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Yesterday’s truths, today’s realities: A new global mindset for Brazilian business

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Page 1: Yesterday’s truths, today’s realities - Accenture · Yesterday’s truths, today’s realities: A new global mindset for Brazilian business ... world’s largest brewing company

Yesterday’s truths, today’s realities: A new global mindset for Brazilian business

Page 2: Yesterday’s truths, today’s realities - Accenture · Yesterday’s truths, today’s realities: A new global mindset for Brazilian business ... world’s largest brewing company

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 conventionally-accepted 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 At their core, the persistence of these myths is due to an attachment to outdated mindsets that must be fundamentally questioned and updated.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.

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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 domestic-focused 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.

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Domestic scale and dominance are a prerequisite to international success.

Increasingly, international expansion will be needed to achieve or maintain domestic scale.

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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. Micro-multinationals 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.

Figure 1: Brazil vs. Asia: Changing competitive dynamicsAsian firms have an intense focus on moving up to the higher-value areas that Brazilian companies today see as their competitive 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

Cost-based strengthsNon-cost based strengths

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.”)

ASIA TODAY

High-quality products

Low-cost operations

Low-cost innovation

High-value innovation

Skills and talent

Strength of brand

Intellectual property

Affordable capital

BRAZIL TODAY

High-quality products

Skills and talent

Affordable capital

Strength of brand

High-value innovation

Intellectual property

Low-cost operations

Low-cost innovation

ASIA IN THREE YEARS

High-quality products

High-value innovation

Skills and talent

Strength of brand

Intellectual property

Low-cost innovation

Affordable capital

Low-cost operations

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Prioritize the role of SMEs as business partners and growth drivers

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.

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).

Access the world’s leading-edge capabilities

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.

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.

SMEs – Brazil’s under-utilized growth driver

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.”)

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 2011-2012, 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.

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Source: Ministry for Development, Industry and Foreign Trade (MDIC)

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.

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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.

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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.”)

Brazilian companies typically grow into a number of Latin American markets before considering expansion further afield.

Figure 3: Staying close to home (Investigated companies`s entrance sequence by region)

Source: Cyrino, Barcellos & Tanure (2010)

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).

6% 3% 5% 21% 18% 47%

9% 2% 22% 22% 45%

1% 9% 4% 7% 9% 22% 48%

1% 29% 7% 2% 7% 20% 34%

4% 29% 7% 14% 14%14% 18%

Oceania Asia Middle East Africa Europe USA and Canada Latin America

First Market

Second Market

Third Market

Fourth Market

Fifth Market

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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.

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.

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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.

On measures of risk and opportunity, some Latin American economies do not stack up well. Figure 4: Losing ground?

RISKWeighted average of sovereign, trade, political and regulatory risk indices

Ranking Economy Index

1 Sweden 1,8

6 Singapore 3,9

16 United States 9,8

18 South Korea 15,3

20 Chile 15,5

28 Czech Republic 19,9

35 Kuwait 28,5

41 Ireland 33,6

43 Botswana 34,8

45 Saudi Arabia 35,5

48 Mexico 38,9

49 South Africa 39,7

57 Turkey 43,1

60 Peru 44,9

61 Brazil 45,0

101 Paraguay 67,7

127 Bosnia and Herzegovina 77,3

131 Nigeria 79,3

136 Argentina 81,8

159 Iraq 95,5

0 - 100 - The greater, the riskierSource: Oxford Economics - November 14, 2013

OPPORTUNITYAdditional households with annual income of US$30,000 and above, 2010-2020

EconomyIncrease in the number

of households % Increase in the number

of households

China 29.207.516 1743%

India 7.625.703 1276%

Turkey 4.719.277 73%

Mexico 3.295.373 36%

Indonesia 1.498.387 730%

Poland 1.410.502 43%

Thailand 1.376.690 147%

Malaysia 1.332.658 90%

Saudi Arabia 1.150.497 30%

Argentina 954.493 38%

Nigeria 935.312 142%

Czech Republic 843.329 73%

Colombia 833.885 41%

South Africa 768.686 42%

Kazakhstan 759.679 112%

Philippines 740.887 158%

Chile 534.332 46%

Venezuela 215.722 29%

Ecuador 175.273 72%

Paraguay 60.193 63%

Source: Accenture, Oxford Economics

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Government support is a condition for Brazil’s international success

Brazilian firms will increasingly need to seek alternative sources of funding

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The strategic hand of the state

Nadia Menezes’ research shows how Brazil’s government support initially focused on heavy industry and infrastructure, but has more recently broadened to semi-industrialized 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.

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).

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.

Brazil’s government has heavily supported corporate internationalization efforts. The statistics tell the story: the BNDES, Brazil’s development bank, has offered low-interest 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).

Tightening purse strings

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.

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.

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.

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BNDES lending has seen a decade of strong growth, but this trend is expected to lose steam or even reverse from 2014.

Figure 5: Limits to credit growth (BNDES lending, 2013 prices)

Source: Accenture analysis of BNDES data

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.

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.

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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 highest-profile 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.

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,

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Growing and managing international operations is excessively complex and difficult

New-generation technologies and operating models make international operations more manageable than ever

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Difficult but unavoidable choices

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?

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.

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.

A new era of digital opportunity

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.

Audi, the automotive manufacturer, provides a good example of how these technologies can accelerate both efficiency and responsiveness. The firm’s design-engineering 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.

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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-of-sale 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.

An international operating model is the vehicle through which a company executes its business model and international growth strategy.

Figure 6: Key components of an international operating model

Source: Accenture Institute for High Performance, 2013

Cont

inua

l Ada

ptat

ion Buy, Make and Distribute

Corporate support

Value Chain

Design, Sell and Market Transact, Service and Collect

Macroeconomic and Industry Landscape

Business Strategy

Organizational Leadership People Corporate Culture Process and ITStructure

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

Operating Model

Operating Model Levers

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.

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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”)

Figure 7: Decentralizing the core

Source: Accenture Brazilian Multinationals survey

Decentralize moreCentralize more

Support functions

Treasury and risk management

Talent management

Research and innovation

Tax management

Operations performance management

Core business functions

Manufacturing

Sourcing

Operations planningand forecasting

Marketing and sales activities

Distribution and logistics

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.

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About the Authors Armen Ovanessoff ([email protected]) is a senior research fellow in the Accenture Institute for High Performance and leads the Institute’s research on emerging markets

Athena Peppes ([email protected]) is an economist and a research fellow in the Accenture Institute for High Performance

Eduardo Plastino ([email protected]) is a research fellow in the Accenture Institute for High Performance

Felippe Oliveira ([email protected]) 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.

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