Brazil unbound How investors see Brazil and Brazil sees the world in co-operation with Contents Foreword Executive Summary Introduction Part one: Cornerstones of success Part two: Social and intellectual capital I Talent and education II Innovation in thinking and action  III Brazilians abroad 15 15 19 22 Conclusion: The beginning of the future  26 About this report Brazil unbound: How investors see Brazil and Brazil sees the world is an HSBC report produced in co-operation with the Economist Intelligence Unit The report draws on in-depth interviews with country experts and analysts, Economist Intelligence Unit forecasts, and a survey of executives in 536 companies across 18 industries, during April-May 2010 Around one third of survey respondents were based in Brazil and a further 11% in Latin America; 20% were based in Asia-Pacific, 15% in North America, and 12% in Western Europe Over two-fifths (41%) of companies had annual global revenues of $500m or less, and 22% had annual revenues above $10bn In terms of seniority, 58% of respondents were C-suite or board members Foreword Brazil’s economic resilience over recent years has captured the world’s attention All eyes have been on its growth, as it distanced itself from the political and economic uncertainty of the 1980s With growth set to continue, it has been forecast that by 2025 Brazil will become the world’s fifth largest economy, overtaking Britain and France, while São Paulo will rank higher than Paris and Shanghai as the world’s sixth wealthiest city In 2010, HSBC celebrates the vibrancy and excitement of modern Brazil with a series of international events and activities across ten markets from the UK and Brazil to North America, South Africa, the Middle East and China This programme of activity is centred around our sponsorship of Festival Brazil, a four-month summer celebration of the country’s cultural offerings at London’s Southbank Centre Working in 88 countries, we see the understanding of different cultures as an essential part of building international relationships and business expertise As part of our global Cultural Exchange programme, Festival Brazil provides insight into one of the world’s most prominent economies Bringing together the views and opinions of the global business community, this Economist Intelligence Unit report identifies and explores the challenges that now face this dynamic country I hope that, whether you are already experienced in working with Brazil or are just starting to explore its opportunities, this report will prove valuable to your business Zarir J Cama Group Manager, Group Management Office, HSBC Holdings plc Executive summary Brazil has never been so popular among investors as it is now Interest has risen steadily over the past 15 years as the country has managed to overcome one political, macroeconomic and business challenge after another Privatisation, liberalisation, a new stable currency, the smooth handover of political power, to name but a few achievements, coupled with a boom in global demand for Brazil’s copious supplies of commodities, have boosted foreign currency earnings and fired up consumer spending Brazil has been transformed from “country of tomorrow” to “once-in-a-lifetime opportunity” The transition is, of course, far from over: education, bureaucracy, corruption, infrastructure and fractious politics, to list just a few deep-seated problems, will take years to address But its new-found economic and political stability – which helped the economy withstand recent global financial shocks – allows policymakers to make a serious start on addressing these issues Moreover, the country’s natural riches in agriculture and mining – and potentially offshore oil too – will, if used wisely, provide the cash needed for vital investments for years to come This report, based on interviews and a survey of 536 senior executives worldwide, largely endorses the general optimism about Brazil’s prospects Part one of the report sets Brazil’s recent transition into its political, macroeconomic and industry context Part two focuses on three essential areas of the business operating environment: the market for talent; the state of innovation; and the dilemmas facing Brazilian companies as they expand abroad Some of the key conclusions of this report and the main challenges facing Brazil include the following: Poor infrastructure takes a heavy toll on business Although something of a truism, the parlous state of the infrastructure tops the list of obstacles faced by investors in Brazil In our survey, nearly one half of respondents (49%) point to “low standard or costly infrastructure” as the main operating obstacle In spite of some improvement in logistics, freight depends on costly road haulage; there are few railroads; the potential for waterways remains largely unexplored; and ports and airports are congested These conditions can add one quarter or more to the cost of getting goods to market, say investors Logistics experts call for better co-ordination between different layers of government and the private sector Weaknesses in the education system impair the supply of  relevant workplace skills While many of the graduates of Brazil’s universities are viewed as top class, there are too few of them Poor teaching and resourcing in secondary education means that school leavers are among the world’s least educated Companies find they must fill the skills gaps themselves with their own training At least one third of investors surveyed say skills shortages represent one of the biggest operating problems, with almost one half (47%) of US-based companies reporting this as their greatest challenge Educationalists call for a more relevant curriculum, better teacher training, and a shift in state funding from tertiary to secondary education Investors praise the abilities of their Brazilian managers Education standards may be higher in most parts of Asia, but, say investors, the quality of management is “probably worse in China and India” Indeed, Brazilian managers are deemed to be on a par with their peers in developed markets, and superior to those from other emerging markets, according to 42% of survey respondents In particular, investors laud the flexibility and maturity of their Brazilian staff, a facet that may derive from learning to cope with economic upheaval However, this flexibility does not translate adequately into innovation Brazil lags in innovation; investors could help more Brazil scores poorly on most innovation rankings, and deeper analysis suggests that even the meagre investments into innovation could produce better results Some 57% of surveyed executives not have a dedicated R&D facility, or even plan to have one in the short term in Brazil Over one half of respondents (51%) say that, at present, less than 10% of products and services sold by their companies have actually been developed there, and at least one quarter of respondents expect no progress on that score over the next three years Yet almost half (49%) of survey respondents describe the capacity of Brazilian-based businesses to integrate the latest international technology into their operations as either “very good” or “excellent”, and only 6% say it is “poor” This indicates that better education, improved infrastructure, greater investment in R&D and closer relations between companies and universities would have a disproportionately positive impact on innovation That said, business has broken new ground in environmental and agricultural technologies, which are being exported worldwide Co-operation with universities works well One way to promote innovation is through business co-operation with academic institutions Experience seems relatively limited, but positive Of survey respondents whose Brazil-based operations already work with local universities, 60% say the relationship has been “positive” and 12% “very positive”, compared with less than one quarter (23%) who say that such co-operation “failed to live up to expectations” or was “very unsuccessful” (5%) Brazilian-based companies would appear to get the rough end of such deals (or perhaps are too optimistic about their potential), as almost one third (32%) report that such co-operation “failed to live up to expectations” Brazil focuses on “South-South” trade relations, especially  with China As part of a general policy of trade diversification, one of the biggest changes in Brazilian trade policy under President Lula has been the expansion of trade and investment with China China has become Brazil’s largest export and import partner, and provides investment and finance to secure supplies of key minerals Brazil has also expanded its share of trade with the rest of Latin America, other Asian