Jens Lage Hansen                   SOUTH AMERICA                       BRAZIL                     GRUNDFOS             CMI...
My background                                                             Jens Lage Hansen• Danish and Brazilian citizensh...
Agenda                                                        Jens Lage Hansen• The situation      –      BRIC      –     ...
BRIC countries. What crisis?World GDP growth the last 5 years           Jens Lage Hansen30-04-2012         JensLageHansen@...
Where are they right now?BRIC countries economy and population                                               Jens Lage Han...
The giant and the restMap of South America                       Jens Lage Hansen30-04-2012        JensLageHansen@mail.dk ...
Don’t they like their nabours?Intraregional exports in Latin America                                                      ...
Biggest economies of South AmericaBrazil, Argentina, Venezuela, Colombia and Peru                                   Jens L...
Brazilian regions                                             Jens Lage Hansen30-04-2012          JensLageHansen@mail.dk  ...
The AcademicPresident Fernando Henriques Cardoso 1995 – 2002   Jens Lage Hansen• Tamed inflation in 1994 as  fincance mini...
The Union ManPresident Luiz Lula da Silva 2003 – 2010        Jens Lage Hansen• Won for the first time in 4  elections by m...
The Efficient BureaucratPresident Dilma Rouseff 2011 –                        Jens Lage Hansen• Lula’s choice, and that wa...
A picture says more than a 1,000 wordsFormer president Lula and president Dilma   Jens Lage Hansen30-04-2012         JensL...
Brazil’s extraordinary energy mixDomestic energy supply in Brazil                          Jens Lage Hansen             SO...
Just start diggingReserves of natural ressources. World ranking   Jens Lage Hansen•   Bauxite no. 3•   Iron ore no. 5•   N...
Feeding the worldAgrobusiness production. World ranking                 Jens Lage Hansen•   World class Brazilian institut...
What markets are interesting?Business opportunities as seen from Denmark                   Jens Lage Hansen• Environmental...
The Brazil cost                                                                                 Jens Lage Hansen• High int...
Jens Lage Hansen   GRUNDFOS AND BRAZIL 199830-04-2012   JensLageHansen@mail.dk     19
Do you want to move water?Some examples from Grundfos product range   Jens Lage Hansen30-04-2012        JensLageHansen@mai...
How do you make that work?Grundfos matrix organization around 2000                                           Jens Lage Han...
Where were we heading and how?Grundfos strategy                                                           Jens Lage Hansen...
Grundfos strategy (cont.)                                                                          Jens Lage Hansen• Scope...
What were we looking at?Brazilian market                                          Jens Lage Hansen•   Huge geographical te...
Who were the customers?Customer needs and segments                                 Jens Lage Hansen• Customer needs      –...
How about competition?Competitors in Brazilian market                              Jens Lage Hansen• Leao      – Brazilian...
High value of Reais gave favourable COGAverage price and cost of goods                                       Jens Lage Han...
Case question 1                                               Jens Lage Hansen• Should Grundfos enter Brazil?• Why?30-04-2...
Case 1 wrap-up                                          Jens Lage Hansen30-04-2012       JensLageHansen@mail.dk     29
What should we look at?Country attractiveness                         Jens Lage Hansen• Market and competitive opportuniti...
Is it going to be easy?Market and competitive opportunities for Grundfos                                          Jens Lag...
What is the country like?Country risk                                                                             Jens Lag...
Country risk (cont.)                                                                                         Jens Lage Han...
Case question 2                                                    Jens Lage Hansen•   What should Grundfos objectives for...
Case question 2 wrap-up                                         Jens Lage Hansen30-04-2012      JensLageHansen@mail.dk    ...
Why do we want to do it?Strategic objectives for entering a country       Jens Lage Hansen•   Market development•   Resour...
Factors influencing entry modes                                                 Jens Lage Hansen•   Corporate global strat...
Entry modes                                                                             Jens Lage Hansen                  ...
Lets do it ourselvesBuilding an managing own company                                      Jens Lage Hansen• Status end 199...
