Yesterday’s truths,
today’s realities:
A new global mindset
for Brazilian business
Yesterday’s truths,
today’s realities:
A new global mindset
for Brazilian business
Brazil’s current crop of multinationals grew in an era of
relatively protected domestic markets and before the
acceleration in globalization and technology diffusion.
Today, Brazil’s next wave of internationalizers face a
dramatically different global landscape of opportunities
and challenges. Yet attitudes and behaviors have been
slow to change, resulting in the loss of important ground
to competitors abroad. We uncover four conventionallyaccepted truths as myths that must be dispelled to
facilitate improvements in the global competitiveness of
Brazil’s firms. At their core, the persistence of these
myths is due to an attachment to outdated mindsets that
must be fundamentally questioned and updated. We
show how some progressive Brazilian firms are
succeeding to achieve just that.
Authors: Felippe Oliveira, Armen Ovanessoff, Athena Peppes, Eduardo Plastino.
2
Brazil’s internationalization patterns:
new perspectives for a new breed of Brazilian companies
“Making it big” abroad can be a key step
toward “making it really big” at home.
Brazilians know this only too well. Witness
how Brazil’s most prolific football players
have earned their notoriety through playing
in European clubs. Or how Brazil’s legendary
Bossa Nova rhythms became a definitive
national treasure after the likes of Frank
Sinatra helped to popularize them around
the world. The most unique and special ideas
are often a blend of one’s own strengths
with ingredients from far away.
This is no less true in business. AB Inbev
brought together the powerhouses of
Interbrew from Europe and Anheuser-Busch
from the US, and blended them with Inbev’s
rigorous management model to create the
world’s largest brewing company. The
success and business logic of multinational
business models over the past two decades is
an outcome of companies realizing their
increasing ability to powerfully combine
resources, capabilities and ideas from around
the world.
But looking at the world as a banquet of
opportunities is not easy. “Blue-sky thinking”
is all very well, but Brazilian companies need
to deal with the immediate realities of
unwieldy bureaucracy, infrastructure
deficiencies and a lack of international
exposure and experience. Even those
companies that are confident about their
international growth plans feel unprepared
for the operational realities of running global
operations.1
An important obstacle to international
expansion, according to Brazilian executives
who responded to an Accenture survey, is the
absence from leadership teams and entire
workforces of the “global mindset” required
to manage successful international
operations.2 A body of academic research
reinforces the importance of the domesticfocused mindset of Brazilian companies in
inhibiting their international expansion.
As Brazil’s economy boomed through the
first decade of this century, it was easy for
Brazilian executives to point to the country’s
fast-growing domestic opportunities as a
further reason to put off international
expansion plans. But that hopeful reasoning
was flawed: measures of outward foreign
trade and investment over the same period
show Brazil’s position eroding relative to its
BRIC peers and other emerging economies.
Perceptions and realities
Assumptions about the strength of the
internal market are only one reason Brazil’s
executives have held back. In the course of
our research, we uncovered four perceptions
about international expansion that have
become outdated.
There is a lot of truth at the root of each of
these perceptions, and most are grounded in
the experience of Brazil’s multinationals. But
fresh thinking is required for the future.
The way in which companies are growing
and succeeding in today’s global economy is
dramatically different to the experience of
those that grew and succeeded in the past.
Brazil is no exception. To succeed in an era
of global, digitally enabled business, Brazil’s
executives must shed no-longer-valid
perceptions and adjust to the new realities
of competition.
1
The Accenture Institute for High Performance recently conducted an analysis of Brazil’s multinationals and aspiring multinationals, finding that while they are generally
confident about their international growth strategies, fewer than one in five of these firms are confident that they possess the full set of operational capabilities to execute their
expansion plans.
2
In a recent survey, Accenture asked executives in some 200 companies from Brazil, China, Germany, India, Russia, South Africa, the UK and the US about the international
mindsets of leaders in their businesses. In the Brazilian case, only 24 percent believe their companies’ leadership group has such a mindset. The figures are even lower when
considering the global mindsets of high-potential managers (7 percent) and employees whose roles span multiple countries (14 percent)—in all three cases, Brazil’s figures were
the lowest among the countries surveyed.
3
Domestic scale and
dominance are a prerequisite
to international success.
Increasingly, international
expansion will be needed
to achieve or maintain
domestic scale.
4
In the past, you started out “getting big” at
home. As one executive told us, “It’s all
about scale. Once you’re big enough, and
have the experience, you step outside; that’s
how it is for large countries like Brazil, India
and China.” Of course, he was right. Looking
at the “emerging market champions” that
have made global headlines, it’s clear that
they are, for the most part, giants that have
outgrown their domestic markets. Companies
like JBS Friboi, Camargo Corrêa, WEG and
Gerdau all grew to become dominant players
in their home market before venturing
abroad for new opportunities.
