Business in Brazil
Large companies in Brazil are profiting from the country's rapid growth and abundance of natural resources. New possibilities are also emerging for foreign companies looking to invest in one of globalization's most active new players.
The long-standing joke about Brazil has been that it is the country for the future – and always will be. Today it may safely be said that Brazil's future is here. The largest Latin-American economy has finally entered a period of sustained growth, according to Paul Gruppo and Thomas Kunze, Partners at Roland Berger Strategy Consultant's Sao Paulo office. Brazil has vast resources of what the global markets urgently needs: food and fossil fuels. The largest Latin-American economy has given itself a stable macro-economic framework and thus paved the way for a very favorable investment climate and the development of strong industrial corporations.
Which are the most interesting macroeconomic developments in the Brazilian economy at present?
Without any doubt the discovery of the new oil fields off the coast of Santos. Other than self-sufficiency and revenues, they will provide a major boost in capital expenditure and strengthen the local heavy industry.
What is Brazil's position among the newly industrialized so-called BRIC countries Brazil, Russian, India, and China?
Climate and soil create unique conditions for Brazil to become a major food supplier. Agricultural crop land amounts only to 64 million hectares (or, less than 8% of the total surface of the country of 850 million hectares) while there are another 170 million hectares currently used as pastures. This does not involve any land in the Amazon region (which is increasingly under ecological scrutiny – both domestically as well as abroad).
The long-standing joke about Brazil has been that it is the country for the future – and always will be. Today it may safely be said that Brazil's future is here. The largest Latin-American economy has finally entered a period of sustained growth, according to Paul Gruppo and Thomas Kunze, Partners at Roland Berger Strategy Consultant's Sao Paulo office. Brazil has vast resources of what the global markets urgently needs: food and fossil fuels. The largest Latin-American economy has given itself a stable macro-economic framework and thus paved the way for a very favorable investment climate and the development of strong industrial corporations.
Which are the most interesting macroeconomic developments in the Brazilian economy at present?
Without any doubt the discovery of the new oil fields off the coast of Santos. Other than self-sufficiency and revenues, they will provide a major boost in capital expenditure and strengthen the local heavy industry.
What is Brazil's position among the newly industrialized so-called BRIC countries Brazil, Russian, India, and China?
Climate and soil create unique conditions for Brazil to become a major food supplier. Agricultural crop land amounts only to 64 million hectares (or, less than 8% of the total surface of the country of 850 million hectares) while there are another 170 million hectares currently used as pastures. This does not involve any land in the Amazon region (which is increasingly under ecological scrutiny – both domestically as well as abroad).
Which are the most interesting business opportunities for foreign companies in Brazil right now?
Domestic demand is very strong, for example for cars, housing, or consumer durables. Two factors are driving domestic demand: On the one hand, more employment and increased minimum wages have led to the appearance of a new group of consumers: low income households spreading all over the country. On the other hand, low inflation and lower interest rates have boosted consumer finance.
Has the Brazilian government succeeded in creating a stable framework for foreign companies in search of profitable business opportunities?
Brazil has always been very open to FDI (Foreign Direct Investment). With the investment grade granted by S&P (Standard&Poors) and Fitch, the attractiveness grew further. But doing business in Brazil is complex. Labor, fiscal and environmental laws are very cumbersome, law enforcement very slow and full of flaws. Any foreign company needs, above all, very good advice and, if possible, good partners.
Speaking of partners, are Brazilian corporations competitive in international comparison?
Brazil has more than 100 corporations with revenues in excess of USD 1 billion per year, most of them with strong returns and under strong management. Brazilian corporations emerging from the past two decades of crisis are powerful by all standards. Between 2003 and 2006, the top-50 industrial corporations achieved average returns on equity in excess of 20%. Some draw their strength from affordable natural resources (minerals, sugar and ethanol, pulp and paper, to name just a few). More importantly, we have seen the emergence of full-fledged industrial corporations on a global scale. The most notable examples are Vale (minerals) and Petrobras, but also Embraer (aircraft), Gerdau (steel) , Votorantim (minerals), Weg (engines) and Perdigao (processed meat).
Do issues like inflation, corruption, and education present potential challenges to sustainable growth in the Brazilian economy?
While on the three issues Brazil still has a way to go, the progress made is impressive. Inflation is, by and large, under control. The government has had a very strict fiscal policy and given autonomy to the Central Bank to act, mainly on interest rates. With respect to corruption, there is also ground to believe it will decrease: As scandals hit the headlines, pressure from public opinion and press is growing, and the police is given ample leeway to investigate. The level of general education is also increasing. Today more than 99% of the Brazilian children between 7 and 14 years have access to school (as compared to only 93% ten years ago) – and there are incentives for them to attend schools with the Bolsa Família program, which offers financial relief provided the children go to school.
Domestic demand is very strong, for example for cars, housing, or consumer durables. Two factors are driving domestic demand: On the one hand, more employment and increased minimum wages have led to the appearance of a new group of consumers: low income households spreading all over the country. On the other hand, low inflation and lower interest rates have boosted consumer finance.
Has the Brazilian government succeeded in creating a stable framework for foreign companies in search of profitable business opportunities?