Now lets get this up and runningBuilding operations in 3 months                    Jens Lage Hansen•   Warehouse and offic...
Where are the results?Building sales                                              Jens Lage Hansen• The exchange rate     ...
Who said economical risk?Average price and cost of goods                                      Jens Lage HansenThousand Rea...
Building sales (cont.)                                                      Jens Lage Hansen• Competitors      – Relations...
Why do they react like that?Managing in Brazil                                        Jens Lage Hansen• The boss      – Av...
Managing in Brazil (cont.)                                                     Jens Lage Hansen• High context language    ...
Case question 3                                                      Jens Lage Hansen• How would you manage Grundfos do Br...
What am I missing?Open session                             Jens Lage Hansen• Questions?• Comments?30-04-2012      JensLage...
Jens Lage Hansen             Thanks for listening!30-04-2012        JensLageHansen@mail.dk     48
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Cmi Brazil 2012.04.25. Student Post

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South America,Brazil and Grundfos. Lecture given at Copenhagen Business School to graduate students in International Business 26th. of April 2012

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Cmi Brazil 2012.04.25. Student Post

  1. 1. Jens Lage Hansen SOUTH AMERICA BRAZIL GRUNDFOS CMI: FDI IN DEVELOPING COUNTRIES CBS 26.04.201230-04-2012 JensLageHansen@mail.dk 1
  2. 2. My background Jens Lage Hansen• Danish and Brazilian citizenship• Lived in Brazil, Argentina, Spain, U.S. Virgin Islands and Denmark• MSc in Electrical Engeneering (DTU) and Bcom (CBS)• International career with marketing, general management and board responsibilities in Novo Nordisk, Novozymes, Foss, Danisco and Grundfos• Board member in two biotech startups: Aquaporin A/S (from 1995) and Intomics A/S (from 2009)• Adjunct associate professor at CBS30-04-2012 JensLageHansen@mail.dk 2
  3. 3. Agenda Jens Lage Hansen• The situation – BRIC – South America – Brasil – Grundfos• The decisions – Question 1: Should Grundfos enter Brazil? – Question 2: How should Grundfos enter?• Building and managing Grundfos do Brasil – Question 3: How would you manage the company?30-04-2012 JensLageHansen@mail.dk 3
  4. 4. BRIC countries. What crisis?World GDP growth the last 5 years Jens Lage Hansen30-04-2012 JensLageHansen@mail.dk 4
  5. 5. Where are they right now?BRIC countries economy and population Jens Lage Hansen2011 POPULATION GNP at PPP GNP per capita Political Risk *CIA factbook (MIO) (billion US$) (US$)Brazil 205 2,282 11,600 LowRussia 138 2,380 16,700 Medium - SignificantIndia 1,205 4,463 3,700 Moderate - MediumChina 1,343 11,290 8,400 Low - ModerateUSA 314 15,040 48,100 Low - Moderate * Lasserre 2nd ed. pg. 179BRIC countries all have Medium economical risk (Lasserre)30-04-2012 JensLageHansen@mail.dk 5
  6. 6. The giant and the restMap of South America Jens Lage Hansen30-04-2012 JensLageHansen@mail.dk 6
  7. 7. Don’t they like their nabours?Intraregional exports in Latin America Jens Lage Hansen The Economist30-04-2012 JensLageHansen@mail.dk 7
  8. 8. Biggest economies of South AmericaBrazil, Argentina, Venezuela, Colombia and Peru Jens Lage Hansen2011 POPULATION GNP at PPP GNP per capita Political Risk *CIA factbook (MIO) (billion US$) (US$)Brazil 205 2,282 11,600 LowArgentina 42 710 17,400 SignificantColumbia 45 471 10,100 MediumVenezuela 28 374 12,400 SignificantPeru 30 300 10,000 Medium * Lecturers subjective assesment30-04-2012 JensLageHansen@mail.dk 8
  9. 9. Brazilian regions Jens Lage Hansen30-04-2012 JensLageHansen@mail.dk 9