countries, the Middle East and Africa, especially in agriculture Brazilian firms still suffer from poor brand recognition abroad Beyond the charmed circle of a few high-profile companies, Brazilian brands still lack the global draw of their Western counterparts This is reflected in our survey, in which 84% of respondents say that Brazilian brand names are not well recognised or not highly regarded abroad Only 3% of US-based respondents believe that Brazilian brands are both recognised and highly regarded However, the perception of Brazilian brands changes somewhat among China-based executives, with almost one quarter of those respondents (24%) giving a warm reception to Brazilian products Introduction Brazil is in fashion Hosting the football World Cup in 2014 and the Summer Olympics in 2016 would seem a fitting cap to the momentous economic changes witnessed over the previous two decades While such mega events can strain a country’s budget and test its infrastructure, sending lesser hosts into a spiral of debt, Brazil’s leaders will see it as global recognition of the country’s importance in the world; a powerful signal that Brazil’s domestic concerns matter beyond its borders; that its companies are a force to reckon with abroad; and that its talents are the envy of the world Such sentiments, if not new, are certainly more realistic today than at any point in the country’s recent history Once known for its severe stop-go economic cycles, the memory of hyperinflation in the late 1980s and the 2002 IMF bail-out is receding fast Investor queasiness over the election in 2002 of the left-wing President Luiz Inácio Lula da Silva (“Lula”), whose two terms end this year, has proven misplaced Brazil’s economy rode the global financial crisis, suffering only a brief and shallow dip The economy is poised to expand by nearly 8% this year And today’s policymakers angst less about financial turmoil and more about who and how to access newly discovered deepwater oil reserves, developing a foreign policy doctrine that reflects global ambitions, and turning domestic enterprises into world beaters For investors, Brazil’s glass is now “half full” With 192 million consumers, it is Latin America’s largest market, the world’s fifth-most populous country and the eighth-largest economy When asked about Brazil’s image in the world, respondents to the Economist Intelligence Unit’s survey prefer to point to the “B” in BRICs (the oddball category of fast-growing emerging giants comprising Brazil, Russia, India and China) rather than to the country’s long-standing structural deficiencies More executives see Brazil primarily as “a young, fast-growing market opportunity on a par with China, India or Russia” (49%) – although Chinese companies were far less favourably disposed to such a comparison – and as “an emerging player on the international stage” (40%), than as “a market with high potential but held back its poor business environment” (31%) or even “a supplier of key commodities” (20%) Despite the fact that income distribution remains among the most skewed in the world – recent improvements aside – social inequalities and traditional stereotypes linked to culture and sport were cited respectively by only 13% and 9% of respondents Overall, what you consider to be the main image today of Brazil in the world? (% of respondents) A young, fast-growing market opportunity on a par with China, India or Russia 49% An emerging player on the international stage 40% A market with high potential but held back its poor business environment 31% A supplier of key commodities to the world 20% Principally known for extremes of wealth and poverty 13% Retains its stereotypical image associated with culture and sport 9% Source: Economist Intelligence Unit 10 20 30 40 50 60 70 80 90 100 In some respects, this new prominence should come as no surprise Along with South Africa and India, Brazil has been a leading light in the G20 (group of 20 leading economies) During the global economic crisis, the G20 superseded the G8 as the main platform for global governance, according large developing nations such as Brazil a greater voice at a time when the setting of global rules is dominating headlines And it hasn’t escaped investors that emerging markets have generally come through the financial crisis in better shape than have developed markets There is also plenty of commercial substance behind Brazil’s new popularity among investors The consolidation of macroeconomic stability in the past decade has meant that the country’s large internal market potential is finally being realised Brazil’s young and sizeable population and its burgeoning middle class are both by far the most attractive features of the country, according to 58% of executives surveyed By contrast, such factors as its abundant natural resources, political stability and cheap labour force – often features of primarily export-driven economies – were far less regarded much lower than it should be because of a failure to address structural reform Swathes of its workforce are poorly educated; innovation is stunted; infrastructure unfit for purpose; and its companies’ brands, having focussed on home advantage are, with notable exceptions, little known abroad This report is divided into two parts Part one looks at the political, macroeconomic, industry and infrastructure foundations that have enabled the country to soar ahead Part two draws on the views of business executives both in the country and worldwide and identifies three key aspects of business on which Brazil’s future depends: its development of skills, its capacity to innovate, and the country’s role in the world – and evaluates why the optimism is justified Judged by its history, therefore, Brazil has done well; judged by today’s competition, however, the country still has much ground to make up Although GDP growth this year is expected to approach Asian rates, such rates are far from sustainable given infrastructure deficiencies Since GDP per head is significantly higher than in China – and especially India – comparisons to Asian rates of growth are not entirely appropriate; even so, Brazil’s potential sustainable growth is The Brazilian National Congress  Designed by the world famous architect Oscar Niemeyer Part one: Cornerstones of success Maintaining political consensus Brazil’s new-found political stability has provided a sturdy base for expansion National elections no longer pose any threat of a radical shift in macroeconomic policy orientation The country’s voters will elect a new president in October 2010, after the two-term limit of Luiz Inácio Lula da Silva (known as “Lula”) expires, as well as voting in state governors and a new Congress Few commentators harbour serious worries about the main candidates and their policies Power has alternated since 1995 between two main parties: Lula’s Partido dos Trabalhadores (PT, or Workers’ Party); and the centrist Partido da Social Democracia Brasileira (PSDB – or social democrats) Both broadly agree to continue or defend the successful policies of the past fifteen years Lula’s shift to the economic policy centre ground ahead of the 2002 elections has broadened cross-party consensus in favour of disciplined monetary and fiscal policies This has underpinned a more stable macroeconomic environment, enabling domestic and foreign investors to lengthen their planning horizons The consolidation of greater political stability also comes as a welcome relief for a population which following the end of military rule in 1985 has seen wild political swings and a host of ill-fated economic plans aimed at promoting growth and quashing hyperinflation For all the corruption in Brazil’s political system, especially in the parliament, the country has demonstrated its political maturity The outgoing President Lula took over the reins from Fernando Henrique Cardoso in 2003 relatively smoothly, despite being in the midst of a full-blown economic crisis of confidence He ends his second term with unprecedented popularity ratings above 80% (thanks in large part to successive increases in the minimum wage and social policies that has lifted some 12 million families out of poverty) Yet he has resisted the temptation to change a constitution that forbids him a third term Instead, he has promoted a relatively uncharismatic former civil chief of staff and energy and mines minister, Dilma Rousseff, to defend his legacy This legacy is not simply one of implementing free-market ideas The state remains firmly entrenched in the running of the economy, despite many unhappy experiences of “economic miracles” gone sour from hyperinflation and foreign debt default Ms Rousseff, and the PSDB challenger, José Serra, also advocate