Welcome to the Boyden Report
Welcome to latest edition of The Boyden Report, a series designed to provide a deeper understanding of the global market for talent.
At Boyden, we work closely with global companies to craft their executive strategy. But that strategy must be continuously re-evaluated. What working in one region may not be effective in another. Each market has its own management dynamics.
The Boyden Report is designed to help you navigate this complexity in the ever-changing global market for talent. Each report will provide you with the context to make sustainable strategic decisions about your executive team. Our series includes reports on India, China, and Latin America. You can find these by visiting our website at www.boyden.com.
In this report, we look at another key market that is emerging as one of the fastest growing economies in the world - Brazil.
There is suddenly a sense of real excitement about this market. Perhaps seen as the laggard amongst the 'BRICs', Brazil is now recognised not only as a sporting venue - hosting the World Cup in 2014 and the Olympics in 2016 - but as a serious business opportunity. Brazil has benefited from globalisation, without suffering the consequences experienced by other counties in the global recession. IN fact, many of the executives we talk to on a daily basis told us that Brazil was the 'safe port in a storm'.
In this report, we explore how Brazil came to be an unlikely 'global hero' and what this means for growth prospects in the near future.
Contents
Part 1: Brazil's time has come
- Introduction
- "Brazil is a 'serious country'"
- Global growth prospects in Brazil
- Barriers to growth - real or perceived?
- New Brazil in a new global context
Part 2: Avoiding sand: New Brazil's solid foundations
- Foundations of rock, not BRIC
- Economic diversity
- A robust financial system
- Transparency and stability support a greater role in the G20
- A well-managed economy
- A battle-hardened executive class
Part 3: New Brazil's opportunity drivers
- The consumer market
- Brazil's emergence as an energy superpower
- Construction and infrastructure
Part 4: The Boyden View: Hiring in Brazil
- Understanding 'O jeitinho brasileiro'
- The Boyden View on hiring in Brazil
Appendix
Introduction
A significant shift in Brazil's global stature is underway. Yet, remarkably little has been published about the country since the finance crisis thew Brazil's considerable strengths into relief. Here we present the view and insights of senior business executive - the majority of whom lead Brazilian subsidiaries of multinationals - to hear why they believe Brazil is now walking on the big stage.
The view 'from the ground': the Boyden perspective
The Boyden office in Brazil is witnessing the daily transformation of Brazil. John Murray, Partner and head of Boyden Brazil says, "I have never before witnessed such optimism here as I do today".
Will Penney, a long-term Partner in the country observers that, "Brazilians always used to joke that they lived in the eternal 'country of the future,', but it seems that our 'future' has now arrived".
Other partners, Sönke Böge, Joel Garbi, and José Pedro Rossi are seeing a flood of international and local investment, including mid-sized German manufacturers, retail and consumer companies, and local investment into infrastructure and ports. Chris Corcoran, Partner at Boyden Brazil and former President of Goodyear subsidiaries in Brazil, Mexico, and Chile sums up this sense of boundless opportunity when he says "Brazil is truly the place to be".
Participiants in our research include the following business leaders, whom we sincerely thank for generously sharing their time and personal perspectives:
- Luiz Calil, President of Caterpillar Brazil - winner of 'Best Company to work for' in Brazil, in the 2009 Great Place to Work Institute rankings
- Franciso Itzaina, CBE, President - South American of Rolls-Royce International
- Gaetano Crupi, President & General Manager in Brazil of Abbott, a global, broad-based healthcare company, devoted to the discovery, development, manufacture, and marketing of pharmaceuticals and medical products, including nutritionals, medical devices, and diagnostics. The acquisition of Solvay Pharmaceuticals is part of a strategic plan to diversify and grow their presence in emerging markets including Brazil.
- Mark Pitt, President of Sherwin Williams in Brazil. Sherwin Williams is the largest producer of paints and coatings in the United States. It is an $8 billion multinational, with 80 branches in Brazil.
- Klaus Pavel, President of Aachen-Laurensberger Rennverein (Chio), largest horse show in the world; Chariman of RNA Automation, an international manufacturing company based in Germany; Founder of FUNDACAO PAVEL, a large social project in Brazil caring for and educating children; Consul of the Federal Republic of Brazil. Mr. Pavel was brought up in Brazil.
- Chris Wall, Business Specialist for Brazil, UK Trade and Investment
- Richard Taylor, CEO of Taylorenergies Business Development; Chairman of CleanStar Brasil Bioenergia Ltda; former President of BP in Brazil and founding Director of the International Business Academy for Development delivering executive education between the UK, Brazil & China
Boyden is proud to be able to present views 'from the ground' in Brazil and to spread the sense of opportunity and momentum that is so palpable across the country.
Part 1: Brazil's time has come
"I see Brazil as a fantastic country in the future. I wish I was thirty again. I think it's a place to be. It has come of age".
Francisco Itzaina
President - South America of Rolls-Royce International
The 'sleeping giant' is awake at last. For many years business commentators have seen enormous potential in Brazil, but there there has been a sense of disappointment that realising this has been hampered by economic and political instability. IN 2006, Goldman Sachs, the creator of the 'BRIC' moniker went so far as to raise the question, "Should Brazil still be part of the BRICs" The answer today is a resounding "Yes". The World Economic Forum's Competitiveness Report 2009-2010 shows that Brazil has advanced eight position in the WEF's ranking since the previous year, overcoming Russia for the first time and partially closing the gap with India and China. The extent to which Brazil has, in fact, broken away from other BRIC countries is explored more fully in Part 2 of this report.
From an international perspective, event over the last two to three years have reset the conventional view of 'success', exposing cracks in the Western world' financial systems and leaving government to ponder vast debt levels. In retrospects, Brazil's stability, economic viability, and political solidity are viewed from a different perspective. Not one bank has collapsed, nor has any major corporation been bankrupted. Not one centavo has gone into propping up the financial system, and a rapidly executed tax-break package from the government minimised the effect of global recession on consumer spending. As Chris Wall, UK Trade and Investment's expert on Brazil says, "In previous financial crises, it's been the case that when the United States caught a cold, Brazil caught the flu. For the first time ever, the United States has caught the flu and Brazil has had the sniffles".
"Brazil is a 'serious country'"
President Lula's words, spoken when travelling in Europe in late 2009, were not just the words of a proud President campaigning for greater global recognition. Brazil has fundamental economic strengths. It has a vast and growing consumer market, it is rich invaluable commodities such as soya, iron and oil, and it has the world's largest freshwater resources. Furthermore, Brazil is a world leader in clean fuel technologies such as ethanol and biofuel. Its land could support three times more agricultural activity than it does today. With the world's fuel and food resources increasingly under threat, Brazil is in a strong long-term position.
Did you know?
- Brazil had the world's best-performing major currency against the US dollar in 2009, with a 36 percent advance, according to Bloomberg
- Brazil was home to the world's largest IPO in 2009. Santander Brazil's IPO valued the bank's Brazilian subsidiary at more than the whole of Deutsche Bank worldwide.
- Säo Paulo is among the world's top five futures and options market, by volume traded
- Brazil was home to the world's fastest-growing car market in 2007-2009.
- Brazil was a major source of stability for multinationals in the global recession that started in 2007. Revenues generated in Brazil were used by a number of multinational to 'shore up the balance sheet'
But the New Brazil has more than just relative strengths. It has a sophisticated and durable financial system, a proven and stable democracy, a sustainable future - based, in part, on significant oil discoveries in the Santos Basin - and an impressive cadre of business leaders and managers who withstood past turbulence and joined and business world's executive elite.
Brazil's financial system is supported by BM&F BOVESPA - the second largest stock exchange in the Americas after the NYSE; one of the largest and most liquid foreign exchange markets in the world; and foreign reserves standing at $200 billion. Brazil has a low inflation economy, interest rates that slightly fluctuate around the 8 percent mark, a successful regulatory model and investment grade government bonds. Its financial independence is marked by the fact that in 2009 it was a net creditor to the IMF.
