7. New paths for national
industry
The manufacturing industry in Brazil attracts both companies and investors
from all over the world, particularly at this historical time of our development.
More than ever, our country is a market of great opportunities. No
multinational industry today can afford to ignore Brazil in its strategies of
growth for the next years.
Nevertheless, domestic industry experiences today a series of major
challenges as a result of both foreign competition and historical internal
restraints. Deloitte believes that to meet these challenges, it is necessary to
understand them deeply.
This collection of articles organized with contributions from some of the
main executives in this market offers us a panoramic view of these exciting,
stimulating and complex times we are experiencing, and that helps us to build
new paths.
Starting its second century of operation in Brazil in 2012, Deloitte has
a privileged vision to help business leaders define the most appropriate
strategies to compete and prosper in the country.
We wish everyone an enjoyable read.
Juarez Lopes de Araújo
President of Deloitte – Brazil
“Domestic
industry
experiences
today a series
of major
challenges
as a result of
both foreign
competition and
historical internal
restraints.
Deloitte believes
that to meet these
challenges, it is
necessary
to understand
them deeply.”
8. Guest authors
José Othon
Tavares de
Almeida
Deloitte leader
in Brazil for
manufacturing
industry
André Dias
President of
Monsanto Brazil
Deloitte – local and global leadership
Craig Giffi
Consumer
and industrial
products leader,
Deloitte
United States
(Deloitte LLP)
André Luis Rodrigues
Former Chief Financial
Officer (CFO) of Rhodia
and presently Financial
Officer of JHSF
Alfred Hackenberger
President of BASF
for South America
Carlos Fadigas
President of
Braskem
Cledorvino Belini
President of the Fiat/
Chrysler Group for Latin
America
Hélio Bruck
Rotenberg
CEO of Positivo
Informática
Heraldo Marchezini
General director of
Sanofi Group – Brazil
José Augusto Coelho
Fernandes
Executive director
of the National
Confederation of
Industry (CNI)
Joe Vitale
Global
automotive
sector leader,
Deloitte Touche
Tohmatsu
Limited (DTTL)
9. Luc Burton
Former Chief Financial
Officer (CFO) of Alstom
Brazil and presently
Financial Officer of
Puma Energy
Luiz Eduardo Taliberti
CEO of the
Ecoverdi Group
Marcos da
Cunha Ribeiro
Administrative director
of the Jacto Group
Eduardo Tavares
Raffaini
Deloitte leader in
Brazil for mining
segment
Pedro Suarez
President of Dow for
Latin America
Sandra Mariani
Former CFO of
GM Brazil
Tadashi Yamashita
Latin America
treasury director for
Cummins Brazil
Marcelo Drügg
Barreto Vianna
Vice president of
the International
Chamber of
Commerce (ICC Brazil)
Douglas Nogueira
Lopes
Partner of Deloitte
Brazil’s Tax area
Deloitte – industry and business expertise
10. For a
greater Brazil
Overcoming the current challenges of the manufacturing
industry in the country will require a broad pact of all
market agents. Initiatives such as the “Bigger Brazil Plan”
signal some alternatives and invite us to build
joint solutions to benefit our competitiveness, with
innovation and sustainability.
The manufacturing
6
industry’s current agenda
in Brazil reflects
opportunities that result
from the special position
the country has been gaining in the
international scenario. With one of the
largest and most dynamic domestic
markets in the world, with solid economic
fundamentals and a perspective of
sustainable long-term expansion, it would
be natural for Brazil to become one of the
most important destinations attracting
investment from multinational companies
in the most diverse industries.
At the same time, however, our ever
increasing intense connection with an
economy that has reached unprecedented
levels of globalization also has its
troublesome side, which presents a
number of large challenges for local
production activities. Recent sluggishness
in the more mature economies and the
rise of other emerging nations intensify
the competition Brazilian companies face,
making their operation within and outside
our market difficult. In addition, we are
facing dilemmas that are now common
to almost all countries, such as relative
deceleration of industrial production, a
reduced share of total generated wealth
and, even, the risk of deindustrialization in
important sectors.
Neither can we forget the historical
obstacles that harm operation of national
industry, such as the “Brazil Cost”,
infrastructure deficiencies and low-skilled
labor. Our industry’s current challenges
lead to a simple question: how do we
ensure conditions so that it can be
competitive and sustainable in the new
global reality?
Introduction
11. 7
By José Othon
Tavares de
Almeida
Deloitte leader
in Brazil for
manufacturing
industry
Times of great challenges usually awaken
the Brazilian people’s creativity and
determination. This, more than ever, is a
time to rethink models, reinvent practices
and, primarily, for private initiative, the
government and all of civil society to unite
to promote the development of industry.
All market agents need to unite around
this pact.
The“Bigger Brazil Plan” (PBM in
Portuguese), instituted by the federal
government in 2011 and expanded in
2012 with the objective of stimulating
the economy and, in particular, national
industry, is one of the initiatives that
today try to express the changes needed
for the resumption of growth in the
productive sectors. The participation
of private initiative in the program, by
means of representatives of the so-called
Competitiveness Councils, legitimates its
purpose and offers the business community
another way to position itself to face a
situation that seriously affects its business.
With the motto “innovate to compete;
compete to grow”, the PBM, to the
extent it is supported by modern Brazilian
corporate leadership, has full conditions to
generate practical results to benefit its own
development.
Therefore, it is evident that to meet the
complexity of our challenges, Brazil needs
structural reforms in the most diverse fields.
Tax exemptions, foreign trade stimulus,
expansion of corporate credit, trade
protection measures and incentives for
significant sectors are some of the timely
measures established by the PBM that
need to be incorporated into the essence
of a national development strategy. Today,
Brazil has the responsibility to preserve
and promote one of its most significant
12. A development “Our industry’s current
challenges lead to
a simple question:
how do we ensure
conditions so that it
can be competitive and
sustainable in the new
global reality?”
8
Colonial Brazil
The Portuguese
metropolis used
to prohibit the
establishment of
factories in the
territory from
1500 to 1822.
economic frontiers: one of the largest
and most diversified industrial parks in
the world.
In the same way, it is up to the business
community to continue its efforts to adopt
better business practices and continuously
foster innovation, within a social and
economic environment increasingly based
on the values of sustainability – of the
planet, its relations with society and the
business itself.
The collection of articles “Competitive
Brazil – Challenges and strategies for the
manufacturing industry” has the merit of
comprehensively addressing a broad set
of issues that characterize the dynamics of
productive activity in the country. Deloitte,
which with its clients daily builds solutions
to address the challenges presented here,
had the honor to put together in this book
End of the •
19th century
Industrial
development begins
in Brazil, with coffee
growers starting to
invest part of their
profits to create
factories of textiles,
footwear and other
manufactured goods.
The decades of
the 1930s and
1940s
Industrialization
gains strength
during the Getúlio
Vargas presidency,
with protectionist
measures, infrastructure
investments and
regulation of the
labor market.
Periods and moments that mark the
history of productive activity in Brazil
1956-1960
The president
Juscelino Kubitschek
opens the
economy to foreign
capital, attracting
multinational
companies, and
establishes measures
to support local
industry.
1962
Electrobras is created
during the João
Goulart presidency,
supporting the
generation and
distribution of
electric power that
significantly benefits
some industrial
sectors.
1969
Embraer is created,
raising the global
status of Brazilian
industry. Its first
challenge was line
production of the
Bandeirante airplane.
13. 1939
Brazilian industry
benefits from the
Second World
War. With the fall
in imports, local
development
accelerates.
1942
The Vale do Rio Doce
company is founded.
By the end of the
decade it would be
responsible for 80%
of Brazilian iron ore
exports.
1946
The National
Steel Company is
created, significantly
increasing steel
production which
would support
development of
several industrial
segments in Brazil.
1952
The National Bank
of Economic and
Social Development
(BNDES) is created,
supporting the
financing of
industrial enterprises.
Sources: The National Confederation of Industry (CNI) and Deloitte (consolidation of public information)
1953
Petrobras is created,
driving segments
connected to
production of goods
derived from oil.
1975
The government
creates the Pro-
Alcohol program to
reduce dependency
on imported oil,
forcing industry to
adapt some of its
models to the new
fuel.
The decade of
the 1980s
High inflation
and successive
failed economic
plans make Brazil
unattractive. A
decade largely
lost for industrial
development.
The decade of
the 1990s
The Real Plan is
implemented and
economic stability
again makes
Brazil credible to
foreign investors
and multinational
companies.
The decade of
the 2000s
The entry of less
privileged classes into
the consumer market
changes the country,
while international
competition
increases in industry.
2011/2012
The “Bigger Brazil
Plan” is launched,
bringing new
perspectives for a
national industry
trying to improve its
competitiveness.
trajectory
14. “The collection of articles ‘Competitive Brazil –
Challenges and strategies for the manufacturing
industry’ has the merit of comprehensively
addressing a broad set of issues that characterize the
dynamics of productive activity in the country.”
a group of exceptional business leaders and
experts around the major issues that impact
Brazilian industry today.
The articles presented in this publication are
grouped around two large areas: the first,
emphasizes competitiveness, examining the
country’s historical dilemmas and current
10
opportunities; and the second, addresses
the issues of innovation and sustainability,
taking into account the role of industry
in the construction of new development
models. From the views expressed here,
the reader can tap into reflections at the
highest level to help in developing strategies
to benefit Brazilian industry.