  10. 10. The AcademicPresident Fernando Henriques Cardoso 1995 – 2002 Jens Lage Hansen• Tamed inflation in 1994 as fincance minister• Sound economical policies• Limiting and reducing states and governments deficits and huge loans• Opening of economy• Beginning of social progams30-04-2012 JensLageHansen@mail.dk 10
  11. 11. The Union ManPresident Luiz Lula da Silva 2003 – 2010 Jens Lage Hansen• Won for the first time in 4 elections by moving to the center• Continuity• Boosting social programs• Pursuing south – south ties• Increasing state intervention in economy30-04-2012 JensLageHansen@mail.dk 11
  12. 12. The Efficient BureaucratPresident Dilma Rouseff 2011 – Jens Lage Hansen• Lula’s choice, and that was enough• Continuity and in control• Fighting corruption – 7 ministers out in one year• Promoting meritocracy• Boosting education• Incrasing state control and protectionism• Personal approval rating march 2012: 77%30-04-2012 JensLageHansen@mail.dk 12
  13. 13. A picture says more than a 1,000 wordsFormer president Lula and president Dilma Jens Lage Hansen30-04-2012 JensLageHansen@mail.dk 13
  14. 14. Brazil’s extraordinary energy mixDomestic energy supply in Brazil Jens Lage Hansen SOURCE BRAZIL OECD (% in 2007) (% in 2005) Oil 37.4 40.6 Gas 9.3 21.8 Coal 6.0 20.4 Uranium 1.4 11.0 Hydro 14.9 2.0 Biomass 30.9 4.2 Total 100.0 100.0 Renewable 45.8 6.230-04-2012 JensLageHansen@mail.dk 14
  15. 15. Just start diggingReserves of natural ressources. World ranking Jens Lage Hansen• Bauxite no. 3• Iron ore no. 5• Nickel no. 3• Tin no. 3• Uranium no. 6• Oil no. 10• Forests no. 230-04-2012 JensLageHansen@mail.dk 15
  16. 16. Feeding the worldAgrobusiness production. World ranking Jens Lage Hansen• World class Brazilian institute for agroresearch• Orange juice no. 1• Sugar no. 1• Fuel-ethanol no. 2• Soyabeans no. 2• Chickens no. 3• Coffee no. 1• Beef no. 2• Pork no. 4• Maize no. 4• Cotton no. 530-04-2012 JensLageHansen@mail.dk 16
  17. 17. What markets are interesting?Business opportunities as seen from Denmark Jens Lage Hansen• Environmental technologies – Supply of potable water – Effluent treatment. Industrial and domestic – Reducing air polution – Energy saving• Oil and gas exploration• Food processing technology• Bioethanol production• Fashion, design and clothes• Pharmaceutical equipment• Medicotechnical products• Information and communication technology in health care30-04-2012 JensLageHansen@mail.dk 17
  18. 18. The Brazil cost Jens Lage Hansen• High interest rates – SELIC 9.00 %• High taxes – Brazil 34.4 % of GDP – Russia 36.9, India 17.7 %, China 17.0 %, Denmark 48.2 %• Complicated tax system• Bureaucracy• Poor physical infrastructure• Inflexible labour market with untouchable employees – Cost of employees double up because of taxes, social contributions and mandatory benefits (transport, meals, vacation bonus, extra salary) – HSBC doorhandler – Grundfos time clock30-04-2012 JensLageHansen@mail.dk 18
  19. 19. Jens Lage Hansen GRUNDFOS AND BRAZIL 199830-04-2012 JensLageHansen@mail.dk 19
  20. 20. Do you want to move water?Some examples from Grundfos product range Jens Lage Hansen30-04-2012 JensLageHansen@mail.dk 20
  21. 21. How do you make that work?Grundfos matrix organization around 2000 Jens Lage Hansen Corporate Management (CEO, CFO, CPO) Businesses Ground water Industry Building servicesRegionsEuropeNorth AmericaSouth America (JLH)Asia Group Executive council: Corporate management, business managers, regional managers30-04-2012 JensLageHansen@mail.dk 21
  22. 22. Where were we heading and how?Grundfos strategy Jens Lage Hansen• Purpose – Grundfos is a global leader in advanced pump solutions and a trendsetter in water technology. We contribute to global sustainability by pioneering technologies that improve quality of life for people and care for the planet.• Values – Sustainable – Open and trustworthy – Focused on people – Independent – Parthership – Relentlessly ambitious30-04-2012 JensLageHansen@mail.dk 22