Brazil's 'battle-hardened' management class, trained in a previously volatile business environment, is able to cope with economic issues that would severely challenge executives in more mature markets. As Chris Wall says, for most executives, the global recession that started in 2007 did not look like a true 'crisis' from a Brazilian perspective: "Most executives will say, 'What crisis' Don't forget that we were living through repeated crises in the nineteen eighties and nineteen nineties. What started off in the early eighties as twenty five percent per month inflation, y the early nineties was three percent a day. That is a crisis". It is somewhat telling therefore, that the CEOs of the subsidiaries of the top 20 multinational in Brazil are all Brazilian.
Global growth prospects in Brazil
The World Bank predicts that if Brazil continues on its current path, it will move from being the tenth largest economy in the world to the fifth largest by 2016. Francisco Itzaina says, quite simply, "Any company that wants to be global, that is serious about its future growth prospects, has to be in Brazil".
Historically, European businesses have taken advantage of strong cultural links with Brazil, leaving the US to play 'catch up'. As Gaetano Crupi, President & General Manager of Abbott, observes, "Spain has been investing in Brazil - look at telecoms and banking - and Italy is a major player in the automobile industry and in utilities. I think China is looking into making major investment in Brazil, and France is trying to create more links with Brazil". The US is now concerned that its commercial links with Brazil are small. Many would believe that Brazil and the US are doing great trade but they are not. There is a lot of effort from the US to really focus on Brazil, either via a bilateral agreement or by tailoring a bilateral agreement that can be more meaningful to the United States and Brazil taking into consideration the constraints of MERCOSUL".
Exhibit 1 shows that out of the 50 largest companies in Brazil, nearly 30 percent are headquartered in Europe, nearly 60 percent are headquartered in Brazil or elsewhere in the region and just 10 percent are headquartered in the United States.
This chart shows that it is not only foreign multinationals that are prospering in Brazil. The number of 'home-grown' multinationals is increasing, attracting attention not only to Brazil's corporate capabilities, but also to the opportunities for global growth among foreign multinationals. As Luis Calil, President of Caterpillar Brazil says, "Brazilian companies are prospering across the world. They are exporting because they see their fortune in getting products out to different countries". Companies such as Embraer, Brazil Foods, and JBS, to name just a few, are serious global players. Of Boston Consulting Group's 2009 Global Challenger's list, 14 of the 100 top global challengers come from Brazil, details of which are shown in Exhibit 2.
The Boyden View: The battle-hardened management class
"In my 45 years in Brazil, I have never seen the Brazilian executive more in demand. When we were completing a search for a member of the Board of Directors of a major American Fortune 500 company, our client stipulated that the candidate must be a Brazilian. The reason was they wanted someone on the board who could visualise the world through the eyes of an emerging market and who succeeded in guiding their businesses through the repeated ups and downs of the Brazilian market over the last fifteen years. You will see more Brazilians on international boards in the coming years".
John deMarmon Murray
Partner, Boyden São Paulo
Despite the global financial crisis, Brazil received US $12.6 billion in foreign direct investment (FDI) in the first half in 2009, according to information supplied by Brazil's Central Bank. Although the value is lower than that recorded for the first half of 2008, analysts such as economist Luís Afonso Lima president of the Brazilian Society of Studies on Transnational Corporations and Economic Globalization (Sobeet), take a longer view, forecasting the result for the year as the third highest in the decade, lower only than 2007 and 2008, when the volume of funds hit record highs.
Looking forward, this interest from foreign multinationals is set to continue. Luiz Calil observes, "Brazil by itself is attracting more and more multinational or global companies".
Gaetano Crupi adds, "Everybody is investing. GE is announcing investments. General Motors was on the front page of business newspaper saying that every single real of profit from Brazil because of how the market is performing. It's just a matter of keeping up with these announcements in major newspapers".
Barriers to growth - real or perceived?
Some companies, notably mid-sized companies, remain hesitant about Brazil. Why As the Portuguese saying goes, "Não há bela sem senão", meaning colloquially, "There's no such thing as perfection". As is the case with every market, the picture in Brazil is not all rosy. In the World Bank's 'Doing Business' survey - which ranks countries on the case of setting up and running a business there - Brazil is ranked 129th out of 183 counties. However, it is worth noting that this survey is used as an indicator for start-ups and small businesses, rather than as a measure for larger businesses that have the resources to facilitate expansion plans.
In terms of geographic mobility, the advantage Brazil has in its high volume of agricultural land comes at a price. Transport infrastructure, across a country that in terms of size is ranked 5th largest in the world, is inhibiting Brazil's commercial advances. As far as access to finance, credit is very expensive and only the government will lend for long period, and even then, not to everyone. Taxation is complicated, with different tax systems in different regions. The legal system is also complex, making commercial disputes best avoided.
However, the real barrier is one of perception. For international executives who forged their careers at a time where Brazil was reeling from oil shocks, debt defaults, and hyper-inflation, there is still a perception barrier. As Chris Wall says, "I speak to executives in very large companies, household names on occasion, whose experience of the Brazilian market and therefore their approach to Brazil is based on the chairman's own experience in the 1980s when they had their fingers burnt... There's a belief that it's still the Brazil of the 1980s and 1990s... It's a failure to grasp the new Brazil".
The Boyden View: The New Brazil
"German industry has rediscovered Brazil. We are seeing mid-sized German manufacturers expand their Brazilian factories at the same that new groups are coming in for the first time. The oil and gas boom, the Olympics, and the civil construction surge have all contributed to the renewed interest as well as opportunities to offer new technology, but the overriding stimulant for new investment is a perceived stability for growth and a strong internal market".
Sönke Böge
Partner, Boyden São Paulo
New Brazil in a new global context
Economists have warned us for years that the world stage is fundamentally changing due to globalisation and the growth of emerging markets. But the financial crisis has accelerated the impact of that process, exposing the weaknesses of Western governments and economies as compared with the relative strengths of countries such as Brazil.
According to politicians, business leaders and other drivers of opinion, Brazil is expected to emerge from the global recession in better economic shape than most of the other G20 counties. As Richard Taylor, CEO of Taylorenergies Business Development says "The G20 is now the ain global forum for international economic development and brazil is seen as one of its leaders". Francisco Itzaina observes that, "Brazil is becoming an international player. It's globalising its own economy". The New Brazil is a different place, and the attitude of business leaders and politicans around the world is changing.
In terms of financial management, Chris Wall notes, "Europe has tended to sit in judgment on Latin America in the past. Brazilians are very aware of the irony of that now".
It is clear then that Brazil has focused on strengthening its domestic position, rather than pursuing a strategy that involved international risk. In the next section we explore how the foundations of the country have been made secure, the phenomena driving major opportunities for multinationals, and the dynamics of hiring, retaining and developing senior executives in the New Brazil.
Part 2: Avoiding sand: New Brazil's solid foundations
Foundations of rock, not BRIC
"Brazil is at a different level of development, on the development curve, than the other BRIC countries," says Francisco Itzaina, President - South America of Rolls-Royce International.
Limped together in the 'BRICs' (Brazil, Russia, India and China), Brazil's advantages can be overlooked, such as its more sophisticated social systems, and infrastructure, political stability, and democratic participation in politics, cultural and religious unity, linguistic homogeny and economic stability and diversity. The 'BRIC' acronym itself is a Western construct which can be counter-productive in linking Brazil with other emerging markets that carry greater political and economic risk.
Exhibit 3 shows a more detailed classification of emerging economies, based on analysis by the FTSE Group. Brazil is clearly distinguished from other countries in the BRIC grouping, with counties such as Hungary, Poland, Mexico, South Africa, and Taiwan as more appropriate 'peers'.
What does Brazil's different 'emerging status' mean in reality?
The provision of healthcare is one example of how Brazil is more advanced in terms of social infrastructure. As Gaetano Crupi explains, "The healthcare system in Brazil is well established when compared to China and India ... you have a public health center in place in every state and every city. There is a very good distribution system,. The number of drugstores is high but the number of hospitals may not be enough yet, but compared with Russia, India and China, it is a totally different ball game".
US and European executives working Brazilian subsidiaries therefore enjoy a lifestyle that few would see as that of a nascent emerging market. As a 'foreign posting' there is much to recommend Brazil. For example, in religious and linguistic terms, there is remarkable unity for a country that is more than two and a half times the size of India. This brings a sense of security and predictability to expatriate families, often the top priority for executives on the 'global fast track'
Politically, Brazil has achieved stability in the form of a robust, established democratic republic. "Brazil has become no, I wouldn't say 'mature', but it has embarked upon maturity in terms of its democracy and relative consolidation of the strength of its political institutions", comments Mark Pitt, President of Sherwin Williams.
