The Boyden Report Brazil

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Walking on the big stage: The ‘New Brazil’ The Boyden Report: Brazil

Transcript of The Boyden Report Brazil

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Walking on the big stage: The ‘New Brazil’

The Boyden Report: Brazil

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At Boyden, we work closely with global companies to craft their executive strategy. But that strategy must be continuously re-evaluated. What works 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 countries 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.

Welcome to the latest edition of The Boyden Report, a series designed to provide a deeper understanding of the global market for talent.

The Boyden Report

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Part 1: Brazil’s time has come

Introduction“Brazil is a ‘serious country’”Global growth prospects in BrazilBarriers 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 BRICEconomic diversityA robust financial systemTransparency and stability support a greater role in the G20A well-managed economyA battle-hardened executive class

Part 3: New Brazil’s opportunity drivers

The consumer marketBrazil’s emergence as an energy superpowerConstruction and infrastructure

Part 4: The Boyden View: Hiring in Brazil

Understanding ‘O jeitinho brasileiro’The Boyden View on hiring in Brazil

Appendix

Contents

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Participants in our research include the following business leaders, whom we sincerely thank for generously sharing their time and personal perspectives:

• LuizCalil,President of Caterpillar Brazil – winner of ‘Best Company to work for’ in Brazil, in the 2009 Great Place to Work Institute rankings• FranciscoItzaina, CBE, President – South America of Rolls–Royce International• GaetanoCrupi, 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• MarkPitt, 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• KlausPavel, President of Aachen-Laurensberger Rennverein (Chio), largest horse show in the world; Chairman 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 • ChrisWall, Business Specialist for Brazil, UK Trade and Investment• RichardTaylor, 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.

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 never before witnessed such optimism here as I do today”.

Will Penney, a long-term Partner in the country observes 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”.

A significant shift in Brazil’s global stature is underway. Yet, remarkably little has been published about the country since the financial crisis threw Brazil’s considerable strengths into relief. Here, we present the views and insights of senior business executives – the majority of whom lead Brazilian subsidiaries of multinationals – to hear why they believe Brazil is now walking on the big stage.

Introduction

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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 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 positions 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, events over the last two to three years have reset the conventional view of ‘success’, exposing cracks in the Western world’s financial systems and leaving governments to ponder vast debt levels. In retrospect, 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 in valuable 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.

Didyouknow?

1. Brazil had the world’s best-performing major currencyagainsttheUSdollarin2009,witha36 percentadvance,accordingtoBloomberg

2.Brazilwashometotheworld’slargestIPOin2009. SantanderBrasil’sIPOvaluedthebank’sBrazilian subsidiaryatmorethanthewholeofDeutscheBank worldwide

3. São Paulo is among the world’s top five futures and optionsmarkets,byvolumetraded

4. Brazil was home to the world’s fastest-growing car marketin2007-2009

5. Brazil was a major source of stability for multinationals in the global recession that started in2007.RevenuesgeneratedinBrazilwereusedby a number of multinationals to ‘shore up the balance sheet‘

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Part 1: Brazil’s time has come

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 the 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, by 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 multinationals in Brazil are all Brazilian.

GlobalgrowthprospectsinBrazil

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 Gartano 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 Paolo

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The 50 largest companies in Brazil (by sales figures for 2008)

