Beruflich Dokumente
Kultur Dokumente
II
III
IV
Project direction Jos Othon Tavares de Almeida Editorial board Juarez Lopes de Arajo Altair Rossato Heloisa Helena Montes Jos Othon Tavares de Almeida Editorial coordination Renato de Souza (Mtb 26.563) Edition Julio Meneghini (Mtb 52.308) Editorial production Sthefani Tironi (Mtb 43.533) Graphic production and image selection Elisa Paulillo Otavio Sarsano Production support Ester Rossi Karina Sousa Li Ying Yu Promotion support Andrea Braga Dbora Costa Nadia Ikeda Further economics information Fernando Ruiz Giovanni Cordeiro Gabriel Nickolas Cazotto
Proofreading Miriam Moreira Soares Sonia Hagemann English version Unitrad Prossionais em traduo Layout Mare Magnum Photographs Walter Craveiro (project ofcial photographer) Bruno Carvalho (Eduardo Raffaini) Izilda Frana (Pedro Suarez) Rgis Filho (Carlos Fadigas) Collaboration (pictures) Fiat Monsanto Press Intergraf Ind. Grca Ltda. Print run 2,500 copies in Portuguese version 500 copies in English version
Collaborating companies and entities Alstom Brazil Basf Braskem CNI Cummins Brazil Dow Ecoverdi Fiat/Chrysler GM Brazil ICC Brazil Jacto Monsanto Brazil Positivo Rhodia Sano Group Brazil
The statistics mentioned in this book reflect the latest available information at the closing of this publication. The disclosure of data by the press or any other market sources updating the statistics exposed herein does not annul the informative purpose of this material, which is to analyze the changes and essential trends established and developed throughout the years, despite oneoff changes or shortterm economic and business cycles. The contents of articles written by the guest authors in this collection do not necessarily reflect the opinion of Deloitte. All rights reserved to Deloitte. No parts of this book may be reproduced, including citations of information, except if prior authorization from Deloitte and guest authors, upon request, is granted in writing and commitment to source credit is binding. Afliated to the Brazilian Association for Business Communication (ABERJE) Contact for readers: comunicacao@deloitte.com About Deloitte Deloitte provides services in audit, consulting, tax avisory, corporate nance, outsourcing, to clients spanning multiple industries. With a global network of member rms in more than 150 countries, Deloitte brings world class capabilities and deep local expertise to help clients succeed the best performance, wherever they operate. Deloittes 186,000 professionals are committed to becoming the standard of excellence and they are unied by a collaborative culture that fosters integrity, outstanding value to markets and clients, commitment to each other, and strength from diversity. Deloitte has been in Brazil since 1911. Nowadays, the Firm is one of the market leaders and its over 4,500 professionals are recognized by integrity, competence and capability to turn their knowledge out in the best solutions for their clients. Deloittes operations cover throughout the Brazilian territory, with ofces in So Paulo, Belo Horizonte, Braslia, Campinas, Curitiba, Fortaleza, Joinville, Porto Alegre, Rio de Janeiro, Recife and Salvador.
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member rms, each of which is a legally separate and independent entity. Please seewww.deloitte.com/aboutfor a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member rms. 2012 Deloitte Touche Tohmatsu. All rights reserved.
Guest authors
Cledorvino Belini President of the Fiat/ Chrysler Group for Latin America
Andr Luis Rodrigues Former Chief Financial Ofcer (CFO) of Rhodia and presently Financial Ofcer of JHSF
Jos Augusto Coelho Fernandes Executive director of the National Confederation of Industry (CNI)
Luc Burton Former Chief Financial Ofcer (CFO) of Alstom Brazil and presently Financial Ofcer of Puma Energy
Marcelo Drgg Barreto Vianna Vice president of the International Chamber of Commerce (ICC Brazil)
Introduction
production activities. Recent sluggishness in the more mature economies and the rise of other emerging nations intensify the competition Brazilian companies face, making their operation within and outside our market difcult. In addition, we are facing dilemmas that are now common to almost all countries, such as relative deceleration of industrial production, a reduced share of total generated wealth and, even, the risk of deindustrialization in important sectors. Neither can we forget the historical obstacles that harm operation of national industry, such as the Brazil Cost, infrastructure deciencies and low-skilled labor. Our industrys current challenges lead to a simple question: how do we ensure conditions so that it can be competitive and sustainable in the new global reality?