In terms of economic and financial infrastructure, Brazil is also more advanced. As we will explore later, the banking system and financial market are large, stable, and relative mature. President Lula has asserted, "No country in the world has the fiscal soundness that Brazil has".
Economic diversity
"There really is a high degree of economic diversity. And I think that is really one of the strength during a crisis". says Richard Taylor.
Perhaps the most significant Brazil has over its emerging market 'competitors' is diversity of its economy, shown in Exhibit 4. While commodities and natural resources are important, the Brazilian economy does not rely on just one or two key industry sectors to fuel fuel growth.
Brazil's natural resources are considerable. Oil revenues are set to multiply as the 'pre-salt' potential of the Santos Basin is exploited. Brazil's iron ore, manganese, bauxite, nickel, uranium, gemstones, wood, and aluminum resources are also significant. These resources are fuelling industrial growth around the world. As Gaetano Crupi says, "China needs commodities and many commodities are coming from Brazil".
Brazil's diverse industries range from automobiles, steel, and petrochemicals to computers, aircraft, and consumer durables.
Spotlight on the Aviation Business
Two success stories in the Brazilian Aviation industry: Embraer and Azul
Embraer is a major success story in aviation. Since privatisation in 1994 Embraer has turned itself into the world's biggest manufacturer of mid-range passenger jets. Some 96 percent of the company's revenue now comes from exports to commercial airlines in China, India, Poland, Britain and the US.
But it is not the only success story in aviation. Richard Taylor cites the amazing growth story of Azul, the low cost airlines, as a good example of "an organisation where they think that the opportunities and the scale of the opportunity in Brazil more than offset the challenges of working here". Azul was set up by Brazilian-born US citizen. By June 2009, six months after beginning operations, Azul had the third largest market share of the Brazilian domestic airline market, after TAM and Gol Airlines.
The economy is also driven by agriculture and forestry, manufacturing, chemical and strong services industry, notably banking and insurance.
Industrial sector is particularly significant, accounting for 30 percent of GDP. The shipping industry is large and growing. Francisco Itzaina says, "The shipping industry was practically dead at the end of the 1990s. Now there are probably between twenty and thirty thousand people working in the shipyard".
Brazil's agribusiness has enormous potential for expansion. According to Agriculture Ministry estimates, aside from Amazonian forest reserves, Brazil 388 million hectares of quality agricultural land.
More than half of this comprises pastureland that can be converted to other agricultural uses, while about a quarter remains unexplored.
In the long term, Brazil's ability to feed and fuel itself and other puts it in a very strong positions, particularly in an era when energy and food security are widespread concern. For Francisco Itzaina, "Food production is one of the elements that will lead the internal Brazilian economy in the future".
Spotlight on the Agribusiness
In the past decade, Brazil has strengthened its lead as one of the world's agricultural powerhouses, aided by market liberalisation, a more competitive local currency, higher government financing, and sustained productivity advances.
- Soybeans are Brazil's fastest-growing shipments, and Brazil is set to challenge the US's positions as the world's largest exporter in the next decade
- Brazil is the world's leading exporter of chickens, sugar, coffee, beef, and orange juice
- As much as 40 percent of the world's chickens come Brazil, and this figure is expected to rise to a 48 percent market share by 2018, according to US Department of Agriculture estimate
- Over 90 percent of Brazil's poultry exports are concentrated in just 10 companies that have invested heavily in what are now some of the most modern production facilities in the world.
- Brazil is the largest beef exporter and second-largest producer of beef in the world. It is also home to the world's largest commercial cattle herd - totalling roughly 290 million head
- Brazil has been the world's largest coffee producer and exporter since the mid-nineteenth century and now accounts for about 30 percent of global exports
- Brazil produces over 50 percent of the world's orange juice and Brazilian producers control about 80 percent of the international frozen concentrated orange juice market. Brazil is also an important producer and exporter of many other foods, including pork, tropical fruits, corn, cotton, forestry products, and tobacco
A robust financial system
"During the entire world economic crisis - and this is a very strong signal - during the entire crisis there was not a single financial institution that went bankrupt in Brazil. Not one", say Gaetano Crupi.
Brazil's financial service market is today one of the most developed among the emerging economies.
The strength of Brazil's financial institutions goes back to the mid-1990s when the country confronted its own successive economic crises. This set in motion fundamental changes in economic policy and performance.
Since then, the entire financial services system has developed substantially, particularly in the last few years: foreign exchange, mutual funds, hedge funds, credit and bond markets have all thrived amid Brazil's economic growth and stability.
To give one example, before the 2007 global financial crisis took hold, the hedge fund industry in Brazil was growing at a staggering pace, from $92 billion in 2002 to $750 billion by the end of 2007. The pool of talent reflects this: there are an estimated 142 private equity and venture capital fund managers who manage 181 funds with investments in over 500 local companies in a broad range of sectors.
The Boyden View: Executive Search in a multi-faceted emerging economy
"The COO of a global food ingredients company asked me about the availability of world-class executives talent in Brazil. His firm is now investing here and upgrading its local management team. The answer was easy: in the last twenty years Brazil has developed a superb talent pool. Of course finding and hiring the best person is always a challenge, but there are lots of professionals out there who are well-schooled, balanced, versatile, and with solid leadership skills.
These days it is rare for an international company to have expatriate manager, unless it is just part of plan to develop a particular individual. Talent is nicely distributed across the main sectors of the Brazilian economy, and when there is a momentary supply/demand disequilibrium, talent flows easily between the sectors".
William Penney
Managing Director, Boyden São Paolo
Transparency and stability support a greater role in the G20
Brazil's banking system in unusually transparent. The bank settlement system operates in real time, so all banks know their cash positions at any given moment and the central bank has an overall picture of the liquidity in the system. As Gaetano Crupi explains, "This is a huge advantage not only for the government, but for companies and individuals doing business. From an IT perspectives in the banking system, there is no faster and better process system in the world in terms of cashing a cheque today and putting it in your account in thirty-five minutes the same day".
Another unusually transparent area of the system is in the fund management arena. All onshore fund must provide daily liquidity reports to Brazil's Securities and Exchange Commission (the Comissão de Valores Mobiliários-CVM), disclosing the net asset value of their funds, albeit with 48-hour delay. At the end of every month funds disclose what they were holding 90 days ago. The data is freely available to everyone on the CVM's website. The hedge fund industry is also subject to the same regulation, making Brazilian hedge funds unusually transparent.
Other element of regulation have helped stabilise the system. A key reason for the sector's resilience is the high capitalization requirement - the minimum capital adequacy requirement in Brazil is 11%, compared with 8% under the Basel regulation that other banks around the world follow. New rules for publicly-traded companies brought in by the São Paulo stock exchange (BOVESPA) in 2002 have benefitted equity investor, with fair treatment of minority stakeholders enshrined in law; under current guidelines it is illegal to issue shares that pay out different amounts to different holders in the event of a takeover.
In the light of its successful regulatory model, Brazil is seeking a greater role in global reforms being discussed under the auspices of the G20.
It has specifically requested from the IMF greater involvement in global regulatory discussions and is seeking an enhanced leadership role in the Fund itself.
There will be many opportunities for growth within the financial service sector. Gaetano Crupi sees a number of specific opportunities arising: "Brazil will retain a very strong financial service industry. Commercial and investment banks are strengthening, and I think associated with that, solid engineering and infrastructure will be needed... It is likely that mortgage are going to regain some buoyancy and I believe that European business leaders are looking at Brazil more closely than they have ever before.
The Boyden View: Brazilian Financial Services talent
"The Brazilian Financial Service market is strong, and largely ignored the financial crisis that disturbed the developed world. This market is dominated by large banks that already hold position amongst the largest international banks. Major international banks are also present in Brazil and their positive performance has, in fact, helped improved the worldwide results reported from the head office.
The Brazilian currency, the Real, has been strong and has also contributed to the confidence and credibility of Brazil amongst foreign investors. This confidence has grown as investor realised the Brazilian banking regulations are and have been strong and effective in keeping the Brazilian banks out of trouble. With this said, the financial market is healthy and active, presenting excellent opportunities for specialised talent".