The benefits of having a large domestic
market have been evident. Brazil’s MNCs
have clearly benefited from their large
domestic market. In the course of
generating economies of scale from their
expansive domestic operations, they have
honed their expertise, accumulated
experience and built the confidence and
skillsets to enter new markets.
Business success at home also offers the
means to subsidize experimental ventures
abroad. Researchers have shown how large
domestic operations can offset losses
incurred as a firm learns how to do business
in a foreign market (Dunning, 2001; Wu &
Pangarkar, 2006).
All this means that Brazilian multinationals
tend to be big. Some 70 percent of the 47
MNCs included in the Fundação Dom Cabral
2013 ranking of the most internationalized
Brazilian companies currently have annual
revenues of over R$1 billion
(US$ 450 million).
That is more than three times the threshold
adopted by the country’s national
development bank, the BNDES, to identify a
“significantly large” company. Big is strong
and big is good, right? Well, it’s a positive
outcome, yes, and scale has certainly proven
to be important to Brazil’s current breed of
multinationals. But the modern global
economy also values and rewards strengths
such as agility, flexibility and nimbleness.
In other words, times have changed. Scale
should increasingly be seen as the outcome
of international success, rather than a
prerequisite to achieving it. Digital
technologies are reducing the importance of
scale as a barrier to market entry. Micromultinationals and companies that are
“born global” are symbols of this newest
phase of global business, where
interconnected networks of companies of all
sizes form the basis of the competitive
ecosystem. The ability to partner and
collaborate with companies of all sizes, and
from all countries, is becoming crucial for
high performance.
International growth as a domestic
competitiveness imperative
Competitiveness is key to understanding
Brazil’s internationalization imperative.
Unlike the decades during which today’s
crop of Brazilian MNCs built their
empires, today’s growing firms find
themselves in a far more open and
globally connected domestic market.
They are increasingly competing with
foreign companies both at home and
abroad. Their foreign competitors have
access to a broad range of strengths,
from low-cost business models to strong
global brands.
This requires Brazilian companies to
attain a greater degree of global
competitiveness at a much earlier stage
of their development than in the past.
Research by the Accenture Institute for
High Performance (2013) shows not only
increasing investment plans from foreign
firms into Brazil, but also a clear intent
from foreign companies, particularly from
Asia, to take on Brazilian companies
more directly. This is not about the
long-term future; this is about the
realities of business plans in the coming
one to three years. (See Figure 1, “Brazil
vs. Asia: Increasingly direct competition.”)
Figure 1: Brazil vs. Asia: Changing competitive dynamics
Asian firms have an intense focus on moving up to the higher-value areas that Brazilian companies today see as their
competitive strengths.
ASIA TODAY
BRAZIL TODAY
ASIA IN THREE YEARS
High-quality products
High-quality products
High-quality products
Low-cost operations
Skills and talent
High-value innovation
Low-cost innovation
Affordable capital
Skills and talent
High-value innovation
Strength of brand
Strength of brand
Skills and talent
High-value innovation
Intellectual property
Strength of brand
Intellectual property
Low-cost innovation
Intellectual property
Low-cost operations
Affordable capital
Affordable capital
Low-cost innovation
Low-cost operations
Cost-based strengths
Non-cost based strengths
Ranking is based on survey responses on the perceived globally
competitive strengths of 102 Brazilian MNCs and 250 Asian MNCs.
Source: Accenture analysis; Accenture Brazilian multinationals
survey 2012, and Accenture Asian multinationals survey, 2012
5
Access the world’s leading-edge
capabilities
Prioritize the role of SMEs as
business partners and growth drivers
SMEs – Brazil’s under-utilized
growth driver
As a first step, Brazilian companies need to
harness the opportunities that technology
and globalization offer them, in terms of
access to the world’s best skills and
resources. Brazil’s natural resource
companies figured out long ago that they
need to follow the global map of resources
in order to keep growing; now, increasing
numbers of industries are feeling the
imperative to reach beyond their borders.
Executives need to recognize that succeeding
in tomorrow’s Brazilian and global markets
will demand increased global awareness and
engagement from companies of all sizes.
An analysis of Brazil’s exports by firm
size – a crude but telling measure
– shows that the contribution of small
and medium-sized enterprises (SMEs)
to the country’s total exports has
decreased in recent years, falling from 11
percent in 2004 to 4.1 percent in 2013.
If we exclude the export of services to
only look at goods, the decline is very
similar, from from 11.3 percent in 2004
to 4.2 percent in 2013. (See Figure 2,
“Out of balance.”)