15. Competing in
an evolving
landscape
The challenges faced by global manufacturers have no
boundaries. Global economic uncertainty has become the new
normal. Resource scarcity, new patterns of consumption, climate
change, new patterns of mobility, and the convergence of new
technologies are among the global megatrends reshaping the
global manufacturing industry landscape.
These megatrends and challenges at the same time also provide
opportunities for manufacturers. Staying competitive is about
not being afraid to reinvent your company to adapt to new
situations. Leading manufacturers achieve profitable growth by
driving excellence in areas such as product development. They
also harness the power of collaborative innovation and master
the art of managing the complexities of their global value chain.
We hope that you enjoy this special collection of articles
organized by Deloitte. The articles offer valuable insights on
what it takes to compete in Brazil and how manufacturers can
be successful in an ever-evolving global landscape.
11
Tim Hanley
Global Leader, Manufacturing
Deloitte Touche Tohmatsu Limited (DTTL)
16. Contents
16 Brazil in the new world order
12
With a privileged position in the
global scenario, Brazil should
focus development on three
pillars: infrastructure, education
and innovation
Joe Vitale and Craig Giffi
20 New times and old
challenges
Opportunities and dilemmas in
a country increasingly attractive
to multinational companies
André Luis Rodrigues
26 Infrastructure for greater
growth
The need to resume
investments and face
the “Brazil Cost”
Luc Burton
28 In the eye of the
multinationals
The third wave of foreign
investment in national industry
Tadashi Yamashita
32 Together for change
The importance of discussing
our competitiveness in a
country that has become
expensive
Alfred Hackenberger
36 Facing the Chinese model
The need to more broadly
understand Chinese companies’
business model
José Augusto Coelho Fernandes
42 Our challenges in the
IT chain
Lessons of the Brazilian
PC industry and the battle for
fair competition within the
country itself
Hélio Bruck Rotenberg
46 A stronger link in the
entire chain
How mining and steel can,
together, face their own
challenges and broaden
their role in the country’s
development even more
Eduardo Tavares Raffaini
50 The country of the present
An attractive domestic market
and the challenge to conquer
strategic sectors abroad are
included in the agenda of the
national automotive industry
Cledorvino Belini
54 The rise of automobiles
Standing out in the global
scenario, the great challenge
of the sector in Brazil is now
operational costs
Sandra Mariani
58 Challenges in tax controls
The importance of good
tax practices for industrial
competitiveness
Douglas Nogueira Lopes
Chapter 1
The journey to competitiveness
How to face the country’s historical dilemmas and
take advantage of current opportunities
17. 13
Chapter 2
For an innovative and sustainable future
The role of the industry in a new model of development
64 Limits and expectations
New needs awaken a
transformation in the essence
of industry in the world
Luiz Eduardo Taliberti
68 Produce and conserve more
Technology as a fundamental
ally in the search for efficiency
and sustainable practices
André Dias
72 Part of the solution
Innovation and collaboration
as determinants of sustainable
development of business
Carlos Fadigas
76 The role of life’s industry
Dialogue with stakeholders
and the strengthening of
corporative responsibility
as essential for social and
economic growth
Heraldo Marchezini
80 The chemistry of innovation
The importance of the chemical
industry for innovation and
progress based on principles of
sustainability
Pedro Suarez
84 Construction of a new future
Adoption of innovative and
sustainable practices to
influence operational and
strategic business models
Marcos da Cunha Ribeiro
90 Sustainability and social
responsibility
New challenges in
managing the integration of
organizational systems in search
of industrial competitiveness
Marcelo Drügg Barreto Vianna
18. “Brazil Cost” • Infrastructure • Multinational presence • Manpower qualification •
Foreign competition • Impacts of China • Internationalization •
“Bigger Brazil Plan” • Cost management • Tax management • Basic industry
14
19. Chapter 1
The journey to competitiveness
How to face the country’s historical
dilemmas and take advantage
of current opportunities
20. Brazil in the new
world order
16
As a rising competitor, the country today has
a strong position in the global scenario. To
achieve its competitive potential viable in the
new world order of the industry, Brazil needs to
broaden its focus on the development of physical
infrastructure and education, in addition to
encouraging innovation.
For several years, Deloitte has
collaborated with a number
of organizations committed to
manufacturing competitiveness
at both a country and
international level. This past year, Deloitte
served as Project Advisor to the World
Economic Forum (the Forum) on a “Future
of Manufacturing” project chartered
to generate insights and a platform for
informed dialogue between senior business
leaders and policymakers about the pivotal
drivers of change in the industry, today and
in the future. Following the anticipated
release of the Future of Manufacturing
report in April 2012, the Forum with
Deloitte will embark on the next phase of
research on the topic of Manufacturing
for Growth. The project is expected to
provide CEO insights on how manufacturers
are driving economic growth worldwide.
Highlighting some of the perspectives from
these projects, this article provides a brief
look at Brazil’s potential in a new world
order of manufacturing competitiveness.
The manufacturing industry plays a vital role
in the economic health of every country
and has become increasingly more dynamic
and competitive globally. As a resource
rich nation with an attractive market for
investment, Brazil has an opportunity
to significantly increase its global
manufacturing competitiveness by focusing
efforts on developing the nation’s physical
infrastructure and education system.
Despite slowing growth figures, Brazil is
seen as a strong competitor globally and
is in a great position to create sustainable
growth and prosperity.
Manufacturing as a multiplier
The recent global economic downturn
revealed the true value of the
21. 17
manufacturing sector in preserving and
improving prosperity, supporting Gross
Domestic Product (GDP) growth, and
raising the standard of living. A globally
competitive manufacturing industry
can serve as a multiplier. It can create
economic sustainability, fuel a country’s
innovation, encourage more domestic and
foreign direct investments (FDI) and most
importantly, create jobs.
Understanding the breadth of today’s
manufacturing industry and its multiplier
effect on the domestic economy is
essential. The multiplier effect not only
creates jobs within the sector, but also
creates jobs in areas such as financial
services, infrastructure development
and maintenance, customer support,
logistics, information systems, education
and training, research and development,
healthcare, and real estate.1 In turn, this
drives the growth in demand for highly
skilled workers and scientists, which
underscores the importance of a strong
education system. With manufacturing
having the capability to create a positive
cycle of prosperity for a country, it is
important to understand the factors that
enable the industry to remain competitive
and thrive.
Top drivers associated with competitive
manufacturing and deemed critical to
a nation’s competitive position include
labor and the availability of skilled talent,
access to materials amid growing resource
scarcity, energy and sustainability, the
ability to innovate at an accelerated
pace, and effective public policy that
enables economic development around
these factors. Out of all these factors,
talent-driven innovation is viewed as the
most important driver of competitiveness
By
Joe Vitale
Global automotive
sector leader,
Deloitte Touche
Tohmatsu Limited
(DTTL)
Craig Giffi
Consumer and
industrial products
leader, Deloitte
United States
(Deloitte LLP)
22. Brazil’s manufacturing competitiveness
Three factors are likely to influence Brazil’s manufacturing industry competitiveness over the next several years1:
Physical infrastructure: the productivity of an industry in any country is directly related to the quality of its physical
infrastructure for commerce. Reliable and efficient physical infrastructure such as roads, ports, electricity grids, and
telecommunication networks play a vital role in logistics, moving raw materials and finished products on time and with
minimum costs. Investing in effective infrastructure is essential. As host to the World Cup in 2014 and the Olympics in 2016,
Brazil is expected to improve infrastructure and bring in foreign investment, which will likely also have a positive influence on
improving the country’s manufacturing industry and competitive position.
Talent: the need to rapidly innovate and develop new products and processes has led to a growing skills gap. Shortages in
skilled production jobs are taking their toll on manufacturers’ ability to expand operations, drive innovation, and improve
productivity.3 In order for Brazil to sustain its competitive position and create a positive cycle of prosperity, the country will be
as challenged as other nations to be a global leader in attracting, developing and retaining top science and engineering talent
to drive world-class innovation, research and development, and close the skills gap.
Energy costs: clean, reliable energy directly influences production costs and is an increasingly important factor in
determining global manufacturing competitiveness. Fortunately, Brazil is one of the few countries with a sufficiently
large natural resource base coupled with a relatively advanced research infrastructure. This places the country in
a unique position to capture more profitable stages of the value chain through alternative energies that are
ecologically sustainable.
18
and is top-of-mind with manufacturing
executives across the world.1
Talent-driven innovation comprises
both the quality and availability of
a country’s brain trust. This includes
its skilled workers, such as scientists,
researchers, engineers, and teachers,
who collectively have the capacity to
continuously innovate and, simultaneously,
improve production efficiency. Talent
has been described as both the key
differentiator of a country’s competitive
edge in the 20th century and the most
critical determinant of success in
the 21st century.2
Competitive position
Brazil continues to be viewed by
manufacturing executives as a rising
contender in the global manufacturing
competitiveness race. Not unexpectedly,
Asian giants like China, India, and
the Republic of Korea are projected
to dominate the scene over the next
few years, out-positioning dominant
23. 19
manufacturing super powers of the late
20th century – the United States (U.S.),
Japan, and Germany.