a state-led development strategy to a greater or lesser degree The failures of free market models exposed by the global financial crisis vindicated several of Brazil’s statist policies The state development bank, Banco Nacional de Desenvolvimento Econômico e Social (BNDES), played a major role in supporting credit at a time when private banks around the world were retrenching sharply The difference seems to be that a decade of responsible debt management, floating exchange rates and inflation targeting – introduced at the behest of the IMF in the wake of the upheavals caused by the 1997-98 Asian and Russian crisis – remain sacrosanct These policy anchors were vital in enabling Brazil in 2008 to withstand (to the surprise of many) a series of external economic shocks that in the past would have triggered major instability Although some large companies, such as Aracruz, a pulp and paper group, suffered from poor derivatives deals, the country’s conservatively-managed banks were not exposed to the risky assets that felled counterparts in the US and Europe A $30bn swap deal with the Federal Reserve Board (the US central bank) increased trust in the Brazilian banking sector and underpinned strong growth of deposits in recent years Indeed, during the global financial crisis, many Brazilians overseas switched their assets out of US banks to Brazilian banks, as they were perceived to be safer Notwithstanding all these positive political developments, Brazil’s political environment remains a drag on implementing reforms needed to sustain more dynamic GDP growth Although four parties typically account for around 70% of seats in the chamber of deputies and over half those in the senate, a total of 18 political parties are represented in Congress and governing coalitions are typically unwieldy affairs On account of the lax rules governing party allegiances, congressional representatives tend to be extremely provincial, showing greater loyalty to interest groups than to either party or policy Moreover, the president is critically dependent on the support of state governors, who typically have considerable influence over their states’ delegations in Congress Switching party allegiances in pursuit of career advancement is common among politicians and contributes to the fractious nature of the political system A new economic era Brazil’s is a diversified economy with strong corporate and financial sectors, a low external debt burden and highly diversified export industries and markets These factors put Brazil in a position to emerge relatively quickly from the global downturn The country’s recession was brief and shallow: the economy contracted by a mere 0.2% in 2009 – with the help of some credit expansion, and some support from the government’s flagship infrastructure development programme, the Programa de Aceleração Crescimento (PAC), growth acceleration programme launched in early 2007 In contrast to Russia, seen by many as the more promising BRIC economy, Brazil responded to the downturn by letting its currency depreciate, conserving its forex reserves Moreover, Brazil has, since 2008, become a net foreign creditor as foreign debt shrank and international reserves soared, prompting all three main credit rating agencies to give the country an investment grade rating The Economist Intelligence Unit expects Brazil’s economy to shoot ahead, by 7.8%, in 2010 – a fitting end to President Lula’s second four-year term that has seen annual average economic growth of 4.7% (compared to average annual growth of 2.5% in the previous 25 years) Yet, the macroeconomic outlook is far from risk-free A double-dip global downturn may yet hit Brazil on the rebound, and fiscal and current-account deficits could all too easily re-open Although the budget deficit is relatively small for a G20 country, at 3.3% of GDP in the 12 months to end-May 2010, this may not last Indeed, arguably, creative accounting has played a part in keeping the primary budget on target, and opacity in itself can jeopardise confidence if the positive mood ever shifts Moreover, high public spending imposes a huge burden on monetary policy to keep inflation tamed The benchmark Selic interest rate at over 10% is one of the highest in the world, and market rates are far higher By Brazilian standards, interest rates are historically low, but given the still-large public-debt financing requirements, the latter is also crowding out private borrowing The current account could also deteriorate rapidly Six consecutive years of surplus ended in 2008 Last year, the deficit amounted to 1.5% of GDP, and the Economist Intelligence Unit forecasts a deficit of 2.7% in 2010 Officials hope that the local currency, the Real, will devalue accordingly, but this readjustment may not be smooth, especially in a difficult external financing environment Forecast summary (% unless otherwise indicated) 2008a 2009a 2010b 2011b Real GDP growth 5.1 -0.2a 7.8 4.5 Consumer price inflation (av) 5.7 4.9 5.4 4.6 Money market interest rate (av) d 12.4 10.1c 10.3 11.5 Exports of goods fob (US$ bn) 197.9 153.0 178.2 194.3 Imports of goods fob (US$ bn) -173.1 -127.7 -171.7 -200.9 Current-account balance (% of GDP) -1.7 -1.5a -2.7 -3.3 External debt (year-end; US$ bn) 253.4c 279.8c 307.0 318.5 Exchange rate R:US$ (av) 1.83 2.00 1.80 1.86 a – Actual b – Economist Intelligence Unit forecasts c – Economist Intelligence Unit estimates d – Selic overnight rate Source: Economist Intelligence Unit 10 TheFederalUniversityofParana,Curitiba. The oldest university in Brazil, founded in 1912 14 Part two: Social and intellectual capital I.Talentandeducation Thelearningcurve Thirty years ago, Brazil and South Korea had similar levels of GDP per capita – today the Asian tiger is over three times richer (in PPP terms) One major reason for this divergence has been a lack of investment in education In Brazil, the system’s failings are having direct consequences for the quality of the workforce In 2008, some 20% of the working-age population could not read, write or understand basic text, a slight improvement on the 25% level of functional illiteracy recorded fi ve years earlier The quality of education for the majority of the country’s children and teenagers – that is, those who cannot afford a private education – remains particularly inadequate, held back by poor teacher training, shortcomings in physical infrastructure including a lack of nurseries, and still-high truancy rates Only one half of the country’s children complete secondary education, the second worst drop-out rate in the world, ahead only of Mozambique, according to Alberto Rodriguez, a World Bank education specialist The system can boast a few successes Almost all children aged between 7 and 14 attended school in 2008, according to offi cial fi gures The average number of years of formal education in the working-age population has also risen over the past 20 years from 5.2 years to 7.1 years in 2008 But this level is still short of the 10 years recommended by Unesco and achieved by neighbouring Chile, Peru and Argentina There are also big regional disparities The more developed south and south-east have 7.5 and 7.7 years, respectively; the poorer north-east averages 5.9 years Although younger people tend to have had more years in school than their parents, they are still ill prepared for the modern job market In OECD-run tests across 57 countries in 2006, Brazilian 15-year-olds ranked 53rd in mathematics, 52nd in sciences and 48th in reading Part of the problem is the structure of the education system A highly decentralised mish-mash, responsibilities are spread over numerous tiers of government The federal government spends some 3% of its budget on education, but it is the public sector schools run by states and municipalities that manage much of it The system involves 200,000 educational units, 50 million pupils, and 3 million, often underperforming, civil servants and managers, according to João Batista Araújo e Oliveira, a former World Bank offi cial Teachers are also often part of the problem rather than the solution Reports of waste in schools are rife – computers left in their boxes because teachers don’t know how to use them for example “They can talk about [child development psychologist] Piaget but they cannot organise a classroom They just don’t know the practice,” says Mr Rodriguez He estimates the annual cost to the education system and the wider economy of such educational shortcomings at around $600m As Paulo Renato Souza, a former education minister, notes: “We need pupils actually to learn something.” Averageyearsofformaleducationbygender,age groups,2008 (in years) 20-24 25-29 30-39 40-49 50-59 > 60 Men 9.1 8.8 7.7 7.3 6.2 4.3 Women 9.8 9.5 8.5 