultures, and regions.of ‘yes, my parents might have been poor, but I amgoing to be better’”. Klaus Pavel, Chairman of Aachen- Next, we share insights from senior executives andLaurensberger Rennverein, makes the contrast with Boyden professionals on how to go about hiringEurope: “My impression is that there is quite a strong talented executives in Brazil and the skills that areentrepreneurial culture, maybe more there than in strategically and tactically important.Europe, where my impression is that it is suffering fromso much regulation”. 1 The multi-sensory imperativeHowever, the cultural link with Europe is powerful. The first thing for foreign executives in multinationalsAbout 54 percent (103 million) of Brazilians are mainly who are hoping to expand their Brazilian subsidiariesof European origin, descendants of immigrants from and need to find the right talent, is to travel to Brazil toPortugal, Italy, Spain, Germany and Eastern Europe. get a feel for the jeitinho brasileiro. Francisco ItzainaSouth of São Paulo, in the rich agricultural region, there advises: “The first thing to do is get on a plane andexist European-style standards of living, where German come over here, in order to understand everything. 24
  • 25. Part 4: The Boyden view on hiring in BrazilThat cultural distance – it has to be bridged. There is The Fundação Dom Cabral/Columbia Law School surveynothing better than the direct exploration of a country on the top 20 Brazilian multinationals shows that topfor you to know that you have to be there, understand multinationals realise that home-grown talent is best:how it all works”. all 20 CEOs are Brazilian. Only five of the 157 board members are non-Brazilian (3%). Eight of the top 20 say2 Invest in home-grown talent, not expatriates that they speak Spanish or English as well as Portuguese. John Murray adds, “You want a good manager? We willThe quality of home-grown talent is there. As Klaus find you an executive who understands – don’t bring onePavel says, “There are excellent executives in Brazil, down, hire one locally”.there is very good education, good universities: theydon’t have to come from overseas necessarily. They 3 Understand the benefits that arehave good resources in Brazil as far as management is meaningful locallyconcerned”. Brazilian perks are somewhat different in Brazil toSkills have expanded over the last decade, with most elsewhere in the world. Cars, for example, are stillBrazilians now speaking a number of languages, for important, as Francisco Itzaina explains: “Recognitionexample. “The abilities of most Brazilians have grown for all people is an important issue, the car that youtremendously over the years,” observes Francisco give somebody, you know cars in Brazil are still anItzaina. “When I first came to Brazil thirty-four years important factor”.ago, it was difficult to hire anybody off the street thatwas bilingual. Today, practically every kid you talk to He also touches on the world of golf and why it has anowadays speaks English”. Mark Pitt adds that home different status value in Brazil: “There are various aspectsgrown talent has the advantage of being more stable that are different from other parts of the world. In the USand less likely to head back home: “Companies that you go play golf anywhere, for not too high a fee. In Brazilhave been successful over the long run, most of them you have to be a member of a country club and mostpepper the structure with local talent. They have of the time you have to pay fees of maybe 135 to 160evolved from the tendency to put in expats. They have Brazilian Reals an hour. All of these make a difference”.got that continuity in management development overdecades”. Brazilians understand the Brazilian way. In general, benefits packages for expat executives stillThey have their own networks. It demonstrates that need to be bigger in Brazil than in European or ‘home’your company is investing locally. As John Murray says, countries. Klaus Pavel explains, “Packages are much“They should know how government works here. bigger because you get the house and you get theThey should have their own contacts and their own servants and you get a couple of cars, if you are talkingnetworking. That is something the expat can about high level management and I think you get morenever have”. benefits over in Brazil than you get in Germany”. 4 Use the power of job titles and big brands In Brazil, job titles and big brand names have status value. As Chris Wall observes, “There is a desire to have a title. Which is what we sometimes call the hard subjects, engineering, dentistry, medicine – the labels. These are taken tremendously seriously in Brazil. And to be able to work in a company that is a world name, or a household name ... there is this ambition to get a foothold to work for either one of these global companies, or for a Brazilian company that is competing with them”. 5 Use a personal approach, and concentrate on relationship-building A significant difference between the Anglo-Saxon and the Brazilian way is in the importance of personal relationships and informal networks in doing business. 25