In order to remain competitive, Brazil will
need to carefully navigate its position
on foreign trade, exchange controls,
and investments. Brazil’s pursuit of an
industrialization policy centered on replacing
imported manufactured products with
domestically produced goods has yielded
a highly diversified manufacturing sector.1
Although export promotion remains a
policy priority, the current account deficit
is expected to rise to an annual average
of 4.0 percent in 2012 to 2016 as import
growth exceeds that of exports.4 Concerns
over a surge of Chinese imports has
already led to some non-tariff barriers and
protectionist measures particularly in the
automotive and light manufacturing sectors.
With tax incentives for foreign and
domestic investors, Brazil proves to
be an attractive market for companies
considering the country as an export
base. Many manufacturers have already
announced plans to expand operations,
including Asian manufacturing newcomers
who are installing facilities and/or
distribution network channels in Brazil.
An increase in foreign direct investment
will likely create greater domestic
competition and encourage government
policy modifications to positively influence
the state of Brazil’s manufacturing
competitiveness.
“As a resource rich nation with an
attractive market for investment,
Brazil has an opportunity to
significantly increase its global
manufacturing competitiveness by
focusing efforts on developing the
nation’s physical infrastructure and
education system.”
The global manufacturing landscape
continues to evolve and with this
comes a shift in the drivers that enable
manufacturers and nations to remain
globally competitive. In less than a
decade, a new world order for
manufacturing competitiveness has
emerged. Countries are placing greater
emphasis on creating manufacturing-based
economies that produce
higher-value jobs, leveraging the
multiplier effect, and rapidly growing
their economic middle classes.3 As a rising
global contender, Brazil has several
factors that support a strong
manufacturing competitive position.
Building on the nation’s strengths while
continuing to focus on developing
physical infrastructure and education will
enable Brazil to sustain manufacturing
competitiveness and prosperity.
1 “Global Manufacturing
Competitiveness
Index” (Deloitte Touche
Tohmatsu Limited and
the U.S. Council on
Competitiveness, June
2010)
2 “Ignite 2.0: Voices of
American University
Presidents and
National Lab Directors
on Manufacturing
Competitiveness”
(Deloitte Touche
Tohmatsu Limited and
the U.S. Council on
Competitiveness, July
2011)
3 “Boiling point?
The skills gap in U.S.
manufacturing” (Deloitte
United States – Deloitte
Consulting LLP – and the
Manufacturing Institute,
October 2011)
4 Economist Intelligence
Unit (www.eiu.com)
24. New times and
old challenges
20
Brazil offers great opportunities to
multinational corporations today. Predictability,
social mobility and cultural qualities justify
the attractiveness. Some dilemmas, however, if
not faced in time, may puzzle those that see us
from outside.
Since the term “emerging
country” was defined, it has
been associated with the word
“opportunity”. It wasn’t long
before a new acronym, BRIC1,
was created to designate the main players
included in the group at the beginning:
Brazil, Russia, India and China. Any novelty
is bound to draw attention. From that
point on, many companies and investors
started a new adventure towards a future
of enormous possibilities offered by each of
these economies.
After working for a multinational operating
in Brazil for 93 years, it was not difficult
to sell our country during this exhilarating
time. No one remembers any longer some
words of the past that posed true ordeals
for both Brazilian executives and foreign
entrepreneurs, such as “hyperinflation” or
“lost decade.”
The prognosis that this nation would
someday be successful has proven true.
The feeling that the right time and moment
have arrived is a fact. Certainly, some
investors on other continents regret not
having believed that the prophecy would
come true, since even with difficulties and
complexities in the business environment,
our future is quite different from the past.
Multinational strategies
Why Brazil should have already been, and
today is and will definitely continue to
be strategic for foreign multinationals?
Being the sixth economy in the world, in
and of itself, already makes this a country
that deserves to be included, in a detailed
way, in any strategic plan of successful
enterprises. A new rhythm has started
some years ago and we have perhaps
arrived at the best economic moment of
our history.
25. By André Luis
Rodrigues
Former Chief
Financial Officer
(CFO) of Rhodia
(until April, 2012)
and presently
Financial Officer of
JHSF
21
We have slept long and have just woken up
to a gigantic social mobility and a powerful
market, which each year places millions of
people at dynamic levels of consumption,
soon to change classes and eager for
goods and services, from food and home
appliances, to cars and real estate. With
that thus creating a virtuous cycle, with
acceleration of formal employment,
reduction of unemployment and healthy
credit expansion.
When comparing the Brazilian reality to
other emergent countries with the same
potential, we may, in some cases, fall
behind with regard to growth rate, but
we definitely have significant qualities that
position us in a particular way and which
significantly favor us at the time investment
decisions are made. We have a cultural
affinity with most developed countries,
a well-established democracy and
continually evolving governmental and
administrative institutions.
After many attempts translated into
reforms, our locomotive was put on track
and advances broadly with well-defined
macroeconomic fundamentals. Predictability
has become part of our environment. All
this allied with a pragmatic, well regulated,
sophisticated and resilient financial
and bank system. For those watching
from outside, we have become a sound
and reliable country, most significantly
demonstrated by the positive way we coped
with the recent world economic turbulence,
coming out of it stronger and as a country
more attractive to investors.
Privileged qualities
Our economy is well diversified
and developed: agriculture, mining,
manufacturing, services and a large
1 In 2011, the acronym
was changed to BRICS
with the entry of South
Africa into the group
26. 22
industrial base. Brazil produces all that
emerging nations need to grow. With the
exportation of these products and the
possibility to import what, in most of cases,
the developed countries produce at low
prices, our trade balance is attractive.
Our supply chain is also very privileged,
due to our massive energy reserves,
particularly those from renewable
sources and minerals. We are practically
self-sufficient in oil and world leaders
in the development and production of
biofuels. That is, sustainable development
is a priority for any serious company and,
in Brazil, we have countless conditions to
develop these opportunities.
Equally, a multinational company is also
attracted by the cultural qualities of our
people. Brazilians have a strong enterprising
spirit, are creative and skilled at working in
teams – key components for innovation.
They are open minded and can rapidly
make changes, precisely correcting course
when necessary, besides being strong as a
result of the mixture of races and cultures,
which creates an environment of respect for
opinions, religions and beliefs.
In a country where it is possible to find
the main global business megatrends,
it is also possible to try all the growth
processes: organic, given our economy’s
growth rate; through innovation, given
the rich raw materials base and trained
teams; and through acquisitions, due to
27. 23
“After many attempts, translated into reforms,
our locomotive was put on track and advances
broadly with well-defined macroeconomic
fundamentals. Predictability has become part
of our environment. All this, allied with a
pragmatic, well regulated, sophisticated and
resilient financial and bank system.”
the varied conditions for consolidation
of some sectors and other opportunities.
The exploitation of oil in the pre-salt
layer, the World Cup in 2014, the Rio de
Janeiro Olympic Games in 2016, as well
as important energy generation projects,
already represent billions in investment and
ensure continuity in the development of
our economy.
To compete head-to-head
Since there is no easy competition, we
face some challenges that may reduce our
speed and raise some questions for those
looking from outside. Our infrastructure,
in some cases, is somewhat precarious,
with a high number of blackouts in some
regions, conservation of public highways
far below that of private ones, airports
that cannot handle the increasing number
of passengers, and an incipient metro
and railroad network, when compared to
developed countries.
In the education field, we are unable to
cover the demand for professionals that
the expanding economy requires. Our
education level is still lower than that of
the majority of the emerging competition
and, even with advancement in some
of the rankings, we graduate doctors at
a rate five times lower than developed
countries, and we are still in the 24th
position in volume of patents registered,
according to the most recent findings
available on these topics.
Actions are being taken and the solutions
will come with time. Consequently, more
companies will be attracted by these
opportunities. What may really dissuade
foreign companies are the factors that place
us in a difficult competitive situation. We
came in at a poor 53rd in the ranking of 142
countries released by the World Economic
Forum in 2011. What is remarkable is
the excessive bureaucracy in our business
28. 24
Optimism justified by numbers
Brazil is regarded as serious and reliable as a result of the country’s recent
economic and social evolution
Unemployment rate*
(In %)
10.5 10.9
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
21.3
9.6
23.1 23.6
8.3 8.4
27.2
29.4
7.4
32.7
6.8 6.8
5.3 5.2
41.3 41.8 41.2
45.3
Credit volume
(% of Gross Domestic Product – GDP)
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Nominal average income*
(In R$)
874 862 908
1,011 1,086 1,162
1,282 1,344
1,515 1,623
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Sources: Research – Deloitte (based on data from the Brazilian Institute of Geography and Statistics – IBGE
and the Central Bank of Brazil – BC)
* Data related to the metropolitan areas of Salvador, Recife, Belo Horizonte, Rio de Janeiro, Porto Alegre
and São Paulo
29. 25
“Actions are being
taken and the solutions
will come with time.
Consequently, more
companies will be
attracted by these
opportunities. What
may really dissuade
foreign companies are
the factors that place
us in a difficult
competitive situation.”
environment, an inefficient and complex
system, with close to one hundred taxes,
resulting in a very high tax proportion
in relation to company profits. The two
issues make it difficult for private initiative
to decide to play a role in solving these
dilemmas.
