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Electronics Production | November 12, 2010

How Brazilian companies can become global leaders

Brazil will be the only BRIC country to grow faster in 2010 than it did before the crisis.
According to the latest IMF forecast, GDP growth will reach 7.1% this year. There are some concerns, but Brazilian companies can leverage their strengths to become global leaders, if they use the right strategies to drive innovation and growth. These are the results of a study by Roland Berger Strategy Consultants titled "The Brazilian decade – Time to act in a unique situation".

"Brazilian companies are well-positioned to become global leaders," says Roland Berger Partner Rodrigo Dantas. "While most countries are still struggling with the crisis, the Brazilian economy has already returned to growth." Brazil will be the only BRIC country to grow faster in 2010 than it did before the crisis. According to the latest IMF forecast, GDP growth will reach 7.1% this year, and the national stock index Bovespa has nearly reached its all-time high again.

Brazil offers exciting opportunities

Brazil is already an economic heavyweight. For example, in exports of sugar, ethanol, soy and beef, Brazil is number one in the world. Brazil's potential is based on its unique strengths: a young, dynamic population; a service-oriented attitude; huge, partially unexploited offshore oil fields near the coast; the world's largest land reserves and the largest rainforests on earth.

In addition, the technology leaders in ethanol-driven engines and in offshore oil extraction are in Brazil, while there is a growing demand for ethanol and ethanol-based technologies worldwide. The country also has stable domestic and foreign policies and conservative banking regulation which prevented the collapse of the financial system. On top of all that, it is a very large domestic market with a growing middle class that enjoys increasing buying power.

Brazil is investing heavily in its future: From 2010 to 2030, it plans to invest BRL 1.960 billion in the energy sector (approximately USD 1.095 billion). Investments of BRL 97 billion are planned for the World Cup in 2014 and the Olympics in 2016. What's more, BRL 35 billion will be invested in the transportation system, e.g. a TAV high-speed train.

Problems when doing business

However, there are still concerns regarding Brazil's future. In the survey, companies listed several factors as problematic for business. The most often cited were tax regulations (mentioned by 19.3%), tax rates (17.7%) and restrictive labor regulations (12.9%). These were followed by inefficient government bureaucracy (11.3%) and corruption (7.0%). Besides, Brazil doesn't spend enough on innovation. While Japan is investing 3.4% of its GDP in innovation, Brazil invests just 0.82%.

Brazil needs to invest in innovation

"Brazil's low investment in R&D highly correlates with its low share of value-added products," states Dantas. Low share of value-added products means that export revenues are very sensitive to the market price of commodities. "As a result, Brazil has to invest in innovation to develop a sustainable position as a world-leading economy. To stimulate innovation, a joint public and private effort is needed."

For example, the government has to stimulate the creation of technology clusters and networks, also between universities and companies. Companies have other key innovation drivers. "The CEO has to be appointed as the innovation champion," states Dantas. "The company has to celebrate an innovation culture and has to engage more innovation partners by sharing knowledge. Another important factor is to encourage young up-and-comers and establish a challenger mentality."

Brazil also has to overcome certain structural weaknesses to take full advantage of its opportunities. For example, the country doesn't have enough savings (only 14.6% of GDP in 2009) and the current budget balance is negative (estimated deficit of USD 49 billion in 2010 and USD 60 billion in 2011).

Companies can act from a position of strength

But Brazil's companies can still act from a position of strength. Dantas: "To become a global leader, it would be wise to shape the future competitive position now while international competitors are busy cutting costs. Therefore, Brazilian companies should focus on creating profitable growth, aligning the corporate strategy to the changing environment as well as innovating and investing in new business models."

Companies should also consolidate on an international scale, secure access to capital markets and rethink the role of corporate headquarters. "There are some concerns, but Brazil has great potential for a bright future, plus entrepreneurial spirit and courage," says Dantas.

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