  • 26. Part 4: The Boyden view on hiring in BrazilAs Mark Pitt describes, “In the US, communication 6 Rigour is paramount: don’t be seduced by the is pretty much canned and electronic. People will tactile approachdepend a lot on very formal networks to get thingsdone. I think there is an awareness now that informal The softer relationship is crucial, but make nocommunication and networking are important get mistake: it does not mean that Brazilians are anythings done more quickly”. The temptation to less professional. Chris Wall shares his experience:communicate at arm’s length should be avoided, as “Brazilians are quite formal in business. They come toChris Wall says; “There is a Brazilian way of doing meetings supremely well prepared on your business,things which is Latin, which is tactile, which is to do your website, your product, who else you are sellingwith building up relationships, not to do with hands to ... a certain formality which comes straight fromoff ... Brazilians do business with people they business school. But they do business with youconsider friends”. because you have ‘hugged each other’ in a manner of speaking. That is the drinks, the dinner, talking aboutRichard Taylor describes the frustration that can each other’s families, meeting the family. I suppose onebe encountered by people used to an Anglo- of the dangers is to be seduced into the tactile part andSaxon approach: “A lot more time is spent building think that I will forget about the formality. Don’t. Yourelationships. It can be quite frustrating for someone have to get that right”.who is more used to a US-style approach of organisinga meeting, expecting an outcome from that meeting 7 The warmth must extend to the factory floorand going home with a contract. It takes time to buildthe relationship, and it’s a little more pronounced here”. Being good at relationships is not just about being good with other senior executives. Luiz Calil describes howIn summary, it is about a ‘softer relationship’, as Luiz he aims to create a ‘second home’ for employees,Calil puts it: “Our people work hard and they are very “We want to be the second home of our people,professional, but at the same time they create an generating an environment where people feel they areatmosphere where you can have a softer relationship. in their second house. We generate an environmentVery sincere, very open”. to care about the safety of people working in the operation. We provide a great place for people to develop”. 26
  • 27. Part 4: The Boyden view on hiring in BrazilThis is clearly an approach that works; Caterpillar was it means that you may not necessarily be able to linkvoted best company to work for in Brazil in 2009. performance with reward, and that is extremely important for productivity”.Francisco Itzaina echoes the idea of creating a homeaway from home, when he talks about the importance 9 Ability to communicate with the Headquartersof bringing in the families at all levels: “I’ve hadsituations in the past where I had direct command For the executive in the multinational, a skill is needed inover thousands of people, and in those cases, you communicating between the two worlds of the Brazilianhave a very close approach to the people. You know, reality and the corporate Headquarters. As Mark Pittbringing the families together once a year, all that has a says, “if you are talking about American companies,tremendous importance. I’ve seen the same in the US, you need an executive that can translate or articulatebut it’s different, there are cultural elements”. the challenges and the quirks of the Brazilian marketIt is a “management presence by walking around” to the US executive team”. Boyden’s John Murraythat works, according to Gaetano Crupi. echoes Mark Pitt: “The executive has got to have skills in communicating within multinational organisations. YouPersonal relationships at every level are more important don’t want to let a prima donna loose in Brazil. You needin Brazil than elsewhere, as Mark Pitt describes: somebody who already has experience in making sure“In countries like Brazil, you have got to go a little bit that the Headquarters is well-informed all the time. If hefurther in terms of feedback, people expect more face has worked abroad in one of these offices then it makesto face contact than in Europe or in the US”. him even stronger”. John Murray adds that the MBA qualification can be valuable, because it demonstrates an8 Flexibility ability to adapt in an international environment: “A foreign MBA shows that the executive can adapt, that he hasThere are significant structural and ethical