7.7 6.3 3.9 Total 9.4 9.2 8.1 7.5 6.3 4.1 Source: IBGE Educationallevelachievedinworking-agepopulation (25-64agegroup): Basic education: 63% Secondary education: 27% Higher education: 10% Source: IBGE Companiesstepin Companies in Brazil often fi nd that if they want the skills they need, they have to fi ll the yawning gap left by the country’s scrappy education system themselves Much of the training takes place after recruits are hired, but some initiatives try to get in earlier Following his retirement as president of Philips Latin America, Marcos Magalhães, for example, launched the Instituto de Co-Responsabilidade pela Educação, an initiative to raise education standards in his home state of Pernambuco, in the north-east Such private efforts are spreading, and carry the simple objective: to make the classroom work, and try to catch up with competitors, especially in Asia The idea follows similar, successful initiatives in South Korea and Europe But in Brazil, they merely scratch the surface Meanwhile, government education bodies insist, rightly in many instances, that money for education be spent on teacher training and partnerships with state-run schools These dilemmas exist at post-secondary education too An Economist Intelligence Unit report on post-secondary education in Brazil concluded: “Rather than operating educational institutions, the private sector should work in public-private partnerships related to education, share best practices of change management, provide fi nancial support for programmes to enhance teacher qualifi cation, and share new technology solutions.” 15 Every bit helps, it seems “You cannot lose the opportunity to set up a link between the corporate world and the university,” says Mr Gutierrez, CEO of Intrabase, a local marketing company He adds that companies can spur post-secondary institutions to explore real-world situations by encouraging employee participation in educational programmes and offering students hands-on experience through internships and work-study programmes Creaming off While the mass of under-educated Brazilians languish, the story at the top of the pyramid is of intensifying competition for managerial skills Much of the quality talent that enters the workforce comes from several well-respected universities and business schools in Brazil, many of which are ranked as the best in Latin America, according to a 2009 comparative survey by Heidrick & Struggles, a recruitment firm Students from leading (usually state-run) universities in Brazil are rated highly by foreign multinationals In addition, business schools are catering for a new crop of professional managers Some of the more promising students attend leading foreign business schools, but increasingly home-grown institutions such as the highly regarded Insper and IBMEC have emerged and been successful Others though have attracted criticisms for lacking relevant “people-related” training that is increasingly required by international management Although deemed highly creative, Brazilian staff are often seen as lacking initiative According to Sergio Averbach, president of the South America division of Korn Ferry, an executive search company, the success of Brazilian managers internationally is more “due to their outstanding influence and leadership skills, than to the ability to create the new and the different.” With rapid economic expansion and rising foreign investment, demand for the right skills has simply intensified “Board members often tell me they are having trouble hiring people from CEO to factory staff,” says Mr Averbach “I recently received 10 presidents of construction companies There is simply not enough labour force to meet the needs at all levels in Brazil.” Companies have few problems with those who are qualified – there just aren’t enough of them AES, a US electricity company that has invested some $6bn in Brazil since 1997 and plans to double in size within five years, typically suffers a shortage of electricians and mechanics “Quality is not a constraining factor, but the volumes are not there,” notes Andrew Vesey, AES president for Latin America and Africa The company has to invest in training its own workforce to meet its needs 16 Getting foreigners to fill the gap can also be frustrating Alistair Cox, CEO of Hay Group, a consultancy, says that India provides a valuable example to follow: Brazil needs to invest in information technology and attract the talent currently working outside Brazil All these issues become starkly apparent from the Economist Intelligence Unit’s own survey The lack of key skills is the biggest operating challenge faced by nearly one third of survey respondents – and as much as 47% of US-based companies – on a par with corruption and not far behind the problems of poor infrastructure Notable deficiencies among staff include language skills (43% report shortfalls there) and science knowledge (34%) Still, over one half of respondents also say that the Brazilian workforce matches their needs, with engineering companies being among the more satisfied (although it is worth noting too that the US Chamber of Commerce in São Paulo recently found that 41% of its members were unhappy with the quality of engineers, describing their training as “totally inadequate”) In which of the following areas of education or skills relevant to your business you believe the Brazilian labour market satisfies your needs or falls short? (% of respondents) Basic literacy or numeracy 13% Secondary education 11% Tertiary education 11% Languages 70% 68% 21% 54% 9% IT 17% 35% 48% 16% 43% 62% Science 10% 23% 56% 34% Engineering 18% 61% 20% Mobility 20% 59% 21% Work ethic 16% Soft skills (ie, problem solving, cultural sensitivity, etc) 61% 23% 10 23% 58% 20 30 Exceeds needs 40 50 19% 60 Matched needs 70 80 90 100 Falls short Source: Economist Intelligence Unit Brazilian managers also appear to lack international experience and multicultural awareness, when compared with their peers in developed markets But local managers excel in creativity and innovation Management experience, finance and marketing are also highly rated How would you rate, relative to management in developed markets, the skills and knowledge of Brazilian managers in the following areas? b) developed markets? (% of respondents) (% of respondents) 12% Management experience 35% 5% International experience Finance 28% 16% 30% 10 Very high 30 14% 38% 13% 3% 13% 3% 31% 40 50 60 70 80 31% Generally inferior 90 3% 38% 32% 20 2% 5% 16% 36% 21% 23% 43% 51% About the same 3% 13% 34% 30% 10% Creativity/Innovation 41% 1% 5% 14% 42% 36% 8% Marketing 26% 32% 10% Strategic thinking 13% 40% 7% Multicultural awareness (languages, knowledge of foreign cultures, etc) 39% 24% 9% People management Relevant technical skills 19% Generally superior 2% 100 Very low Source: Economist Intelligence Unit Overall, Brazilian managers are deemed to be on a par with developed market peers, and superior to those from other emerging markets, according to 42% of respondents Education standards may be higher in most parts of Asia than in Brazil, but the quality of management is “probably worse in China and India”, says Eduardo Wanick, president of DuPont Latin America 10 20 30 40 50 60 70 80 90 100 Source: Economist Intelligence Unit The sky’s the limit At the very top, there seems to be no shortage of role models to inspire the most ambitious Brazilian executives Several Brazilian-born business leaders have risen to global prominence in recent years Carlos Brito, the CEO of ABInbev, started his career with the Brazilian brewer Ambev (which later merged with Interbrew and Anheuser Busch) Alain Belda and Brazilian-born Carlos Ghosn have enjoyed high-flying careers at Alcoa and Renault-Nissan, respectively André Esteves now heads BTG, an aggressive emerging market investment bank What, some argue, may be holding back the next generation of business leaders is the ability to think innovatively How would you rate the quality of Brazilian managers compared with those in: a) other emerging markets? (% of respondents) 42% Generally superior 50% About the same 8% Generally inferior 10 20 30 40 50 60 70 80 90 100 Source: Economist Intelligence Unit 17 Business education – not just for the boardroom The size of Brazil’s market for business education is around $1bn, according to VanDyck Silveira, director of business development at Duke Corporate Education Petrobras, the state oil group, for example, is spending an estimated $150m per year on training Companies are increasingly taking on the burden of improving employee skills that should have been covered within the education system Mr Silveira, one of several executives who took over and restructured the business school IBMEC