Witness how Brazilian businesses at the
cutting edge of the digital economy are
quick to leverage these opportunities;
technology companies like Exceda, Movile
and Totvs have set up research and
development centers in Silicon Valley in the
United States, ensuring that they are
connected to the leading thinkers and
innovators in their fields. More companies
from a wider range of industries are realizing
that expansion abroad is not only about
gaining market share, but increasingly about
accessing talent, capital, technology and a
host of other factors that are essential to
remain competitive.
Build domestic brand value
through global presence
The Brazilian market places a premium
on external approbation: In a recent
study of Brazilian MNCs, Fundação Dom
Cabral (2012) asked executives what they
saw as the key benefits of
internationalization: “Increase in brand value
through international presence” was the
most popular response, and “differentiation
from domestic competitors” and
“improvement in the company’s domestic
image” came in joint-third place. Brazil’s
MNCs clearly see improved domestic
positioning as a key outcome of going global.
Firms looking to build their domestic
presence should be exploring how
international expansion can open or
accelerate opportunities to achieve this.
6
Just as SMEs are the engine for domestic
growth around the world, they are
increasingly becoming the engines of global
growth through their ability to network with
one another and large companies. Some
Brazilian companies have picked up on this:
Odebrecht recently collaborated with Sebrae
(the Brazilian Support Service for Micro and
Small Businesses) to jointly train 15 micro
and small businesses to produce shoes for
their construction sites overseas. Such
partnerships and opportunities can open
doors for future ventures abroad, but
Brazilian examples are few and far between.
Fortunately, multinationals from abroad are
also helping to build connections with
smaller Brazilian companies. This provides
the latter with important opportunities to
connect with global business opportunities.
Google, for example, is also collaborating
with Sebrae, supporting and promoting the
use of their own online tools such as Google
Maps (as a location tool), Google AdWords
(to support advertising), Google Analytics
(to measure and evaluate customer access),
YouTube (as an engagement channel) and
the use of AdSense (to generate new sources
of revenue).
Even accounting for the contribution of
Brazil’s large commodities players, these
figures compare poorly with rates seen in
some of the world’s most dynamic
emerging markets, and moreover they are
moving in the opposite direction. For
example, in India SMEs accounted for 43
percent of exports in fiscal year 20112012, and the government has
mentioned it expects their contribution
to rise to 50 percent by 2017. In five
high-growth ASEAN countries, this share
rose from 12 percent in the late 1990s to
23 percent in the late 2000s, reaching 35
percent in Thailand and 33 percent in the
Philippines (Wignaraja, 2011). Looking at
developed economies, SMEs accounted
for some 30 percent of US foreign
merchandise sales in the late 2000s
(United States International Trade
Commission, 2010).
Some of today’s Brazilian SMEs will
surely become the large Brazilian MNCs
of tomorrow, but waiting to achieve
domestic dominance before reaching out
abroad may prove to be a dangerous
game. Rather, Brazil’s ambitious business
leaders should look to engage more
deeply with the global economy as soon
as is strategically feasible.
Figure 2: Out of balance
The dominance of larger Brazilian companies among the country’s exporters has increased, accelerating after the global
downturn. By 2013, they accounted for some 96 percent of the country’s exports, up from 90 percent in 2002.
100%
90%
80%
Percentage of Brazilian exports
70%
60%
50%
40%
30%
20%
10%
0%
2002
Large
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
SMEs
Source: Ministry for Development, Industry and Foreign Trade (MDIC)
7
Domestic success leads to regional
success, and regional success is a
platform for global success.
High performers seek out
the best opportunities, not just
in their backyard but wherever
they may lie.
8
When expanding abroad, Brazilian firms tend
to look first to the country’s neighbors. For
example, a senior executive from Brazil’s
financial services sector told us of his firm’s
ambition to become a leading player across
Latin America, before reaching further afield.
This attitude is characteristic of a broader
tendency among Brazilian business leaders
who see a logical progression from domestic
growth to regional growth, and eventually to
global growth.
According to analysis by Fundação Dom
Cabral (2013), 56.5 percent of Brazilian
MNCs set up their first foreign subsidiary in
South America. North America follows as a
distant second with 32.6 percent. In fact,
researchers showed that a substantial share
of Brazil’s MNCs only seem to look beyond
the region once they have set up subsidiaries
in a number of other Latin American
countries. (See Figure 3, “Staying close to
home.”)
Our own research indicates that this trend
will continue. When we asked over 100
Brazilian MNCs and aspiring MNCs about
their investment plans for the next three to
five years, the Latin America and Caribbean
region emerged as the top priority for 61
percent. There was a significant gap before
the second priority, Middle East and Africa
(35 percent), closely followed by the US and
Canada (34 percent).
Figure 3: Staying close to home (Investigated companies`s entrance sequence by region)
Brazilian companies typically grow into a number of Latin American markets before considering expansion further afield.