Exhibit 1

Source: Exame, Brazil’s Business & Economy Magazine

1 Petrobras Rio de Janeiro, RJ Petroleum and Energy 38,441

2 BR Distribuidora Rio de Janeiro, RJ Wholesale (fuel) 10,567

3 Telemar Rio de Janeiro, RJ Telecommunications 6,311

4 Telefónica São Paulo, SP Telecommunications 5,699 Spain

5 Ambev São Paulo, SP Beer and drinks 5,344

6 Ipiranga Rio de Janeiro, RJ Wholesale (Fuel) 5,060

7 Volkswagen São Bernardo, SP Automobiles 4,791 Germany

8 Shell Rio de Janeiro, RJ Wholesale (Fuel) 4,382 UK/Holland

9 General Motors São Caetano, SP Automobiles 4,131 US

10 Brasil Telecom Brasilia, DF Telecommunications 3,913

11 Bunge Food Gaspar, SC Food and Drink 3,866 Argentina

12 Pão de Açucar São Paulo, SP Retailer 3,858

13 Vale do Rio Doce Rio de Janeiro, RJ Mining 3,628

14 Carrefour São Paulo, SP Retailer 3,628 France

15 Brasken Camaçari, BA Petrochemical 3,345

16 Esso Rio de Janeiro, RJ Wholesale (Fuel) 3,192 US

17 Texaco Rio de Janeiro, RJ Wholesale (Fuel) 3,175 US

18 Embratel Rio de Janeiro, RJ Telecommunications 3,167 Mexico

19 Cargill São Paulo, SP Food and Drink 3,163 US

20 Eletropaulo São Paulo, SP Utilities (Electricity) 3,056

21 Nestle São Paulo, SP Food and Drink 2,916 Switzerland

22 FIAT Betim, MG Automobiles 2,813 Italy

23 CEMIG Belo Horizonte Utilities (Electricity) 2,649

24 C.S.N. Rio de Janeiro, RJ Iron and Steel 2,573

25 VARIG Porto Alegre, RS Transportation (Air Carrier) 2,375

26 Unilever São Paulo, SP Pharmacy and Hygiene 2,319 UK/Holland

27 Souza Cruz Rio de Janeiro, RJ Tobacco 2,284 UK

28 Embraer São José Campos, SP Airplanes 2,243

29 Gerdau Porto Alegre, RS Iron and Steel 2,206

30 Usiminas Belo Horizonte, MG Iron and Steel 2,200 Brazil/Japan

31 Itaipu Brasilia, DF Utilities (Electricity) 2,184 Brazil/Paraguay

32 REFAP Canoas, RS Petrochemical 2,131

33 Casas Bahia São Caetano do Sul, SP Retailer 2,112

34 AGIP São Paulo, SP Utilities 2,108 Italy

35 Correios Brasília, DF Postal Service 2,074

36 DaimlerChrysler São Bernardo, SP Automobiles 2,022 Germany

37 Sadia Concórdia, SC Food 1,966

38 Light Rio de Janeiro, RJ Utilities (Electricity) 1,891 France

39 Copesul Triunfo, RS Petrochemical 1,891

40 Ford São Bernardo, SP Automobiles 1,890 US

41 Vivo São Paulo, SP Telecommunications 1,870 Portugal/Spain

42 Furnas Rio de Janeiro, RJ Utilities (Electricity) 1,757

43 Bunge Fertilizers São Paulo, SP Fertilizers 1,725 Bermuda

44 CPFL Campinas, SP Utilities (Electricity) 1,576

45 Cosipa São Paulo, SP Iron and Steel 1,573

46 Nokia Manaus, AM Electronics 1,550 Finland

47 Sabesp São Paulo, SP Utilities (Water & Sewage) 1,515

48 Perdigão São Paulo, SP Food 1,483

49 Basf São Bernardo, SP Chemicals 1,461 Germany

50 Copersucar São Paulo, SP Wholesale (Sugar & Alcohol) 1,448

Company City/State BusinessField Sales Country

22 out of 50 are foreign multinationals

5 are Brazilian challengers

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Company Brief profile

>CamargoCorrêaGroup One of the largest conglomerates in Brazil, with activity in construction and engineering, footwear, textiles, infrastructure, building materials and real estate; 2007 revenues of $6.4 billion; a significant presence across Latin America, and Spain. Camargo Corrêa doubled in size from 2005-2007, and its international revenues are estimated to be increasing even faster.

