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BrazilHow did we get here? What’s coming next? Lecture to MBA students of John Hopkins University by Professor Daniel Motta, Phd CEO BMI Brazilian Management Institute
About Professor Daniel MottaFounding Partner and CEO of BMI, 17-yeartop executive education consultingPhD in Economics at USPMSc in Economics at FGV-EAESPBA in Economics at USPMBA Professor at FDC, Insper and FGVVisiting Professor at Stockholm School ofEconomics (Stockholm, Sweden, 2009)and GE Leadership Development Center(Crontonville, US, 2007)Planning Director at ABRHCo-founder of Brazilian Financial SocietyAuthor of “Varejo de Alto Desempenho”,Harvard Business Review, Feb 2010Born in São Paulo, married with twochildren, Julia and Fernando
But we are much more than music, soccer and nature... What about Brazilian gigantic corporations?
Petrobras is the largestcompany in Latin America bymarket capitalization andrevenue.It is a world leader indevelopment of advancedtechnology from deep-waterand ultra-deep water oilproduction.65th largest company in theworld according to FortuneGlobal 500Revenue: USD 104.9 billionN. Employees: 74,240
Itaú Unibanco is the largestfinancial conglomerate in theSouthern Hemisphere and is the10th largest bank in the world bymarket value.It accounts for about 11% of theBrazilian market for retail bankingservices. It also has operations inArgentina, Chile, Paraguay,Uruguay, England, Luxembourg,USA, Japan, China and Hong Kong.Revenue: USD 44.2 billionN. Employees: 101,000
Anheuser-Busch InBev is thelargest global brewer with nearly25% global market share and oneof the worlds top five consumerproducts companies by EBITA.The company is lead by Carlos Brito(Brazilian), and grew based onentrepreneurship spirit of JorgePaulo Lehman, Carlos AlbertoSicupira e Marcel Telles.Revenue: USD 38.8 billionN. Employees: 116,000
JBS is the largest Brazilianmultinational in the food industry,producing fresh, chilled, andprocessed beef, chicken and pork.It is also the worlds largestcompany in the beef sector with theacquisition of Swift&Co. (USA),Pilgrim’s Co. (USA) and Bertin(Brazil).Revenue: USD 34.2 billionN. Employees: 125,000
Vale is the second-largest miningcompany in the world, thelargest producer of iron ore, andsecond largest of nickel. Thecompany also producesmanganese, ferroalloys, copper,bauxite, potash, kaolin, aluminaand aluminum.It has managed to establishitself as a global miningcompany through joint venturesand acquisitions abroad.Revenue: USD 28.6 billionN. Employees: 68,000
Grupo Pão de Açúcar is thebiggest Brazilian companyengaged in business retailing offood, general merchandise,electronic goods, homeappliances and other productsfrom its supermarkets,hypermarkets and homeappliance stores.It is also the biggest retailcompany in Latin America byrevenue.Revenue: USD 26.5 billionN. Employees: 137,000
Odebrecht is a Brazilian businessconglomerate in the fields ofEngineering & Construction andChemicals & Petrochemicals .The company has a significantpresence in Africa, Latin Americaand Middle East.ETH and Braskem are among itsmost important business units.Revenue: USD 18.0 billionN. Employees: 129,226
Gerdau is the world’s 14th largeststeelmaker and the largestproducer of long steel in theAmericas. It has 337 industrial andcommercial units in the 14countries where it operates.Its core business is to transformsteel scrap and iron ore into steelproducts.Revenue: USD 15.2 billionN. Employees: 41,000
Embraer produces commercial,military, and corporate aircraft, andprovides related aerospaceservices.It is the third-largest aircraftcompany in the world in terms ofyearly delivery of commercialaircraft (behind Boeing and Airbus),and fourth-largest in terms ofworkforce.Revenue: USD 6.2 billionN. Employees: 17,380
Fibria was created by a mergerbetween Aracruz and VCP, bornpositioned as a global leader inpulp, with production capacityexceeding 6 million tons of pulp andpaper produced in 7 factoriesdistributed in 5 Brazilian states.Much of this production is exported.Revenue: USD 3.4 billionN. Employees: 15,000
BM&F Bovespa has a greatpresence among stock exchanges inthe world, with a marketcapitalization equivalent to USD 1.3trillion (2009) and more than 450listed companies.In addition to trading, it alsoundertakes the following activities:listing companies and funds;disseminating price quotes;launching market indices;developing systems and software;implementing technologicaladvances, and much more.