in 1998, sees a particular need for the soft skills of management – communication, giving feedback, “co-creating” and so on But he also believes that the highly flexible approach of his Brazilian students makes them well placed to benefit Unlike many other nationalities, “they don’t freeze when their mistakes are pointed out” Feedback is taken constructively and at face value, he says Duke CE’s courses are rare in a country where MBAs are focused on academic research rather than the needs of companies But while dealing with some of the most motivated and employable talent he sees much deeper problems in Brazil’s education system - namely the failure of secondary schools to prepare students for the world of work The elite are already well catered for, he believes, having attended expensive secondary schools where teaching is rigorous and includes a strong dose of science and mathematics These students are at a big advantage when getting into the highly competitive and high-quality state universities The rest have a poor grounding in science, mathematics and computer science They may have had classes in 15th century Portuguese literature, but they have not been trained to think rigorously or analyse data, remarks Mr Silveira This deprives potential employers of a corps of competent middle management and technical staff “There is a big disconnect between high school and university,” he notes Many of the private colleges they go on to are merely “diploma mills” Mr Silveira has seen the problem first hand, and has even had to alter the syllabus at IBMEC to get weaker state school candidates up to scratch Positive discrimination can help, but it tends to lower the overall quality of graduates, and requires higher education institutes to teach basic, grade skills or else see students fall behind The problem stems from the quality of teaching in what amounts to “a pact of mediocrity” To paraphrase an old Soviet-era joke about bosses and workers: “they pretend to teach us, and we pretend to learn.” Secondary school teachers not have to be accredited with a formal qualification They may be able to run a classroom, but they barely know the subjects they are supposed to be teaching A question of class Mr Silveira argues for reform in three areas to meet Brazil’s future business needs First, address the mismatch between what business needs from school leavers and what the bureaucrats in the education ministries put on the syllabuses He wants officials to “create a learning architecture” that educates for life, from top management to the shop floor Second, shift funding away from the top universities towards primary and secondary education This means ensuring proper training and qualifications for teachers, and greater transparency about which are the high- and low-performing schools While around 7% of the government budget goes to education generally, the vast majority of this is spent on higher education Related to this is a third issue – the need to be more equitable, so that those who are most able to pay, and who dominate higher education (and who will earn most in their future careers), are not funded by poorer taxpayers who benefit least from the education system With only around in school leavers going to college, this seems not only unfair but also grossly inefficient Business should be less worried about the quality coming out of the top of the education system and focus on the mid-ranking school leavers, who are needed to provide the nation’s middle management, technicians and engineers, but find themselves struggling through, and too often dropping out of, secondary education 18 II Innovation in thinking and action Which of the following technological factors most impact your firm’s ability to innovate in Brazil? A certain mindset (% of respondents) While Brazilian industry can boast several centres of excellence—notably energy, aerospace and agribusiness— education deficiencies hold back innovation in the wider economy David Neeleman, the São Paulo-born CEO of Azul airlines (and founder of the low-cost JetBlue airline in the US), observes a culture of deference among his Brazilian staff Flight attendants are happy to read the company manual, but few actually raise issues during meetings or try to improve processes “Innovation starts when people are able to speak their mind,” he says He is not the only investor to draw such conclusions But others would disagree with this assessment Many investors regard their Brazilian staff to be “flexible and adaptable”, quite probably because they have had to deal with a succession of economic crises that taught them how to succeed in the midst of instability, say investors “There is a tolerance for ambiguity that is much stronger in Brazil than in other countries,” says KornFerry’s Mr Averbach The Brazilian executive “has in his DNA the ability to change direction with greater ease than in any other region in the world” But research conducted with Insead business school suggests that Brazilian managers are less able when it comes to “creating the new and the different” Whichever view one takes, Brazil cannot deny its poor record of innovation “Everybody agrees that innovation is important but people not necessarily behave that way,” says Mr Wanick from DuPont Brazil accounts for some 3.5% of world GDP at purchasing power parity (PPP), but only 0.2% of world patents originate from this market By contrast, 28% of patents are registered in the US An Economist Intelligence Unit innovation model that measures countries according to both their readiness and success in innovation ranks Brazil 52nd out of 82 countries, and notes that the country is likely to slip further down the rankings in coming years More interestingly, the model shows that its ranking of the factors that contribute to innovation (for example, the number of science graduates, education levels, the business environment, R&D spending, broadband penetration, etc), although in itself low, is still higher than the measure for innovation successes (measured by the number of patents filed globally) This suggests that not only is Brazil insufficiently innovative compared with its peers, but that it is also inefficient with its resources, by failing to translate investments into practical innovation Technical skills of the workforce 46% Availability of scientists and engineers 41% Total spending on R&D in the country 33% Availability of university graduates 30% Spending on R&D by the private sector 28% Quality of IT and communications infrastructure 28% Spending on R&D by the public sector (government) 23% Broadband penetration 13% 10 20 30 40 50 60 70 80 90 100 Source: Economist Intelligence Unit Whether this is the result of a lack of inventiveness or systemic failures in the business environment is hard to gauge, but Brazil’s weedy performance comes through in the views and experiences of companies surveyed “Innovations that are developed locally are not frequent,” laments Mr Wanick Some 57% of surveyed executives say that they not have a dedicated R&D facility, or even plan to have one in the short term in Brazil, although the likes of IBM and General Electric have recently announced decisions to establish their own research centres in Brazil Over one half of respondents (51%) say that, at present, less than 10% of products and services sold by their companies have actually been developed in Brazil, and at least one quarter of respondents expect no progress over the three years Moreover, only 29% expect to develop half of their products and services in Brazil, and that figure rises to 38% in three years’ time Yet conditions for innovation on the shop-floor are more promising; when focusing more on the human factors, Brazilian-based companies are seen as well able to integrate the latest international technology into their operations, with almost one half (49%) of survey respondents describing this capacity as “very good” or “excellent”, and only 6% saying it is “poor” 19 What proportion of the products and services sold by your company in Brazil was developed  in Brazil? a) in the past three years (% of respondents) Greenfield thinking 51% 0-10% 21% 11-50% 13% 51-90% 16% 91-100% 10 20 30 40 50 60 70 80 90 100 Source: Economist Intelligence Unit b) in the next three years? (% of respondents) 26% 0-10% 36% 11-50% 23% 51-90% 10 20 30 40 50 60 70 80 90 100 Source: Economist Intelligence Unit  ase study  C DuPont: Middle class army DuPont has recently launched its version of ‘the people’s’ bullet-proof vehicle in Brazil based on a light and affordable armouring concept The new product, named Armura, offers protection against 97% of firearms in circulation in Brazil, according to DuPont, at a much reduced cost ($10,000 