> Coteminas Companhia de Tecidos Norte de Minas (COTEMINAS) and its subsidiaries operate as a textile company in Brazil. It manufactures cotton thread; finished and semi-finished fabrics for home use; bed linens; tablecloths; bath towels; and wearing apparel, including T-shirts, socks, and underwear.

> Embraer One of the largest aircraft manufacturers in the world, focusing on specific high growth segments in commercial, defence, and executive aviation. It has achieved a top position worldwide in regional jets. Embraer was Brazil’s largest exporter from 1999 to 2001 and the second largest in 2002, 2003 and 2004. By December 2009, it employed more than 16,000 people, over 90% of whom are based in Brazil.

>Gerdau Leading company in the production of long steels in the Americas and one of the major suppliers of specialty long steel in the world. Now has an industrial presence in 14 countries: Argentina, Brazil, Canada, Chile, Colombia, the Dominican Republic, Guatemala, India, Mexico, Peru, Spain, the US, Uruguay, and Venezuela.

>JBS-Friboi JBS is the largest the largest beef-sector company in the world, producing chilled and fresh beef, processed beef, as well as fresh and chilled pork. The company is the world leader in terms of slaughtering capacity – 51.4 thousand head/day. JBS has a presence in 100% of the world’s consumer markets, thanks to its production structure, with plants in four of the main beef-producing countries – Brazil, Argentina, the US, and Australia – and to its leadership in exports, which reach 110 countries.

>Marcopolo Among the top manufacturers of bus bodies and components. Marcopolo manufactures the bodies for a whole range of coaches, including microbus, intercity, and touring coach. Marcopolo produces over half of the bus bodies made in Brazil and exports its coaches to more than 60 countries.

> Natura One of the leading Brazilian manufacturers and marketers of skin care, solar filters, cosmetics, perfume, and hair care products.

>OdebrechtGroup Owns a global construction contracting company, Construtora Norberto Odebrecht, that provides engineering and constuction services in most of South America, as well as Central America, the US, Angola, Portugal, and the Middle East. The group also owns petrochemical company Braskem, exporting petrochemical products from Brazil to over 50 nations and every continent. Odebrecht invests in transportation infrastructure in Portugal, and mining and oil ventures in Africa. It also provides oil production services in the North Sea.

> Perdigão Now registered under the corporate name, Brazil Foods, Perdigão is one of the biggest foodstuffs companies in Latin America. It is the third largest company in the butchery of poultry in Latin America, and is amongst the ten largest pig butchers in the world, whilst it is also one of the leading Brazilian companies in the area of milk collection. It is a company that operates on an international scale with its products reaching more than 110 countries. It is currently undergoing a merger process with Sadia.

> Petrobras Energy company in oil and oil byproduct exploration, production, refining, marketing, and transportation, both in Brazil and abroad. It has more than 100 production platforms, 16 refineries, 30,000 kilometres of ducts and more than 6,000 gas stations.

> Sadia Sadia is currently undergoing a merger process with Perdigão, one of the world’s leading producers of chilled and frozen foods. Established in Brazil in 1944, today Sadia is the market leader in all its segments. It is also Brazil’s main exporter of meat-based products. Sadia’s brand name has been voted the most important and valuable brand among all Brazil’s food brands.

> Vale Vale is a multinational mining corporation and one of the largest logistics operators in Brazil. In addition to being the second-largest mining company in the world, Vale is also the largest producer of iron ore, pellets, and second largest of nickel in the world. Vale also produces manganese, ferroalloys, copper, bauxite, potash, kaolin, alumina and aluminum. In the electric energy sector, the company participates in consortia and currently operates nine hydroelectric plants.

>VotorantimGroup Among the top five producers of zinc globally, Votorantim Group operates in sectors demanding intensive capital and a large scale production, such as cement, mining and metallurgy (aluminum, zinc and nickel), steel, pulp and paper, concentrated orange juice, and self-generation of electricity. It also operates in the financial sector, through Votorantim Finance, and in new business it invests in biotechnology, information technology, and specialty chemical projects and companies.

