News: A 'BRIC' economy in Latin America

In May this year, São Paulo’s stock exchange jumped almost 10 per cent just a couple days after the news that Standard & Poor’s had raised Brazil to the level of investment grade.
With high expectations around incoming investments from around the world, optimism about the country raised to an all-time high. Renowned international newspapers started paying attention to a – until recently – low performer amongst the BRICs (Brazil, Russia, India and China) in macro-economic terms.
BRIC – The acronym was first coined in 2001 and prominently used in a thesis of the Goldman Sachs investment bank. The main point: The BRIC economies are rapidly developing and by 2050 will eclipse most of the current richest countries of the world.
Brazil has been growing at approximately a four to six per cent rate over the last few years, which is reasonable growth when compared to European or North American standards, but not when compared to the rates the other BRICs and other Latin American countries have been showing. With economic resilience to the American economic crisis, though, Brazil is expecting another year of five to six per cent growth in 2008. The investment grade is recognition of steady macro-economic politics and tight fiscal policies over the last decade and should have been expected at any time.
Alongside this macro-economic performance, another phenomenon, only explored lately by international press, has taken place over the last few years: the internationalisation of Brazilian businesses. Large Brazilian companies have been professionalising over the last decade which has resulted in a large jump in efficiency and competitiveness.
Combining this growing competitiveness and access to vast natural resources with high international commodity prices has produced significant revenue streams for Brazilian commodity producers. And with resulting cash flows, these companies have started a buying spree beyond the Brazilian borders.
Already large in their home market, companies such as Gerdau, AmBev (after the merger with Interbrew: InBev), Votorantim and Petrobras have been buying companies in all parts of the world, becoming serious contenders in global markets. When InBev bought Anheuser-Busch in July, this phenomena became even more evident.

Growing challenges in multinational Brazilian companies
This internationalisation has confronted Brazilian companies with some interesting challenges many of them had not faced before: how to reap the benefits of internationalisation and scaling up beyond borders. Buying a company in another country and operating it is one thing. Making sure you capture synergies and utilise worldwide knowledge within your widespread operations is something else. And Brazilian companies face some challenges that established multinationals do – or at least in much lesser terms.
In the first place, many Brazilian companies do not have experience in internationalising their businesses: they have just started. Established multinationals do not have these issues; buying just one more company internationally is part of ‘daily business’. Although many Brazilian executives are highly educated and have international experience, not everyone is fully prepared for the new environment.
This counts both for the buyer’s side as well from Brazilian employees. Being bought by another company already brings discomfort in any situation, but for employees from an American or European company being bought by a company from a developing country even more so. And then there is another issue that makes it more difficult for Brazilian companies to capture all the benefits: the language. Brazil’s official language is Portuguese, a language spoken by only several countries and surely not a language easily understood by people from other nationalities.
However, despite the lack of experience, cultural issues and the idiom barrier, Brazilian companies have been effective in generating very satisfactory results through their subsidiaries.
One of the management concepts being used to support internationalisation has been knowledge management with one of the largest mining companies in the world taking the lead: Vale. See page 18.