We cannot miss the opportunity available
at this time. To ensure a successful future,
it is now time to have a State program
addressed to the bottlenecks that
undermine our competitiveness, having in
mind that, if with so many difficulties we
were able to attract the largest companies
in the world, with implementation of the
reforms already understood as necessary,
Brazil would soon occupy a better position
among the largest world economies.
30. Infrastructure for
greater growth
26
To realize its potential for economic
expansion, the country needs to confront
its “Brazil Cost” and invest strongly
in infrastructure, ensuring the global
competitiveness of its domestic industry.
The last 60 years of Alstom’s
and Brazil’s shared history
are witness to a stable
and mutually beneficial
collaboration. Alstom has
been active – and continues to be – in
all the large Brazilian projects, bringing
the country innovative and cutting-edge
technology in the energy and transportation
sectors. Its financial partners – French
and those of other countries – contribute
equally to make a large number of these
projects possible. During this process,
Alstom has learned much from its activity
in Brazil and has a clear vision of what the
country strategically represents today.
Brazil is an important country today
whose weight should grow. This trend is
strengthened by the growth potential of the
so-called “emerging” countries. In addition,
due to its cultural characteristics – openness
to new initiatives, a dynamics of sustainable
implementation and creativity – Brazil
should increasingly confirm its role as a
“laboratory of good practices,” whether of
a technical or managerial nature.
The country’s growth path is wide and
the infrastructure area is one of the
great drivers of this expansion. We
are experiencing a decisive moment in
this environment and the investment
possibilities are limitless. The infrastructure
bottlenecks must be overcome so that we
can reach all the potential of a country of
continental dimensions. The economy is
growing and Brazil is becoming a power of
the 21st century, attracting direct investment
and intensifying local sales.
Invest to compete
This picture is only clouded by the “Brazil
Cost”, this set of obstacles of a fiscal, legal,
31. By Luc Burton
Former Chief
Financial Officer
(CFO) of Alstom
Brazil and presently
Financial Officer of
Puma Energy
financial and logistic nature that undermines
the competitiveness of Brazilian companies,
as well as, certainly, the competitiveness of
the entire domestic market in relation to the
ability of importers and exporters to deal
with international competition.
Therefore, even more investment in local
industry is needed in order to create
significant turnover in the domestic
economy. It is important to recognize that
attracting new technologies or importing
solutions is not enough. Increasing
investment is needed to generate jobs,
income and demand.
We have a wealth of natural resources
and growing manpower. With the correct
public and private initiatives it is possible to
guarantee the high expectations placed on
us, and infrastructure is an essential aspect
of the development of all this potential.
27
Investment lower than growth
Returning to the 1970s levels of investment in infrastructure is
essential to lowering the “Brazil Cost” for companies that operate in
the country.
Investments in large areas of infrastructure made in
recent decades (% of GDP)
6
5
4
3
2
1
0
Water and sanitation
Telecommunications
Transportation
Electricity
1970 1980 1990
Sources: consolidated using numbers from the World Bank, the Institute of Applied
Economic Research (IPEA) and the National Bank of Social and Economic Develop-ment
(BNDES)
2000
32. In the eye of the
multinationals
28
The growth of direct foreign investment
entering Brazil shows its significance in
the revenues generated by subsidiaries
established in the country. In its third major
wave of attracting international capital at the
moment, the country should make efforts to
gradually reduce the “Brazil Cost”.
The first wave of foreign
investment in Brazil occurred
during President Juscelino
Kubitschek’s Financial
Plan in the second half of
the 1950s, led primarily by companies
in the automotive sector. At the time,
multinational subsidiaries established in
Brazil represented little in the global sales
and profits of their companies.
Cummins, the largest independent
manufacturer of diesel engines in the world,
entered the country at that time through
an independent distributor. The first factory
was launched in 1971 attracted by the low-cost
labor and abundance of raw material.
Its production was directed basically to the
foreign market. It was during the 1980s
that the company’s business took form,
driven by tax incentives such as the Befiex
Program through which export companies
were immediately credited 14% of their
transactions value. It was an incentive that
could not be passed up. With it, Brazil
significantly raised its exports, contributing
to the trade balance.
The end of the Befiex Program in 1989
caused companies to turn back to the
domestic market, gradually reducing exports
and increasing domestic sales. In the first
years of the 1990s, despite the opening
of markets by the Collor administration,
foreign capital continued to arrive as
Foreign Direct Investment (FDI), however, at
a historical average of around US$ 2 billion
per year (current value), according to
Brazilian Central Bank sources..
Many foreign companies were hesitant to
making large investments in the country,
mainly as a result of the high inflation
level, which reached 3% per day at the
33. 29
time. The inflationary environment and
the exchange rate volatility kept many
businessmen and financial executives
up at night, spending hours on end
reasoning on how to explain their effects
on the subsidiaries’ results. Many of them
prepared feasibility studies to decide
whether to stay in the country. It was then
that multinationals started to invest heavily
in systems of total quality, employing
tools unknown at the time in the country,
such as Kaizen, the Total Quality System,
and the Failure Model and Effect Analysis
(FMEA), among others.
The second wave of foreign investments,
from my perspective, occurred at the end
of the 1990s, more precisely in 1997, with
Foreign Direct Investment (FDI) reaching
US$ 18.9 billion. With the maxi-devaluation
of the real during this period, foreign
investments surpassed US$ 30 billion.
By Tadashi
Yamashita
Latin America
treasury director for
Cummins Brazil
With a devalued exchange rate, there
was an opportunity to raise international
capital to increase investments in Brazil.
Privatization of companies in the energy
and telecommunications sectors also
attracted new interest. However, although
the exchange rate favored investment,
uncertainties caused at the time by the
2002 presidential election ended up driving
away foreign investors and significantly
reducing FDI from 2001 on.
With the continuation of the prior
administration’s economic policy and
the promotion of political stability by
president Luiz Inácio Lula da Silva, foreign
multinationals and investors saw that the
new administration was not the threat that
had been imagined before the elections and
they resumed investment in the country.
Starting in 2004, multinational companies
also began to consolidate their operations
34. 30
in Brazil. Many of them made the country
their regional headquarters for Latin
America.
Modern practices
In addition to these facts, still at the
end of the 1990s, many multinational
companies brought their model of quality
management, known as Six Sigma, to
Brazil. Its concept is the reduction of
variations in the process, increasing
productivity and raising companies’
profits. All the companies that adopted
the model were successful, both in the
international and domestic environments.
Another important fact worth mentioning
is that the products manufactured in
Brazil started to strictly follow the
international quality standards practiced
by their parent companies. In addition,
the companies modernized their industrial
parks, globalizing products and using
cutting-edge technology. With the
globalization of products, the Brazilian
subsidiaries were able to supply foreign
customers, particularly in the case
of production stoppages of units in
other countries.
Given that Brazil has great mineral reserves
and suppliers of primary products, the
majority of multinational companies make
the country an important base for supply
of raw materials. Many of them continue
to invest heavily and open new factories
throughout the country. Chinese, Korean
and North American companies, particularly
in the automotive and construction
machinery sectors, are arriving and
establishing new factories, mainly because
of the 2014 World Cup and the 2016
Olympic Games, events that are attracting
the third wave of productive capital.
US$ 66.6 billion were invested in Brazil in
2011 alone (see chart on page 31).
The revenues of subsidiaries established
in the country are significant today in the
global context of multinationals. In the case
of Cummins, for instance, sales outside the
United States have already reached 60%.
“It is now up to the
Brazilian government
to do its part, by
maintaining political
and economic stability
and gradually reducing
the “Brazil Cost”
and the level of
bureaucracy, in addition
to continuing to make
important investments
in the educational area
to prepare professional
and skilled manpower.”
35. 31
The Brazilian subsidiary now represents
around 10% of global sales, compared
to 4% at the beginning of the 1990s,
contributing significantly to the process of
exponential growth of the company. The
subsidiary that once exported almost its
total production is today focused on the
domestic market.
It’s now up to the Brazilian government
to do its part, by maintaining political
and economic stability and gradually
reducing the “Brazil Cost” and the level
of bureaucracy, in addition to continuing
to make important investments in the
educational area to prepare professional
and skilled manpower, already scarce in our
country. It is also up to the government to
maintain the balance between domestic
production and the foreign sector and
avoid any surprises in the conduct of
economic policy. With all these ingredients,
Brazil, together with the other simmering
emerging economies, will continue to
be seen by multinational companies as a
strategic and important country.
Brazil, destination of the world
Evolution of the flow of Foreign Direct Investment (FDI) in Brazil
(In US$ billions)
32.8
22.5
16.6
10.1
18.1
Political and
economic stability
favoring the
attraction of FDI
15.1
18.8
45.1
Effect of
the global
crisis
25.9
48.4
Historical
record
66.6
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: Research – Deloitte (based on Central Bank of Brazil data)
34.6
36. 32
Together for
change
Today Brazil presents opportunities for local
and foreign companies, but it has become
an expensive country. The solution requires
initiatives like the Competitiveness Council,
part of the “Bigger Brazil Plan”, which
enables the discussion and development
of material actions to deal with loss of
competitiveness in the industrial sector.