José Pedro Rossi
Partner and Head of Financial Services Practice, Boyden, São Paolo
Spotlight on the financial ecosystem in Brazil
- Brazilian banks - both private and public - rank among the largest in the region. For example, Itau Unibanco is Latin America's largest bank, the ninth largest bank in the Americas, and the 12th largest bank in the world. At the end of March 2009, Brazil's banking system was larger in terms of market capitalization than the UK's and that of every other EU member country.
- The Brazilian foreign exchange market - in both spot and derivative trading - is large and liquid, which makes the Real one of the most traded emerging market currencies
- Brazilian investment funds - notably, the country's pension funds - are significant players in the asset management industry, with nearly R$1.2 trillion (US$515.6 billion) under management, or about 40 percent of Brazil's GDP
- Brazil's pension fund industry was the eighth largest in the world at the end of 2008
- São Paulo's futures and options market is one of the five largest in the world by volume traded
- The BM&F BOVESPA is Latin America's leading stock exchange and the second largest in the Americas after the NYSE. It offers a broad range of financial products for trading equity and commodity-based derivatives.
A well-managed economy
"It was Lula's predecessor who stabilised the currency and Lula came to power intent on steering the economy in the same solid way," says Chris Wall.
Perhaps burned by experiences in the past, Brazil's leader has recognised the common sense and good brains are more important than political leaning, when it comes to running the economy.
As Gaetano Crupi put it: "He is a very intelligent man. He never changed the leadership of the economic team. He kept the president of the Central Bank and he didn't bring on any ill-prepared people. He surrounds himself with smart people".
In the thick of the global crisis, the government kept consumer spending up with tax breaks on cars, household electrical goods, and construction materials.
The current administration has also opened up a dialogue with the business community. As Mark Pitt says, "The current President does talk to business, is sensitive to the issues, and listens to business leaders. He doesn't always react the way business wants but, there is a much broader and deeper dialogue than ever existed before I think that will probably continue with the next President".
The Brazilian government has steered its way through the global economic crisis and beyond. Although many in Brazil and abroad question the Lula government's prolific public sector spending, for many the government have demonstrated a long-term commitment to managing a stable, robust economy and reducing its debt burden.
A battle-hardened executive class
"Anyone today who is thirty-give or over has cut his teeth in dreadful times in Brazil. They don't take the stability that they have now for granted and they are not going to," says Chris Wall.
Brazilian executives have been forced to grow and adapt in extraordinary economic circumstances, something which gives them a depth of experience, adaptability, and flexibility that is not necessarily shared by their more sheltered European and US counterparts.
In addition, Brazilian executives' ability to navigate the complexities of the taxation system and certain elements of government bureaucracy makes them more effective in multinational organisations abroad, despite barriers that would seem insurmountable to others. Francisco Itzaina also suggests that multinational have used Brazil as a training ground for management, when he says, "There is a good reason why a lot of the multinational companies that have been operating here for years are sending their executives to be trained in Brazil."
Not only are Brazilians highly skilled in handling external complexity and economic volatility, they are also technically valued. As Mark Pitt comments, "Brazil has been able to export a lot of executives, especially in the manufacturing and finance areas ... (for) engineers coming out of school, Brazil is probably as good as Korea, China, India".
This is, in part due to an entrenched culture of aspiration in the country, a diverse economy that has been fostering technical expertise in different areas, from agriculture to hydro-electricity over many decades and world-class universities in São Paulo and Rio de Janeiro.
In conclusion, the foundations are strong: political and financial stability, economic diversity, and strong leadership throughout government and private organisations. But it is the powerful forces that are driving the New Brazil that are claiming the attention of multinationals across the world.
Part 3: New Brazil's opportunity drivers
There are three major factors attracting those looking to Brazil for future growth: first, the size of the consumer market; secondly, the development of world-class industries such as energy; and thirdly, greater interaction with global entities - economic as well as sporting. Francisco Itzaina sums it up, "The opportunity is there for anybody who wants to grab it.
The Consumer Market
"You have twenty million people who suddenly have purchasing power. We are talking about basically twenty million people that have been moved either from a Class D to a Class C, or from a Class C to B", says Gaetano Crupi.
Brazil is the fifth most populous country in the world, with over 190 million people. The commercial point, though, is that there is a growing class of millions who have purchasing power for the first time, and a small but powerful class at the top of the pyramid with a strong taste for luxury goods. These evolving consumer groups present a huge opportunity for Brazilian companies and multinationals.
The shift in purchasing power has been truly dramatic. The Fundação Getulio Vargas business school (FGV) calculated that the number of people in 'Class C' shifted from 42 percent to 52 percent from 2004-2008. The Class C population is described as people with a monthly income of roughly $600-$2,500, who have jobs in the formal economy, and who have access to credit. In a country of 190 million people, that's an addition of roughly 20 million consumers with purchasing power in just four years. The effect on all consumer goods and services industries has been and will be dramatic. Just one example of the impact of the growing consumer market is in the healthcare market.
As Gaetano Crupi explains: "Once people have access to money, they can afford out-of-pocket expenses at a drug store, for example... . The hospital business is definitely a place where the market is expanding. There is a lot of room for growth. That is why we have seen a lot of mergers and acquisitions in the healthcare industry".
The Bolsa Familia wealth redistribution programme has contributed to this phenomenon, lifting some 30 million people out of poverty, by providing financial aid to poor Brazilian families on conditions that their children attend school and are vaccinated. Still poor by global standard, this group has significant collective purchasing power. As Chris Wall says, "It has suddenly created a lower middle class of people with some kind of disposable income, that they didn't have before... . They have a surplus at the end of the month, and whether that is thirty dollars, or less, they suddenly become consumers for all kinds of things that you and I take for granted. Brazil has suddenly got a market for popular cheap family cars, flat screen TVs, PCs, mobile phones". Companies in Brazil have taken advantage of this market, structuring finance packages to suit payments of around thirty dollars a month.
For the new middle classes, credit is also becoming steadily more available. Consumer credit has grown by 28 percent each year in nominal terms over the past three years. Loans for bigger items, such as cars and apartments became available for the first time, as part of a series of reform carried out in Lula's first term.
Meanwhile, at the top end of the market, there is a large and growing consumer market for luxury goods. As Luiz Calil points out, "We have the second biggest dealership for Porshe in the world; we have the second biggest dealership for Lamborghini in the world; we have the largest fleet for instance, for aeroplanes for agriculture in the world; we have the largest fleet of helicopters in the world. As for personal consumption, São Paulo is the city that has the highest consumption of Italian wine in the world; I think we have one of the highest levels of consumption of Champagne in the world. It's amazing; São Paulo has more than seventy shopping centres - the highest number in Brazil and, for that matter, in the world". Tiffany, the jeweller, has more stores in São Paulo than anywhere else in the world and over the ears, Louis Vuitton's global profits have peaked in São Paulo.
Overall, the consumer market from the bottom end, cheap goods to top end luxury is huge and growing and the trend is set to continue, as shown in Exhibit 5. Goldman Sachs predicts that consumer spending will increase by 4 percent in 2010, compared with a flat consumer spending figure for advanced economies. Over the long term, Goldman Sachs predicts that Brazil's income per capita will continue to rise, and the multinationals and Brazilian companies best positioned to take advantage of that growth will be the global leaders of the future.
Brazil's emergence as an energy superpower
"We have discovered incredible resources of oil, to the point that Brazil could probably climb the ladder to one of the five or six largest producers of oil in the world. And maybe even higher than that, depending on how big this layer of oil is," says Francisco Itzaina.
Oil
Petrobras announced in 2007 that it had discovered one of the world's largest oil fields in the Santos Basin in the Atlantic Ocean. Although the actual volume of recoverable reserves is still unknown, it could boost Brazil's reserves from 14.9 billion barrels of oil reserves from 14.9 billion barrels of oil equivalent (boe) to some 100 billion boe, making it the largest oil discovery in the world in the last 20 years. Once the pre-salt later is exploited, according to Credit Suisse and FESP (the Federation and Centre for Industry in São Paulo), this discovery is likely to propel Brazil from the 16th largest oil and gas-producing nation - currently among Algeria, Mexico and Angola - to the 5th largest in the world, up amongst the oil-producing nations of the Middle East, as shown in Exhibit 6.