Brazil has always been very open to FDI (Foreign Direct Investment). With the investment grade granted by S&P (Standard&Poors) and Fitch, the attractiveness grew further. But doing business in Brazil is complex. Labor, fiscal and environmental laws are very cumbersome, law enforcement very slow and full of flaws. Any foreign company needs, above all, very good advice and, if possible, good partners.
Speaking of partners, are Brazilian corporations competitive in international comparison?
Brazil has more than 100 corporations with revenues in excess of USD 1 billion per year, most of them with strong returns and under strong management. Brazilian corporations emerging from the past two decades of crisis are powerful by all standards. Between 2003 and 2006, the top-50 industrial corporations achieved average returns on equity in excess of 20%. Some draw their strength from affordable natural resources (minerals, sugar and ethanol, pulp and paper, to name just a few). More importantly, we have seen the emergence of full-fledged industrial corporations on a global scale. The most notable examples are Vale (minerals) and Petrobras, but also Embraer (aircraft), Gerdau (steel) , Votorantim (minerals), Weg (engines) and Perdigao (processed meat).
Do issues like inflation, corruption, and education present potential challenges to sustainable growth in the Brazilian economy?
While on the three issues Brazil still has a way to go, the progress made is impressive. Inflation is, by and large, under control. The government has had a very strict fiscal policy and given autonomy to the Central Bank to act, mainly on interest rates. With respect to corruption, there is also ground to believe it will decrease: As scandals hit the headlines, pressure from public opinion and press is growing, and the police is given ample leeway to investigate. The level of general education is also increasing. Today more than 99% of the Brazilian children between 7 and 14 years have access to school (as compared to only 93% ten years ago) – and there are incentives for them to attend schools with the Bolsa Família program, which offers financial relief provided the children go to school.
Has the Brazilian government convincingly reacted to the World Bank's admonition in 2007 of not investing enough in infrastructural projects to sustain its growth rates?
Infrastructural needs are huge: power generation, railroad transport, ports, you name it. If Brazil wants to keep its growth rates, it needs world class access to global markets. Despite vast natural resources, the country still has disadvantages based around its geography. The recently announced Growth Acceleration Plan (called, PAC – Plano de Aceleracao de Crescimento) addresses the most pressing needs and foresees investments of over USD 300bn until 2010.
Where do you see the biggest challenges for companies doing business in Brazil?
Without any doubt in the strengthening of the Brazilian Real, not only against the US dollar but also the Euro. A strong currency exposes a country to international competition, makes imports cheaper, exports more expensive, it magnifies sectoral inefficiencies. The first to feel the pressure were textiles and shoe businesses. But it also offers the opportunity for new players to bring state-of-the-art technology, to modernize plants with high-tech equipment, to re-shape value chains.
How does the Roland Berger Sao Paulo office aid foreign companies in identifying suitable business opportunities?
When it comes to foreign companies doing business in Brazil, our continued presence in the country for more than 30 years is a huge asset. We have accompanied the ups and downs of the economy closely – from strong state intervention in the sixties and heavy protectionism until the eighties to the opening of the economy in the nineties. This sharpened our eyes to the comparative advantages of Brazil: large domestic market (more than 180 million people), huge natural resources, qualified labor, fully established value chains (financial services, automotive, machinery & equipment, agriculture, etc.). As far as advice is concerned, most typically we are involved in corporate governance, supply chain configuration and value creation issues. As companies from BRIC countries explore their options in a globalized world, we support Brazilian firms in their efforts to charter the world market in steel, pulp and paper, meat products, and other areas.
If you have questions or comments regarding this, or any other story, please do not hesitate to contact us:
Infrastructural needs are huge: power generation, railroad transport, ports, you name it. If Brazil wants to keep its growth rates, it needs world class access to global markets. Despite vast natural resources, the country still has disadvantages based around its geography. The recently announced Growth Acceleration Plan (called, PAC – Plano de Aceleracao de Crescimento) addresses the most pressing needs and foresees investments of over USD 300bn until 2010.
Where do you see the biggest challenges for companies doing business in Brazil?
Without any doubt in the strengthening of the Brazilian Real, not only against the US dollar but also the Euro. A strong currency exposes a country to international competition, makes imports cheaper, exports more expensive, it magnifies sectoral inefficiencies. The first to feel the pressure were textiles and shoe businesses. But it also offers the opportunity for new players to bring state-of-the-art technology, to modernize plants with high-tech equipment, to re-shape value chains.
How does the Roland Berger Sao Paulo office aid foreign companies in identifying suitable business opportunities?
When it comes to foreign companies doing business in Brazil, our continued presence in the country for more than 30 years is a huge asset. We have accompanied the ups and downs of the economy closely – from strong state intervention in the sixties and heavy protectionism until the eighties to the opening of the economy in the nineties. This sharpened our eyes to the comparative advantages of Brazil: large domestic market (more than 180 million people), huge natural resources, qualified labor, fully established value chains (financial services, automotive, machinery & equipment, agriculture, etc.). As far as advice is concerned, most typically we are involved in corporate governance, supply chain configuration and value creation issues. As companies from BRIC countries explore their options in a globalized world, we support Brazilian firms in their efforts to charter the world market in steel, pulp and paper, meat products, and other areas.
If you have questions or comments regarding this, or any other story, please do not hesitate to contact us:
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