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The Brazilian Decade by Roland Berger - Strategies Driving Innovation and Growth

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The Brazilian Decade by Roland Berger - Strategies Driving Innovation and Growth: Time to act in a unique situation (April 2010)

The Brazilian Decade by Roland Berger - Strategies Driving Innovation and Growth: Time to act in a unique situation (April 2010)

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  • 1. THE BRAZILIANDECADETime to act in a unique situationStrategies driving Innovation and GrowthSão Paulo – April, 2010
  • 2. BRAZIL 2010 – Time to act in a unique situationThe l b l i iTh global crisis –Where are we after year one page 3Unique strengths –Why Brazil is doing so much better page 11A Brazilian decade –Yes, but no time to lay back page 17Innovation is key – o at o s eyJoint public and private effort required page 26Corporate Brazil as innovation driver – pStrategies for global growth page 36 2
  • 3. The global crisis –Where are we afteryear one 3
  • 4. Situation at start of 2010 – All the key indicators move upwards ECONOMY FINANCE MOOD Global GDP Dow Jones (index) Ifo global business climate (index) -3.1% -54% -64COLLAPSE pointsRECOVERY +3.0% +58% +49 points As at start of 2008 Down 47% compared Down 16 pts. compared to 06/07 average to 06/07 average TODAY COMPARED TO BEFORE THE CRISISSource: IMF, Bloomberg, Ifo Institute, Roland Berger analysis 4
  • 5. Global GDP has recovered quickly – V-shaped trendGlobal GDP, indexed (Q2 2008 = 100) and global GDP OUR CRISIS SCENARIOSgrowth quarter-on-quarter > Turning point mid-2009 100.0 +0.4% 99.9 > Strong recovery +1.0% > Our predicted likelihood in +1.0% +1 0% 2009: 2009 75% -0.1% > Scenario realized +1.1% > Turning point 2010 -1.4% 1 4% > Almost zero growth until then 98.6 +0.9% > Our predicted likelihood in 2009: 23% -1.6% > Scenario not realized 96.9 > Depression continues until 2010 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 > Our predicted likelihood in 2007 2008 2009 2009: 2% > Scenario not realizedSource: IMF 5
  • 6. Stock markets have made partial recoveriesKey share indexes(highs, lows and index at start of month) Are stock markets aDow Jones Dax Shanghai Composite good indicator? 14,165 8,106 6,092 YES > They react immediately to +54% company figures, shifts in +81% +58% the market, etc. > They reflect growth 10,326 5,653 , potential and general 3,088 economic outlook NO > Market speculation and p irrationality ignore 6,547 3,666 1,707 fundamental data > Not all companies are10/07 02/09 03/10 06/07 03/09 03/10 10/07 11/08 03/10 listed on stock markets – not the full storySource: Bloomberg 6
  • 7. Other key indicators are also pointing toward recoveryBrent oil price Global exports Ifo global business climate(U$/barrel1)) (U$ bn) (index)140 4,321 115 +96% +31% 31% 100 +88% 3,517 79 2,685 51 4208/08 02/09 03/10 Q2 2008 Q1 2009 Q4 2009 Q3 2007 Q1 2009 Q1 20101) At start of monthSource: Bloomberg, Ifo Institute 7
  • 8. But it aint over yet … Economic growth is still below pre-crisis levels (IMF 2010 forecast is +3 9% compared to +5 2% in 2007) +3.9%, +5.2% Lagging indicators have not yet bottomed out (unemployment, (unemployment insolvency rate, state indebtedness) rate Causes of the crisis have not been dealt with (regulation of financial markets, structural problems in some industries, etc ) markets industries etc.) Risk of flash in the pan effects ( (economic stimulus programs, trust) p g , ) Boom markets fuelled not just by fundamental data, but also cheap money from central banks 8
  • 9. HOW LONG WILL THE CRISIS LAST?Forecasts are difficult and still vary widelyGDP growth [%] IMF forecasts for development of global GDP 2010 growth forecasts in 2009 3.0 WORLD 2.2 IMF 3.9 World Bank 2.7 OECD 1.9 19 0.5 BRAZIL -0.8 OECD 4.8 -1.1 -1.3 IMF 4.7 Oct O t 08 Nov N 08 Jan J 09 Apr A 09 Oct O t 09 Jan J 10 World Bank 3.6 36Source: IMF, Consensus Economics 9
