Finding signs of hope amidst Brazil’s economic woes
São Paulo, Brazil – We have seen Brazil’s economy struggling with a number of on-going challenges, including complex political issues that are hard to avoid. Brazil’s investment rating was downgraded in September, primarily due to loss of credibility resulting from a political crisis. The predictions for 2016 are very unclear for investors and business leaders across multiple sectors of the diversified Brazilian economy.
A naive observer might think that the outlook for Brazil in 2016 is unambiguously gloomy due to the decreased GNP, increased inflation, devalued Brazilian Real and reduced productivity and profitability in the industrial sector.
However, savvy investors and business leaders are able to see the bigger picture. The weak currency helps Brazilian exporters in sectors such as agricultural commodities, processed food, processed meat and mineral commodities, and as a result several of the largest Brazilian multinationals are today seeing increased profitability in foreign markets. Even in sectors which are in deep trouble locally, such as steel and vehicle manufacturing, some Brazilian companies – including Gerdau, Marcopolo and Iochpe Maxion – became global and benefit from the larger geographic footprint that allows them to earn more and more of their income from abroad, thus boosting long-term sustainability.
The Life Sciences sector is also looking at medium and long-term prospects in Brazil. Pharmaceutical and medical device multinationals are investing in structuring new operations, and in joint ventures and mergers with local players.
The general prediction at the end of the first quarter of 2015 was that the unexpected association of a weakened local currency and the financial performance of enterprises in certain key sectors (especially sectors that are not yet fully mature) could attract investment from private equity investors keen to take advantage of the economic environment in order to grow existing businesses and improve their business cases. In addition, several mid-size family businesses are now professionalising their organisations in order to deal with the new challenges.
Even sectors that have taken a direct hit from the macro-economic and political environment are investing: Fiat has its new plant in the Northeast region, while BMW and China’s JAC Motors are preparing to tackle the immediate local challenges in order to reap the benefits from the long-term growth trends.
In the IT sector, the Germany-based enterprise software provider SAP has had a presence in Brazil for 20 years, but the demand for its products has recently surged. In 2013, Diego Dzodan, Managing Director of SAP Southern Latin America, reported 40% growth in its Brazilian operations, as cited by The Financial Times. According to Brazilian IT association Brasscom, the local market currently employs 1.3 million IT professionals and that number will see a 30% increase by 2016.
Global Logistic Properties (GLP), the largest provider of modern logistics facilities in Asia, has also been working on several new developments in Brazil. In June 2015, Global Logistics Properties signed lease agreements for 68,000 square meters with three leading companies in Brazil, at two of GLP’s logistics parks. Analysts point out that domestic consumption and a marked trend towards consolidation have resulted in continued demand for leasing.
In the Energy sector, especially in renewables – water, wind and even solar power – we are seeing a strong flow of investments into the country, especially from Chinese players that are looking for long-term infrastructure investments.
However, we are also seeing a restructuring trend whereby companies are shrinking their organisations. Brazil-led regional companies are reducing layers and headcount in their organisations in South and Latin America while dedicating strong efforts to sales and marketing, redesigning strategies and changing product portfolios. We will also continue to see increased pressure on finance and procurement functions until the Brazilian economy gets back on track. Despite the fact that it might take longer than initially predicted, the situation will eventually improve and the players who planned their actions with care will be the first to reap the benefits.
For now, forget about selecting your executive talents based solely on their experience in a specific function or a well-supported and networked organisation. Instead, carefully review your criteria. Companies now seek and need differentiated competences, not mere experience alone, as they prepare to integrate into their organisations the ability to lead and innovate in the complex and changing environment of the region. They must be prepared for 2016 and 2017, when the companies that moved gracefully and became more competitive in 2015 will harvest the benefits of improved revenues, profitability and increase in market share, with some of them displacing traditional competitors. In this game, you need to choose which side you will play on.
From the Executive Search perspective, the Brazilian economy demands unique abilities from the relevant players in the sector and their senior consultants. This is an opportunity for those who foresaw the needs of their clients and markets, and a challenge for those who have become "commodities" within an already fragmented market.
Fernando Cesar is a Client Partner and the Country Manager for Brazil at Pedersen & Partners. Mr. Cesar brings over 25 years of in-depth experience in Executive Search, Management Consulting and Corporate Governance, serving clients in a variety of industry sectors – Agribusiness, Automotive, Chemical, Consumer Goods, Natural Resources and Private Equity. Mr. Cesar is dedicated to C-Suite and senior management assignments for top companies with presence in Brazil and Latin America. Prior to joining Pedersen & Partners, he served as the Executive Vice President for a leading global Executive Search company. Before that, he worked in management consultancy with Accenture and A.T.Kearney, advising on strategy and operations at major companies in the Industrial and Services sectors. He also played a central role in the development of specialized consulting practices in the broader Supply Chain arena – Procurement Transformation, Strategic Sourcing, Global Sourcing and Global Logistics. Earlier in his career, Mr. Cesar worked in product design and development at the Brazilian branch of ZF Friedrichshafen AG, a global automobile supplier.
Pedersen & Partners is a leading international Executive Search firm. We operate 56 wholly owned offices in 52 countries across Europe, the Middle East, Africa, Asia & the Americas. Our values Trust, Relationship and Professionalism apply to our interaction with clients as well as executives. More information about Pedersen & Partners is available at www.pedersenandpartners.com