First Market
6%
Second Market
3% 5%
9%
Third Market 1%
9%
Fourth Market 1%
Fifth Market
Oceania
21%
2%
18%
22%
4%
7%
22%
9%
Asia
7%
29%
Middle East
45%
22%
29%
4%
47%
2%
7%
7%
Africa
48%
Europe
20%
14%
34%
14%
USA and Canada
14%
18%
Latin America
Source: Cyrino, Barcellos & Tanure (2010)
9
The barrier of psychic distance
There is some logic to choosing
geographically close targets for expansion.
Cultural factors may make communication
and business simpler. There is a greater
chance that relationships already exist. And
in some industries, logistics and transport
systems can simply extend over borders. But
for many companies, the choice to grow
within the Latin American region is based on
a common, untested assumption that it is
just the sensible and easy way to begin.
Unfortunately, this is often untrue.
A major reason for this bias lies in the
concept of psychic distance (Johanson &
Vahlne, 1977). O’Grady and Lane (1996)
updated the definition as "the degree of a
company’s uncertainty in regard to an
international market, which results from
differences and other business-related
difficulties that create barriers for learning
about the market and for the establishment
of international operations".
Academic research confirms that Brazilian
multinationals tend to avoid psychically
distant markets (Cyrino, Barcellos, & Tanure,
2010). Reis & Fleury (2011) confirm that
Brazilian companies are, in general, sensitive
to psychic distance-related uncertainty and
risk, due to an emphasis on the domestic
market and local environment. The
researchers find this sensitivity measurably
hurts international performance through lost
opportunities. In short, Brazilian business
leaders have an instinctive preference to
grow within the region, rather than exploring
further afield.
The increasing riskiness
of a regional focus
By planning a growth trajectory that looks
exclusively at Latin America, many Brazilian
companies are not paying sufficient
attention to the dramatic degree to which
the global landscape of opportunities and
risks are being transformed.
Let’s look at the opportunities first. We
worked with Oxford Economics to create an
economic model that forecasts the growth in
the household incomes of 64 countries,
across 5 income bands, between 2010 and
2020. We use this as an indicator of broader
growth prospects. We observe a striking
increase in the higher-income populations of
most countries, with many developing
economies transforming their income
profiles over the decade.
10
As expected, Latin American economies are
likely to see a strong increase in the number
of households in the higher income bands,
raising their average incomes. But due to a
combination of demographic and economic
dynamics, many countries outside the region
are expected to see even larger increases in
household incomes over the period. And this
is not just true of macro growth rates, it is
also true of the increase in absolute income
levels, meaning that households literally will
have a greater amount of money available to
spend on goods and services. Countries as
diverse as Kazakhstan, Turkey and the Czech
Republic will likely enjoy dramatically
increased household income levels, and
associated business opportunities. (See
Figure 4, “Losing Ground?”).
The same degree of change is visible when
evaluating risks. Over the past decade,
increasing numbers of countries have
realized the importance of making their
economy attractive to foreign investment.
This has precipitated a wave of policy,
regulatory and institutional reforms, as
governments try to shrug off their
reputations as risky bets, and reinvent
themselves as attractive and welcoming
investment destinations. Companies that
focus their international expansion
exclusively on Latin America may be
overlooking countries further afield whose
risk/opportunity profile may surprise on the
upside.
Breaking the distance barrier
Here’s the good news: it has never been
easier to overcome the barriers of psychic
distance. Today’s globalized economy has
made it much easier to overcome the
obstacles of geographic reach and cultural
distance. Each successive advance in
information and communications technology
has eroded the cost and complexity that
distance used to represent.
Realizing that some sources of
competitiveness simply do not physically
exist in Latin America today, the Catarinense
Association of Technology Companies (Acate)
last year launched an internationalization
program to help its members “go global.” The
first step in this program was a visit from
businesspeople from Santa Catarina state to
accelerators, investment funds and
companies in the Silicon Valley and in
Miami, in the hope of establishing new
partnerships. Such global partnerships are
essential to build capabilities and
competitiveness, even if a firm’s demand is
focused on Latin America.
Segware, a company from Santa Catarina
state, provides technology for the electronic
monitoring of alarms, with customers across
Latin America. The company increased its
foreign sales after 2012, when it looked
beyond the region and opened an office in
Miami, and began participating in
international fairs. Foreign operations
currently account for 10 percent of annual
revenue, but the firm hopes that overseas
activities will drive a doubling of total
earnings next year.
Luiz Matos Lima, the president of the
software company Lux Sistemas from
Fortaleza, says that the company chose the
United States as a destination not only
because of the size of the market, but also
for the visibility it gives to their products in
countries further afield. And in preparing for
export, the company has also improved its
products for the domestic market.