Whilst the government has ring-fenced the pre-salt areas for extraction by state-owned Petrobras, there will be plentiful opportunities for multinationals to benefit both in the non-pre-salt areas and as non-operative partners in the pre-salt zone. As Chris Wall explains, "The Petrobras corporate plan was considered by many to be the largest in the world when it was launched. They're spending one hundred and seventy four billion dollars, or thirty billion dollars a year over the next five years. They are spending on ships, on rigs, on submersibles, on pipelines, all the things you can imagine, education and training in the oil and gas sector, safety and all the rest of it ... in some cases there is a 60 percent requirement for local content. IN other cases there is a zero requirement".
As Richard Taylor summarizes, "There will be many, many opportunities for small companies, medium-sized companies, and large multinational companies to be suppliers to the operated fields".
A lot of the salt is in ultra-deep water, and as the exploration moves deeper and deeper the more the technology will need to be developed.
Brazilian start-up OSX Estaleiros, part of the EBX group owned by Brazilian billionaire Eike Batista, is already on course to supply ships and other equipment to the oil and gas industry, having raised R@$2.5 billion (US $1.37 billion) in an IPO in the first quarter of 2010.
Spotlight on opportunities in oil for multinationals: Wellstream
There are mid-sized multinationals which have already taken advantage of the opportunities presented by Petrobras's oil discoveries in the Santos Basin. Wellstream is one such example. Wellstream is a flexible pipeline manufacturer that came to Brazil in 2003. It became the first company to qualify products for operation in 2,000 metres water depth following many years of work in technical cooperation with Petrobras.
Wellstream is based in Newcastle in the UK, and now have a manufacturing facility in Niteroi, Brazil to take advantage of growin market demand in the region. Richard Taylor says, "Now the Brazil operations I think the most profitable and biggest operations that they have in their portfolio".
The Boyden View: opportunities for small, medium and large sized multinational companies
"The Brazilian economy 'emerged' some time ago for large global companies. They are all here, and generally well-structured. Now it's more interesting to see the way small and medium firm are flocking in. They often start with a sales or technical assistance activity and expand from there. At Boyden we have a substantial activity in helping such smaller firms find their very first people here".
William Penney
Managing Director, Boyden, São Paolo
Renewable energy
It is not only oil and gas that make Brazil such a significant energy player. As the rest of the world struggles with rebalancing their renewable energy credentials, Brazil has been investing in hydro-electric plants and ethanol fuels for cars for 30 years. Brazil sources more than 80 percents of its energy from big hydroelectric projects. Despite objections from environmental groups, there are plans to build two new hydroelectric plants on the Madeira River in the Amazon region and a further plan to build a dam at Belo Monte on the Xingu river (amazon region).
But it is really the ethanol-fuels that have attracted the world's attention. Brazil has the largest and most successful ethanol industry in the world, based on home-grown sugar cane, not on food grains as in many other countries. Following the oil shocking of the '70s, which doubled Brazil's import bill within a year and triggered uncontrolled inflation, the government made mandatory the use of ethanol blends with gasoline. Last year, 94 percent of all new cars were 'flex-fuel', with engines that allow for either gasoline or ethanol or any choice of the two, depending on the driver's choice. Brazil is now the world's largest ethanol exporter and its second largest ethanol producer after the United States, as shown in Exhibit 7.
As Richard Taylor says, "Brazil has reached a world leadership position here ... it will probably be at the forefront of new innovations as well". Francisco Itzaina echoes this when he says, "You find this country leading the world in sustainable energy technology. Many things that are being done today are an incubator for the technology that will change the years ahead".
Gateano Crupi notes, "Brazil has more patent protection filing in energy and agriculture than pharmaceuticals or any other area. So there is a lot of investment there and there is a lot of technology and it getting cleaner and cheaper. Definitely Brazil will become a leader in that area".
Brazilian innovation has enabled flex-fuel technology to become workable and afforable. The Brazilian subsidiaries of Bosch Magneti Marelli and Delphi Automotive System have been instrumental developing flex-fuel technology.
The latest innovation within the Brazilian flexible-fuel technology is the development of flex-fuel motorcycles, with the first flex motorcycle launched Honda in March 2009.
There are big opportunity for growth and investment in this area.
George Soros invested $800 million in ethanol distilleries through a local subsidiary, Adecoagro; the Cargill Group bough 63 percent of Cevasa, the largest ethanol plant in Brazil; and the US's Global Foods will invest US$1 billion construct ethanol plants. Richard Taylor points out that there is "a big opportunity to have more bio components in trains, buses and electricity generation equipment". Most public transport is running on fossil fuels, but could be run on biodiesel.
The Boyden View: Local executives with expertise at putting together local teams
"We advise US and European clients keen to invest in construction projects to hire 'international Brazilians' who can communicate well with headquarters. Not only this, but executives who are expert at putting local teams together - they need a combination of industry expertise, recent local knowledge and experience in working with global companies.
Sometimes our clients want to bring a senior executive over from the corporate base to oversee the investment. This can work, but we put a lot of work in crafting these roles to make sure firs,t that the responsibilities and expectations of the expatriate are very clear, and secondly, that the accountability of the Brazilian executive is realistic.
When we review the final candidates, we then need to make sure, of course, that as 'co-leaders' they will work together well."
Jim Hertlein
Managing Director, Boyden Houston; Director Boyden World Corporation
Wind
There is also potential for more wind power. Brazil depends on hydroelectricity for more than three-quarters of its electricity, but authorities are pushing biomass and wind as primary alternatives. Wind energy's greatest potential in Brazil is during the dry season, so it is considered a hedge against low rainfall and the geographical spread of existing hydro resources.
In December 2009, the Brazilian government conducted its first wind-only energy auction. More than 1,800MW of wind energy was contracted at $82.8 per MWh. The proceeds of the auction will allow for the construction of 71 generation projects across five states in the northeast and south of the country. The auction attracted a number of international players including the local units of Energias de Portugal, Electricité de France, Spain's Iberdrola, EnerFin of the United States and several Brazilian companies.
Construction and infrastructure
"Construction is going to be big, and not only for the reasons of the Olympics and World Cup and so forth, but also from a housing perspective... Today hiring an engineer is tough. There are not enough engineers out there and so those are the technical jobs that are going to be in very high demand", says Gaetano Crupi.
The Olympics 2016
The Wall Street Journal's Market Watch says that some estimates predict that the Olympics will bring in as much as US $51 billion in investments in the stadia and sports facilities, but also in airports, monorails, light railways, bus routes, and a high speed train from São Paulo to Rio de Janeiro. Virtually every sector that is tracked by local and international investors is set to benefit in some way from the Olympics: steel companies, mobile phone carriers, airline operators, and media companies for example, are expected to benefit.
The fact that the country will also host the 2014 FIFA World Cup gives Brazil further incentive to upgrade its infrastructure. The Brazilian government have already launched its flagship investment programme aimed at stimulating economic growth and developing infrastructure. Announced in 2007, the Accelerated Growth Programme has allocated about US$300 billion for the next four years and a further US$200 billion for investments post-2010.
In the rail sector, for example, the Brazilian Government has pledged to the region US$4 billion in the lead-up to the World Cup.
It is not only Brazilian companies who are well positioned to capitalise on these opportunities. The construction market in Brazil is well developed and has a lot of experience working with international suppliers, such as Thales, Siemens, and Bombardier.
The boom beyond the Olympics
It is not just the Olympics that are stimulating investment in infrastructure and construction. Boyden's José Pedro Rossi tells us, "local companies are investing heavily in infrastructure, including port facilities".
The investment in port facilities is particular interesting. Bahia, for example, is investing in the creation of a new port complex, Porto Sul, which will include a port, railway, waterways, roads, and an international airport with industrial capacity. Bahia is also setting up an industrial naval centre int he Bay of All Saints, which is the second biggest navigable bay in the world and the biggest deep water gulf in Brazil;. The enterprise will be aimed at the construction of petroleum platforms, including semi-submersives, Floating, Prroduction, Storage and Offtake (FPSO) ships, drilling platforms, oil tankers, and other types of vessels.
Overall, the opportunities for Brazilian and foreign multinationals in Brazil abound, on the basis of the vast and growing consumer base, the potential of Brazil both as renewable and petro-chemical energy power and the innumerable opportunities that come from both Olympic fever and wider economic growth.