Close to fifty years ago, a BASF
professional in Germany
came to Brazil to help select
a site for construction of
a plant in Guaratinguetá
(SP) – still our largest industrial complex
in the country. Upon his return to Europe,
he noted: “Brazil is and will continue to be
the country of the future”. Today, however,
I must correct this: Brazil is already the
country of the present.
This observation is not just the view of
a foreigner seeing the wealth of natural
resources and enterprising people. One can
say Brazil is one of the main global markets
based on the positive results of recent
decades. The nation is experiencing an
auspicious moment. It attained economic
stability and is a power in agribusiness – the
second largest exporter of grains after only
the United States – with the potential to
expand its agricultural production without
damaging the environment, thanks to
the technology applied and the natural
resources available.
In recent years it has also seen rapid
growth in the mobility of the social
classes, increasing the number of
consumers with considerable purchasing
power. Over the last 20 years, it
has further benefitted from another
competitive advantage: the demographic
bonus – the country already has, and
should continue to have over the next
two decades, two workers for each
retiree or child. This provides a favorable
environment for economic development.
This scenario provides opportunities for
both domestic and foreign companies. The
country is considered one of the levers of
the emerging markets, which are showing
37. 33
greater growth than the developed
nations. In 2020, the emerging countries
will be responsible for more than a third
of the global Gross Domestic Product and
will contribute with close to 60% of all
global chemical production. In Brazil, data
released by the Brazilian Chemical Industry
Association (ABIQUIM) indicate that market
growth in 2011 was close to 10%.
The chemical industry will play a particularly
important role in market growth by driving
innovation and contributing to sustainability
in aspects related to natural resources, the
environment, the climate, the area of food
and nutrition and the quality of life.
In this context, BASF has defined seven
strategic sectors in which it intends
to contribute with solutions, helping
the country capture value from the
opportunities linked to global megatrends:
transportation, construction, consumer
goods, health and nutrition, electronics,
agriculture, energy and natural resources.
A more expensive country
The promising portrait for the next years,
however, is compromised by the structural
challenges that over many decades
have been slowing the full development
of Brazilian industry, undermining the
competitiveness of domestic production
and threatening the sustainable growth of
the economy.
The high tax load that burdens the
purchase of machinery and equipment
and the contracting of engineering
services has been a constant inhibitor of
productive investments. The tax incentives
granted by the government are almost
always short-term and they deter broader
planning by businessmen. The high social
By Alfred
Hackenberger
President of BASF
for South America
38. 34
Stimulus to
competitiveness
With the “Bigger Brazil Plan”, started in
2011 and expected to run through 2014,
the federal government intends to promote
measures that bring more efficiency to the
productive environment of the country.
In the first half of 2012, a new package
of goals and measures was announced to
achieve the program objectives.
Goals
• Encourage public and private investment;
• Increase competitiveness in Brazilian
industry through productivity and
innovation;
• Reduce tax, economic and financial costs.
Measures
• Exchange rate: continuity of timely actions
on the exchange rate;
• Taxing: a continuous process of relaxation;
• Production: promote domestic
production;
• Development: foreign trade financing;
• Trade protection: respond to international
competition;
• Technological: incentives to the
information and communications industry;
• Credit: Investment Support Program (PSI
in Portuguese);
• Automotive: expand procurement
of domestic components and ensure
investment in research and development
(R&D).
Source: Research – Deloitte (from consolidation of
public data of April 5, 2012)
39. 35
“The chemical industry will play a
particularly important role in market growth
by driving innovation and contributing to
sustainability in aspects related to natural
resources, the environment, the climate,
the area of food and nutrition and the
quality of life.”
to more openly and constructively discuss
the problems that affect each segment.
In the chemicals area, we expect that
critical questions, as the cost of raw
materials and energy, will be raised
and addressed, in addition to effective
and ongoing support for research and
development (R&D). Bringing academia,
the government and industry together
is an initiative essential for improving
Brazilian competitiveness.
We are optimistic that this joining of
forces will result in effective changes and
concrete actions to confront the loss of
competitiveness in the industrial sector.
And, the confidence of entrepreneurs
and investors under a sustainable “Bigger
Brazil” scenario will result in even more
investment, compatible with the country’s
potential, ensuring that this prosperity will
be maintained today and always.
charges, that burden production, and the
precarious logistical structure, that makes
exports difficult, are other obstacles to
development. Energy costs are the fourth
highest in the world, seriously harming
some industrial sectors, such as chemicals.
Brazil has become expensive, very
expensive.
Faced with these and other factors, it is
not surprising that the Brazilian industrial
GDP has shown only modest growth –
the worst result among the BRICS. Some
analysts have already begun talking
about a process of deindustrialization. It
is necessary to reverse the situation. We
believe that the Competitiveness Council,
which is part of the “Bigger Brazil Plan”
(see chart on page 34) and whose purpose
is to analyze the factors affecting the
efficiency of Brazilian industry and propose
measures to counteract them, will allow
the government, workers and businessmen
40. Facing the
Chinese model
36
To deal with the challenges presented by the Asian
giant, Brazilian industry needs a strategy on two
levels: that of the country and that of companies.
Understanding the government policies is not
enough. It is necessary to understand the
Chinese company, its business model and the
process of globalizing its production chains.
The emergence of China
presents new challenges
for Brazilian industry and
the country as a whole.
The oriental megapower’s
process of growth and diversification
of its industrial production has brought
opportunities and, on a larger scale,
challenges for practically all elements of
Brazil’s productive sectors, which have seen
their positions in the foreign and domestic
markets affected.
Brazil’s ability to deal with the challenges
presented by China requires strategy changes
on two levels: that of companies and that
of the country. Research by the National
Confederation of Industry (CNI) has monitored
China’s impact on Brazilian companies and
how the local industry has reacted (see chart
on page 40). In general, the conclusions
of this research show that the companies
that intend to survive these generalized
impacts have to evaluate their weaknesses
and strengths with regard to Chinese
competition. This requires identification
of competitive advantages, both in their
operation as well as in relation to the
institutional and market environments in
which they operate, including an evaluation
of where China closes or opens possibilities
for insertion in global production chains.
For formation of a strategy, it is important
to understand the connections between
insertion patterns in global chains,
engineering and business models.
The risk of focusing all our attention to the
“Brazil Cost” issue and unfair competition
lies in that we can lose sight of the size of
the challenges that must be faced.
The case of the United States is illustrative.
There are many explanations for North
41. 37
American loss of manufacturing
leadership in many industries, but the
fact is that some countries now have
more efficient production. This can be
objectively verified: the number of hours
to produce a product, the number of
years to move from the research phase to
production and the accuracy of machinery,
for example.
The lessons of demobilization of
manufacturing in the United States
and of manufacturing growth in
other countries relates to productivity,
innovation and the understanding of
the involvement of different industries in
global production chains. This agenda
will determine Brazil’s ability to develop
its new industrial base. The center of
reaction policy is in the companies.
It is their reaction that will, in fact,
provide support.
Understanding local companies
To understand China, it is important
to understand its companies’ business
model and how they integrate with global
production chains. They take advantage
of the fragmentation of production
on a global scale, stimulated by gains
in economies of scale and helped by
the development of the container in
transporting cargos and its corresponding
logistics infrastructure, as well as by
the significant drop in the cost of data
transmission networks and by industrial
policies consistent with this environment
of fragmented production.
China was a major beneficiary of the
process of globalization that occurred
at the end of the 20th century and start
of the 21st. The ability to connect to this
new environment explains one important
source of its growth and its transformation
By José Augusto
Coelho Fernandes
Executive Director
of the National
Confederation of
Industry (CNI)
42. 38
“The risk of looking only for the problems
of ‘Brazil Cost’ and unfair competition is to lose
perspective on the scale of the challenges that must
be faced.”
rapidly into new niches after having a
clear vision of the profitability of the
original invention.”1
Beyond the public policies
China as an industrial platform benefits
from a geographic advantage: its location
in an area favored by a network of super
ports that connect different countries –
Japan, South Korea, Malaysia, Singapore
and Thailand, among others – in a strong
productive integration of a wide base of
suppliers located in the various markets of
the region. This productive base, a true
industrial ecosystem, has also developed
an extraordinary capacity to produce
with flexibility and reconfigure processes
to supply large quantities and a varied
mix of products.
The key issue is that, to build a Brazilian
industrial strategy with respect to China,
the understanding of its public policies
is not enough. The starting point for
developing a long-lasting strategy is to
understand the Chinese company,
its business model and the evolution
of the process of globalization of
production chains.
in the center of the production networks
of practically all industrial sectors.
As it captures portions of the
fragmentation of production on a global
scale, China is gaining basic advantages
associated with economies of scale
and of scope, and learning born from
specialization. These economies lead to a
system that operates with margins much
lower than those of more vertical industrial
systems. This is the primary source of
Chinese competitiveness.
Specialization strengthens this movement
by encouraging focus, efficiency and the
development of specific knowledge, more
difficult to achieve in less specialized
industrial structures. In one of their books,
the authors Dan Breznitz and Michael
Murphree, academics from the Georgia
Institute of Technology, synthesize the
Chinese model: “China’s capacity for
innovation is not only in the process (or
increase) of innovation, but also in the
organization of production, manufacturing
techniques, technologies, delivery, design
and in the second innovation cycle. This
structure allows China to move more
43. 39
Production chains are not static. They
evolve due to changes in relative prices,
technological transformations, logistics,
evaluations of risk, the profile of demand,
societal values – such as sustainability – and
management models.