instead of $30,000 or more) The armour is also much lighter (less than 100 kg against more than 200 kg for regular armour) The project was developed entirely in Latin America, mostly in Brazil, says Eduardo Wanick, president of DuPont Latin America The concept is appealing to a growing middle-class population that lives in a state of constant insecurity, especially in urban centres (“40,000 murders a year is like a small war,” says Mr Wanick – not to mention carjackings and other forms of attack) In order to put its product on the market, DuPont provides complete prefab kits (its own products are called SentryGlas and Devlar) to authorised car dealers Five 20 One vital area of innovation where Brazil excels is in the development of green technologies Despite international criticism over Amazon deforestation (and worries over potential new oil wealth), Brazil boasts some impressive green credentials Electricity needs are largely met through hydro power, and the country has experimented successfully in biofuels such as sugarcane ethanol Local manufacturers and suppliers such as Magneti Marelli developed a “flex-fuel” engine in the 1990s, allowing cars to run on either petrol or ethanol, or a combination of the two Such models now account for more than 90% of new vehicles in the fast-growing automotive market (see Part one) Brazil-based companies are also involved in research on a second generation of biofuels (such as cellulose), although the performance of biodiesel has proved less convincing Local firms, such as Braskem, are also breaking new ground in green plastics (see case study below)  ase study C Braskem: A future in green plastics 15% 91-100% models are currently available, from General Motors, Toyota, Mitsubishi, Honda and Hyundai “The potential is huge,” says Mr Wanick, although he declines to provide hard numbers Brazil is the largest market in the region for armoured vehicles; but there is plenty more demand for Armura in the rest of Latin America and further afield Braskem, the petrochemical unit of Odebrecht, a major industrial conglomerate, hit headlines when it announced the development of so-called “green plastics” Brazil’s President Lula promoted the company’s technology on a visit to Europe, unveiling a prototype of the “green car of the future” which included Braskem’s innovative material The new sugarcane-derived polyethylene, which avoids the use of naphta, will be produced on an industrial scale by the beginning of 2011 The product will cost around 20% more than an equivalent non-green product, says the company, but the innovation is viewed as a breakthrough in the search for renewable alternatives to oil-derived plastics The plastic was developed from sugarcane ethanol by Braskem’s research and development centre in southern Brazil in partnership with Japan-based Toyota Tsusho In addition, Braskem is working with Novozymes, a Danish-based biotechnology company, in a research project to produce a sugarcane-derived polypropylene The company has capitalised on Brazil’s experience in ethanol, which is already widely used as biofuel in the car industry Braskem’s ethanol is supplied by ETH Bio-Energia, also a unit of Odebrecht The new R500m green plastics plant, which is being set up in Triunfo, southern Brazil, will have an annual capacity of 200,000 tonnes, according to Braskem Green plastic resins are expected to find an eager market among manufacturers of packaging, automotive, cosmetics and personal hygiene products Braskem has already secured contracts with Tetra Pak and the Japanese Shiseido cosmetics firm One quarter of its initial production will be exported to Asia Meanwhile, Natura, a leading Brazilian cosmetics company, is already advertising that it will use Braskem’s green plastics as part of its sustainability policy Braskem currently employs around 200 researchers, and has filed 250 patents in Brazil, Europe and the US Luiz de Mendonça, Braskem’s vice-president, says that 20% of the company’s sales come from products launched in the past three years Both its industrial sites in Triunfo and in Camaçari, near the north-eastern city of Salvador, host innovation centres (pilot plants and laboratories) Braskem also has a PVC research centre in São Paulo and partnerships with academic institutes and universities at home and abroad, such as with Gainesville’s University of Florida, the University of Massachusetts and the Dutch Polymer institutes Its investments so far suggest that the company 9% may well fulfil a long-stated aspiration to be a world leader in biopolymers Back to school One way to promote innovation is through business co-operation with universities and academic institutes The evidence to date seems reasonably positive Of survey respondents whose Brazil-based operations already work with local universities, 60% say the relationship has been  ase study  C SAP Labs: Software in Brazil SAP, a global software giant, launched a new programme in 2009 that involves universities in its innovation process from its Brazilian base, in São Leopoldo in southern Brazil It set up its research laboratory within the local Unisinos University, which recently launched new courses (IT and English, and renewable energy sources) as a result of SAP’s engagement Groups of between 10 to 20 selected students from various universities follow a two-year programme at SAP, which focused on topics relevant to Brazil’s future needs These include: EE e-health (such as electronic data management of health records to ease the exchange of information along the health chain, from local doctors to hospitals and chemists, as well as integration among hospitals); EE e-energy (efficient resource management); “positive” and 12% “very positive”, compared with less than one quarter (23%) who say that such co-operation “failed to live up with their expectations” or was “very unsuccessful” (5%) Brazilian-based companies would appear to get the rough end of the deal (or are perhaps too optimistic), as almost one third (32%) report that such co-operation “failed to live up to expectations” How would you characterise co-operation between your Brazilian operations and local universities/academic institutes? (% of respondents) 12% Very positive 60% Positive Failed to live up to expectations 23% 5% Very unsuccessful 10 20 30 40 50 60 70 80 90 100 Source: Economist Intelligence Unit Examples of success include the local subsidiary of General Motors which hosts a research and development centre that works closely with São Paulo University’s engineering school Vale, the mining company, has also invested time and energy to influence the curriculum of universities so they train engineers in mining, railway and port logistics EE infrastructure and mobility (Brazil has a series of challenges ahead of the 2014 football World Cup and the 2016 Summer Olympics in Rio de Janeiro); EE risk management and safety (sharing information among various agencies and victims of accidents and natural disasters); and EE supporting small and micro businesses through the development of dedicated software Local issues “will influence the software that we will be developing,” says Erwin Rezelman, president of SAP Labs The industrial standard may still come from the US or China, but “re-engineering may come out of Brazil,” he says Moreover, in some IT sectors where Brazil is most advanced, such as e-banking, “maybe the standard should come out of Brazil” Mr Rezelman says research modelling is due to start at the end of 2010 and the whole process is expected to take up to five years 21 III Brazilians abroad Making a name for themselves Brazil’s voice on the world stage is being heard more loudly and more often nowadays While relations with the US remain strong, Brazil is shifting focus to other Latin American countries, China and Africa It has raised its profile with more military spending (albeit from a miniscule base), a strategic defence agreement with France, following military procurement contracts, and diplomatic forays into the Middle East But it is Brazil’s appeal to foreign investors and the recent boldness of its own companies abroad that is giving substance to its global ambitions Most of the world’s 100 largest multinational companies are operating in the country: annual foreign direct investment (FDI) inflows grew from a mere $10bn in 1996 to peak at $45bn in 2008, before falling back to $26bn in 2009, pushing total FDI stock to $320bn, and making Brazil the second-largest emerging market recipient of FDI, after China While traditionally FDI has come from the US and Europe, especially Spain, new players from Mexico, Colombia and Chile, are showing interest too Perhaps more remarkable than the inrush of FDI, are the international