challenges been abroad, he has studied abroad and he has got thein doing business in Brazil. Executives therefore need language skills”.to have a certain flexibility about them in order to getthings done well. Klaus Pavel describes this: “The 10 Maximise the Brazilian talent you Brazilians are very, very flexible and a German manager, already havefor example, who adopts an ‘official’ approach, hasto learn that you have to be flexible in order to be In the global recession, financial capital from Brazilsuccessful in Brazil. That is very, very important, yes”. was used to ‘shore up the balance sheet’ by manyMark Pitt describes firstly the ethical complications that multinationals. Whether or not in a global recession,make flexibility critical: “[You need] an executive that human capital should also be maximised across thecan execute on the ground with all the restrictions that global company. Use Brazilians to train other teams,exist in Brazil, but can execute according to the rules increase productivity and enhance rotation programmesof an American company”. Secondly, he describes the in order to pluralize their expertise internationally. Brazilianregional complexity that makes flexibility so necessary. executives are on the big stage and have much to“Brazil is a large and complex country, very similar to impart to their global colleagues.the US in that sense, and like the US, you cannot besuccessful just with a national plan, you have to have a In conclusionplan that is broken up by region. Some regions in Brazilare so different that things you apply in one region “You have got to have an executive that is sharp,aren’t applicable in others”. can make decisions, but at the same time is smooth, is somebody enjoyable to talk to, is someone thatThe mandatory salary increase also presents a believes in a win-win approach” – so Gaetano Crupichallenge to senior executives, again forcing a more sums up the talents required of the best seniorflexible approach. Gaetano Crupi explains the challenge executives in Brazil. Finding such people is no meanthis presents to rewarding good performance: feat. This is why Boyden and others have experienced“Brazil has an annual, mandatory salary increase. This is teams on the ground in São Paulo and Rio de Janeiro,a huge challenge – how do you reward salary increase with strong networks, helping the world’s bestwith performance when you know that you are going companies find the strongest talent to head up theirto have a mandatory salary increase that everyone will expansion in Brazil.get, regardless of performance, and that is usually alittle bit over inflation? That is a big challenge because 27
  • 28. AppendixAbout the reportThis report was developed by Boyden World Corporation in collaboration with the strategicresearch and consulting group Lighthouse Global (www.lighthouseglobal.eu.com). Specialthanks go to Dan Margolis, at business and financial communications firm FD (www.fd.com),for his perspective and support. The content was created from a combination of primary andsecondary data sources, and a series of interviews with business leaders and experts, including:• Luiz Calil, President of Caterpillar, Brazil • Francisco Itzaina, President – South America of Rolls-Royce International• Gaetano Crupi, General Manager of Abbott in Brazil • Mark Pitt, President of Sherwin Williams in Brazil • Klaus Pavel, Chairman of the Aachen-Laurensberger Rennverein • Chris Wall, Business Specialist for Brazil at UK Trade and Investment• Richard Taylor, CEO of Taylorenergies Business Development, Chairman of CleanStar Brasil Bioenergia Ltda, former President of British Petroleum in Brazil and founding Director of the International Business Academy for Development delivering executive education between the UK, Brazil and ChinaThe Boyden ReportsOther reports in this series:The Boyden Report: India – The Sun Rises on the Indian ExecutiveThe Boyden Report: China – Exploding the Myths in ChinaThe Boyden Report: Latin America – Multi-latinas drive Latin America’s DestinySources• Banco Central do Brazil• Federation of Industries of the State of São Paulo (FIESP)• Exame• IBGE, Instituto Brasileiro de Geografia e Estatística• Goldman Sachs • Boston Consulting Group• United Nations Conference on Trade and Development• The Financial Times• The Economist• Wall Street Journal• USA Census Bureau• CIA World Factbook• University of Austin, Texas• Trusted Sources Research and NetworksAbout BoydenBoyden is a global leader in the executive search industry with more than 70 offices in over40 countries. Founded in 1946, Boyden specializes in high-level executive search, interimmanagement, and human capital consulting across a broad spectrum of industries.For further information and to access additional articles, papers and research from Boyden,visit www.boyden.com 28
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