This is not just a story of connecting hi-tech
companies to the US. A hard-headed
approach to global opportunities is relevant
across sectors. Dudalina is a quality shirt
maker established in 1957 that has six
manufacturing units and over 70 stores in
Brazil. In a recent interview, CEO Sonia Hess
described their careful and thoughtful
approach to international expansion. She
acknowledged that internationalization has
been a learning journey for the company,
which only makes a new move abroad when
it is confident that it will represent a solid
step in the right direction.
Note the diversity of the destinations they
consider for expansion, in Latin America and
beyond. In October 2012, Dudalina opened
its first showroom in Milan – a global capital
of fashion where the firm also established its
first “shop-in-shop” abroad. In November
2013, Dudalina opened a new store in
Panama and the company also considers
Russia, Australia and a variety of Western
European countries as markets with
potential. More Brazilian companies could
benefit from a similar type of strategic
vision.
The innovator abroad
Brazil is also home to companies with truly
innovative businesses, which generate
products and services that have global
markets. It simply does not make sense to
restrict the reach of such companies to Latin
America. These companies should be
targeting the most strategically lucrative
markets in the world, whether in Latin
America or elsewhere. This is especially true
in a global economy where competitive
advantage lasts for shorter and shorter
periods.
P3D, which produces educational software
with 3D technology, decided to operate
abroad when it realized that its product was
unique and had global potential, says CEO
Mervyn Lowe. The company was created in
2003 in São Paulo, within the incubator of
Cietec (Center for Innovation,
Entrepreneurship and Technology). Now it
has a staff of 40, of which 10 are abroad. It
opened its first office overseas in 2006 in
Spain; and the second last year in China. In
2014 it expects to start operating in the
United States. The company has distributors
in 15 countries. It covers Europe from its
Spain office and Asia from China, and
expects the US office to cover operations in
North and Central America.
Figure 4: Losing ground?
On measures of risk and opportunity, some Latin American economies do not stack up well.
RISK
OPPORTUNITY
Weighted average of sovereign, trade, political and
regulatory risk indices
Additional households with annual income of US$30,000
and above, 2010-2020
Increase in the number
of households
% Increase in the number
of households
China
29.207.516
1743%
3,9
India
7.625.703
1276%
United States
9,8
Turkey
4.719.277
73%
18
South Korea
15,3
Mexico
3.295.373
36%
20
Chile
15,5
Indonesia
1.498.387
730%
28
Czech Republic
19,9
Poland
1.410.502
43%
35
Kuwait
28,5
Thailand
1.376.690
147%
Ranking
Economy
Index
1
Sweden
1,8
6
Singapore
16
Economy
41
Ireland
33,6
Malaysia
1.332.658
90%
43
Botswana
34,8
Saudi Arabia
1.150.497
30%
45
Saudi Arabia
35,5
Argentina
954.493
38%
48
Mexico
38,9
Nigeria
935.312
142%
49
South Africa
39,7
Czech Republic
843.329
73%
57
Turkey
43,1
Colombia
833.885
41%
60
Peru
44,9
South Africa
768.686
42%
61
Brazil
45,0
Kazakhstan
759.679
112%
101
Paraguay
67,7
Philippines
740.887
158%
127
Bosnia and Herzegovina
77,3
Chile
534.332
46%
131
Nigeria
79,3
Venezuela
215.722
29%
136
Argentina
81,8
Ecuador
175.273
72%
159
Iraq
95,5
Paraguay
60.193
63%
0 - 100 - The greater, the riskier
Source: Oxford Economics - November 14, 2013
Source: Accenture, Oxford Economics
11
Government support is a condition
for Brazil’s international success
Brazilian firms will increasingly
need to seek alternative sources
of funding
12
Brazil’s government has heavily supported corporate internationalization efforts. The
statistics tell the story: the BNDES, Brazil’s development bank, has offered lowinterest financing to or bought stakes in 21 of the country’s 25 most
internationalized businesses.
This is no bad thing. Targeted financing can stimulate the growth, innovation and
productivity of Brazil’s multinationals, and this kind of support can sometimes be the
only way to access sufficient capital investment to compete on an equal footing in
new markets. It is also an important way of building global competitiveness in
strategically critical industries. According to research by O Estado de São Paulo
(2013), BNDES invested at least R$18 billion (US$8.1 billion) over the six years to
2013 to support the creation of “national champions,” supporting the acquisitions
made by companies such as JBS (meatpacking), Oi (telecommunications) and Totvs
(software and technology services).
The strategic hand of the state
Tightening purse strings
Nadia Menezes’ research shows how Brazil’s
government support initially focused on
heavy industry and infrastructure, but has
more recently broadened to semiindustrialized goods and services. Most
recently, Luciano Coutinho, president of
BNDES, stated that the bank will refocus its
cheaper financing to infrastructure,
capital-intensive companies and projects
that spur technological innovation.