  • 10. OUR ASSESSMENT – Three countries have the key for globaleconomic recoveryGlobal share [%] Recovery in 2010 Population1) GDP2) possible, if CHINA 19 11 CHINA > 7% GDP growth th AND INDIA 17 5 INDIA keeps up AND USA 4 21 USA show first signs of TOTAL 40 37 recovery y 1) World population 2008: 6.7 bn 2) World GDP 2008: USD 70.7 trSource: CIA World Factbook 10
  • 11. Unique strengths –Why Brazil is doing somuch better 11
  • 12. According to the IMF forecast, Brazil will be the only BRIC country togrow at a pre-crisis rate in 2010Average annual GDP growth: 2004-2007, 2009 and forecast for 2010 [%] 11.3 11 3 10.0 9.1 7.4 7.74.9 4.7 4.7 8.7 3.9 39 3.6 36 5.6 -0.8 -0.2 -9.0 World Brazil Russia India China Annual average 2004-2007 2009 2010 (IMF forecast)Source: IWF 12
  • 13. Ibovespa has nearly reached its all-time high again – It hasrecovered much better than RTS and Shanghai CompositeIbovespa [Index] RTS [Index] Shanghai Composite [Index] All-time All time All-time All time All-time high 73,438 high 2,464 high 6,124 May 2008 Jun 2008 Sep 2007 67,228 1,430 3,08838,383 1,126 1,707 1 707 All-time low All-time low 29,435 492 1,161 Nov 2008 October 2008 Jan 2009 All-time low Jan 2006Jan 1, 2006 Mar 1, 2010 Jan 1, 2006 Mar 1, 2010 Jan 1, 2006 Mar 1, 2010Source: Bloomberg 13
  • 14. Brazil is already an economic heavyweightBrazils global ranking in selected areas Economy (according to Agricultural land Exports of sugar, purchasing power ethanol, soy and parity) it ) Size, population beef b f Ethanol Currency stocks production 10 9 8 7 6 5 4 3 2 1 14
  • 15. Brazils potential is based on unique strengths and on strongopportunities> Young, dynamic population> S i Service-oriented attitude and flexibility i t d ttit d d fl ibilit> Large, partially unexploited offshore oil fields near the coast> The worlds largest land reserves world s (200 million hectares of unused agricultural land)> Largest rainforests on earth (enormous CO2 sink source of biodiversity and natural substances) sink,> Technology leaders in ethanol-driven engines and in offshore oil extraction> Globally, growing demand for ethanol and ethanol based technologies ethanol-based> Major upcoming events: World Cup in 2014 and Olympic Games in 2016 BRAZILS OPPORTUNITIES 15
  • 16. Brazil has a unique combination of four strengths to fostersustainable economic growthPOLICY CAPITAL MARKETS > Stable domestic and foreign policies – stabilizing > Conservative banking regulation prevented the institutions, balancing competing stakeholders collapse of the financial system (compared to US, interests, acting responsively on international scale Europe, etc.) > Overcoming historical economic volatilities O e co g sto ca eco o c o at t es > Net foreign c ed to – recent e e at o to et o e g creditor ece t elevation (inflation, exchange rates, etc.) – weathering the investment grade status economic crisis well, better than most other > Solid, transparent and efficient stock-market countries > Very large domestic market – public sector, > Brazil investing heavily in its future companies, households – Energy sector 2010-2030: BRL 1.960 bn > Growing middleclass, with increasing buying – World Cup/Olympics: BRL 97 bn power – Transportation e g TAV High Speed Train: Transportation, e.g. BRL 35 bn > Enthusiastic consumers – also in "crisis year" 2009 > Positive secondary effects on supplier industries, e.g. shipyards: > 40,000 new jobs createdDOMESTIC DEMAND INFRASTRUCTURE PROGRAMS 16
  • 17. A Brazilian decade –Yes,Yes but no timeto lay back 17
  • 18. Brazils future: The window is open for strong growthEIKE BATISTA, Business Week,February 22 2010 22,"We believe that in five years Brazil willbe the fifth-largest economy intheth world." ld " DB RESEARCH, report "Brazil 2020", January 20, 2010 "In 2020 Brazil will have outrun France and the UK and will be the seventh largest economy in 2020 " seventh-largest 2020. 18