By Jos Othon Tavares de Almeida Deloitte leader in Brazil for manufacturing industry
Times of great challenges usually awaken the Brazilian peoples creativity and determination. This, more than ever, is a time to rethink models, reinvent practices and, primarily, for private initiative, the government and all of civil society to unite to promote the development of industry. All market agents need to unite around this pact. TheBigger Brazil Plan (PBM in Portuguese), instituted by the federal government in 2011 and expanded in 2012 with the objective of stimulating the economy and, in particular, national industry, is one of the initiatives that today try to express the changes needed for the resumption of growth in the productive sectors. The participation of private initiative in the program, by means of representatives of the so-called Competitiveness Councils, legitimates its
purpose and offers the business community another way to position itself to face a situation that seriously affects its business. With the motto innovate to compete; compete to grow, the PBM, to the extent it is supported by modern Brazilian corporate leadership, has full conditions to generate practical results to benet its own development. Therefore, it is evident that to meet the complexity of our challenges, Brazil needs structural reforms in the most diverse elds. Tax exemptions, foreign trade stimulus, expansion of corporate credit, trade protection measures and incentives for signicant sectors are some of the timely measures established by the PBM that need to be incorporated into the essence of a national development strategy. Today, Brazil has the responsibility to preserve and promote one of its most signicant 7
A development
economic frontiers: one of the largest and most diversied industrial parks in the world. In the same way, it is up to the business community to continue its efforts to adopt better business practices and continuously foster innovation, within a social and economic environment increasingly based on the values of sustainability of the planet, its relations with society and the business itself. The collection of articles Competitive Brazil Challenges and strategies for the manufacturing industry has the merit of comprehensively addressing a broad set of issues that characterize the dynamics of productive activity in the country. Deloitte, which with its clients daily builds solutions to address the challenges presented here, had the honor to put together in this book Periods and moments that mark the history of productive activity in Brazil Colonial Brazil
The Portuguese metropolis used to prohibit the establishment of factories in the territory from 1500 to 1822.
1956-1960
The president Juscelino Kubitschek opens the economy to foreign capital, attracting multinational companies, and establishes measures to support local industry.
1962
Electrobras is created during the Joo Goulart presidency, supporting the generation and distribution of electric power that signicantly benets some industrial sectors.
1969
Embraer is created, raising the global status of Brazilian industry. Its rst challenge was line production of the Bandeirante airplane.
Our industrys current challenges lead to a simple question: how do we ensure conditions so that it can be competitive and sustainable in the new global reality?
8
trajectory
1939
Brazilian industry benets from the Second World War. With the fall in imports, local development accelerates.
1942
The Vale do Rio Doce company is founded. By the end of the decade it would be responsible for 80% of Brazilian iron ore exports.
1946
The National Steel Company is created, signicantly increasing steel production which would support development of several industrial segments in Brazil.
1952
The National Bank of Economic and Social Development (BNDES) is created, supporting the nancing of industrial enterprises.
1953
Petrobras is created, driving segments connected to production of goods derived from oil.
1975
The government creates the ProAlcohol program to reduce dependency on imported oil, forcing industry to adapt some of its models to the new fuel.
2011/2012
The Bigger Brazil Plan is launched, bringing new perspectives for a national industry trying to improve its competitiveness.
Sources: The National Confederation of Industry (CNI) and Deloitte (consolidation of public information)
The collection of articles Competitive Brazil Challenges and strategies for the manufacturing industry has the merit of comprehensively addressing a broad set of issues that characterize the dynamics of productive activity in the country.
a group of exceptional business leaders and experts around the major issues that impact Brazilian industry today. The articles presented in this publication are grouped around two large areas: the rst, emphasizes competitiveness, examining the countrys historical dilemmas and current opportunities; and the second, addresses the issues of innovation and sustainability, taking into account the role of industry in the construction of new development models. From the views expressed here, the reader can tap into reections at the highest level to help in developing strategies to benet Brazilian industry.
