With a report by Roberta Paduan Exame Reprint - Expansion

Special Reprint of Three recent exame covers stories on the brazilian economy

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The biggest emerging market in the world


The head offices want (much) more

With the slow recovery in the European and American markets, global companies look towards their Brazilian operations with record investments - and goals.

Ana Clara Costa

Magnus Anseklev, of Sweden, president of Sony Ericsson in Brazil, left at the end of last year for a marathon of meetings in Miami, head office of the directorate responsible for Latin America, and in London, company headquarters. Like so many other heads of multinational subsidiaries, Anseklev had the mission of drawing up goals for the business in 2010. He took a number. And after one month of discussion, he came back with another, much more aggressive - grow 15% in Brazil this year. This is the biggest goal ever stipulated by Sony Ericsson since entering the national market in 2001. It is also greater than growth expectations for the cell phone handset market in Brazil in 2010, which are around 10%. With good perspectives for economic growth and a thriving domestic market, the country has become a chance for redemption for bad global results accumulated by large multinational companies last year. In 2009, Sony Ericsson recorded global losses of 836 million Euros. Sales fell nearly 41%. (The company doesn't release local numbers, but it affirms sales by the Brazilian operation remained the same as the year before - which, in view of the rest of the world, was deemed a success.) "We have an aggressive goal, but it is founded on optimistic economic indicators," says Anseklev.

The ambition demonstrated by the executives at Sony Ericsson's in relation to Brazil has become commonplace among multinational firms operating here. In face of the fragility and degree of maturity of markets like the American, Japanese and European, corporations seek emerging markets that can occupy the space left by them. At such a time, no one compares to BRIC, a group comprised of Brazil, Russia, India and China, countries with huge emerging populations. Within BRIC, it cannot be denied that Brazil, with its democracy and demography, is the market in fashion. Therefore, it is natural for multinational shareholders to see the chance of at least keeping their dividends here. And global presidents, their bonuses. In 2009, Brazilian executives at Nestlé, the largest foods manufacturer in the world, set the goal to grow 6% this year. The objective was revised in Switzerland, company headquarters, to growth of at least 10% in the subsidiary's sales of 14 billion reais. Basf, of Germany, which earns 2.4 billion dollars per year in Brazil, set the goal to grow 100% next decade here. It took 30 years to reach its present size in the country.

Like Anseklev, of Sony Ericsson, said, these numbers are based on reality. Few countries today grow at Brazil's pace. Therefore, it is natural to expect better results here. But it is also natural for head office expectations to generate additional pressure on Brazilian operations. As is clear in this report, all companies plan on growing more - sometimes much more - than the economy as a whole. That means taking market share from already established competitors, who will hardly stand still. This will thus be a year of fierce competition - or unmet goals. "The feeling out there is similar to that of Pero Vaz de Caminha when he sent the Portuguese Court a letter saying Brazil is a land where 'planting, everything grows,'" says Rodrigo Dantas e Silva, partner at the strategic consulting firm, Roland Berger. "The two digit goal seems to be the rule for 2010."

That is the logic that governs the strategy at the American clothing manufacturer, Hanesbrands, operating in 25 countries and which earned 4 billion dollars in 2009 - 7% less than the year before. The results of the Brazilian operation, with revenues of 80 million dollars last year, should help compensate global losses. The objective established for the Brazilian subsidiary in 2010 is to grow 40% - eight times more than world earnings growth projections, which should be 5%. "Brazil will lead the company's growth in the world," says Osvaldo Cordon, president of Hanesbrands in Brazil, owner of the Zorba, Kendall, Tensor and Hanes brands. Cordon intends to expand the product distribution base in the country to get there. At present, the company only has partnerships with large chains, like Walmart. Now, he plans on also selling to regional retailers, like GBar­bosa, of Sergipe, the fourth largest supermarket chain in the country, and Yamada, of Pará. "Last year, we got ready to set up representation offices in smaller cities in the country," says Cordon.

The importance Brazil has gained in global plans can be seen in the change in hierarchy status of some subsidiaries for the corporation. For the Brazilian operations of Japanese tire manufacturer, Bridgestone, with sales of around 1 billion dollars last year, this turnaround occurred a few weeks ago. In the beginning of April, the Sao Paulo office became the new Latin American head office for the company. Until then, it had been located in Nashville, Tennessee. With the change, the president of Bridgestone Brasil, Humberto Gómez, of Mexico, will now run Latin American operations. Gómez's promotion came with a mission: grow 20% in the Brazilian market in 2010. For such, he already has headquarters' permission to invest 40 million dollars in expanding production capacity at the two Brazilian factories - Santo André, in Greater Sao Paulo, and Camaçari, in Bahia. With this injection of resources, Gómez plans on producing 30% more tires this year. "Brazil's economic and political stability, and its potential, led us to give priority to production here," he says. "And this production is not focused on exports, but rather on the Brazilian consumer market."

Bridgestone is not the only multinational firm to tie aggressive goals to heavy investments in Brazil. This year, 38 billion dollars should enter the Brazilian market in the form of direct foreign investments, according to the Central Bank. This sum is more than the 26 billion dollars in 2009 - but still less than the historical record of 45 billion in 2008. For 3M, of the USA, which has the task of increasing its earnings in the country of around 900 million dollars per year by 10% this year, investments in Brazil will come in the form of acquisitions. Its annual investments in the country are around 40 million dollars, which may be increased by up to 25% this year, as opportunities appear for purchasing competitors. In December, the company acquired Incavas, a family run business from Rio Grande do Sul that produces cleaning accessories for an unrevealed sum. "Over the past five years, we made three acquisitions. We want to make one more this year," says Michael Vale, of the USA, president of Brazilian operations.

This year, Brazil will receive 38 billion dollars in direct foreign investments

With the increase in interest in the domestic market, Brazil has also been included in the route of more frequent visits by executives like Steve Ballmer, global president of Microsoft. His first trip here occurred in 2001, soon after taking over. Ballmer returned in October 2008 - and he already has another visit scheduled for the next few days. "Brazil has a very important role in Microsoft's global strategy. Today, the country is ranked tenth among our 55 subsidiaries and it has enormous growth potential," said Ballmer during his most recent visit. In other cases, the subsidiary received world attention by becoming the stage for meetings that are normally held at the headquarters. In March, Bob McDonald, of the USA, global president of Procter & Gamble, was in Brazil to announce the company's results to its nearly 140,000 employees around the world. It was the first time this sort of event happened outside headquarters in Cincinnati, in the United States. This year, the Brazilian subsidiary, with sales of nearly 1 billion dollars in 2009, projects growth of 15% in the beauty segment alone, where it operates with the Pantene and Wella brands.
Balancing expectations and reality will be one of the jobs for the presidents of Brazilian subsidiaries of multinational firms this year. Perhaps a more difficult job than growth. After all, what is the fine line between aggressive goals and unreachable goals? Hard to say. Walmart, of the USA, the largest retailer in the world, was one of the first corporations to reinforce its investments in Brazil and to demand consonant results. In 2009, a year of economic stagnation for the country, it grew 16% compared to the year before, reaching more than 19 billion reais in earnings. For most companies, that would have been a spectacular performance. But the executives at Walmart's Brazilian subsidiary did not receive their annual bonuses. After all, the result was below expected by headquarters in Bentonville, Arkansas. This year, the company has doubled its bet on Brazil. It announced investments of 2.2 billion reais to open more than 100 stores. Now, the millions of Walmart shareholders spread about the world are waiting for the results.