Part 4: The Boyden View: Hiring in Brazil
Understanding 'o jeitinho brasileiro'
"Egos flourish in a different way in different parts of the world".
Francisco Itzaina
President - South America of Rolls-Royce International
In order to understand talent in Brazil, one has to understand "o jeitinho brasileiro" - meaning the Brazilian Way. The Brazilian Way is a unique formula, redolent with European and immigrant influence, morphed into its own unique South American form. As Chris Wall says, "Brazil is a mixture of Germans and Italians and Spanish and Portuguese and Arabs from the Middle East, not forgetting the huge population of Brazilians who are descended from the slaves which were brought over from Africa to work on the sugar plantations, and the large population in São Paulo which is descend from Japanese immigrants. All mixed up together, all the result of waves of immigration over the last 100 to 130 years". São Paulo is the largest Italian city in the world, for example: home to 6 million Italians, whereas the entire metropolitan area of Rome, the largest city in Italy itself, is home to a maximum estimate of 3.7 million people, according to the OECD.
The entrepreneurial spirit is strong. Chris Wall observes "There is this drive. Don't forget it's the new world - people whose immediate relatives left Europe for Brazil, took a risk, and so they tend to be people who have grown up in a culture of 'can do'. And a culture of 'yes, my parents might have been poor, but I am going to be better'". Klaus Pavel, Chariman of Aachen-Laurensberger Rennverein, makes the contrast with Europe: "My impression is that there is quite a strong entrepreneurial culture, maybe more there than in Europe, where my impression is that it is suffering from so much regulation".
However, the cultural link with Europe is powerful. About 54 percent (103 million) of Brazilians are mainly of European origin, descendants of immigrants from Portugal, Italy, Spain, Germany and Eastern Europe. South of São Paulo, in the rich agricultural region, there exist European-style standards of living, where German and Italian are still spoken alongside Portuguese. Gaetano Crupi points out that, "During the military years, France was the one really hosting all the philosophers and thought leaders from Brazil. So that link always existed".
Chris Wall calls Europe Brazil's 'muse': "Brazil tends to look toward Europe much more than it tends to look towards the United States as its muse in industrial development culturally and commercially".
The relationship with the US is interesting. An Economist article suggests that Brazil and the United States have more in common than they realise, with the relationship involving egos in a different way. As Gaetano Crupi puts it, "Brazil does not like the 'young child syndrome', they do not want to be dependent on the US".
So, to take Francisco Itzaiana's axiom, that "egos flourish in a different way in different parts of the world", drawing upon Brazil's executive talent means understanding what makes egos flourish in different contexts, cultures, and regions.
Next, we share insights from senior executives and Boyden professionals on how to go about hiring talented executives in Brazil and the skills that are strategically and tactically important.
1 The multi-sensory imperative
The first thing for foreign executives in multinationals who are hoping to expand their Brazilian subsidiaries and need to find the right talent, is to travel t Brazil to get a feel for the jeitinho brasileiro. Francisco Itzaina advises: "The first thing to do is get on a plane and come over here, in order to understand everything. That cultural distance - it has to be bridged. There is nothing better than the direct exploration of a country for you to know that you have to be there, understand how it all works".
2 Invest in home-grown talent, not expatriates
The quality of home-grown talent is there. As Klaus Pavel says, "There are excellent executives in Brazil, there is very good education, good universities: they don't have to come from overseas necessarily. They have good resources in Brazil as far as management is concerned".
Skills have expanded over the last decade, with most Brazilians now speaking a number of languages, for example. "The abilities of most Brazilians have grown tremendously over the years," observes Francisco Itzaina. "When I first came to Brazil thirty-four years ago, it was difficult to hire anybody off the street that was bilingual. Today, practically every kid you talk to nowadays speaks English". Mark Pitts adds that home grown talent has the advantage of being more stable and less likely to head back home: "Companies that have been successful over the long run, most of them pepper the structure with local talent. They have evolved from the tendency to put in expats. They have got that continuity in management development over decades". Brazilians understand the Brazilian way. They have their own networks. It demonstrates that your company is investing locally. As John Murray says, "They should know how government works here. They should have their own contacts and their own networking. That is something the expat can never have".
The Fundaçāo Dom Cabral/Columbia Law School survey on the top 20 Brazilian multinationals shows that top multinationals realise that home-grown talent is best: all 20 CEOs are Brazilian. Only five of the 157 board members are non-Brazilian (3%). Eight of the top 20 say that they speak Spanish or English as well as Portuguese. John Murrary adds, "You want a good manager? We will find you an executive who understands - don't bring one down, hire one locally"
3 Understand the benefits that are meaningful locally
Brazilian perks are somewhat different in Brazil to elsewhere in the world. Cars, for example, are still important, as Francisco Itzaina explains: "Recognition for all people is an important issue, the car that you give somebody, you know cars in Brazil are still an important factor".
He also touches on the world of golf and why it has a different status value in Brazil: "There are various aspects that are different from other parts of the world. In the US you go play golf anywhere, for not too high a fee. IN Brazil you have to be a member of a country club and most of the time you have to pay fees of maybe 135 to 160 Brazilians Reals an hour. All of these make a difference".
In general, benefits packages for expat executives still need to be bigger in Brazil than in European or 'home' countries. Klaus Pavel explains, "Pacakges are much bigger because you get the house and you get the servants and you get a couple of cars, if you are talking about high level management and I think you get more benefits in Brazil than you get in Germany".
4 Use the power of job titles and big brands
In Brazil, job titles and big brand names have status value. As Chris Wall observes, "There is a desire to have a title. Which is what we sometimes call the hard subjects, engineering, dentistry, medicine - the labels. These are taken tremendously seriously in Brazil. And to be able to work in a company that is a world name, or a household name ... there is ambition to get to foothold to work for either one of these global companies, or for a Brazilian company that is competing with them".
5 Use a personal approach, and concentrate on relationship-building
A significant difference between the Anglo-Saxon and the Brazilian way is in the importance of personal relationships and informal networks in doing business.
As Mark Pitt describes, "In the US, communication is pretty much canned and electronic. People will depend a lot on very formal networks to get things done. I think there is an awareness now that informal communication and networking are important get things done more quickly". The temptation to communicate at arm's length should be avoided, as Chris Wall says; "There is a Brazilian way of doing things which is Latin, which is tactile, which is to do with building relationships, not to do with hands off ... Brazilians do business with people they consider friends".
Richard Taylor describes the frustration that can be encountered by people used to an Anglo-Saxon approach: "A lot more time is spent building relationships. It can be quite frustrating for someone who is more used to a US-style approach of organising a meeting, expecting an outcome from that meeting and going home with a contract. It take time to build the relationship, and it's a little more pronounced here".
In summary, it is about a 'softer relationship', as Luiz Calil puts it: "Our people work hard and they are very professional, but at the same time they create an atmosphere where you can have a softer relationship. Very sincere, very open".
6 Rigour is paramount: don't be seduced by the tactile approach
The softer relationship is crucial, but make no mistake: it does not mean that Brazilians are any less professional. Chris Wall shares his experience: "Brazilians are quite formal in business. They come to meetings supremely well prepared on your business, your website, your products, who else you are selling to ... a certain formality which comes straight from business school. But they do business with you because you have 'hugged each other' in a manner of speaking. That is the drinks, the dinner, talking about each other's families, meeting the family. I suppose one of the dangers is to be seduced into the tactile part and think that I will forget about the formality. Don't. You have to get that right".
7 The warmth must extend to the factory floor
Being good at relationships is not just about being good with other senior executives. Luiz Calil describes how he aims to create a 'second home' for employees, "We want to be the second home of our people, generating an environment where people feel they are in their second house. We generate an environment to care about the safety of people working in the operation. We provide a great place for people to develop".
This is clearly an approach that works; Caterpillar was voted best company to work for in Brazil in 2009.
Francisco Itzaina echoes the ideas of creating a home away from home, when he talks about the importance of bringing in the families at all levels: "I've had situations in the past where I had direct command over thousands of people, and in those cases, you have a very close approach to the people. You know, bringing the families together once a year, all that has a tremendous importance. I've seen the same in the US, but it's different, there are cultural elements". It is a "management presence by walking around" that works, according to Gaetano Crupi.