  • 19. However, the look from the outside on Brazil shows the areas ofconcern for the countrys futureThe most problematic factors for doing business [% of responses]Tax regulations 19.0 –Tax rates 18.5Restrictive labor regulations 14.0Inefficient government bureaucracy g y 11.0Access to financing 10.4Inadequate supply of infrastructure 9.5Corruption 7.0Inadequately educated workforce 4.9 49Policy instability 1.1 +Inflation 1.0Poor work ethic in national labor force 0.9Foreign currency regulations 0.9 09Crime and theft 0.7Poor public health 0.6Government instability/coups 0.3From a list of 15 factors, respondents were asked to select the five most problematic for doing business in their country/economy and to rank them between 1 (mostproblematic) and 5. The bars in the figure show the responses weighted according to their rankingsSource: WEF, Global Competitiveness Report 2009-2010 19
  • 20. The Brazilian economy in early 2010 – some signs of concernObservations1. Limited value added on products – in 2009, for the first time since 1978, export of basic products was higher than manufactured ones QUESTION How do these2. Not enough savings – only 14,6% of GDP in 2009, the weaknesses lowest level s ce 2001 (a d vs. 45% for C a) o est e e since 00 (and s 5% o China) interrelate and what is the key for3. First time since 2001 current account is negative – Central solution? Bank estimates deficit of USD 49 bn in 20104. Not investing enough in innovation – only 0,82% of GDP (vs. 3,40% (vs 3 40% for Japan and 1 42% for China) 1,42%Source: World Bank; Brazilian Central Bank; Associação de Comércio Exterior do Brasil 20
  • 21. There is a strong correlation between innovation and the share ofvalue added products in exportsCORRELATION BETWEEN INNOVATION ANDSHARE OF VALUE ADDED PRODUCTS IN EXPORTS IMPACTS FOR BRAZILShare VA > Brazils low investment in R&D highlyProducts1)[%] correlates with its low degree of value 100 added products – h dd d d t huge gap to leading t l di economies 90 Japan > Low share of value added products means 80 Germany that th t exports revenues are very sensible to t ibl t market price of commodities 70 USA > Conclusion: Brazil has to invest in 60 innovation de elop sustainable inno ation to develop a s stainable position as a world-leading economy 50 Expenditures Brazil on R&D/GDP2) [%] [ ] 0 0 1 2 3 41) Data for 2008 2) Data for 2006, except for Brazil (2005)Source: World Bank; OECD; UN-TradeCom 21
  • 22. Brazil is not investing enough in innovationExpenditures on R&D (public and private) as share of GDP 3.40% 2.61% 2 61% 2.52% 1.42% 1 42% 1.08% 0.82% 0.69% Japan USA Germany China Russia Brazil India (2006) (2006) (2006) (2006) (2006) (2005) (200 ) (2004) (200 )Source: World Bank 22
  • 23. As a result, Brazil dropped down 18 positions in global innovationrankingResults from the survey Global Innovation Index 2010According to the Global Innovation Index 2010 Brazil fell from 50th to68th position in the world rankings for innovation in 2010Among Latin American countries, the country was only the 7th placecompared to the 3rd highest rank last yearIn the group of BRIC countries, Brazil was the one who recorded theworst result this yearSource: Global Innovation Index 2010 (INSEAD, Confederation of Indian Industry) 23
  • 24. Brazil has to overcome structural weaknesses to take advantage ofits opportunities – Innovation becomes key> Only few innovative competence clusters so far – Oil exploration in deep waters – T i l agriculture Tropical i lt – Aircraft manufacturing> Overall, Brazils ranking in innovation is low "WE NEED MORE EMBRAERS" EMBRAERS J. Stiglitz et al. Economics Nobel Prize Winner & TeamINNOVATION AS KEY TO BRAZILS FUTURESource: Press research 24
  • 25. Close the innovation gap – The areas for action are clearBrazils world ranking in innovation categoriesINNOVATION CATEGORY WORLD RANK1)Capac y oCapacity for innovation o a o 28Company spending on R&D 29University-industry collaboration in R&D 34Quality of scientific research institutions 41Utility patents 59Government procurement of advanced t h productsG t t f d d tech d t 60Availability of scientists and engineers 60 Competitive disadvantage1) Of 132 countriesSource: WEF, Global Competitiveness Report 2009-2010 25
  • 26. Innovation is key –Joint public and privateeffort required 26
