Wednesday, December 3, 2014

A BRIC Nation Ready to Launch: Insights on the Labor Market and Business Climate in Brazil from My MBA In-Residence Trip

By Dan Alldridge

Enjoying the visit to BM&F Bovespa

Traveling to Brazil with my online MBA classmates through Kelley Direct’s AGILE course was a great experience. It was a unique opportunity to learn about an emerging market that could not be replicated in the classroom.
I was immersed in the whole country - learning the Brazilian culture through its, business environment, economy, and politics.  During my trip, I was able to observe business politics during the lull between presidential election votes.  The business leaders in Brazil all noted their concerned about the negative effects to the economy if President Dilma Rouseff were re-elected.  These fears came to fruition on 27-October, the day following President Rouseff’s re-election, the market fluctuated drastically ending 3% down and the Brazilian real weakened even further. 


Middle Class in Brazil Still New To Disposable Income

Our trip included company visits highlighting multiple aspects of the Brazilian economy – one of which was income disparity. The country has the 7th largest GDP in the world, but it ranks near the bottom in income inequality.  Almost 70% of the Brazilian population lives in conditions that would be considered slums in the U.S. Fabio Iwabe with BM&F Bovespa (Brazilian Stock Exchange) went so far as to say the “middle class in Brazil lived in slums with good views,” particularly those in Rio de Janeiro.  This idea of the middle class was really shocking when you start doing some comparisons with the U.S.  My opinion of U.S. middle class is a single family home, relatively good schools, and sufficient disposable income to vacation every few years.  Brazil’s middle class was mainly concerned with surviving in the slum with limited access to education and had no thoughts of leaving Brazil.

Leaving the Volkswagen plant and experiencing the “middle class” neighborhoods through the smog.

Another issue that is causing the country some heartache is the fact that most of the “middle class” citizens are just now starting to generate disposable income, and they don’t know how to manage it.  Instead of saving, investing, or building equity they tend to spend like teenagers. This is one of the big reasons that consumer goods are such a big market segment in the country.
The 167 million people that make up the Brazil’s middle and lower class tend to make up a disproportionate percentage of the consumer goods industry (which saw 17% growth from 2012 to 2013).  This has its root in the immature spending habits of adults just now coming into disposable income that comprise these social segments.  It was also hinted that status purchases such as new clothing, cellphones, and electronics also drive the spending habits of these people.    

Businesses in Brazil Need More Talent and Ways around Red Tape

Knowing that the Brazilian economy is 7th in the world obviously means it is doing something right. There are many successful state and local owned companies, although the majority of our visits were to multinational corporations. Working for a multinational myself, I was interested to see what nuances I noticed about doing business in Brazil. Two things really stuck out in my mind about business in Brazil:  the human capital and bureaucratic red-tape.
There is a big battle going on between companies in Brazil for top talent. There are plenty of factory and lower-skilled technician level workers to go around, but middle and upper management positions are tough to come by. The country currently has around a 5% unemployment rate, which is rather good considering the country is in a bit of a recession. Many of the companies noted the concern over having enough local talent to fill managerial positions and were taking steps to ensure the pipeline would be full in the future. Training programs, language training, and school incentives were among the common offerings.  The current incentives appeared to be working for the companies.  The Brazilian government must ensure that its citizens understand the importance of education to keep the pipeline of talent filled.
Another topic that continued to come up in conversations was the amount of red tape required to run a business in the country. Although it is rather straightforward to start a company, running your operations is a whole different story.  Labor unions are prolific in the country and pull a lot of weight - especially with Dilma Rousseff, the current Brazilian President who is from the Worker’s Party.  Lots of the labor laws and other regulations governing businesses have not been updated for several decades, which has resulted in the layered bureaucracy.  Based on the trip, there are two key things a company will need to do to overcome the Brazilian bureaucracy.  The first is to use local talent.  Start by finding a local lawyer or consulting firm that can help navigate the initial entry into the country.  The second piece of advice would be to have a flexible plan.  Although American businesses love to build plans and execute, the reality in Brazil is that your plan will probably change dozens of times during implementation.
Having said all that, doing business in Brazil could still be a bet worth making for a multinational corporation. As the country continues to mature and new politicians come into office, the country will continue to offer opportunities for growth.

Interaction with Classmates Enriches In-Country Experiences for Online Students

I would be remised if I didn’t mention one of the most enjoyable experiences of the course was interacting with my fellow course mates in person for the week.  The online platform is the only way I can pursue an MBA right now. Although I don’t see my classmates often, when the online courses are coupled with in-person experiences such as AGILE and Kelley Connect Week, it makes the group work, online discussions, and the overall program that much more powerful.

Great visit with EY where we spoke with the CEO and the COO of South America.
During the Brazil trip, I started to realize just how valuable each individual’s background and expertise were to my classmates’ learning. The companies we visited were in several different industries, which allowed for individuals to take the discussions a little deeper with his or her industry knowledge. For example, one of my classmates who works at State Farm was able to add great insights during our visit to the Brazilian insurance firm Porto Seguro.  She was able to uncover the fantastic services that come with having basic car insurance through the company.
There were also several of us with manufacturing or supply chain backgrounds that engaged in very detailed conversations while visiting Volkswagen, Cummins, and FM Logistics.  The supply chain is so often an afterthought in growing businesses.  At Cummins, we were shown insights into the company’s supply chain that would be undergoing a massive overhaul in the coming years.  Cummin’s growth in South America had resulted in fragmented systems, duplication of efforts across sites, and generally an inefficient supply chain.  However, the company has recognized this gap and put together a global plan to lean out their supply chain and make it much more cost-effective.
This Brazil in-residence trip was a great way to learn about and explore the business climate of another country with my classmates. I am looking forward to consulting small businesses on my next AGILE experience in Athens, Greece coming up in spring of 2015.


About Dan Alldridge

Dan Alldridge works for the ThermoFisher Scientific as an External Manufacturing Manager, currently located in Carlsbad, CA.  In his role, he develops and implements supply chain strategy around insourcing and outsourcing, while maintaining key contract manufacturing relationships.  Following graduation from Southern Illinois University-Edwardsville in 2006, he was commissioned as an officer in the USMC.  He spent two of his six years participating in combat operations in Iraq and Afghanistan.  Dan has business experience working in Europe, Asia, Central America and the Middle East. He is currently pursuing a dual-degree MBA and MS in Strategic Management through Kelley Direct.

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