>WEG One of the largest manufacturers of electric motors in Latin America.

BrazilianmembersofBostonConsultingGroup’s100GlobalChallengers2009

Exhibit 2

Source: Boston Consulting Group; websites of cited companies.

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Despite the global financial crisis, Brazil received US$ 12.6 billion in foreign direct investment (FDI) in the first half of 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 a business newspaper saying that every single real of profit from Brazil will stay in Brazil because of how the market is performing. It’s just a matter of keeping up with these announcements in major newspapers”.

Barrierstogrowth–realorperceived?

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 ease of setting up and running a business there – Brazil is ranked 129th out of 183 countries. 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 for access to finance, credit is very expensive and only the government will lend for long periods, 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 when 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”.

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 and economies as compared with the relative strengths of countries such as 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 time 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 Paolo

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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 countries. As Richard Taylor, CEO of Taylorenergies Business Development says “The G20 is now the main 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 politicians around the world around 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.

“Europe has tended to sit in judgment on Latin America in the past. Brazilians are very aware of the irony of that now”.

Chris Wall, Business Specialist for Brazil, to UK Trade and Investment.

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Lumped 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 countries such as Hungary, Poland, Mexico, South Africa, and Taiwan its 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 in 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 now, I wouldn’t say ‘mature’, but it has embarked upon maturity in terms of its democracy and the 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 markets are large, stable, and relatively mature. President Lula has asserted, “No country in the world has the fiscal soundness that Brazil has”.

Part 2: Avoiding sand: New Brazil’s solid foundations

Foundationsofrock,notBRIC “Brazil is at a different level of development, on the development curve, than the other BRIC countries,” saysFranciscoItzaina,President–SouthAmericaofRolls-RoyceInternational.

TheFTSEGroupdistinguishesBrazilfromRussia,IndiaandChina on the basis of national income and the development ofmarketinfrastructure.ItclassesBrazilasanAdvancedEmergingMarket,alongwithcountriessuchasPoland,Mexico,andSouthAfrica,whilstrelegatingRussia,IndiaandChinatoSecondaryEmergingMarkets,alongwithPakistan,Indonesia,Columbia,andMorocco.

TheAdvancedEmergingMarketsare:•Brazil•Hungary•Mexico•Poland•SouthAfrica•Taiwan

TheSecondaryEmergingMarketsare:•Argentina•Chile•China•Columbia•CzechRepublic•Egypt•India•Indonesia•Malaysia•Morocco•Pakistan•Peru•Philippines•Russia•Thailand•Turkey

Brazil as an ‘Advanced Emerging Economy’aheadoftheRICs

Exhibit 3

Source: FTSE Global Equity Index Series Country Classification

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Part 2: Avoiding sand: New Brazil’s solid foundations

Economic diversity

“There really is a high degree of economic diversity. And I think that is really one of the strengths during a crisis”, says Richard Taylor.

Perhaps the most significant advantage Brazil has over its emerging market ‘competitors’ is the 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 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 aluminium 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 BusinessTwo 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 theworld’sbiggestmanufacturerofmid-rangepassengerjets.Some96percentofthecompany’srevenuenowcomesfromexportstocommercialairlinesinChina,India,Poland,BritainandtheUS.

Butitisnottheonlysuccessstoryinaviation.RichardTaylorcitestheamazinggrowthstoryofAzul,thelowcostairline,asagoodexampleof“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 byaBrazilian-bornUScitizen.ByJune2009,sixmonthsafterbeginningoperations,AzulhadthethirdlargestmarketshareoftheBraziliandomesticairlinemarket,afterTAMandGolAirlines.

Economic activity and diversity across Brazil

Exhibit 4

Source: University of Texas, Austin, USA

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The economy is also driven by agriculture and forestry, manufacturing, chemicals and a strong services industry, notably banking and insurance.