Brazilian market wasn’t left just for national companies... What about global corporations in our marketplace?
Volkswagen, Goodyear, Unilever,SAP, Carrefour, Fiat, Nestlè,Telefonica, Pirelli, Scania,ArcelorMittal, IBM, Wal-Mart,Bunge, Microsoft and Santander.These are just a few examples ofglobal corporations focused onBrazilian marketplace, withsignificant local market share andcustomer awareness.Brazilian economy, as part of BRIC,is now one of the key region forseeking both growth and profit.
1500: Brazil was “discovered” andcolonized by Portuguese• In the history of Brazil, Colonial Brazil comprises the period from 1500, with the arrival of the Portuguese, until 1815, when Brazil was elevated to United Kingdom with Portugal.• Over 300 years, the economic exploitation of the territory was based first on brazil wood extraction (16th century), sugar production (16th-18th centuries), and finally on gold mining (18th century).• Slaves, specially those brought from Africa, provided most of the working force.
1822: Brazil finally becameIndependent Empire• Dom Pedro I, son of Dom João VI, King of Portugal, declared himself 1st Emperor of Brazil. There’s no independence battle against Portugal, which was by that time trying to recover from French invasion.• Brazilian economy was then based on coffee exportation, with very low level of industrialization and infrastructure.
1889: Brazil declares Republic• The Brazilian monarchy was overthrown on 15 November 1889.• The early republican government was little more than a military dictatorship. The army dominated affairs both at Rio de Janeiro and in the states. Freedom of the press disappeared and elections were controlled by those in power.• Coffee was still the core economic activity, with some farmers investing in industries, trading companies and banks.
1930: Brazil was ruled by a dictator• By 1930, the republican regime was weakened and demoralized, which allowed the defeated presidential candidate Getúlio Vargas to lead a coup détat and assume the presidency.• Vargas was supposed to assume the presidency temporarily but instead, he closed the National Congress, extinguished the Constitution, ruled with emergency powers and replaced the states governors with his supporters.• Brazilian industrialization accelerated. Petrobras, Vale and CSN were founded.
1945: Brazil becomes a democracyonce again. At least for a while...• With the allied victory in 1945 and the end of the Nazi-fascist regimes in Europe, Vargass position became unsustainable and he was swiftly overthrown in a military coup.• Democracy was reinstated and General Eurico Gaspar Dutra was elected president and took office in 1946.• Industrialization was focused on import substitution. Matarazzo conglomerate, the largest Brazilian industrial group, started losing market share and economic power for imported goods and multinational companies installed here.
1956: JK starts building Brasília,and pushing industrialization• Juscelino Kubitscheck became president in 1956 and assumed a conciliatory posture towards the political opposition that allowed him to govern without major crises.• The economy and industrial sector grew remarkably, but his greatest achievement was the construction of the new capital city of Brasília, inaugurated in 1960.• Inflation rate and government debt significantly increased.
1964: Military dictatorship again• The new military regime was intended to be transitory but it gradually closed in on itself and became a full dictatorship with the promulgation of the Fifth Institutional Act in 1968.• The repression of the dictatorships opponents, including urban guerrillas, was harsh, but not as brutal as in other Latin American countries.• Due to the extraordinary economic growth, known as an "economic miracle", the regime reached its highest level of popularity in the years of repression
1973: Oil Crisis and Hiperinflation• The 1973 oil crisis started in October 1973 and lasted until March 1974, when the members of Organization of Arab Petroleum Exporting Countries or the OAPEC (consisting of the Arab members of OPEC, plus Egypt, Syria and Tunisia) proclaimed an oil embargo "in response to the U.S. decision to re- supply the Israeli military" during the Yom Kippur war.• The 1973 oil price shock, along with the 1973–1974 stock market crash, have been regarded as the first event since the Great Depression to have a persistent economic effect over developed (such as USA) and developing countries, (such as Brazil).
1979: Second Oil Shock• The 1979 (or second) oil crisis in the United States occurred in the wake of the Iranian Revolution.• In Brazil, the military regime continued, under General João Figueiredo, to complete the transition to full democracy in 1985.• By that time Brazilian economy was deeply damaged by staginflation. The 80s would be known as “The Lost Decade”.