  • 27. To stimulate innovation, joint public and private effort is neededPrerequisites to stimulate innovationGOVERNMENT COMPANIES> Allocate the resources needed for innovation > "Key Innovation Drivers" push innovation in the from public and private sources worlds most innovative companies> Stimulate the creation of technology clusters > The CEO has paramount influence on both and networks, also between universities and innovation performance and innovation culture companies > There are many barriers to innovation that> Foster the creative class/creative cities need to be overcome by CEOs and their colleaguesRoland Berger Creative Cities Approach Results from "Innovating at the Top" – A joint study from Roland Berger and INSEAD 27
  • 28. GOVERNMENTFoster the creative class/creative cities – Example: USAEconomic success and creativity Economic success1)High + Austin CREATIVITY INDEX + San Francisco + Seattle + Boston Technology (innovation) LOSERS WINNERS – Detroit Talent (human capital) – Cleveland – Milwaukee – New Orleans Tolerance (openness) – Buffalo Creativity index2)Low High1) GDP, growth, per capita income, etc. 2) Technology, talent, toleranceSource: Richard Florida, Roland Berger 28
  • 29. GOVERNMENTTo enable and stimulate innovation you need the creative classDefinition of the creative class1) SHARE OF CREATIVE PEOPLE IN THE USAMembers of the creative class 50% Share of working populationdevelop new, useful things 45%through their work SERVICE 40% class> IT & mathematicall professions th ti f i> Engineers, architects, scientists 35% CREATIVE> Art, media, entertainment 30% class> Managers 25% WORKING class 20% 15% 10% FARMING, 5% FORESTRY 0% & FISHING 1900 1910 1920 1930 1940 1950 1960 1970 1980 1991 19991) The data in this section is based largely on research by Prof. Richard Florida of Carnegie Mellon University, who looks mainly at US citiesSource: Richard Florida, Roland Berger 29
  • 30. GOVERNMENTThe creativity index of a region or city consists of the three elementstechnology, talent and toleranceThe three "Ts" in detail How much high tech is in the region? Patents, technical universities, expenditures forTechnology gy R&D, etc. How many creative people live in the region? Scientists, engineers, architects, Scientists engineers architects advertisingTalent people, etc. How tolerant is a region? Share of different ways of life, artists, immigrants,Tolerance ethnical mixture, openness for new cultures, etc.Source: Richard Florida, Roland Berger 30
  • 31. GOVERNMENTOur successful "growing city" strategy for Hamburg suggestspursuing a "combination strategy" of technology and talentCreativity strategy HamburgInnovationcycle "COMBINED STRATEGY"Short Technology/ > Highly innovative and more IT Media talent traditional clusters exist side by side > Fewer "natural" interfaces between clusters Regenerative Nanotechnology > Creative sector forms its own energy cluster thanks to its economic importance Life sciences Need for talent > Maintain the existing creative Maritime and way of d f class and artistic/culturall scene l d ti ti / lt attracting it > Strong focus on strengthening Aviation Logistics/ports the technology base to attract "innovators"Long High R&D invest Low Very successful cluster Successful cluster Being developed Planning stageSource: Roland Berger 31
  • 32. GOVERNMENTSuccessful cities in Europe driving innovation – Strategic options forBrazil? STRATEGY DESCRIPTIONPEOPLE COPENHAGEN > Established high-tech cluster gFOLLOW DUBLIN > Creative diversity (tolerance)INNOVATIVE Tech- Toler- Talent being developed: used as nology anceTECHNOLOGY imageJOBS FOLLOW BARCELONA > High-tech cluster beingCREATIVE developedDIVERSITY Tech- Toler- Talent > Established creative diversity nology ance used as breeding groundCOMBINATION AMSTERDAM > Hi h t h should b expanded High-tech h ld be d dOF THE TWO VIENNA > Creative diversity plays different Tech- Toler- role for different clusters: catalyst nology Talent ance for creative sector, less important as an iimage f t factorBerlin and Hamburg have no clear strategy targeting the creative classSource: Roland Berger, Project Team 32