10
Tim Hanley Global Leader, Manufacturing Deloitte Touche Tohmatsu Limited (DTTL)
11
Contents
Chapter 1 The journey to competitiveness How to face the countrys historical dilemmas and take advantage of current opportunities
16 Brazil in the new world order With a privileged position in the global scenario, Brazil should focus development on three pillars: infrastructure, education and innovation
Joe Vitale and Craig Gif
28 In the eye of the multinationals The third wave of foreign investment in national industry
Tadashi Yamashita
20 New times and old challenges Opportunities and dilemmas in a country increasingly attractive to multinational companies
Andr Luis Rodrigues
32 Together for change The importance of discussing our competitiveness in a country that has become expensive
Alfred Hackenberger
46 A stronger link in the entire chain How mining and steel can, together, face their own challenges and broaden their role in the countrys development even more
Eduardo Tavares Raffaini
26 Infrastructure for greater growth The need to resume investments and face the Brazil Cost
Luc Burton
36 Facing the Chinese model The need to more broadly understand Chinese companies business model
Jos Augusto Coelho Fernandes
50 The country of the present An attractive domestic market and the challenge to conquer strategic sectors abroad are included in the agenda of the national automotive industry
Cledorvino Belini
42 Our challenges in the IT chain Lessons of the Brazilian PC industry and the battle for fair competition within the country itself
Hlio Bruck Rotenberg
54 The rise of automobiles Standing out in the global scenario, the great challenge of the sector in Brazil is now operational costs
Sandra Mariani
58 Challenges in tax controls The importance of good tax practices for industrial competitiveness
Douglas Nogueira Lopes
12
Chapter 2 For an innovative and sustainable future The role of the industry in a new model of development
64 Limits and expectations New needs awaken a transformation in the essence of industry in the world
Luiz Eduardo Taliberti
80 The chemistry of innovation The importance of the chemical industry for innovation and progress based on principles of sustainability
Pedro Suarez
90 Sustainability and social responsibility New challenges in managing the integration of organizational systems in search of industrial competitiveness
Marcelo Drgg Barreto Vianna
68 Produce and conserve more Technology as a fundamental ally in the search for efciency and sustainable practices
Andr Dias
84 Construction of a new future Adoption of innovative and sustainable practices to inuence operational and strategic business models
Marcos da Cunha Ribeiro
72 Part of the solution Innovation and collaboration as determinants of sustainable development of business
Carlos Fadigas
76 The role of lifes industry Dialogue with stakeholders and the strengthening of corporative responsibility as essential for social and economic growth
Heraldo Marchezini
13
Brazil Cost Infrastructure Multinational presence Manpower qualication Foreign competition Impacts of China Internationalization Bigger Brazil Plan Cost management Tax management Basic industry
14
Chapter 1
The journey to competitiveness How to face the countrys historical dilemmas and take advantage of current opportunities
F
16
or several years, Deloitte has collaborated with a number of organizations committed to manufacturing competitiveness at both a country and international level. This past year, Deloitte served as Project Advisor to the World Economic Forum (the Forum) on a Future of Manufacturing project chartered to generate insights and a platform for informed dialogue between senior business leaders and policymakers about the pivotal drivers of change in the industry, today and in the future. Following the anticipated release of the Future of Manufacturing report in April 2012, the Forum with Deloitte will embark on the next phase of research on the topic of Manufacturing for Growth. The project is expected to provide CEO insights on how manufacturers are driving economic growth worldwide. Highlighting some of the perspectives from
these projects, this article provides a brief look at Brazils potential in a new world order of manufacturing competitiveness. The manufacturing industry plays a vital role in the economic health of every country and has become increasingly more dynamic and competitive globally. As a resource rich nation with an attractive market for investment, Brazil has an opportunity to signicantly increase its global manufacturing competitiveness by focusing efforts on developing the nations physical infrastructure and education system. Despite slowing growth gures, Brazil is seen as a strong competitor globally and is in a great position to create sustainable growth and prosperity. Manufacturing as a multiplier The recent global economic downturn revealed the true value of the
By Joe Vitale Global automotive sector leader, Deloitte Touche Tohmatsu Limited (DTTL) Craig Gif Consumer and industrial products leader, Deloitte United States (Deloitte LLP)
manufacturing sector in preserving and improving prosperity, supporting Gross Domestic Product (GDP) growth, and raising the standard of living. A globally competitive manufacturing industry can serve as a multiplier. It can create economic sustainability, fuel a countrys innovation, encourage more domestic and foreign direct investments (FDI) and most importantly, create jobs. Understanding the breadth of todays manufacturing industry and its multiplier effect on the domestic economy is essential. The multiplier effect not only creates jobs within the sector, but also creates jobs in areas such as nancial services, infrastructure development and maintenance, customer support, logistics, information systems, education and training, research and development, healthcare, and real estate.1 In turn, this