1982: Brazilian economy is broken• The Latin American debt crisis occurred when these countries reached a point where their foreign debt exceeded their earning power and they were not able to repay it.• In the 1960s and 1970s, Brazil, Argentina and Mexico, borrowed huge sums of money from international creditors for industrialization and infrastructure programs.• Brazil declared that would no longer be able to service its debt. The country would be out of global capital market until 1994.
1985: Democracy is back in town• In response to the crisis, Brazil abandoned their import substitution industrialization (ISI) models of economy and adopted an export- oriented industrialization strategy, usually the neoliberal strategy encouraged by the IMF.• The debt crisis is one of the elements that contributed to the collapse of Brazils military regime.
1990: Liberalization of Trade• In the early 1990s, Brazil began significant liberalization of its trade. Although import licenses were not abolished, their approval became a relatively routine operation, and by 1991 most licenses were being issued within five working days.• Early in 1991, the President Collor de Mello government announced a series of tariff reductions to be phased in over the 1991-94 period. These were among the most far-reaching and significant reductions in Brazilian trade protection in several decades.• Fernando Collor, who was subsequently impeached by the National Congress in 1992, and succeeded by Itamar Franco.
1994: Real Plan and Privatization• Fernando Henrique Cardoso launched the highly successful Real Plan (Plano Real) that granted stability to the Brazilian economy and he was elected president in 1994 and again in 1998.• At the same time, FHC government was marked by other major change in Brazilian economy: public services and state-owned companies were privatized. That would be the basis of our sustainable growth.
1999: Speculative attack• From 1995 to 1999, global financial markets were continuously affected by emerging markets balance of payments crisis: Mexico (1995), Southeast Asia (1997) and Russia (1998). These countries were deeply damaged and were rescued by IMF.• Brazilian economy has its fixed exchange rate regime attacked since 1997, and eventually Brazilian Central Bank fired Gustavo Franco and adopted dirty float exchange rate.
2002: Lula finally elected President• Lula won elections after three tentatives. He decided to keep economic policy from FHC term. And he expanded both social assistance programs (such as Fome Zero) and government new jobs.• He was lucky until 2008: the world and China were growing; international commodity prices were booming; global capital market was eager to invest in Brazil.
2008: Brazil is Investment Grade• Brazilian economy was finally considered Investment Grade, according to Standard&Poor’s. Within next few months, Moody’s and Fitch would both agree.• Brazil seemed to finally reorganize itself to accelerate development. The major concern is about the historically known “Custo Brasil” (a perverse combination of high taxes, bureaucracy, informal economy, corruption, absence of infrastructure and high interest rate).
2010: Brazil has a Chinese trend• Brazil seems to be totally recover from suprime global crisis, with its internal consumption estimulated by formal employment, income increase and better individual expectations.• Among BRIC members, Brazil is considered the most sustainable country, from social, economic and politic perspectives.• Brazilian companies are consolidating numbers of global industries.
Brazil is ready to take off.Will us be able to keep it going?
Brazil has been always pointed outas a powerful country of the future• We have to increase our competitiveness;• We need to reduce government spending and fiscal deficit;• We need to improve income distribution and basic education;• We need all three at the same time.
(Lack of) Brazilian CompetitivenessAvailability and Availability and Technology and Logistics Tax Burden Cost of Labor Cost of Capital Innovation Availability and Government Transport Cost of Labor Cost of Credit Support to R&D Infrastructure Productivity R&D in National Customs and Sotck Market of Labor Companies OperationsLabor market Financialand relations System
(Lack of) Brazilian CompetitivenessMacroeconomic Microeconomic Education Institutions Tourism Environment Environment International High Spread of Legal Market Efficiency Airports and Interest Rate Education Framework Brazilian Brand High Quality of Government Hotels & InfrastructurePublic Expenses Education Practices Restaurants Poor Trade Investment in Nature, People & Entrepreneurship Agreements Education Culture
Brazil has a trully opportunity todevelop and become a global force.All we need is to work hard...
Professor Daniel Motta, PhD.Address:Av. São Gualter, 1.734Alto de Pinheiros, 05455-002São Paulo,SPBrazilPhone:+55 11 3567 0512 | 9966 7975E-mail:firstname.lastname@example.orgWebsite:www.bmibrasil.com.brBlog:http://batutaebiruta.wordpress.com/Linkedin:http://www.linkedin.com/in/danielmotta