  • 33. COMPANIESWhat drives innovation on company level – Findings of our jointstudy with INSEAD WHAT WE DISCOVERED SCO > Ten "Key Innovation Drivers" push innova- tion in the world s most worlds innovative companies > The CEO has paramountWHAT WE WANTED TO FIND OUT influence on both innova innova- tion performance and> How leading companies drive innovation – and achieve innovation culture higher growth and profits> How CEOs personally push innovation – > Th are many b i There barriers and implement innovation policies and practices to innovation that need to be overcome by CEOs and> What other companies can learn from top innovators – p p their colleagues across regions and across different industriesSource: Roland Berger, INSEAD 33
  • 34. COMPANIESThe global perspective – We talked with the CEOs of the worldsmost innovative companies George Buckley, Olli-Pekka Kallasvuo, CEO CEO Jim Balsillie, Patrick Cescau, Fujio Cho, Co-CEO Group CEO Chairman N.R. Narayana Art Levinson, Franz Fehrenbach, Murthy, CEO CEO Chairman Henning K H i Kagermann, CEOSource: Roland Berger, INSEAD 34
  • 35. COMPANIESThe outcome of our study – Innovation at the top needs strongleadership, ten key innovation drivers1. Appoint the CEO as the innovation champion2.2 Celebrate an innovation culture3. Engage more innovation partners by sharing knowledge4. Organize diversity to p g y promote p positive friction and cross-fertilization5. Use customer needs to drive simultaneous R&D and business model innovation6 Set high standards and demanding challenges6.7. Encourage youth and keep a challenger mentality8. Appoint appropriate decision-makers and encourage transparent pp pp p g p information sharing9. Use processes judiciously10 Incentivize to innovate continuously10.Source: Roland Berger, INSEAD 35
  • 36. Corporate Brazilas innovation driver –Strategies for global growth 36
  • 37. Starting point 2010 – Why strategy and innovation in turbulenttimes?> Most companies have been reacting remarkably quick and decisive on the crisis – stopping investments reducing capacity, cutting costs investments, capacity> They are now navigating "at sight and with low speed" – continuously observing their markets clients, competitors markets, clients> Now is the time for smart and fundamental strategic moves – Consolidating the competitive landscape, taking over (undervalued) competitors landscape – Reshaping the industry, investing in new business models and innovation> Shaping the future competitive position of Brazils companies now! … while (international) competitors are busy about cost cuttingSource: Roland Berger 37
  • 38. Brazilian companies are increasingly successful in global marketsSelected multinationals from BrazilPETROBRAS – One of the largest oil companies in the world, a majorexporter of offshore oil extraction technologyVALE – Worlds largest exporter of iron ore and second largest mining fcompanyEMBRAER – Worlds third largest passenger aircraft manufacturerGERDAU – Largest manufacturer of long steel in the Americas with g g26 production sites in North and South AmericaCAMARGO CORRÊA – Dynamic conglomerate, with operations inengineering & construction, cement, steel, concessions, among others i i t ti t t l i th 38
  • 39. Brazilian companies are outperforming their international peers inkey industriesPerformance of top players Share price evolution of top players Europe US BrazilBrazil vs. Global Leaders (EBITDA Margin 2008) from selected sectors 2008-today1 Aerospace BR 12% 1 Aerospace -29% -21% -51% EU 10% US 9%2 Cosmetics BR 24% 2 Cosmetics -23% +7% +106% EU 20% US 23%3 Mining BR 42% 3 Mining -25% -2% EU 25%4 Oil & Gas BR 29% 4 Oil & Gas -32% 32% -20% 20% -12% 12% EU 20% US 19%5 Steel BR 22% 5 Steel -38%1) -48%2) +8% IN 15% JP 18%6 B Breweries i BR 43% 6 B Breweries i +7% -16%2) 16% +34% EU 15% JP 10%Brazilian industries gain competitive advantage on a global g p g g Weak global markets create take-over opportunities g ppscale1) Indian Company 2) Japanese CompaniesSources: Thomson Reuters 39