  23. 23. Grundfos strategy (cont.) Jens Lage Hansen• Scope in 1998 – Pump systems for water supply, water movement and water treatment – In house R&D, Production and sales – Sales and service companies in most important global markets – Traditionally only production in Denmark, Germany and USA with Denmark being the dominant supplier – Recently established sales and service companies in Russia, China and India• Value proposition – The most sustainable, advanced and effective pumps and pumping systems in the world30-04-2012 JensLageHansen@mail.dk 23
  24. 24. What were we looking at?Brazilian market Jens Lage Hansen• Huge geographical teritory• Big billion dollar pump market• Vast variety of products to cover every application• Products low to medium end• Intense rivalry with focus on price• Low to no profitability amongst suppliers30-04-2012 JensLageHansen@mail.dk 24
  25. 25. Who were the customers?Customer needs and segments Jens Lage Hansen• Customer needs – Low prices – Short delivery times – Technical advice in choosing product – Reliable technical after sales service• Groundwater segment – Public and corrupt• Industry segment – Technical oriented buyers• Building segment – Fragmented with many competitors30-04-2012 JensLageHansen@mail.dk 25
  26. 26. How about competition?Competitors in Brazilian market Jens Lage Hansen• Leao – Brazilian competitor with plant in Sao Paulo state – Dominated groundwater segment• KSB – German multinational – Plant in Sao Paulo city – Strong in industry segment• Smaller local outfits30-04-2012 JensLageHansen@mail.dk 26
  27. 27. High value of Reais gave favourable COGAverage price and cost of goods Jens Lage HansenThousand Reais excl. all taxes2.5 21.5 Average COG 1 Average selling price0.5 0 1994 1995 1996 199730-04-2012 JensLageHansen@mail.dk 27
  28. 28. Case question 1 Jens Lage Hansen• Should Grundfos enter Brazil?• Why?30-04-2012 JensLageHansen@mail.dk 28
  29. 29. Case 1 wrap-up Jens Lage Hansen30-04-2012 JensLageHansen@mail.dk 29
  30. 30. What should we look at?Country attractiveness Jens Lage Hansen• Market and competitive opportunities• Country risk30-04-2012 JensLageHansen@mail.dk 30
  31. 31. Is it going to be easy?Market and competitive opportunities for Grundfos Jens Lage Hansen• Market – Big market – Growing – Customer quality • Price • Some quality segments (BOT groundwater, industry high enery users)• Competition – High intensity of rivalry – High entry barriers • Established relationsships and trust • Government protection of local production and jobs – Bargaining power • Suppliers: Low • Customers: High – Industry profitability low• Incentives – Taxes, subsidies and global competitiveness Lasserre 2nd ed. pg. 165• Critical ressources – None30-04-2012 JensLageHansen@mail.dk 31
  32. 32. What is the country like?Country risk Jens Lage Hansen• Political risks were low – Shareholder exposure – Employees exposure – Operational exposure• Economic risks were significant – a fact we underestimated – Economic growth but high variability – Inflation under control – Cost of inputs risky – Exchange rates • The Devil is in the detail Lasserre 2nd ed. pg. 165 • More later30-04-2012 JensLageHansen@mail.dk 32
  33. 33. Country risk (cont.) Jens Lage Hansen• Competitive risk – Public contracts influenced by some corruption – Cartels were not in evidence – Networks did not influence• Operational risk – Infrastructure • Power, telecommunicaion, transport low risk • Suppliers secure – Regulations • Nationalistic preferences very much in evidence. High risk • Constraints on local capital, local content, local employement a factor • Taxes on imports to protect local production30-04-2012 JensLageHansen@mail.dk 33