acquisitions and investment being made by Brazilian multinationals – something that was not always encouraged by past governments The purchase by Vale of Inco in 2006, for example, sent outbound direct investment that year soaring to over $28bn (although it has subsequently fallen back substantially) Such ventures have been propelled in part by cheap financing from the state-owned development bank BNDES, which invested over $5bn in the past five years to help Brazilian companies expand abroad A relatively strong currency has also helped Foreign direct investment 2005a 2006a Foreign direct investment (US$ bn) 2007a 2008a 2009a 2010b 2011b 2012b 2013b 2014b Inward direct investment 15.1 18.8 34.6 45.1 25.9 30.0 35.0 40.0 42.0 45.0 Inward direct investment (% of GDP) 1.7 1.7 2.5 2.8 1.6 1.6 1.7 1.9 1.9 1.9 Inward direct investment (% of gross fixed investment) 10.7 10.5 14.5 14.7 9.9 8.5 8.9 9.5 9.0 8.8 Outward direct investment -2.5 -28.2 -7.1 -20.5 10.1 -6.0 -5.0 -5.5 -6.1 -6.7 Net foreign direct investment 12.6 -9.4 27.5 24.6 36.0 24.0 30.0 34.5 36.0 38.3 Stock of foreign direct investment 195.6 214.3 248.9 294.0 319.9 349.9 384.9 424.9 466.9 511.9 Stock of foreign direct investment per head (US$) 1,062 1,148 1,315 1,532 1,646 1,778 1,932 2,108 2,289 2,478 Stock of foreign direct investment (% of GDP) 22.2 19.7 18.2 17.9 20.3 18.2 19.0 20.3 21.2 22.1 Share of world inward 1.59 direct investment flows (%) 1.51 1.79 3.00 2.89 2.77 2.89 2.94 2.77 2.92 Share of world inward direct investment stock (%) 1.82c 1.69c 2.04c 2.08c 2.12 2.18 2.23 2.27 2.32 Source: Economist Intelligence Unit 22 2.04 A focus on “South-South” relations, as part of a general policy of trade diversification, is perhaps one of the biggest changes in Brazilian trade policy under President Lula China has become its largest export and import partner, and the share of trade with the rest of Latin America, other Asian countries, the Middle East and Africa has also increased But competing effectively abroad also requires wider brand recognition An elite group of Brazil’s international players have already achieved this recognition As well as Vale, big names range from the fashionable sandals of Havaianas to aircrafts of Embraer State-owned oil group, Petrobras, and meat packers JBS and Marfrig have launched aggressive acquisitions in the US According to Fundação Dom Cabral business school, JBS is now the most international Brazilian company, with four-fifths of its sales abroad Other, lesser-known groups are also making headway, such as Gerdau, a steel maker, and Natura, a cosmetics manufacturer The world’s banking sector will soon hear more of state-owned Banco Brasil and Itaú Unibanco, both of which are planning significant international expansion A typical journey of corporate expansion by new companies is being taken by Totus, a software company that targets small and medium-sized businesses Having emerged stronger from fierce consolidation in its domestic market, where it had built a strong brand, it is now looking to expand elsewhere in Latin America, and will go further afield in time The global financial crisis may have delayed some foreign ventures, but strong domestic growth, healthy profits, and lower assets prices abroad mean that foreign markets are beckoning The development of Brazil’s agriculture sector in particular has provided fertile ground for two-way international expansion While the world’s leading food groups are planting roots in the country in anticipation of 40% growth in the sector over the coming decade, according to a joint UN and OECD report, innovations in agronomy have been a passport for Brazilians to enter new markets, particularly in Africa “What has been achieved in the Brazilian cerrado is applicable to the African savannah,” says Eliseu Alves, a former president of Embrapa, a state agronomy agency The solution to global food security is “creating technology and investing in research”, he says Brazilian scientists from the state of Minas Gerais are also visiting Angola and Mozambique, two Portuguese-speaking countries, to support technology development Embrapa opened a regional base in Ghana in 2008, and BNDES is financing Brazil-based companies to export tractors and other machinery to Africa Brand new But beyond the charmed circle and the dynamic newcomers, Brazilian brands still lack the international draw of their Western counterparts, though its sizeable domestic market mitigates some of the urgency of overseas expansion This is reflected in our survey, in which 84% of respondents say that Brazilian brand names are either not well recognised or not highly regarded abroad Only 3% of US-based respondents think that Brazilian brands are both recognised and highly regarded However, the perception of Brazilian brands is different among China-based executives, with almost one quarter of those respondents (24%) declaring a warm attitude to Brazilian products This might be why Brazilian companies feel they have more of an advantage (or at least less of a disadvantage) when operating in other emerging markets such as China And executives are clearly alert to this trend China is expected to become a “primary trading partner with Brazil in the next three years”, according to 63% of respondents, compared with 51% who point to the US and 49% to Latin America Similarly, Brazilian companies see opportunities for acquisitions in other emerging markets, with 66% pointing to interest in firms elsewhere on the continent, compared with 43% focusing on US companies, and 31% looking to China 23 China-Brazil trade: A raw deal The spectacular growth of Sino-Brazilian trade in recent years is one of the clearest indicators of Brazil’s success in tapping into the dynamisim of emerging Asia It is not hard to see why China’s insatiable demand for raw materials is matched by Brazil’s willingness and ability to supply them Commodities dominate sales to China, of which iron ore and soya beans comprised two thirds of the total As the global commodities boom in the latter part of the decade sent prices of Brazil’s main export products rocketing, bilateral trade with China has leapt by more than 50% since 2007, topping $36bn in both 2008 and 2009, and protecting Brazil’s trade from the worst of the global financial turmoil China became Brazil’s main trading partner, overtaking the US (imports of which from Brazil plummeted by 43% in 2009) and Argentina All the while, imports of Chinese manufactured goods declined by 20%, resulting in a bilateral trade surplus for Brazil of $4.3bn So what’s not to like about the relationship, from Brazil’s perspective? For some Brazilian manufacturers with global ambitions, the story is about more than the commodity trade – and for them it is not always a happy one Brazil has found it hard to export value-added products to China Embraer, an aircraft manufacturer, set up its joint venture with a Chinese state-owned company seven years ago – a requirement for accessing the market – opening a plant in Harbin, in China’s North East So far, 70 aircraft have been produced for Chinese clients and 30 more are to be delivered shortly (including 25 models imported from Brazil) The Chinese authorities, however, announced that the Chinese aircraft industry would start manufacturing its own regional jets without the help of Embraer It was a difficult situation for the Brazilian firm, which argues that its Chinese plant only has enough work to last until the start of 2011 It has asked the authorities for a licence to manufacture its larger Embraer 190 locally, and announced that it was setting up a maintenance centre in Beijing “The creation of Embraer China Technical Services shows our long-term commitment and confidence in the growing Chinese aviation market,” says Guan Dongyuan, president of Embraer’s Chinese subsidiary Nevertheless, the future of Embraer’s manufacturing activities in China may now depend on political and diplomatic arrangements to smooth the way for higher value investments The other side of the coin While Embraer ponders its future in China, the latter has unveiled some of its own ambitious plans for Brazil: EE China Petroleum Corporation (Sinopec) has signalled its intention to grant new loans to Petrobras, the Brazilian oil company, to which it lent $10bn last year in return for a guaranteed oil supply Sinopec may also buy stakes in two Petrobras oilfields in northern Brazil and a refinery in Rio de Janeiro (Comperj) Co-operation in transport and fertilisers are also being considered EE Wuhan Iron and Steel Corporation (Wisco) intends to set up a $5bn steel plant near Rio de Janeiro in the new Açu port, currently being built by EBX, a holding company owned by Eike Batista, a local billionaire The new