Decoding the DNA of Brazilian Multinationals

In recent years, companies from emerging economies — especially the BRIC nations (Brazil, Russia, India and China) — have challenged the hegemony of multinational giants from the U.S., Europe and Japan in what has been called the “third wave” of globalization. Brazilian multinationals, with their own unique attributes, are leading the charge. Last year, the Boston Consulting Group ranked 14 Brazilian companies among the world’s 100 “new global rivals.”

Nowadays, Companhia Vale do Rio Doce (in the mineral sector), Petrobras (in petroleum) and Embraer (in aerospace) are the strongest and most recognized companies outside Brazil’s borders. These firms have moved abroad as a result of changes in the internationalization process that began in the 1990s, when there was a considerable increase in foreign direct investment (FDI) in Brazil. This occurred in other Latin American countries, too — but in the case of Brazil, the trend was especially strong. During that decade, the annual average investment volume was US$1.048 billion. By 2006, the volume of investments had risen eight-fold to US$8.20 billion.

In addition to investments, there is a lesser-known globalization process within the companies themselves, “whose management model is based on an inventive combination of organizational competencies and management systems.” That is the conclusion of a recent study in the Universia-Business Review, titled “The road moves forward: The path of Brazilian multinationals.”

Colonial Roots

The authors of the paper — Alfonso Fleury, professor of engineering at Sao Paulo University; Maria Tereza Leme, dean of the Getulio Vargas Foundation (FGV-EAESP), and Germano Glufke, professor at the FGV-EAESP — studied 30 corporate headquarters and 68 Brazilian subsidiaries, and engaged in 12 in-depth case studies in order to identify the genetic make-up of these multinationals, and the factors that explain their competitiveness in global markets. They argue that you have to look deep into the country’s Portuguese colonial period for the origins of “Brazilian-style management.” According to the authors, that heritage consists of the following:

  • A centralization of decision-making in upper levels of management, with a misalignment between responsibility and authority.
  • Short-term vision, focused on short-term results and on solutions for dealing with crises.
  • A lack of strategic planning and significant gaps between strategy and operational execution.
  • A reactive management style which place a high value on creative improvisation.
  • An interest and admiration for managerial practices imported from other countries.

The situation that predominated until the end of the 1980s was characterized by a domestic market that was protected by the government and strongly influenced by its political decisions. “This contributed to the creation of a parochial mentality; an approach to business that was not very entrepreneurial and was dependent on local institutions and, as a result, excessively directed toward the country itself, so that it lost sight of the global perspective,” the authors write.

It was not until the 1990s, with the arrival of the government of Fernando Henrique Cardoso (1995-2003), and then that of Lula, that there was a series of significant changes aimed at the stabilization of the economy (and the control of inflation), as well as the opening of the market. These governments “opened up the market to foreign products and expanded the level of its global competitiveness,” the researchers note.

The Basis for Internationalization

As elsewhere in Latin America, the beginnings of this decade were marked by the prospect for trade deregulation within the so-called Washington Consensus — a combination of economic prescriptions whose goal was to promote economic growth in the region. During that period, for example, there was the privatization of state enterprises such as Petrobras and Embraer; the consolidation of the capital goods sector, with mergers and acquisitions such as the beverage company Ambev/InBev; the de-nationalization of the durable goods sector, a process in which various companies were acquired by foreign multinationals — including Sabó (auto parts) and Weg (electrical equipment), which wound up being more competitive and better positioned for international markets.

In practice, the result of this entire process was the stratification of Brazilian companies into leading companies and those that followed them. “Among private companies, those that stood out were the ones that really developed competency at surviving and prospering competitively in the turbulent domestic market, fighting hand-to-hand against the subsidiaries of multinationals,” the authors write. In the case of the state-owned companies, “the privatization process injected new competencies (especially in finance and marketing), which complemented their strong competencies in production and technology, and established new horizons for taking action.”

At the same time, the creation of the Mercosur trade agreement (which includes Argentina, Brazil, Paraguay and Uruguay) in 1991, served as a new realm for experimentation, and contributed to developing a vision, among administrators and entrepreneurs, of a more globalized world. On the other hand, the researchers note, “the managerial development programs offered by Brazilian institutions gained new status abroad, and won significant positions in the specialized international rankings.” These changes laid the foundations for the process of internationalizing Brazilian companies.

A Broad Profile

These days, Brazilian multinationals have a presence in a broad range of activities no longer limited to the exploitation of natural resources so characteristic of companies in emerging countries. Apart from companies in that sector, there are outstanding providers of basic supplies, such as petrochemical maker Braskem; construction materials providers such as Tigre and Duratex; and Odebrecht and other firms that focus on technical services for engineering.

Brazil’s process of internationalization was generated independently. The companies made their own decisions and developed their own strategies. “There was not any cooperation among the companies in the industrial sector; or between them and financial institutions (as in the case of Spain); and there was no assistance from the government (as in China).” Nevertheless, privatized companies stand out among the biggest multinationals in the country.