Production chains may be entering a new
phase: from a focus on uniting multiple
links of low cost to one of shorter chains
structured in regional manufacturing
networks. If this trend continues, the
chances increase for Brazil to capture
manufacturing opportunities. This potential
will be greater and better if the country
is prepared to offer efficient logistics,
adequate communication systems, and
business models open to integration and
information sharing. No less important,
to create a point-to-point strategy, the
existence of innovative manufacturing
companies with the ability to adapt will
always be essential in our country.
Strategic initiatives
In structuring a strategy for Brazilian
industry to adapt to the impacts generated
by China, the company is the starting point.
However, there is a set of equally important
actions that require joint public and
private action. To better position national
manufacturing with respect to the Chinese
model:
••Increase the competitiveness of
companies in the country: regardless
of the scenario, Brazil needs to raise its
competitiveness. China increases the
sense of urgency. Brazil today has an
economy of high costs: taxation, logistics,
infrastructure, wages, energy and credit.
And all within an environment with an
overvalued exchange rate.
••Strengthen the opening of the Chinese
market: through its tariff schedule and
non-tariff barriers, China makes import of
Brazilian industrial products difficult. Brazil
should have a strategy and action plan to
deal with those problems identified. This
is particularly important for agribusiness
products, for which Brazil has clear
competitive advantages. The action
developed in favor of pork is an example
of initiative that should be repeated.
••Consolidate the strategy for natural
resource intensive products: Brazil
needs to build a strategy that exploits
China’s dependency on natural products
in order to maximize the benefits of
this relationship. This approach involves
actions in infrastructure, logistics and
research and development (R&D).
••Educate the market to identify niches
and opportunities: the size of the
Chinese market and its development
perspectives require systematic
work of prospecting, identification
of opportunities and business
promotion actions.
••Consider the opportunities for
integrating with value chains: in
fragmented chains, Brazil needs to
identify the links in which the country
can sustain competitive positions by
means of economies of scope and scale,
1 “Run of the Red Queen:
government, innovation,
globalization, and
economic growth in
China”
44. 40
and the ability to innovate. Multinational
companies have taken steps to avoid
concentrating their inputs and raw
materials in a few suppliers due to the
risk of being without supplies in the event
of natural disasters or political crises.
This strategy represents an opportunity
for Brazilian companies to capture
investment and integrate with global
production chains. In other cases, due
to China’s high level of competitiveness,
the best strategy for Brazil is to maintain
competitiveness by integrating with parts
of the Chinese supply value chain.
This is a step that is being taken by
several Brazilian companies, both in
connection with importation and
investment in China.
••Facilitate the structural
transformation of Brazilian industry:
China and Asia as a whole impose
structural modifications on Brazilian
industry. The critical question is
whether the country has the capacity to
develop new sectors and products that
take advantage of good competitive
conditions and meet the challenges
of change, both global and of its
industries. The size of the Brazilian
market and its area of influence, as
well as the opportunities related to
pre-salt, renewable energy, products
derived from ethanol and exploitation of
biodiversity are vectors of this process of
transformation.
••Attract Chinese direct investment:
China has become an important global
investor. It is up to Brazil to develop
strategies to capture Chinese Foreign
Direct Investment (FDI). One area
has become especially promising:
infrastructure. Funds recently created
for the sector, currently in the regulation
phase, should be a powerful instrument
Action and reaction
How China impacts Brazilian industry and how it positions itself
Research conducted by the National Confederation of Industry (CNI) on
the impact of the Chinese competition model on Brazilian companies
points to a number of findings:
• Competition from Chinese products in the domestic market
affects one in every four industrial companies and the exposure
to competition increases in accordance with the size of the
organization;
• The intensity of the competition varies by industry – those most
affected are electronic and communication material, textiles, hospital
and precision equipment, footwear and machinery and equipment;
• Competition with the Chinese is even more intense in the
international market than it is in the domestic market;
• The number of companies that import raw material, final products or
machinery and equipment has increased over time.
In reviewing Brazilian companies’ strategies to deal with this
competition, the following patterns of reaction stand out:
• Half of the companies have already developed a strategy to deal with
the competition (the rate varies in accordance with the size of the
organization);
• The main actions involve investment in the quality and/or design of
products and reduction of costs and/or gains in productivity;
• The portion of large companies that already have their
own production facilities in China is 10%, concentrated in
four industries: automotive vehicles, machinery and equipment,
electrical machinery and materials and electronic and
communication material.
45. 41
“The lessons of demobilization of manufacturing in
the United States and of manufacturing growth in
other countries relates to productivity, innovation
and the understanding of the involvement of
different industries in global production chains.
This agenda will determine Brazil’s ability to
develop its new industrial base.”
for achieving this objective. Note that
Chinese investment has increased in
Brazil and, more recently, it has also
begun competing in the manufacturing
industry.
••Develop a trade strategy focused on
the interests of industry: one of the
paths toward confronting the Chinese
challenge is to develop a network of
trade agreements in markets significant
for Brazilian industry. Free trade
agreements result in the establishment
of preferences. To the extent that
Brazil can succeed in developing these
agreements and China has difficulty
doing so, our competitive capacity
increases. For Brazil, it is especially
important to maintain preferential
margins in the Americas, where Mexico
is the primary priority, and consolidate
the penetration of Africa.
••Coordinate international actions:
undervaluation of the Chinese currency
and the problems associated with China’s
trade and industrial policy – considering
its conformance with the World
Trade Organization (WTO) –, depend
on coordinated actions in international
forums.
••Strengthen the trade protection
system: it should be ready to use the
mechanisms provided for by the WTO
efficiently, competently and in a timely
manner.
••Monitor China’s economic evolution:
Brazilian corporate and public policies
in relation to China cannot be based
on ignorance. Monitoring is important
to identify how China will adapt to
the challenges of strengthening its
domestic economy and increasing its
role in the international financial system.
The probable increase in domestic
consumption, the process of capital
liberalization and appreciation of the
yuan, the evolution of domestic
costs and industrial policies deserve
special attention.
46. Our challenges
in the IT chain
42
The success of the Brazilian PC industry, with
the introduction of good public policies, has been
supporting the growth of the official market.
To ensure the ability to compete with large
international groups, Brazil will now need increased
surveillance to prevent unfair competition and to
enforce clear rules to be applied to all.
The Brazilian personal
computer industry can be
considered a success case
for the introduction of public
policies focused on economic
and social development. The framework
of incentives for personal computer (PC)
production encompasses not only local
manufacture of computers but also the
development of a chain of inputs, such as
motherboards, monitors, memory and hard
disks, in addition to investments in research
and development, nationally.
Consequently, the information technology
sector generates jobs and fosters
researches, creating a virtuous cycle for
the country in terms of income
and technology. Above all, the
Brazilian model is fair, since it grants
similar incentives to all manufactures,
independently of their origins. This is
the reason why practically all significant
multinational groups have a Brazilian
production, providing consumers with
access to a large range of brands.
The success of the Brazilian model has
contributed to the growth of the official
market in recent years. Before 2005,
approximately 80% of the PCs sold in the
country were offered by the so called
“grey market” (those with some level
of illegality in their chain). Currently, it
is the official market that accounts for
close to 80% of the amount sold in
Brazil, according to International Data
Corporation (IDC). In an increasing
legalized manner, the Brazilian market
has been expanding at a rapid pace,
surpassing more mature economies such
as those of the United Kingdom and
Japan, to become the third largest global
market for PCs. This is an irrefutable proof
47. 43
that the local production model does not
pose any obstacle to market development.
The international competition
One of the consequences of the successful
development of the domestic market
is that the good opportunities have
encouraged multinationals – both North
American and Asian companies – to
increase their focus on our territory in
recent years. As a result, the increased
competition in Brazil has changed
the industry’s levels of profitability,
contributing to a convergence with levels
close to those realized by developed
countries. Although accelerated by
the weak demand in the more mature
economies, it can be understood as a
natural process.
The episodes of unfair competition related
to imported notebooks, a recurrent
problem in the country, are worrisome.
Large volumes of PCs manufactures in
Asia have entered the local market at quite
reduced prices. This process has occurred
with signs of under invoicing, since there is
a tax burden of over 40% over imports of
this kind, which theoretically would
be sufficient to make the entry of finished
computers into Brazil inviable.
Deficiencies in our customs inspection
system have allowed such imports,
harming the domestic industry as a
whole. The impacts have continued to the
present, even after the implementation
of inspection improvements by the
government, since it is hard for computer
prices to return to their previous level
after having been strongly reduced in the
market. The lesson serves as a warning
to the government, that it should ensure
equal competitive conditions in the official
computer industry.
By Hélio Bruck
Rotenberg
CEO of Positivo
Informática
48. 44
Besides greater market oversight efforts,
another point that deserves attention
from development policymakers is the
exemption of taxes on revenue (PIS)
and contributions for social security
funding (COFINS) levied on imported PCs.
It does not make sense to maintain
such a benefit to foreign manufactures
when we have already developed a local
industry with production capacity well
matched to demand. This would
not be protectionism, given the
increasing participation of foreign
companies with local production in the
Brazilian PC market.