Brazil’s recent economic difficulties reflect
changes in both the domestic and the global
economy. The country’s domestic consumer
boom has run out of steam, and the
commodities boom has ended as China
rebalances its economy away from
investment and toward consumption. None
of this should come as a surprise, but the
impact on Brazil’s state finances is
significant.
There is not a nation in the world –
developed, emerging or developing – that
has not undertaken similar targeted
initiatives to help shape their development
journey. The Chinese government’s support
of state-owned enterprises and their
international expansion is well recorded, but
China’s prominent private-sector players also
receive state support. And smaller economies
have developed tools and mechanisms to
help their firms achieve scale and
competitiveness that would not be possible
domestically, such as Singapore’s Double Tax
Deduction Scheme for Internationalization
(DTD) or Spain’s Enterprise
Internationalization Fund (FIEM).
Brazilian government debt, at nearly 60
percent of GDP, is higher than in most
comparable emerging markets. Public
finances have gradually deteriorated in
recent years, in part due to government
lending to BNDES. Credit rating agencies
have taken notice. Brazil has maintained the
“investment grade” status it proudly received
for its sovereign bonds in 2008, but earlier
this year, S&P downgraded its rating of these
bonds.
But times are changing in Brazil. Our
contention is that in the future, fewer
Brazilian companies will be able to rely on
financial backing from the government to
support their international expansion. The
reasons are simple: On one side of the
equation, government has less money to
give. On the other side, there will be more
companies going global, and thus there will
be increasing competition for scarcer funds.
Moreover, the government faces mounting
pressure to do a lot more with a lot less. For
example, Brazil needs to update the
country’s outdated infrastructure, as well as
to address underinvestment in public services
(notably education, healthcare and
transport). Protests in June of 2013
highlighted the groundswell of demand for
improved public services. With a tax burden
of some 36 percent of GDP (a level
characteristic of developed economies with
superior public services and a higher
percentage of older people in their
populations), further tax increases do not
seem to be a viable option.
13
This shift is about to take place. In April of
2013, the BNDES announced that it was
putting an end to its policy of supporting
national champions (a term not favored by
Coutinho). And more recently, the
government pledged to gradually reduce
subsidized loans to the BNDES, eventually
bringing them to an end.
The BNDES will continue to play a critical
role in supporting business and economic
development. In fact, the bank’s lending has
increased since its sharp drop in 2011, (see
Figure 5, “Limits to credit growth”), but its
president has already signaled that 2014 will
see an end to this trend, heralding a more
measured era of BNDES credit.
Figure 5: Limits to credit growth (BNDES lending, 2013 prices)
BNDES lending has seen a decade of strong growth, but this trend is expected to
lose steam or even reverse from 2014.
2013 R$ billion
In this context, it will be difficult for the
government to justify significant lending to
private businesses, let alone those that
target investments in foreign markets.
250
200
150
100
50
0
2004
SMEs
2005
2006
Medium-large
2007
Large companies
Source: Accenture analysis of BNDES data
14
2008
2009
2010
2011
2012
2013
The BNDES’s focus is clearly evolving as a
consequence of evolving economic and
political trends. And as increasing numbers
of Brazilian companies venture abroad, it is
unsustainable for the government to fund
private companies to the same degree,
particularly with so many competing
national priorities for those same scarcer
funds.
Business imperative: engage with
global capital flows
Regardless of the policies of the government
or the BNDES, Brazil’s aspiring multinationals
cannot afford to wait. If going global is
strategically the right thing to do, the
business case must be made and action
taken.
Waiting for or expecting financial support
will become increasingly untenable;
competitive pressures will not permit it.
Companies in Brazil’s fast-moving digital
economy are already realizing this. Witness
the innovative Brazilian start-ups trying to
build connections with Silicon Valley. They
are looking not only for skills and markets,
but also access to venture capital. BayBrazil
is a non-profit organization that has built a
network of some 3,000 entrepreneurs,
academics, professionals and critically,
investors, in the Silicon Valley and Brazil.
But international capital is not just reserved
for Silicon Valley-types. Netshoes has its
roots in São Paulo, but has grown since 2000
to become one of the nation’s highestprofile online retailers, receiving 20,000 to
30,000 orders every day for products as
varied as clothing to sporting equipment.
Netshoes did not wait for government
support to achieve this scale. The firm’s
leadership understood that a wide range of
capital sources are available for companies
with a strong business proposition, and that
some of the best sources may lie beyond the
country’s borders. Netshoes’ investors
include Tiger Global Management and Iconiq
Capital from the United States, Kaszek from
Argentina and Temasek Holdings from
Singapore. In May 2014 these were joined by
Singaporean sovereign wealth fund GIC,
which led a new investment round totaling
some US$ 170 million.