Personal relationships at every level are more important in Brazil than elsewhere, as Mark Pitt describes: "In countries like Brazil, you have got to go a little bit further in terms of feedback, people expect more face to face contact than in Europe or the US".
8 Flexibility
There are significant structural and ethical challenges in doing business in Brazil. Executives therefore need to have a certain flexibility about them in order to get things done well. Klaus Pavel describes this: "The Brazilians are very, very flexible and a Germany manager, for example, who adopts an 'official' approach, has to learn that you have to be flexible in order to be successful in Brazil. that is very, very important, yes". Mark Pitt describes firstly the ethical complications that make flexibility critical: "[You need] an executive that can execute on the ground with all the restrictions that exist in Brazil, but can execute according to the rules of an American company". Secondly, he describes the regional complexity that makes flexibility so necessary. "Brazil is a large and complex country, very similar to the US in that sense, and like the US, you cannot be successful just with a national plan, you have to have a plan that is broken up by region. Some regions in Brazil are so different that things you apply in one region aren't applicable in others".
The mandatory salary increase also presents a challenge to senior executives, again forcing a more flexible approach. Gaetano Crupi explains the challenge this presents to rewarding good performance: "Brazil has an annual, mandatory salary increase. This is a huge challenge - how do you reward salary increase with performance when you know that you are going to have a mandatory salary increase that everyone will get, regardless of performance, and that is usually a little bit over inflation? That is a big challenge because it means that your may not necessarily be able to link performance with reward, and that is extremely important for productivity".
9 Ability to communicate with the Headquarters
For the executive in the multinational, a skill is needed in communicating between the two worlds of the Brazilian reality and the corporate Headquarters. As Mark Pitt says, "if you are talking about American companies, you need an executive that can translate or articulate the challenges and the quirks of the Brazilian market to the US executive team". Boyden's John Murray echoes Mark Pitt: "The executive has got to have skills in communicating within multinational organisations. You don't want to let a prima donna loose in Brazil. You need somebody who already has experience making sure that the Headquarters is well-informed all the time. If he has worked abroad in one of these offices then it makes him even stronger." John Murray adds that the MBA qualification can be valuable, because it demonstrates an ability to adapt in an international environment: "A foreign MBA shows that the executive can adapt, that he has been abroad, he has studied abroad and he has got the language skills".
10 Maximise the Brazilian talent you already have
In the global recession, financial capital from Brazil was used to 'shore up the balance sheet' by many multinationals. Whether or not in a global recession, human capital should also be maximised across the global company. Use Brazilians to train other teams, increase productivity and enhance rotation programmes in order to pluralize their expertise international. Brazilian executives are on the big stage and have much to impart to their global colleagues.
In conclusion
"You have got to have an executive that is sharp, can make decisions, but at the same time is smooth, is somebody enjoyable to talk to, is someone that believes in a win-win approach" - so Gaetano Crupi sums up the talents required of the best senior executives in Brazil. Finding such people is no mean feat. This is why Boyden and others have experienced teams on the ground in São Paulo and Rio de Janeiro, with strong networks, helping the world's best companies find the strongest talent to head up their expansion in Brazil.
Part 4: The Boyden View: Hiring in Brazil
Understanding 'o jeitinho brasileiro'
"Egos flourish in a different way in different parts of the world".
Francisco Itzaina
President - South America of Rolls-Royce International
In order to understand talent in Brazil, one has to understand "o jeitinho brasileiro" - meaning the Brazilian Way. The Brazilian Way is a unique formula, redolent with European and immigrant influence, morphed into its own unique South American form. As Chris Wall says, "Brazil is a mixture of Germans and Italians and Spanish and Portuguese and Arabs from the Middle East, not forgetting the huge population of Brazilians who are descended from the slaves which were brought over from Africa to work on the sugar plantations, and the large population in São Paulo which is descend from Japanese immigrants. All mixed up together, all the result of waves of immigration over the last 100 to 130 years". São Paulo is the largest Italian city in the world, for example: home to 6 million Italians, whereas the entire metropolitan area of Rome, the largest city in Italy itself, is home to a maximum estimate of 3.7 million people, according to the OECD.
The entrepreneurial spirit is strong. Chris Wall observes "There is this drive. Don't forget it's the new world - people whose immediate relatives left Europe for Brazil, took a risk, and so they tend to be people who have grown up in a culture of 'can do'. And a culture of 'yes, my parents might have been poor, but I am going to be better'". Klaus Pavel, Chariman of Aachen-Laurensberger Rennverein, makes the contrast with Europe: "My impression is that there is quite a strong entrepreneurial culture, maybe more there than in Europe, where my impression is that it is suffering from so much regulation".
However, the cultural link with Europe is powerful. About 54 percent (103 million) of Brazilians are mainly of European origin, descendants of immigrants from Portugal, Italy, Spain, Germany and Eastern Europe. South of São Paulo, in the rich agricultural region, there exist European-style standards of living, where German and Italian are still spoken alongside Portuguese. Gaetano Crupi points out that, "During the military years, France was the one really hosting all the philosophers and thought leaders from Brazil. So that link always existed".
Chris Wall calls Europe Brazil's 'muse': "Brazil tends to look toward Europe much more than it tends to look towards the United States as its muse in industrial development culturally and commercially".
The relationship with the US is interesting. An Economist article suggests that Brazil and the United States have more in common than they realise, with the relationship involving egos in a different way. As Gaetano Crupi puts it, "Brazil does not like the 'young child syndrome', they do not want to be dependent on the US".
So, to take Francisco Itzaiana's axiom, that "egos flourish in a different way in different parts of the world", drawing upon Brazil's executive talent means understanding what makes egos flourish in different contexts, cultures, and regions.
Next, we share insights from senior executives and Boyden professionals on how to go about hiring talented executives in Brazil and the skills that are strategically and tactically important.
1 The multi-sensory imperative
The first thing for foreign executives in multinationals who are hoping to expand their Brazilian subsidiaries and need to find the right talent, is to travel t Brazil to get a feel for the jeitinho brasileiro. Francisco Itzaina advises: "The first thing to do is get on a plane and come over here, in order to understand everything. That cultural distance - it has to be bridged. There is nothing better than the direct exploration of a country for you to know that you have to be there, understand how it all works".
2 Invest in home-grown talent, not expatriates
The quality of home-grown talent is there. As Klaus Pavel says, "There are excellent executives in Brazil, there is very good education, good universities: they don't have to come from overseas necessarily. They have good resources in Brazil as far as management is concerned".
Skills have expanded over the last decade, with most Brazilians now speaking a number of languages, for example. "The abilities of most Brazilians have grown tremendously over the years," observes Francisco Itzaina. "When I first came to Brazil thirty-four years ago, it was difficult to hire anybody off the street that was bilingual. Today, practically every kid you talk to nowadays speaks English". Mark Pitts adds that home grown talent has the advantage of being more stable and less likely to head back home: "Companies that have been successful over the long run, most of them pepper the structure with local talent. They have evolved from the tendency to put in expats. They have got that continuity in management development over decades". Brazilians understand the Brazilian way. They have their own networks. It demonstrates that your company is investing locally. As John Murray says, "They should know how government works here. They should have their own contacts and their own networking. That is something the expat can never have".
The Fundaçāo Dom Cabral/Columbia Law School survey on the top 20 Brazilian multinationals shows that top multinationals realise that home-grown talent is best: all 20 CEOs are Brazilian. Only five of the 157 board members are non-Brazilian (3%). Eight of the top 20 say that they speak Spanish or English as well as Portuguese. John Murrary adds, "You want a good manager? We will find you an executive who understands - don't bring one down, hire one locally"
3 Understand the benefits that are meaningful locally
Brazilian perks are somewhat different in Brazil to elsewhere in the world. Cars, for example, are still important, as Francisco Itzaina explains: "Recognition for all people is an important issue, the car that you give somebody, you know cars in Brazil are still an important factor".
He also touches on the world of golf and why it has a different status value in Brazil: "There are various aspects that are different from other parts of the world. In the US you go play golf anywhere, for not too high a fee. IN Brazil you have to be a member of a country club and most of the time you have to pay fees of maybe 135 to 160 Brazilians Reals an hour. All of these make a difference".