port and plant are scheduled to open by 2013 Wisco will take a 70% stake in the new plant, which will have annual capacity of 5m tonnes of steel The Chinese government says it will eventually import steel (rather than iron ore) from Brazil EE Wisco invested $354m in MMX, a Rio de Janeiro mining group owned by Mr Batista, earlier this year Two other mines have also been sold by Votorantim and Itaminas to Chinese companies EE The Chinese Development Bank intends to grant a $1bn loan to Oi, the Brazilian telecommunications company, to buy Chinese equipment 24 Which markets will become the primary trading partners with Brazil in the next three years? Where you envision an increase in acquisitions by Brazilian companies in the next three years? (% of respondents) (% of respondents) Other Latin America Other Latin America 49% The US The US 51% Western Europe 10% 63% 12% Middle-East 11% 10 India 15% Rest of Asia 16% 9% 21% Africa 1% Other, please specify 31% Middle-East 12% Africa 14% China 25% Rest of Asia 23% Central/Eastern Europe China India 43% Western Europe 22% Central/Eastern Europe 66% 3% Other, please specify 20 Source: Economist Intelligence Unit 30 40 50 60 70 80 90 100 10 20 30 40 50 60 70 80 90 100 Source: Economist Intelligence Unit That Brazilian companies are eyeing the Chinese market is, in one sense, only to be expected Companies go where there is growth But on another level, this represents a major shift in the balance of economic power Emerging market companies, products, managers and innovations may find more in common with one another than merely adopting the business norms and ideas that emanate from the US, Europe or Japan Of course other emerging markets not always make perfect allies: companies like Embraer have experienced the classic dilemma of Western investors in China, forced into a local joint venture that puts at risk their intellectual property Yet, as globalisation resumes its onward march following the upheavals of the economic downturn, a new era of global relationships may be characterised more by a battle for scarce resources, state-led investment strategies, and a flair for dealing in opaque business environments, than through the market-led orthodoxies of the past And these trends would appear to play to Brazil’s own strengths and traditions 25 Conclusion: The beginning of the future Brazil today seems better placed than ever to dispose of its frustrating, if clichéd, moniker “the country of the future” A decade of macroeconomic prudence has given the economy a sturdy platform for investment, growth and foreign expansion, and businesses have factored this change into their long-term strategies Importantly, executives are sanguine about the 2010 presidential election and the end of the Lula era, assuming, as they do, that a decade of macroeconomic stability will simply be maintained But Brazil is not quite there yet In some respects, enlightened economic policy is the easy part of transition As this report has shown, a poor education system will leave the country short of skills for many years to come; and filling potholed roads, building rail links and laying broadband cable can take a decade or more It also takes 26 a long time for companies to build up a brand that is sufficiently well known to open foreign doors Sales to China may be booming, but Brazil has yet to move beyond the relatively easy task of supplying commodities to a customer that is desperate to buy Nevertheless, a virtuous circle is turning Sound policies and a growing domestic market have attracted foreign money, know-how, new skills and technologies, and unleashed the considerable pent-up energy of local business both at home and abroad This, in turn, will help to fund investment into education and infrastructure, which will attract more investment and sustainable growth That, at least, is the theory, and on Brazil’s current trajectory there is no reason to think it cannot be achieved It will take many years, but if recent successes are any guide, the prize will be worth the effort 27 28 [...]... others would disagree with this assessment Many investors regard their Brazilian staff to be “flexible and adaptable”, quite probably because they have had to deal with a succession of economic crises that taught them how to succeed in the midst of instability, say investors “There is a tolerance for ambiguity that is much stronger in Brazil than in other countries,” says KornFerry’s Mr Averbach The. .. than through the market-led orthodoxies of the past And these trends would appear to play to Brazil s own strengths and traditions 25 Conclusion: The beginning of the future Brazil today seems better placed than ever to dispose of its frustrating, if clichéd, moniker the country of the future” A decade of macroeconomic prudence has given the economy a sturdy platform for investment, growth and foreign... management and technical staff “There is a big disconnect between high school and university,” he notes Many of the private colleges they go on to are merely “diploma mills” Mr Silveira has seen the problem first hand, and has even had to alter the syllabus at IBMEC to get weaker state school candidates up to scratch Positive discrimination can help, but it tends to lower the overall quality of graduates, and. .. Flex-fuel cars can run both on petrol and sugarcane ethanol, allowing drivers to choose the cheapest option These developments have gone hand in hand with a local car industry that has held up well in the global crisis, thanks in large part to tax breaks and a good supply of credit, helping to make Brazil the world s the sixth-largest manufacturer and fourth-largest and fastest-growing market for light... highly creative, Brazilian staff are often seen as lacking initiative According to Sergio Averbach, president of the South America division of Korn Ferry, an executive search company, the success of Brazilian managers internationally is more “due to their outstanding influence and leadership skills, than to the ability to create the new and the different.” With rapid economic expansion and rising foreign... academic research rather than the needs of companies But while dealing with some of the most motivated and employable talent he sees much deeper problems in Brazil s education system - namely the failure of secondary schools to prepare students for the world of work The elite are already well catered for, he believes, having attended expensive secondary schools where teaching is rigorous and includes a... Cargill and Bunge, long present in Brazil, have linked a productive agricultural base into a sophisticated food and drinks industry Unilever and Coca Cola, for example, have seen solid growth in Brazil and driven much of the sector’s consolidation Local groups in processed meat products, such as JBS S.A and Marfrig, have also prospered, while others, such as Sadia and Perdigão, have merged after the former... students hands-on experience through internships and work-study programmes Creaming off While the mass of under-educated Brazilians languish, the story at the top of the pyramid is of intensifying competition for managerial skills Much of the quality talent that enters the workforce comes from several well-respected universities and business schools in Brazil, many of which are ranked as the best in... standard may still come from the US or China, but “re-engineering may come out of Brazil, ” he says Moreover, in some IT sectors where Brazil is most advanced, such as e-banking, “maybe the standard should come out of Brazil Mr Rezelman says research modelling is due to start at the end of 2010 and the whole process is expected to take up to five years 21 III Brazilians abroad Making a name for themselves... technology and investing in research”, he says Brazilian scientists from the state of Minas Gerais are also visiting Angola and Mozambique, two Portuguese-speaking countries, to support technology development Embrapa opened a regional base in Ghana in 2008, and BNDES is financing Brazil- based companies to export tractors and other machinery to Africa Brand new But beyond the charmed circle and the dynamic ... About this report Brazil unbound: How investors see Brazil and Brazil sees the world is an HSBC report produced in co-operation with the Economist Intelligence Unit The report draws on in-depth... and BNDES is financing Brazil- based companies to export tractors and other machinery to Africa Brand new But beyond the charmed circle and the dynamic newcomers, Brazilian brands still lack the. .. “due to their outstanding influence and leadership skills, than to the ability to create the new and the different.” With rapid economic expansion and rising foreign investment, demand for the right