drives the growth in demand for highly skilled workers and scientists, which underscores the importance of a strong education system. With manufacturing having the capability to create a positive cycle of prosperity for a country, it is important to understand the factors that enable the industry to remain competitive and thrive. Top drivers associated with competitive manufacturing and deemed critical to a nations competitive position include labor and the availability of skilled talent, access to materials amid growing resource scarcity, energy and sustainability, the ability to innovate at an accelerated pace, and effective public policy that enables economic development around these factors. Out of all these factors, talent-driven innovation is viewed as the most important driver of competitiveness 17
and is top-of-mind with manufacturing executives across the world.1 Talent-driven innovation comprises both the quality and availability of a countrys brain trust. This includes its skilled workers, such as scientists, researchers, engineers, and teachers, who collectively have the capacity to continuously innovate and, simultaneously, improve production efciency. Talent has been described as both the key differentiator of a countrys competitive
edge in the 20th century and the most critical determinant of success in the 21st century.2 Competitive position Brazil continues to be viewed by manufacturing executives as a rising contender in the global manufacturing competitiveness race. Not unexpectedly, Asian giants like China, India, and the Republic of Korea are projected to dominate the scene over the next few years, out-positioning dominant
18
manufacturing super powers of the late 20th century the United States (U.S.), Japan, and Germany. In order to remain competitive, Brazil will need to carefully navigate its position on foreign trade, exchange controls, and investments. Brazils pursuit of an industrialization policy centered on replacing imported manufactured products with domestically produced goods has yielded a highly diversied manufacturing sector.1 Although export promotion remains a policy priority, the current account decit is expected to rise to an annual average of 4.0percent in 2012 to 2016 as import growth exceeds that of exports.4 Concerns over a surge of Chinese imports has already led to some non-tariff barriers and protectionist measures particularly in the automotive and light manufacturing sectors. With tax incentives for foreign and domestic investors, Brazil proves to be an attractive market for companies considering the country as an export base. Many manufacturers have already announced plans to expand operations, including Asian manufacturing newcomers who are installing facilities and/or distribution network channels in Brazil. An increase in foreign direct investment will likely create greater domestic competition and encourage government policy modications to positively inuence the state of Brazils manufacturing competitiveness.
As a resource rich nation with an attractive market for investment, Brazil has an opportunity to significantly increase its global manufacturing competitiveness by focusing efforts on developing the nations physical infrastructure and education system.
The global manufacturing landscape continues to evolve and with this comes a shift in the drivers that enable manufacturers and nations to remain globally competitive. In less than a decade, a new world order for manufacturing competitiveness has emerged. Countries are placing greater emphasis on creating manufacturingbased economies that produce higher-value jobs, leveraging the multiplier effect, and rapidly growing their economic middle classes.3 As a rising global contender, Brazil has several factors that support a strong manufacturing competitive position. Building on the nations strengths while continuing to focus on developing physical infrastructure and education will enable Brazil to sustain manufacturing competitiveness and prosperity.
1 Global Manufacturing Competitiveness Index (Deloitte Touche Tohmatsu Limited and the U.S. Council on Competitiveness, June 2010) 2 Ignite 2.0: Voices of American University Presidents and National Lab Directors on Manufacturing Competitiveness (Deloitte Touche Tohmatsu Limited and the U.S. Council on Competitiveness, July 2011) 3 Boiling point? The skills gap in U.S. manufacturing (Deloitte United States Deloitte Consulting LLP and the Manufacturing Institute, October 2011) 4 Economist Intelligence Unit (www.eiu.com)
19
The prognosis that this nation would someday be successful has proven true. The feeling that the right time and moment have arrived is a fact. Certainly, some investors on other continents regret not having believed that the prophecy would come true, since even with difculties and complexities in the business environment, our future is quite different from the past. Multinational strategies Why Brazil should have already been, and today is and will denitely continue to be strategic for foreign multinationals? Being the sixth economy in the world, in and of itself, already makes this a country that deserves to be included, in a detailed way, in any strategic plan of successful enterprises. A new rhythm has started some years ago and we have perhaps arrived at the best economic moment of our history.