In general, benefits packages for expat executives still need to be bigger in Brazil than in European or 'home' countries. Klaus Pavel explains, "Pacakges are much bigger because you get the house and you get the servants and you get a couple of cars, if you are talking about high level management and I think you get more benefits in Brazil than you get in Germany".
4 Use the power of job titles and big brands
In Brazil, job titles and big brand names have status value. As Chris Wall observes, "There is a desire to have a title. Which is what we sometimes call the hard subjects, engineering, dentistry, medicine - the labels. These are taken tremendously seriously in Brazil. And to be able to work in a company that is a world name, or a household name ... there is ambition to get to foothold to work for either one of these global companies, or for a Brazilian company that is competing with them".
5 Use a personal approach, and concentrate on relationship-building
A significant difference between the Anglo-Saxon and the Brazilian way is in the importance of personal relationships and informal networks in doing business.
As Mark Pitt describes, "In the US, communication is pretty much canned and electronic. People will depend a lot on very formal networks to get things done. I think there is an awareness now that informal communication and networking are important get things done more quickly". The temptation to communicate at arm's length should be avoided, as Chris Wall says; "There is a Brazilian way of doing things which is Latin, which is tactile, which is to do with building relationships, not to do with hands off ... Brazilians do business with people they consider friends".
Richard Taylor describes the frustration that can be encountered by people used to an Anglo-Saxon approach: "A lot more time is spent building relationships. It can be quite frustrating for someone who is more used to a US-style approach of organising a meeting, expecting an outcome from that meeting and going home with a contract. It take time to build the relationship, and it's a little more pronounced here".
In summary, it is about a 'softer relationship', as Luiz Calil puts it: "Our people work hard and they are very professional, but at the same time they create an atmosphere where you can have a softer relationship. Very sincere, very open".
6 Rigour is paramount: don't be seduced by the tactile approach
The softer relationship is crucial, but make no mistake: it does not mean that Brazilians are any less professional. Chris Wall shares his experience: "Brazilians are quite formal in business. They come to meetings supremely well prepared on your business, your website, your products, who else you are selling to ... a certain formality which comes straight from business school. But they do business with you because you have 'hugged each other' in a manner of speaking. That is the drinks, the dinner, talking about each other's families, meeting the family. I suppose one of the dangers is to be seduced into the tactile part and think that I will forget about the formality. Don't. You have to get that right".
7 The warmth must extend to the factory floor
Being good at relationships is not just about being good with other senior executives. Luiz Calil describes how he aims to create a 'second home' for employees, "We want to be the second home of our people, generating an environment where people feel they are in their second house. We generate an environment to care about the safety of people working in the operation. We provide a great place for people to develop".
This is clearly an approach that works; Caterpillar was voted best company to work for in Brazil in 2009.
Francisco Itzaina echoes the ideas of creating a home away from home, when he talks about the importance of bringing in the families at all levels: "I've had situations in the past where I had direct command over thousands of people, and in those cases, you have a very close approach to the people. You know, bringing the families together once a year, all that has a tremendous importance. I've seen the same in the US, but it's different, there are cultural elements". It is a "management presence by walking around" that works, according to Gaetano Crupi.
Personal relationships at every level are more important in Brazil than elsewhere, as Mark Pitt describes: "In countries like Brazil, you have got to go a little bit further in terms of feedback, people expect more face to face contact than in Europe or the US".
8 Flexibility
There are significant structural and ethical challenges in doing business in Brazil. Executives therefore need to have a certain flexibility about them in order to get things done well. Klaus Pavel describes this: "The Brazilians are very, very flexible and a Germany manager, for example, who adopts an 'official' approach, has to learn that you have to be flexible in order to be successful in Brazil. that is very, very important, yes". Mark Pitt describes firstly the ethical complications that make flexibility critical: "[You need] an executive that can execute on the ground with all the restrictions that exist in Brazil, but can execute according to the rules of an American company". Secondly, he describes the regional complexity that makes flexibility so necessary. "Brazil is a large and complex country, very similar to the US in that sense, and like the US, you cannot be successful just with a national plan, you have to have a plan that is broken up by region. Some regions in Brazil are so different that things you apply in one region aren't applicable in others".
The mandatory salary increase also presents a challenge to senior executives, again forcing a more flexible approach. Gaetano Crupi explains the challenge this presents to rewarding good performance: "Brazil has an annual, mandatory salary increase. This is a huge challenge - how do you reward salary increase with performance when you know that you are going to have a mandatory salary increase that everyone will get, regardless of performance, and that is usually a little bit over inflation? That is a big challenge because it means that your may not necessarily be able to link performance with reward, and that is extremely important for productivity".
9 Ability to communicate with the Headquarters
For the executive in the multinational, a skill is needed in communicating between the two worlds of the Brazilian reality and the corporate Headquarters. As Mark Pitt says, "if you are talking about American companies, you need an executive that can translate or articulate the challenges and the quirks of the Brazilian market to the US executive team". Boyden's John Murray echoes Mark Pitt: "The executive has got to have skills in communicating within multinational organisations. You don't want to let a prima donna loose in Brazil. You need somebody who already has experience making sure that the Headquarters is well-informed all the time. If he has worked abroad in one of these offices then it makes him even stronger." John Murray adds that the MBA qualification can be valuable, because it demonstrates an ability to adapt in an international environment: "A foreign MBA shows that the executive can adapt, that he has been abroad, he has studied abroad and he has got the language skills".
10 Maximise the Brazilian talent you already have
In the global recession, financial capital from Brazil was used to 'shore up the balance sheet' by many multinationals. Whether or not in a global recession, human capital should also be maximised across the global company. Use Brazilians to train other teams, increase productivity and enhance rotation programmes in order to pluralize their expertise international. Brazilian executives are on the big stage and have much to impart to their global colleagues.
In conclusion
"You have got to have an executive that is sharp, can make decisions, but at the same time is smooth, is somebody enjoyable to talk to, is someone that believes in a win-win approach" - so Gaetano Crupi sums up the talents required of the best senior executives in Brazil. Finding such people is no mean feat. This is why Boyden and others have experienced teams on the ground in São Paulo and Rio de Janeiro, with strong networks, helping the world's best companies find the strongest talent to head up their expansion in Brazil.
Appendix
About the report
This report was developed by Boyden World Corporation in collaboration with the strategic research and consulting group Lighthouse Global (www.lighthouseglobal.eu.com). Special thanks go to Dan Margolis, at business and communications firm FD (www.fd.com), for his perspective and support. The content was created from a combination of primary and secondary data sources, and a series of interviews with business leaders and experts, including:
- Luiz Calil, President of Caterpillar, Brazil
- Francisco Itzaina, President – South America of Rolls-Royce International
- Gaetano Crupi, General Manager of Abbott in Brazil
- Mark Pitt, President of Sherwin Williams in Brazil
- Klaus Pavel, Chairman of the Aachen-Laurensberger Rennverein
- Chris Wall, Business Specialist for Brazil at UK Trade and Investment
- Richard Taylor, CEO of Taylorenergies Business Development, Chairman of CleanStar Brasil Bioenergia Ltda, former President of British Petroleum in Brazil and founding Director of the International Business Academy for Development delivering executive education between the UK, Brazil and China
The Boyden Reports
Other reports in this series:
The Boyden Report: India – The Sun Rises on the Indian Executive
The Boyden Report: China – Exploding the Myths in China
The Boyden Report: Latin America – Multi-latinas drive Latin America's Destiny
Sources
- Banco Central do Brazil
- Federation of Industries of the State of São Paulo (FIESP)
- Exame
- IBGE, Instituto Brasileiro de Geografia e Estatística
- Goldman Sachs
- Boston Consulting Group
- United Nations Conference on Trade and Development
- The Financial Times
- The Economist
- Wall Street Journal
- USA Census Bureau
- CIA World Factbook
- University of Austin, Texas
- Trusted Sources Research and Networks
About Boyden
Boyden is a global leader in the executive search industry with more than 70 offices in 40 countries. Founded in 1946, Boyden specializes in high-level executive search, interim management , and human capital consulting across a broad spectrum of industries.
For further information and to access additional articles, papers and research from Boyden, visit www.boyden.com
Share this on:
LinkedIn Facebook Twitter Xing