The 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 shipyards”.

Brazil’s agribusiness has enormous potential for expansion. According to Agriculture Ministry estimates, aside from Amazonian forest reserves, Brazil has 388 million hectares of quality agricultural land.

Spotlight on the Agribusiness

Inthepastdecade,Brazilhasstrengtheneditsleadasoneoftheworld’sagriculturalpowerhouses,aidedbymarketliberalisation,amorecompetitivelocalcurrency,highergovernmentfinancing,andsustained productivity advances.

• Over90percentofBrazil’spoultryexportsare concentrated in just 10 companies that have invested heavily in what are now some of the most modern production facilities in the world • Brazilisthelargestbeefexporterandsecond- largestproducerofbeefintheworld.Itisalso home to the world’s largest commercial cattle herd – totalling roughly 290 million head • Brazilhasbeentheworld’slargestcoffee producer and exporter since the mid-nineteenth century and now accounts for about 30 percent of global exports • Brazilproducesover50percentoftheworld’s orange juice and Brazilian producers control about 80 percent of the international frozen concentratedorangejuicemarket.Brazilisalso an important producer and exporter of many otherfoods,includingpork,tropicalfruits,corn, cotton,forestryproducts,andtobacco

• SoybeansareBrazil’sfastest-growingshipments, and Brazil is set to challenge the US’s position as the world’s largest exporter in the next decade • Brazilistheworld’sleadingexporterofchickens, sugar,coffee,beef,andorangejuice • Asmuchas40percentoftheworld’schickens comefromBrazil,andthisfigureisexpectedto risetoa48percentmarketshareby2018, according to US Department of Agriculture estimates

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 others puts it in a very strong position, particularly in an era when energy and food security are widespread concerns. For Francisco Itzaina, “Food production is one of the elements that will lead the internal Brazilian economy in the future”.

Globalsoybeanexports

Million metric tons

Other South America

Brazil

Argentina

United States

100

80

60

40

1990 1995 2000 2005 2010 2015 2019

20

0

Other

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A robust financial system

“During the entire world economic crisis – and this is a very strong signal – during the entire crisis there was not one single financial institution that went bankrupt in Brazil. Not one”, says Gaetano Crupi.

Brazil’s financial services 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.

Transparency and stability support agreaterroleintheG20

Brazil’s banking system is 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 perspective 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 funds 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 a 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 elements of regulation have helped stabilise the system. A key reason for the sector’s resilience is a high capitalization requirement – the minimum capital adequacy requirement in Brazil is 11%, compared with 8% under the Basel regulations 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 investors, 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.

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 executive 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 managers, 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

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The Boyden View: BrazilianFinancialServicestalent

“The Brazilian Financial Service market is strong, and largely ignored the financial crisis that disturbed the developed world. This market is dominated by large national banks that already hold positions amongst the largest international banks. Major international banks are also present in Brazil and their positive performance has, in fact, helped improve 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 investors 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

• Brazilianbanks–bothprivateandpublic–rankamongthelargestintheregion.Forexample,ItauUnibancois LatinAmerica’slargestbank,theninthlargestbankintheAmericas,andthe12thlargestbankintheworld.At theendofMarch2009,Brazil’sbankingsystemwaslargerintermsofmarketcapitalizationthantheUK’sand that of every other EU member country• TheBrazilianforeignexchangemarket–inbothspotandderivativestrading–islargeandliquid,whichmakes theRealoneofthemosttradedemergingmarketcurrencies• Brazilianinvestmentfunds–notably,thecountry’spensionfunds–aresignificantplayersintheasset managementindustry,withnearlyR$1.2trillion(US$515.6billion)undermanagement,orabout40percentof Brazil’sGDP• Brazil’spensionfundindustrywastheeighthlargestintheworldattheendof2008• SãoPaulo’sfuturesandoptionsmarketisoneofthefivelargestintheworldbyvolumetraded• TheBM&FBOVESPAisLatinAmerica’sleadingstockexchangeandthesecondlargestintheAmericasafterthe NYSE.Itoffersabroadrangeoffinancialproductsfortradingequityandcommodity-basedderivatives