By Andr Luis Rodrigues Former Chief Financial Ofcer (CFO) of Rhodia (until April, 2012) and presently Financial Ofcer of JHSF
We have slept long and have just woken up to a gigantic social mobility and a powerful market, which each year places millions of people at dynamic levels of consumption, soon to change classes and eager for goods and services, from food and home appliances, to cars and real estate. With that thus creating a virtuous cycle, with acceleration of formal employment, reduction of unemployment and healthy credit expansion. When comparing the Brazilian reality to other emergent countries with the same potential, we may, in some cases, fall behind with regard to growth rate, but we denitely have signicant qualities that position us in a particular way and which signicantly favor us at the time investment decisions are made. We have a cultural afnity with most developed countries, a well-established democracy and
continually evolving governmental and administrative institutions. After many attempts translated into reforms, our locomotive was put on track and advances broadly with well-dened macroeconomic fundamentals. Predictability has become part of our environment. All this allied with a pragmatic, well regulated, sophisticated and resilient nancial and bank system. For those watching from outside, we have become a sound and reliable country, most signicantly demonstrated by the positive way we coped with the recent world economic turbulence, coming out of it stronger and as a country more attractive to investors. Privileged qualities Our economy is well diversied and developed: agriculture, mining, manufacturing, services and a large
1 In 2011, the acronym was changed to BRICS with the entry of South Africa into the group
21
industrial base. Brazil produces all that emerging nations need to grow. With the exportation of these products and the possibility to import what, in most of cases, the developed countries produce at low prices, our trade balance is attractive. Our supply chain is also very privileged, due to our massive energy reserves, particularly those from renewable sources and minerals. We are practically self-sufcient in oil and world leaders in the development and production of biofuels. That is, sustainable development is a priority for any serious company and, in Brazil, we have countless conditions to develop these opportunities. Equally, a multinational company is also attracted by the cultural qualities of our people. Brazilians have a strong enterprising spirit, are creative and skilled at working in teams key components for innovation. They are open minded and can rapidly make changes, precisely correcting course when necessary, besides being strong as a result of the mixture of races and cultures, which creates an environment of respect for opinions, religions and beliefs. In a country where it is possible to nd the main global business megatrends, it is also possible to try all the growth processes: organic, given our economys growth rate; through innovation, given the rich raw materials base and trained teams; and through acquisitions, due to 22
After many attempts, translated into reforms, our locomotive was put on track and advances broadly with well-defined macroeconomic fundamentals. Predictability has become part of our environment. All this, allied with a pragmatic, well regulated, sophisticated and resilient financial and bank system.
the varied conditions for consolidation of some sectors and other opportunities. The exploitation of oil in the pre-salt layer, the World Cup in 2014, the Rio de Janeiro Olympic Games in 2016, as well as important energy generation projects, already represent billions in investment and ensure continuity in the development of our economy. To compete head-to-head Since there is no easy competition, we face some challenges that may reduce our speed and raise some questions for those looking from outside. Our infrastructure, in some cases, is somewhat precarious, with a high number of blackouts in some regions, conservation of public highways far below that of private ones, airports that cannot handle the increasing number of passengers, and an incipient metro and railroad network, when compared to developed countries. In the education eld, we are unable to cover the demand for professionals that the expanding economy requires. Our education level is still lower than that of the majority of the emerging competition and, even with advancement in some of the rankings, we graduate doctors at a rate ve times lower than developed countries, and we are still in the 24th position in volume of patents registered, according to the most recent ndings available on these topics. Actions are being taken and the solutions will come with time. Consequently, more companies will be attracted by these opportunities. What may really dissuade foreign companies are the factors that place us in a difcult competitive situation. We came in at a poor 53rd in the ranking of 142 countries released by the World Economic Forum in 2011. What is remarkable is the excessive bureaucracy in our business 23
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
45.3
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
1,515 1,344
1,623
874
862
908
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Sources: Research Deloitte (based on data from the Brazilian Institute of Geography and Statistics IBGE and the Central Bank of Brazil BC) * Data related to the metropolitan areas of Salvador, Recife, Belo Horizonte, Rio de Janeiro, Porto Alegre and So Paulo
24
Actions are being taken and the solutions will come with time. Consequently, more companies will be attracted by these opportunities. What may really dissuade foreign companies are the factors that place us in a difficult competitive situation.
environment, an inefcient and complex system, with close to one hundred taxes, resulting in a very high tax proportion in relation to company prots. The two issues make it difcult for private initiative to decide to play a role in solving these dilemmas. We cannot miss the opportunity available at this time. To ensure a successful future, it is now time to have a State program addressed to the bottlenecks that undermine our competitiveness, having in mind that, if with so many difculties we were able to attract the largest companies in the world, with implementation of the reforms already understood as necessary, Brazil would soon occupy a better position among the largest world economies.