  • 40. Brazilian companies can now act out of the position of strength tobecome global leaders 1 Keep y focus on creating profitable growth p your gp g 2 Align your corporate strategy to a changing environment 3 Innovate and invest in new business models 4 Consolidate the industry on international scale 5 Secure access to capital markets 6 Rethink the role of the corporate headquarter p q 7 And become a truly global player 40
  • 41. 1 Keep your focus on creating profitable growth Profitable Growth : Example Camargo Corrêa Evolution of net operating revenues [BRL bn] Growth of top 100 companies and Bovespa Index CAGR +17% > Brazilian companies have been managing profitable growth 13.2 – EBTIDA growth 07-08: + 129% – Bovespa Index CAGR06-08: + 38% 10.5 > For the yea s a ead these co pa es a e o e years ahead ese companies are 8.4 pursuing ambitious growth plans with high 6.2 6.0 6.6 investment budgets 5.2 > Effective, value-based portfolio manage- , p g 19.9% 18.5% 19.9% 18.1% 19.2% 18.2% 18.4% ment becomes key to success > The principle for true value creation is simple: the return on capital must be p p 2002 2003 2004 2005 2006 2007 2008 higher than the cost of capital! EBITDA margin Source : Roland Berger, Company Annual Report 41
  • 42. 2 Align your corporate strategy to a changing environment Conglomerate Discount Brazilian conglomerates ROE performance [BRL bn ; 2004 2008] 2004-2008] Net revenues Top 1.000 Brazilian companies2) CAGR04-08 [%] 55 average Ebitda 2008 > Brazilian conglomerates have been 50 remarkably successful managing diversified 45 business portfolios 40 35 > In a changing domestic and global economy 30 these portfolios should be reassessed p Top 1000 25 – Clearly defining the portfolio logic: Brazilian Overperformers companies2) 20 related vs. unrelated diversification, average net 15 industry focus, competence clusters revenues CAGR 07-08 10 – Id tif i f t core b i Identifying future businesses t to 5 Underperformers ROE1)[%] invest in, and businesses to be divested 0 -25 -20 -15 -10 -5 0 5 10 15 20 25 30 35 40 45 > Making the overall stock market the Net revenues in 2008 [BRL bn] benchmark f th b h k for the portfolio performance tf li f 2) Return on Equity (net results/shareholder equity) 2) Average of Top 1 000 companies in 2008 in the industrial sectors (no Banking & Insurance sector) – valor 1000 Source: Annual Report s 2008, press research, Valor 1000, Valor 200 Grandes Grupos, Roland Berger 42
  • 43. 3 Innovate and invest in new business models Innovation made in Brazil Example Natura Cosmeticos S A S.A. INNOVATIVE BUSINESS MODEL > Innovation is the key challenge for the > Direct sales model for cosmetics Brazilian economy for the next decade > Full sustainability appeal > Although overall ranking on innovation is INNOVATION MANAGEMENT low and even decreasing, there are positive > BRL 104 m investment in R&D 2008 (2 9% of revenue) (2,9% Brazilian e a p es to bu d o – oil a a examples o build on o > Around 180 new products on average per year exploration in deep waters, tropical agriculture, aircraft manufacturing INNOVATION BENEFITS > Market share from 8% in 2002 to leadership with 13% > Beyond that also in other key industries, y y , in 2008 such as consumer goods, international high > 17% sales increase 2008-2009 performers evolve – Natura as one Brazilian > 19% EBITDA increase 2008-2009 example for innovation Source: Roland Berger, INSEAD, Clippings, Annual Report 43
  • 44. 4 Consolidate the industry on international scale Consolidation path: Brazilian companies Examples Meat Processing JBS acquires Australian Tatiara Meat Company > Synergies of scale and scope are the (Dec 2009) and Pilgrims Pride (Dec 2009) and merges with Bertin ( p 2009), becoming #1 g (Sep ) g driving factors for global M&A activities meat producer and #1 tanning company – M&As totals USD 1.810 bn globally in 2009, a 27% drop from 2008 Breweries Inbev (through AmBev) acquires Anheuser- Busch (Nov 2008), becoming the #1 brewer in – Latin American deals declined only 9.5% the world and #2 beverage company between 2008 and 2009 to USD 115 bn > The competitive strength of Brazilian Petrochemicals Braskem acquires Sunoco Chemicals division companies now allows them to play a major (Feb 2010) and Quattor (Jan 2010) role in the consolidation of industries on a global scale Ethanol Cosan acquires Exxon Mobile Brazilian distri- > And Brazilian companies do not hesitate to bution (Esso; Dec 2008) and merges its ethanol and fuel distribution unit with Royal Dutch Shell take their chances (Feb 2010) Source: Roland Berger, INSEAD, Clippings, Annual Report 44