Market data support this thesis. Presently,
the sales ranking of the five largest
manufacturers already includes four
multinational groups. Two years ago,
Brazilian companies dominated this list.
Positivo Informática is the only domestic
manufacturer that has maintained a solid
position in the Brazilian market, a sales
leader for the past six years according to
International Data Corporation (IDC).
It is possible to operate in this market and
compete with large international groups.
Our leadership in the market evidences
that, a natural consequence of a formula
that generates value for customers, nimble
management, and a rigorous search for
competitive costs. It is fundamental to
have clear rules applied to all to enable
the Brazilian market to maintain its growth
trajectory, contributing to the technological
development of the country.
“Above all, the Brazilian
model is fair, since it
grants similar incentives
to all manufactures,
independently of
their origins. This
is the reason why
practically all significant
multinational groups
have a Brazilian
production.”
49. 45
“It is fundamental to have clear rules applied to
all to enable the Brazilian market to maintain its
growth trajectory, contributing to the technological
development of the country.”
50. A stronger link in
the entire chain
46
As essential bases of the manufacturing
industry chain, mining and steel can, together,
starting with more cooperative actions
between them, better meet their own
challenges and expand their role in the country’s
development even more.
The mining and steel
sectors are at the
base that supports the
industrial development
of the country. By
understanding the challenges that both
currently face and evaluating the ways
to meet them, in reality we are actually
discussing ways to expand
competitiveness in all sectors of the
manufacturing industry. And this is exactly
what we need at this time.
In analyzing the proximity and
interconnection between these two
sectors, greater collaboration between
their respective agents can be seen as
a trend, both emerging and necessary.
In spite of the numerous challenges
the mining sector faces – new sources
of financing, increased costs and
competition for resources from the energy
and infrastructure sectors – and in the
steel sector – always looking for ways
to protect itself from commodity price
volatility, starting, for example, with hedge
operations by participating directly in
financing the mining sector –, there is still
room to make progress in the two areas.
The growing number of joint ventures
between companies in the two sectors to
optimize their operations already shows
this movement of greater cooperation,
which can only grow.
Volatility and other issues
In mining, the main issues that affect
the sector should continue practically
unchanged over the next years. However,
from a macroeconomic and geopolitical
viewpoint, it becomes clear that the
difficulties that plague the industry
are rapidly reaching an extreme and
unprecedented level.
51. By Eduardo
Tavares Raffaini
Deloitte leader in
Brazil for mining
segment
47
Cost increases are not new, but they are
larger. Changes in fiscal and government
policies have been taking place for
years, but the associated costs and their
unpredictability have increased. The price
volatility of commodities is greater than
ever, in part, due to market uncertainty
and the unprecedented demand from
governments and companies in Asia.
Issues related to sustainability, which
involve conservation of the environment
and the guarantee of human rights in
work practices, have frequently been
transformed into cases of community
activism and social unrest.
The shortage of labor, on the other
hand, continues to increase. Companies’
cash on hand has increased, resulting
in growing expectations on the part of
shareholders. Investment project portfolios
have assumed an increasingly significant
role. And, in addition to all this,
the regulatory environment continues
to be restrictive.
Events that normally occur every 100 years
are also taking place with an alarming
regularity. In addition to the long-term
effects of the global financial crisis
that continue to reverberate, primarily in
Europe, destructive weather phenomena
are taking a toll.
To the extent that these global forces
converge, the leaders of mining
companies must look beyond the
traditional scenarios used in their planning.
To prepare themselves for the risks not
previously predicted, companies must
begin to incorporate more complex
scenarios into their strategic planning.
They must also be ready to look for
nonconventional solutions to conventional
52. 48
challenges if they really expect to
resolve some of the sector’s most
endemic issues.
Steel and synergy
In steel, global competition is even
stronger. The steel produced in countries
such as China and India is able to enter
the country at competitive prices, strongly
affecting local suppliers. In the largest
competitors in the sector, at least those
that have attractive prices – again, the
Chinese and Indians –, greater synergy
can be seen between mining and steel,
which leads to competitive gains in the
global area and offers a better base for
sustaining industry. Might this be an
interesting path for Brazil? Possibly. This is
a factor that depends on dialogue and
the cooperation of the government as
leader of the debate.
Brazil is one of the largest producers of
iron ore in the world and also has an
important position in other minerals.
In steel, we are one of the ten largest.
Shouldn’t the manufacturing industry have
a competitive advantage as a result of
these positions?
Reflection on the role of basic industry
in supporting the manufacturing chain
cannot be occasional. Various elements
that are directly related to the challenges
of steel and mining should be brought into
the debate so the country can take care
of the manufacturing industry chain as a
whole, considering all its links and each one
individually, focusing on competitiveness
and the best cost-benefit of the products
that reach the final consumer – whether
in the form of a car, a refrigerator or a
computer.
“Reflection on the
role of basic industry
in supporting the
manufacturing chain
cannot be occasional.
Various elements that
are directly related to
the challenges of steel
and mining should
be brought into the
debate so the country
can take care of the
manufacturing industry
chain as a whole.”
53. 49
The ten main points of concern
To strengthen its operational model and deal with market volatility, companies in the mining
sector, in Brazil and globally, must pay attention to some dilemmas that directly impact their
operations. As the initial stage of the entire production chain and directly linked to steel,
any problem present in mining has repercussions on the performance of the entire
manufacturing industry.
1. The cost of conducting business: companies need to work to reduce costs, mainly, those
related to capital projects, inputs and energy.
2. Chaos in commodity prices: the volatility requires strong preparation due to the uncertainty
of Chinese demand and the crisis in the European Union.
3. The battle to maintain profits: the good results of the mining companies have led to changes
in the regulatory environment, such as changes in royalty payments and taxes on profits,
requiring a more structured financial model.
4. The restlessness of stakeholders: sustainability and corporate social responsibility are already
mandatory elements just as important as production. Even more in an activity that so strongly
impacts society.
5. The pains of the work market: the lack of talent to manage projects is growing around the
world.
6. Dilemmas for investment projects: competition with other rising sectors for financing and
labor increases risks and costs.
7. Nonconventional financing: the capital market is not the best option when mineral volatility
is intense.
8. Large companies are getting larger: in expanding the range of investments worldwide,
adoption of controls and systems capable of monitoring foreign investments is essential.
9. Volatility is the new stability: critical cycles are occurring in increasingly short periods of time.
Mining companies must develop operational plans to prevent the chain reaction even before
the cycles are triggered.
10. The regulatory rush: throughout the world, laws are becoming stricter to avoid economic
crises such as that of 2008. There will be increasing pressure to review the degree of regulatory
compliance.
Source: “Tracking the trends – The top ten issues mining companies may face in the coming year” (Deloitte, 2012)
54. The country
of the present
50
The numbers for the Brazilian economy show
a promising future in which the automotive
industry has opportunities and challenges. Such
an attractive market attracts global attention
and forces the Brazilian product to compete
domestically and cross borders, winning
strategic sectors.
There are times in history
when reevaluating the past
and reviewing strategies,
lessons and concepts can
be quite an enriching and
surprising experience. Fiat itself, in a
successful advertising campaign, has
once used the slogan: “It’s time to
review your concepts”. We proposed this
change of vision at the time Brazil was still
considered by many to be the “country of
the future” – of a future that did not seem
to want to arrive.
A little more than a decade after the
campaign, it is both ironic and natural
to see the robust numbers for the
Brazilian economy printed in the media.
Its performance quickly overcame the
effects of the storms and uncertainties that
transformed the global scenario starting
in 2008 and made the country a good
destination for capital coming from several
financial centers. According to the Central
Bank (BC), Direct Foreign Investment (FDI)
totaled more than US$ 66 billion in 2011,
equal to 2.7% of the Gross Domestic
Product (GDP) for the same period.
Even with the crisis in Europe and the
international economic and political
uncertainties, investor optimism with
respect to Brazil was not hurt and is a
consequence of the large driving forces of
our economy: the size and the growing
quality of the domestic market. This is a
consequence of the virtuous cycle that was
triggered by stabilization of the economy
in the first half of the 1990s and which
was consolidated in subsequent years by
the good economic fundamentals and the
combination of “development” and “social
inclusion” which have guided economic
strategy over the last decade.
55. 51
The researcher Alan Kay, one of the
pioneers of personal computing, said
that “the best way to predict the future
is to create it”. In the recent past, Brazil
knew how to develop its large domestic
market and, thus, project its future. Policies
to reduce inequality helped almost 50
million people join the middle class over
the first decade of the new century and in
following years, according to the Getulio
Vargas Foundation (FGV). Who would have
imagined this in Brazil during the 1980s, the
“lost decade”?
The repeated desire of the government to
maintain the level of consumption through
stimulus mechanisms, to reduce interest
rates, to preserve economic fundamentals,
and to increase the minimum salary, among
other factors, contributed to strengthening
the domestic market. By the end of 2011,
while European countries were suffering
from high unemployment rates, Brazil again
showed that it was a nation that advances
and surprises. The upcoming events that
require infrastructure works, such as the
2014 World Cup and the 2016 Olympic
Games, are also a stimulus factor for
creating jobs.