Businesses that have been born into these
globalized and Internet-enabled times can be
quicker to realize opportunities. Dafiti, an
online retailer, was established in 2011 and
has already established operations in five
other Latin American countries. The company
has so far raised US$255 million from
investors including the German incubator
Rocket Internet (which helped launch it),
New York’s Quadrant Capital Advisors,
Mexico’s Grupo León, JP Morgan Asset
Management and the Ontario Teachers’
Pension Plan.
Being a multinational in today’s global
economy requires leaders who will actively
tap international flows of talent, capital,
consumption, resources and innovation. Of
these, capital may be the least intuitive for
many companies to conceive of accessing
from abroad; there is a close attachment to
familiar, reliable funding sources. But
familiarity does not always equate with
suitability. It is in the interest of every
aspiring Brazilian multinational to actively
seek out the most appropriate sources of
capital to fuel their growth.
15
Growing and managing
international operations is
excessively complex and difficult
New-generation technologies
and operating models make
international operations more
manageable than ever
16
International expansion is not simple. Our research uncovers that even executives
confident in their international strategies lack confidence in their ability to
implement those strategies.
In fact, less than one in five of the Brazilian executives we investigated felt fully
confident that they have the operational capabilities required to execute their
international growth strategy. We questioned them more deeply and found that this
lack of confidence runs through all aspects of their international operating models;
their organizational structures, their processes, their information technology, their
leadership, people and culture.
Difficult but unavoidable choices
A new era of digital opportunity
The initial decisions and steps of building an
international growth strategy are hard
enough, but the realities of implementing
that strategy are intimidating. Then comes
the management of international operations,
which is a whole new kettle of fish: how do
we optimize operations across the global
organization? How do we stay relevant to a
global marketplace that is evolving in
different ways in different locations, and at
different speeds? And how do we achieve all
this in an efficient, cost-effective way?
Academics such as Bartlett and Ghoshal
(1987) and Boudrea, Loch, Robey and Straub
(1998) have emphasized the importance of
achieving efficiency, responsiveness and
learning in order to operate successfully
across borders. The latter scholars
highlighted the critical role that technology
plays in achieving this. Fifteen years on, the
acceleration in technology solutions has
dramatically enhanced the options for
organizations. The newest generation of
technology-enabled trends, such as cloud
computing, machine learning, mobility,
analytics, 3D printing and social media offer
improvements in both efficiency and
responsiveness simultaneously. Brazilian
firms have never had access to tools that
offer this degree of flexibility and benefits to
both the top and bottom lines. They have
never had the opportunity of being this
prepared for the complexities of running an
international business.
At the heart of these questions sit a series of
difficult choices and trade-offs. The most
fundamental of these are around governance
and decision making. To what degree should
decisions be centralized or decentralized
across business units, geographies and
functions? To what degree should processes
be standardized or left to be governed
distinctly? Ultimately, these questions are
about choosing between two eminently
desirable outcomes: on one hand, efficiency
across the global organization, and on the
other hand, responsiveness to diverse and
evolving market dynamics. To complicate
matters further, consider that the relative
importance of these imperatives may
fluctuate over time. And also that the
pressures to centralize or standardize may
move in different directions when
considering different parts of the business
value chain.
In this context, it is no wonder that Brazilian
executives feel daunted by the prospect of
going global. But the degree of complexity is
no reason to delay what the company sees
as the right strategy. If international
expansion makes strategic sense, then time
and resources should be invested to build the
appropriate operational capabilities to
realize that strategy.
Audi, the automotive manufacturer, provides
a good example of how these technologies
can accelerate both efficiency and
responsiveness. The firm’s designengineering process connects data from a
wide array of sources to generate products
at speed and to accurately-tailored
specifications. Audi’s Virtual Lab, for
example, is an online network that draws on
crowd-sourced input from customers to drive
the design of a software-based infotainment
system. Intelligent machines perform rapid,
iterative data analysis to systematically
refine customer input which is used to
simulate prototypes. The company also used
customer input to help design their R18
Ultra Chair. Thermal-imaging data was
collected from 1,500 people who tested out
the chair at a Milan furniture show in 2012,
which was then fed into a proprietary
algorithm and which informed further
iterative designs of the chair. Among other
awards, Audi secured prizes in the Connected
Car of the Year awards organized by the
Connected World Magazine in 2012 and
2013.
17
Figure 6: Key components of an international operating model
An international operating model is the vehicle through which a company executes
its business model and international growth strategy.