  34. 34. Case question 2 Jens Lage Hansen• What should Grundfos objectives for entry be?• What phase is the Brazilian pump market in?• What entry mode would you recomend?• Why?30-04-2012 JensLageHansen@mail.dk 34
  35. 35. Case question 2 wrap-up Jens Lage Hansen30-04-2012 JensLageHansen@mail.dk 35
  36. 36. Why do we want to do it?Strategic objectives for entering a country Jens Lage Hansen• Market development• Resources access• Learning• Co-ordination30-04-2012 JensLageHansen@mail.dk 36
  37. 37. Factors influencing entry modes Jens Lage Hansen• Corporate global strategy• Country risks• Market opportunities• Companies internal capabilities• Time pressure• Government requirements30-04-2012 JensLageHansen@mail.dk 37
  38. 38. Entry modes Jens Lage Hansen Limited control Full control • JV without control (50% or • Wholly owned subsidiary by below) greenfield investment • Full aquisitionHigh investment • JV with absolute control (above 66%) Arms lenght agreements • Marketing subsidiary • Distributor • Regional headquarters • Agent • Pocurement officeLow investment • Representative • Representative office • Franchisee • Technial observatory • Licensing30-04-2012 JensLageHansen@mail.dk 38
  39. 39. Lets do it ourselvesBuilding an managing own company Jens Lage Hansen• Status end 1998 – Sales orgnization in place – From Sao Paulo to Curitiba• Organization• Two page action plan• Surfing the edge of chaos (Pascale 1999)• Fighting battles in different worlds – Mandatory member of Group Executive Management (topmanager) – Sorting out Argentina (local chairman) – Building Brazil (entrepreneur)30-04-2012 JensLageHansen@mail.dk 39
  40. 40. Now lets get this up and runningBuilding operations in 3 months Jens Lage Hansen• Warehouse and offices• Assembly, test and service facilities• Energy and water• Furnishing offices and warehouse• Recruiting and training people• IT• Accounting• Approvals30-04-2012 JensLageHansen@mail.dk 40
  41. 41. Where are the results?Building sales Jens Lage Hansen• The exchange rate – Russian , Asian and South American crisis in 1998• Customers • Territories and segments • Pricing • Availability and delivery times • Staying power• Company sales policies – Wining, dining and ? – Consignment stocks – Payment terms30-04-2012 JensLageHansen@mail.dk 41
  42. 42. Who said economical risk?Average price and cost of goods Jens Lage HansenThousand Reais excl. all taxes3.5 32.5 2 Average COG1.5 Average selling price 10.5 0 1994 1995 1996 1997 1998 1999 2000 200130-04-2012 JensLageHansen@mail.dk 42
  43. 43. Building sales (cont.) Jens Lage Hansen• Competitors – Relationships• Logistics – Forecasting sales per product – Airfreight – Wladimirs small big orders• The technical support people• Promoting Grundfos – Exhibitions – Traning courses30-04-2012 JensLageHansen@mail.dk 43
  44. 44. Why do they react like that?Managing in Brazil Jens Lage Hansen• The boss – Avis in Gongonhas – Manuel and Manolo – Staff meetings for all• Hierarchy vs. effectiveness – Nelson and Fernanda• Relations vs. tasks – New customers – Brazilian meetings – Saying hallo and goodbye – Argemiro’s sightseeing30-04-2012 JensLageHansen@mail.dk 44
  45. 45. Managing in Brazil (cont.) Jens Lage Hansen• High context language – verbal communication vs. emails• Perception of Time• Work ethics• Planning• O jeitinho30-04-2012 JensLageHansen@mail.dk 45
  46. 46. Case question 3 Jens Lage Hansen• How would you manage Grundfos do Brasil S.A.? – What would your priorities be? – How would you interact with the staff?30-04-2012 JensLageHansen@mail.dk 46
  47. 47. What am I missing?Open session Jens Lage Hansen• Questions?• Comments?30-04-2012 JensLageHansen@mail.dk 47
  48. 48. Jens Lage Hansen Thanks for listening!30-04-2012 JensLageHansen@mail.dk 48

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