Challenges for the automotive sector
For the automotive industry, the Brazilian
scenario is one of opportunities and
challenges. In the first place, there is much
room for growth. While, in Europe, the
automobile market is practically one of
replacement since the rate of motorization
has already reached two people per vehicle
on average, and, in the United States,
this number has reached 1.2 vehicles per
person, in Brazil, there is great demand to
be met. The country has one car for every
6.4 people. If we wished, for example,
to bring our rate of motorization up to
By Cledorvino
Belini
President of the
Fiat/Chrysler Group
for Latin America
56. 52
that of Argentina, we would need to
add a national fleet of another 17 million
automobiles. This amounts to five years of
domestic production.
This scenario of vast opportunity also
brings the challenge of growing global
attention to such an attractive market.
The recession in the more developed
economies led to large surpluses of
manufactured goods globally, and
this offer is being directed toward the
emerging countries, strongly impacting
the industrialized product import agenda.
The domestic productive sectors and
the government are working to develop
an industrial policy that strengthens the
Brazilian product, encouraging innovation
and strengthening production chains, in
order to regain competitiveness.
Our challenge is not only to be able to
compete with imported products in the
domestic market, but to cross borders,
to confront the competition in global
markets and gain technological leadership
in strategic sectors. The automotive
industry, which represents 23% of the
industrial Gross Domestic Product (GDP)
of the country and a little more than 5%
of total GDP, taking into account the
production chain, is strongly engaged in
this effort, particularly due to the impact
its operations have on the entire
Brazilian economy.
The education factor
It is important to emphasize that
success in overcoming several domestic
challenges, such as the search for systemic
competitiveness and the sustainability
of the vitality of the Brazilian domestic
market, all depends on the same crucial
point: education. The country has made
advances in providing education for social
“The country has a privileged
position in the international scenario,
a diversified and technologically
up-to-date industrial park, a financial
system recognized for its soundness
and good practices, a population keen
on innovation and a powerful and
young domestic market in its favor.”
57. 53
“The best path is to optimize the capacity for
investment in infrastructure, technology and
education, without pressing the public accounts.
These investments are the essential pillars for
sustainable Brazilian development.”
sectors previously excluded, but
investment in the quality of public
education is needed.
Higher education is a priority since it is
responsible for the training of technicians,
managers and leaders who will guide the
productive processes and technological
and social development. However, it is
essential to universalize the quality of
basic public education in order to
strengthen citizenship, offer equal
opportunities and ensure workers who
can absorb, at a higher level, the
knowledge that we need to achieve
our potential as a nation.
Brazil can go much farther than it ever
dreamed. The country has a privileged
position in the international scenario,
a diversified and technologically up-to-date
industrial park, a financial system
recognized for its soundness and good
practices, a population keen on innovation
and a vigorous and young domestic market
in its favor. But we cannot lose sight of
the fact that the relative comfort of the
emerging countries with respect to the
crisis that persists in the more developed
countries does not mean that we are
immune from storms. In an interconnected
world with completely interrelated markets,
there is no place to hide.
The best path is to optimize
the capacity for investment in
infrastructure, technology and education,
without pressing the public accounts.
These investments are the essential
pillars for sustainable Brazilian
development since they signify the
elimination of logistic and supply
bottlenecks and the definitive inclusion
of Brazilians in the process of producing
economic goods and knowledge. The
new span of the country and its ability
to deal with uncertain times, supported
by the strength of its domestic market
and its investment capacity, is a
reassuring vision, but it increases our
responsibility to do the best we can
based on our abilities.
58. 54
The rise of
automobiles
Standing out in the global ranking, Brazilian
automobile industry has recorded good
performance in the first decade of the new
century, even in the aftermath of the global
crisis. The industry now needs to face the
challenge of operational costs to take better
advantage of opportunities in such an attractive
domestic market.
A few years ago, not even
the most optimistic
economists and
futurologists could have
predicted the real potential
of the Brazilian automobile industry.
There was consensus on the country’s
potential, but such a meteoric rise of the
local automotive market within the global
scenario was not expected. In 2006, Brazil
occupied only the tenth position in the
global automotive ranking. By the end
of 2010, it had jumped to the impressive
fourth position, behind only China, the
United States and Japan, when considering
unit sales (see chart on page 56).
In the first decade of the new century, the
Brazilian automotive industry’s greatest
achievement was the consolidation of
a strong industrial park, supported by
an excellent supply chain with a current
installed production capacity of up to
5 million vehicles per year. A picture
that will continue to grow leveraged by
companies’ new investment plans. Such
perspective is based on existing and
not yet exploited characteristics or on
new events. Below, some factors that
demonstrate this trend.
We have a population of almost 200 million
inhabitants and one of the lowest ratios
of inhabitant per vehicle on the planet –
around seven, behind Mexico, Germany,
United Kingdom, France, Japan, Italy and
the United States.
The growth of the so-called “C” class
that jumped from 63 million people in
2005 to more than 100 million in 2010
is an extremely impressive aspect of the
Brazilian economy. It is a huge contingent
of consumers eager for products such as
* Sandra Mariani has
wide experience in the
automotive sector, having
worked at GM Brazil for
more than a decade,
holding the position of
Chief Financial Officer
(CFO) from 2009 to 2011
59. 55
automobiles. The Brazilians are supported
by a sound and expanded access to solid,
long-term credit, although interest rates
continue to be very high. It’s also worth
pointing out that default levels remain
relatively low.
Prior events led to the consolidation of
the domestic market, helping to lower
dependency on the foreign market.
Automotive industry export revenue
continues to be significant, although
restrained on due to the excessive
appreciation of the real.
The Brazilian automobile industry has
recorded successive growth in recent
years, although it reached a more
restrained level of growth in 2011.
Within the context of the 2008
international crisis, the Brazilian
automobile sector performed well in
comparison to other countries. Even
considering the uncertainty of the current
scenario, the industry in Brazil is expected
to continue delivering sound performance
in the mid to long term.
For those whose task is to plan investments
in search of basic returns for shareholders,
Brazil shows that it has eluded the perverse
logic expressed in the economic jargon as
stop and go, thus moving forward toward
sustainable development.
Efficiency in cost management
Companies established in Brazil still face
quite high operational costs. The situation
has been made even more challenging
by the relationship of the exchange ratio
– with the appreciation of the real – and
the increase in salaries. There is no doubt
that the fierce competition between the
traditional automakers and those recently
By Sandra Mariani*
Former CFO of
GM Brazil
60. 56
“In the current business environment, it is almost
impossible to pass along the effective increases in
the cost of inputs and in the production of cars.
Therefore, efficiency is an increasingly essential
condition to compete in the Brazilian market.”
Rapid evolution
Automobile sales in the 20 major markets
In thousands of units sold
Country 2008 2011 Var. % (08/11)
China 6,529 14,234 118
United States 13,222 12,778 -3
Japan 5,032 4,170 -17
Brazil 2,671 3,425 28
Germany 3,318 3,403 3
India 1,657 2,800 67
Russia 2,925 2,653 -9
Source: Deloitte – Research (data from Jato Dynamics and Anfavea)
61. 57
entering the domestic market will
demand not only an intelligent strategy,
but a greater effort by all of us to control
costs, eliminate wastes and simplify
the how we approach all aspects of
the business. In the current business
environment, it is almost impossible to
pass along the effective increases in the
cost of inputs and in the production of
cars. Therefore, efficiency is an increasingly
essential condition to compete in the
Brazilian market.
The big challenge is, in part,
counterbalanced by the perspective that
the country will continue to enjoy political
stability, supported by factors such as
sound macroeconomic fundamentals,
increase in family income, maintenance
of credit and strong global demand
determined by China and the other
emerging markets, in addition to the
likelihood that commodities prices will
remain at a high level.
Added to that are elements such as the
start of pre-salt oil exploitation and
the holding of mega-events such as the
World Cup and the Olympic Games,
which will require large investments in
logistics and infrastructure. That is, we
have many reasons to continue believing
in the growth potential of Brazil’s
economy and industry, as well as in new
opportunities for those intending to invest
in the country.
62. 58
Challenges in
tax controls
The growing evolution of the tax system in the
country shows the need for good practices in
managing company taxes, a critical point for
ensuring industrial competitiveness.
In the field of tax controls, there
are still many challenges for
Brazilian companies to tackle.
Even with the advances provided
by adoption of a system that
allows presentation of electronic files to
the tax authorities – given the ease of
verifications and testing information –,
there is a long road to be traveled to ensure
more efficiency in companies’ daily lives.
Statistics show, for example, in the light of
the effects of tax deficiency notices, that
electronic cross-checking of information
has led to increased government revenue,
demonstrating various levels of errors
and weaknesses in the management of
company risk.
By adopting an electronic system
for sending information to the tax
authorities, Brazil has jumped ahead of
other countries. The era of information
technology and the concrete effects of
electronic inspections are undisputed.
There were concerns about the program
when it was first announced, due to
its extremely large scale. However, its
implementation and operation took
place in a relatively short period of time,
proving that the forces that advance or
hold back social and economic changes
really result from the priorities that
each receive from the government.
The Public Digital Record-keeping System
(SPED) is one of the programs that shows
this advance.
In this context, it is necessary to rethink
some company processes and needs
to adapt to this new tax authority era,
highlighting the importance of training
professionals in the area to use appropriate
technological resources and support
decision making in the best ways. Starting