Source: Boston Consulting Group, October 2009

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 services sector. Gaetano Crupi sees a number of specific opportunities arising: “Brazil will retain a very strong financial services industry. Commercial and investment banks are strengthening, and I think associated with that, solid engineering and infrastructure will be needed ... It is likely that mortgages are going to regain some buoyancy and I believe that European business leaders are looking at Brazil more closely than they have ever before”.

Spotlight on the financial ecosystem in Brazil

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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 that common sense and good brains are more important than political leaning, when it comes to running the economy. When President Lula took over from Cardoso in 2002, he did not change the economic team.

As Gaetano Crupi puts 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 and 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-five 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 multinationals 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.

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There are three major factors attracting those looking to Brazil for future growth: first, the size of theconsumer 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”.

Theconsumermarket

“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 at 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 condition that their children attend school and are vaccinated. Still poor by global standards, 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 the 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.

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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 reforms 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 Porsche 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 years, Louis Vuitton’s global profits have peaked in São Paulo.

Overall, the consumer market from 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.

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Exhibit 5: A strong consumer market

Exhibit6:

Part 3: Avoiding sand: New Brazil’s solid foundations

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 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 layer 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 Exhibit6.

Whilst the government have 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

Brazil’s potential position in global oil production

80

2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

70

60

50

40

30

20

10

0

IncomepercapitaexpectedtocontinuetoriseEMconsumptionshouldbestrongin2010

EM

Bra

zil

Wo

rld

Ger

aman

y

Fran

ce

Fran

ce

Ad

v. E

con

Ital

y

Mex

ico

UK

Sp

ain

12

10

8

6

4

2

0

-2

-4

Average growth 2009 – 2010 (%) 000s USD

Source: Goldman Sachs (Exhibit shows adapted charts)

250

200

150

100

50

0

Sau

di

Iran

Iraq

Ku

wai

t

UA

E

Ven

ezu

ela

Ru

ssia

Lib

ya

Nig

eria

Kaz

akh

stan US

Ch

ina

Qat

ar

Mex

ico

Alg

eria

An

go

la

No

rway

Bra

zil

Bra

zil

Source: Credit Suisse and FIESP

US

A

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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.

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 percent 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

Spotlight on opportunities in oil for multinationals: Wellstream

Therearemid-sizedmultinationalswhichhavealreadytakenadvantageoftheopportunitiespresentedbyPetrobras’soildiscoveriesintheSantosBasin.Wellstreamisonesuchexample.WellstreamisaflexiblepipelinemanufacturerthatcametoBrazilin2003.Itbecamethefirstcompanytoqualifyproductsforoperationin2,000metreswaterdepthfollowingmanyyearsofworkintechnicalcooperation with Petrobras.

WellstreamisbasedinNewcastleintheUK,andnowhaveamanufacturingfacilityinNiteroi,Braziltotakeadvantageofgrowingmarketdemandintheregion.RichardTaylorsays,“Now the Brazil operations are I think the most profitable and biggest operations that they have in their portfolio”.

TheBoydenView:opportunitiesforsmall,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 firms 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

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home-grown sugar cane, not on food grains as in many other countries.

Following the oil shocks 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 Exhibit7.

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”.

Gaetano Crupi notes, “Brazil has more patent protection filings 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 is getting cleaner

and cheaper. Definitely Brazil will become a leader in that area”.

Brazilian innovation has enabled flex-fuel technology to become workable and affordable. The Brazilian subsidiaries of Bosch Magneti Marelli and Delphi Automotive Systems have been instrumental in 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 by Honda in March 2009.