Like most other firms that serve multiple markets in Latin America, Brazilian companies were late to internationalize themselves — waiting, in many cases, for decades after the companies were established. “There were small movements in the 1980s, but the process did not intensify until the end of the 1990s.” In the beginning, Brazilian multinationals made Latin America their goal. This was the most natural route because of the geographic distance and the cultural and institutional differences between Brazil and regions outside Latin America.

Unlike the first multinational companies that made it a priority to seek new markets or access to new resources, companies that were “late movers” in emerging nations such as Brazil were involved in “a mix of activities that take place simultaneously and, from the beginning, also encompass a search for assets that is strategic and efficient. There is also a range of ways that these companies became international, including new acquisitions as well as joint corporate shareholdings and alliances.”

Some of these players have been motivated to expand by the recent formation of “networks of global production.” As the authors note, such networks, “by requiring an international presence, induce companies to make the effort at globalization. Typical examples are Sabó, Embraco (which manufactures refrigerator compressors), and companies in the information technology sector.”

Management Model

The trend toward trade deregulation and the questioning of prevailing business models began, thus uprooting the foundations of the parochial management style. As a result, numerous Brazilian companies learned about the challenges that they had confronted throughout their history. They developed a new managerial model that served as the basis for their internationalization. Among the competencies they acquired, the researchers note, the following stand out: Organizational flexibility as a function of the characteristics of the market and the economic situation, versus the Brazilian tendency to establish hierarchies and centralize; and active waiting, or constantly monitoring conditions and preparing yourself so you can give immediate answers, as opposed to the traditional approach of focusing on short-term planning and intuition.

In addition, many companies developed first-class production processes, strongly influenced by Japanese models. They acquired world-class technical skills and, in some cases, new strengths in R&D. They have learned to focus on their customers, and developed new competencies in international finance and risk management. As for human resource management, these multinationals are the most advanced companies in the country, although they continue to have lots of problems addressing personnel issues that are the result of globalization.

In the laborious road toward internationalization, multinationals have been acquiring other skills such as marketing and international innovation, as well as competencies in running international networks; that is to say, “intrinsic corporate skills for managing, utilizing and exploiting inter-corporate relationships,” the authors write. Finally, they add that such firms have also learned to adapt themselves to the demands of institutions and markets, and have attuned themselves to issues concerning social responsibility.

Beyond this new managerial style, which has yet to mature, are the specific advantages of Brazil, aside from its natural resources. Among these, note the authors, are institutional conditions, specialized labor forces, and access to technological knowledge. Some companies have also benefitted from their relationships with the government. Others “have taken advantage of characteristics of the domestic market to develop their own skills, which have enabled them to move into global markets.”

Embraer stands out among the multinationals that have changed their managerial model, having transformed itself from a state-owned company into a market-focused company with “long-term planning and a business model sustained by multiple inter-cultural collaborations,” which include risk-sharing partnerships, joint ventures and aquisitions. The company currently operates regional plants and offices in North America, Europe, China and Singapore. 

Another case, the authors note, is the ‘intra-entrepreneurial’ culture of Odebrecht, “a company that is in an expansionary phase. It has established its own managerial practices, such as the Odebrecht Entrepreneurial Technology, the company’s fundamental principles. This system of planned delegation grants autonomy to subsidiaries so that they can adapt themselves to local conditions.”

The Road Ahead

According to the authors, the quality that stands out as unique among Brazilian multinationals is their managerial model. Traditional roots, such as hierarchical structures, continue to play a role within many companies. During the internationalization process, these characteristics have been revealed in different ways. One example is the adoption by some companies of mechanisms for avoiding uncertainty and risk; that is, their preference for making exports over making foreign direct investments, and their emphasis on choosing those foreign markets that are similar in appearance. Another example is making individualized – rather than cooperative – decisions to internationalize. A third is the trend toward an ethnocentric positioning, which gives priority to managers at corporate headquarters, to the detriment of local managers.

In that regard, the study points out that managers at the headquarters of Brazilian companies provide incentives for the entrepreneurial spirit in their subsidiaries, but they do not make any great effort to integrate [the various divisions], and they give little autonomy to their subsidiaries. “In this context, subsidiaries take the initiative, especially those that operate in competitive markets and are supported by networks of international companies.” These characteristics, write the authors, “seem to be very favorable [for Brazil] because they reveal the skills that Brazilian administrators have for adapting to new cultures, and their ability to produce creative and innovative responses to conditions that could not possibly be more turbulent.”

The authors conclude by noting that the foundations of the Brazilian managerial model are still in a developmental phase, even if those foundations are quite visible. “How quickly they mature will depend how quickly leadership acts, and on the demonstration [of other leading companies], which can bring new groups together on the same journey.”

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