Macroeconomic and Industry Landscape
Business Strategy
Operating Model
Value Chain
Corporate support
Continual Adaptation
Design, Sell and Market
Buy, Make and Distribute
Transact, Service and Collect
Operating Model Levers
Organizational
Structure
Leadership
People
Corporate Culture
Process and IT
Source: Accenture Institute for High Performance, 2013
Value versus cost
Reading an example like Audi’s may worry
executives with tight budgets. But our
experience with clients suggests that
successful investments in this kind of
technology arise when the initiative is not
viewed as a cost but rather as a generator of
new value. That value can be multiplied if
the same technology investments are able to
serve a variety of markets; bringing
efficiencies to many locations and insights
into customer groups. In this way,
technology can help simplify complex
international operations.
Even the most cash-rich corporations cannot
afford to implement these technologies
immediately and at scale. Prioritization is
critical. It is important, therefore, to assess
where these technology investments will
make the greatest impact. This must be done
in the context of the firm’s specific strategic
objectives and priorities.
18
Increasing Brazil’s decisions
“at the edge”
Numerous scholars have characterized the
traditional Brazilian management model as
hierarchical, with a high degree of control
sitting at the top of the organization. These
academics have identified the presence of
rigid hierarchical structures as one of the key
components of the traditional Brazilian
management model (Caldas, 2006). Yet this
model, as Fleury & Fleury (2012) noted, is
“compatible with a domestic market [that is]
protected and dependent on government
actions.” In order to succeed in the globally
integrated economy, the most successful
Brazilian multinationals have realized the
importance of relaxing hierarchical
tendencies and adopted a more flexible and
adaptable management style. (See Figure 7,
“Decentralizing the core.”)
This suggests that many firms could generate
significant value by implementing
technologies that effectively empower units
distant from headquarters. The aim might be
to increase the value and accuracy of
decisions that are taken “at the edge” of the
business. Combinations of mobility, machine
sensors and analytics solutions are being
used by companies to do precisely that.
GE Transportation, for example, is designing
technology that enables train operators to
continuously monitor equipment, determine
schedules and plan for locomotive servicing
thanks to sensors that track about 250
variables. In this way, train operators are
empowered to implement quick decisions
that are responsive to the latest events and
can save time and costs.
The international convenience grocer
7-Eleven has similarly shifted decision
making responsibilities to the edge of the
company, rather than the center. Point-ofsale terminals transmit data to a data
repository in real time, allowing a
transformation in inventory management
processes, with store managers in thousands
of locations taking responsibility for stock
management decisions that used to lie with
corporate senior executives.
Figure 7: Decentralizing the core
Brazilian companies are increasingly focused on decentralizing decision making in core business functions, such as manufacturing and sales.
Please think about the location of decision-making authority across your international organization. What changes, if any, do you think are
necessary over the next 3 years across the following processes? (% of respondents who answered “centralize more” or “decentralize more”)
Core business functions
Support functions
Manufacturing
Treasury and risk
management
Sourcing
Talent management
Operations planning
and forecasting
Research and innovation
Marketing and sales
activities
Tax management
Distribution and logistics
Operations performance
management
Centralize more
Decentralize more
Source: Accenture Brazilian Multinationals survey
Leading with confidence
The last decade has seen profound
changes in the structure of Brazil’s
economy and society; and the rest of the
world has also evolved dramatically.
Multinationals have refreshed their
strategies, rearranged their priorities and
begun to accept that new thinking is
required to succeed in tomorrow’s
interconnected global markets. Some
Brazilian companies are among this
group. But many remain stuck in old
patterns, unaware or unwilling to accept
how new technologies and new business
models are reshaping the future
competitive landscape as well as their
relationships with stakeholders around
the globe.
Many commentators have talked of
Brazil’s “underdog complex.” Perhaps we
are fundamentally talking about the
need to build confidence. Confidence
about the strength required to go global,
confidence to interact with unfamiliar
markets, confidence to seek new and
alternative partners, and confidence to
take on the unavoidable complexities of
international operations.
Much is to be gained by questioning
conventionally held assumptions.
Brazil’s business leaders who free their
thinking and understand the dynamics
of the new global economy will be well
positioned to develop a global
mindset—a necessary first step toward
creating business strategies that combine
the best of Brazil with the best of what
the rest of the world has to offer.
19
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About the Authors
Armen Ovanessoff (armen.ovanessoff@accenture.com)
is a senior research fellow in the Accenture Institute
for High Performance and leads the Institute’s research
on emerging markets
Athena Peppes (athena.peppes@accenture.com)
is an economist and a research fellow
in the Accenture Institute for High Performance
Eduardo Plastino (e.plastino@accenture.com)
is a research fellow in the Accenture Institute
for High Performance
Felippe Oliveira (f.demedeirosoliveira@accenture.com)
is a research specialist in the Accenture Institute
for High Performance
Senior executive sponsor
Vasco Simões
We would like to thank the following individuals
for their contributions to the study:
Daniella Alves, Fabio Mittestaedt, Carolin Puppel and Andréa Santini.
22
23
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