  • 45. 5 Secure access to capital markets Recent track record of IPOs Examples of recent IPOs OSX Brasil S.A. > Company raised BRL 2,8 bn, less Ship construction than 30% of initially expected > After an IPO boom in 2007, there were only 10 firm > Stock price down 12,5% on the IPOs in 2008-2009 due to the effects of the first day of trade financial crisis f BR Properties > Raised 7% less money that > In 2010, IPOs are back, but investors are much Real estate firm minimum price expected more selective and demanding significant > Stock price down 2,7% on the 2 7% discounts di t first day of trade – More critical, especially with greenfield Renova Energia > IPO suspended due to low Renewable energies demand companies firm – A Averse to risk correlation (i OSX and t i k l ti (ie. d OGX, two strongly linked companies) International Meal > IPO cancelled due to low demand – Focusing only on big operations (more than Company even after price lowering Holding f H ldi of BRL 500 m) restaurants Source: Clippings, Annual Reports, Roland Berger 45
  • 46. 6 Rethink the role of the corporate headquarter Corporate headquarter: A decisive element to create value Business portfolio Relatedness of the business in the portfolio > Sustainable growth, internationalization and High LOST new businesses increase the requirements SYNERGIES Shell Singapore for f Brazilian corporate headquarters Airlines > The ability of the corporate headquarter to Emerson ICI contribute to business development depends Canon C on the portfolio llogic h f li i Hutchison Unilever – Related diversification: facilitating KKR synergies Swire Hanson 3M – Unrelated diversification: allocating DESTRUCTION Low OF VALUE (financial) resources Portfolio Strategic Strategic Operator investor architect controller > Not aligning the corporate headquarter to the Low High business specifics destroys corporate value Role of the center (involvement in operative decisions) Source: Roland Berger 46
  • 47. 7 And become a truly global player Global Leader from Brazil Company Global Market Position % Internat Rev 1) Internat. Rev. Anheuser-Busch #1 Brewery 80% > Different industries with different success InBev factors require different strategies for growth JBS #1 Food Products 33% > However, there is one common pattern for successfully becoming a global leader Cosan #1 Sugar Cane & Ethanol 55% – First creating a national champion in g Brazil Embraco #1 Compressors N.A. – Then, based on a strong national footprint, pursuing global expansion Marcopolo #1 Bus Body Building 39% > The global leaders cannot and will not stand Vale #2 Mining 83% still – looking for global opportunities, reinventing their business models and aligning their corporate structures Embraer #3 Aerospace Commercial 96% Planes 1) 2008 values Source : Thomson Reuters, Annual reports 47
  • 48. CONCLUSION Brazil – creating the f future with its entrepreneurial spirit and courage p p g"By itself, resolution is anact of courage and, if itdevelops into a personaltrait, becomes a habit ofthe soul" Carl Philipp Gottfried pp von Clausewitz 48
  • 49. Hauke Moje Rodrigo Dantas PARTNER PARTNER Corporate Strategy Financial Services Portfolio Management, Head of Financial Services Mergers & Acquisitions, and Co-Managing Partner of Post Merger Integration Brazilian OfficeAvenida Presidente Juscelino Kubitschek, 510 Kubitschek Avenida Presidente Juscelino Kubitschek, 510 Kubitschek04543-906 São Paulo I Brazil 04543-906 São Paulo I BrazilPhone +55 11 3046-7039 Phone +55 11 3046-7111Fax +55 11 3046-7222 Fax +55 11 3046-7222Mobile +5511 7203-7222 Mobile +5511 7203-7322hauke_moje@de.rolandberger.com rodrigo_dantas@br.rolandberger.com 49