There are big opportunities for growth and investment in this area.

George Soros invested $800 million in ethanol distilleries through a local subsidiary, Adecoagro; the Cargill Group bought 63 percent of Cevasa, the largest ethanol plant in Brazil; and the US’s Global Foods will invest US$1 billion to 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.

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Exhibit7:Electricity and ethanol production

TheBoydenView:Localexecutiveswithexpertiseat 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 client wants 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 first, 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.

Electricity generationSource (Kw hours, bn)

Brazil’s ethanol production*Barrels per day (000)

Globalethanolproduction% (2006)

400400

Brazil42%

US46%

EU 4%

Other 8%

Total = 40bn litresHydroelectric Nuclear Other renewables Conventional thermal

350

300

300

200

100

1995 1997 200098 02 04 06 0797 99 03 20052001

0

250

200

150

Source: EIA/Financial Times Source: EIA/Financial Times

*Indicates small volume of biodiesel

Source: Brazil Institute

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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. Not only is there to be huge 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 $300 billion for the next four years and a further $200 billion for investments post-2010.

In the rail sector, for example, the Brazilian Government have pledged in the region of $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 of 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 particularly 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 in the 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, Production, 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.

Globalethanolproduction% (2006)

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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 ItzainaPresident – 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 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 descended 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, Chairman 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 towards 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 Itzaina’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 to 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.

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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”.

2Investinhome-growntalent,notexpatriates

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 Pitt 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 Fundação 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 Murray 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 Brazilian Reais 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, “Packages 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 over 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 this ambition to get a foothold to work for either one of these global companies, or for a Brazilian company that is competing with them”.

5Useapersonalapproach,andconcentrateonrelationship-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.

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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 up 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 takes 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”.

6Rigourisparamount:don’tbeseducedbythetactile 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 product, 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”.

7Thewarmthmustextendtothefactoryfloor

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”.

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This is clearly an approach that works; Caterpillar was voted best company to work for in Brazil in 2009.

Francisco Itzaina echoes the idea 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 in the US”.

8Flexibility

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 German 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 you may not necessarily be able to link performance with reward, and that is extremely important for productivity”.

9AbilitytocommunicatewiththeHeadquarters

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 in making sure that the Headquarters are 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”.

10MaximisetheBraziliantalentyoualready 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 internationally. Brazilian executives are on the big stage and have much to impart to their global colleagues.

Inconclusion

“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.

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About the reportThis 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 financial 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:

•LuizCalil,PresidentofCaterpillar,Brazil•FranciscoItzaina,President–SouthAmericaofRolls-RoyceInternational•GaetanoCrupi,GeneralManagerofAbbottinBrazil•MarkPitt,PresidentofSherwinWilliamsinBrazil•KlausPavel,ChairmanoftheAachen-LaurensbergerRennverein•ChrisWall,BusinessSpecialistforBrazilatUKTradeandInvestment•RichardTaylor,CEOofTaylorenergiesBusinessDevelopment,ChairmanofCleanStarBrasil 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 ReportsOther reports in this series:The Boyden Report: India – The Sun Rises on the Indian ExecutiveThe Boyden Report: China – Exploding the Myths in ChinaThe Boyden Report: Latin America – Multi-latinas drive Latin America’s Destiny

Sources •BancoCentraldo Brazil•FederationofIndustriesoftheStateofSãoPaulo(FIESP)•Exame• IBGE,InstitutoBrasileirodeGeografiaeEstatística•GoldmanSachs•BostonConsultingGroup•UnitedNationsConferenceonTradeandDevelopment•TheFinancialTimes•TheEconomist•WallStreetJournal•USACensusBureau•CIAWorldFactbook•UniversityofAustin,Texas•TrustedSourcesResearchandNetworks

About BoydenBoyden is a global leader in the executive search industry with more than 70 offices in over 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

Appendix

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