25
to new initiatives, a dynamics of sustainable implementation and creativity Brazil should increasingly conrm its role as a laboratory of good practices, whether of a technical or managerial nature. The countrys growth path is wide and the infrastructure area is one of the great drivers of this expansion. We are experiencing a decisive moment in this environment and the investment possibilities are limitless. The infrastructure bottlenecks must be overcome so that we can reach all the potential of a country of continental dimensions. The economy is growing and Brazil is becoming a power of the 21st century, attracting direct investment and intensifying local sales. Invest to compete This picture is only clouded by the Brazil Cost, this set of obstacles of a scal, legal,
By Luc Burton Former Chief Financial Ofcer (CFO) of Alstom Brazil and presently Financial Ofcer of Puma Energy
nancial and logistic nature that undermines the competitiveness of Brazilian companies, as well as, certainly, the competitiveness of the entire domestic market in relation to the ability of importers and exporters to deal with international competition. Therefore, even more investment in local industry is needed in order to create signicant turnover in the domestic economy. It is important to recognize that attracting new technologies or importing solutions is not enough. Increasing investment is needed to generate jobs, income and demand. We have a wealth of natural resources and growing manpower. With the correct public and private initiatives it is possible to guarantee the high expectations placed on us, and infrastructure is an essential aspect of the development of all this potential. 27
1970
1980
1990
2000
Sources: consolidated using numbers from the World Bank, the Institute of Applied Economic Research (IPEA) and the National Bank of Social and Economic Development (BNDES)
were immediately credited 14% of their transactions value. It was an incentive that could not be passed up. With it, Brazil signicantly raised its exports, contributing to the trade balance. The end of the Beex Program in 1989 caused companies to turn back to the domestic market, gradually reducing exports and increasing domestic sales. In the rst years of the 1990s, despite the opening of markets by the Collor administration, foreign capital continued to arrive as Foreign Direct Investment (FDI), however, at a historical average of around US$ 2billion per year (current value), according to Brazilian Central Bank sources.. Many foreign companies were hesitant to making large investments in the country, mainly as a result of the high ination level, which reached 3% per day at the
time. The inationary environment and the exchange rate volatility kept many businessmen and nancial executives up at night, spending hours on end reasoning on how to explain their effects on the subsidiaries results. Many of them prepared feasibility studies to decide whether to stay in the country. It was then that multinationals started to invest heavily in systems of total quality, employing tools unknown at the time in the country, such as Kaizen, the Total Quality System, and the Failure Model and Effect Analysis (FMEA), among others. The second wave of foreign investments, from my perspective, occurred at the end of the 1990s, more precisely in 1997, with Foreign Direct Investment (FDI) reaching US$ 18.9 billion. With the maxi-devaluation of the real during this period, foreign investments surpassed US$ 30 billion.
With a devalued exchange rate, there was an opportunity to raise international capital to increase investments in Brazil. Privatization of companies in the energy and telecommunications sectors also attracted new interest. However, although the exchange rate favored investment, uncertainties caused at the time by the 2002 presidential election ended up driving away foreign investors and signicantly reducing FDI from 2001 on. With the continuation of the prior administrations economic policy and the promotion of political stability by president Luiz Incio Lula da Silva, foreign multinationals and investors saw that the new administration was not the threat that had been imagined before the elections and they resumed investment in the country. Starting in 2004, multinational companies also began to consolidate their operations 29
in Brazil. Many of them made the country their regional headquarters for Latin America. Modern practices In addition to these facts, still at the end of the 1990s, many multinational companies brought their model of quality management, known as Six Sigma, to Brazil. Its concept is the reduction of variations in the process, increasing productivity and raising companies prots. All the companies that adopted the model were successful, both in the
international and domestic environments. Another important fact worth mentioning is that the products manufactured in Brazil started to strictly follow the international quality standards practiced by their parent companies. In addition, the companies modernized their industrial parks, globalizing products and using cutting-edge technology. With the globalization of products, the Brazilian subsidiaries were able to supply foreign customers, particularly in the case of production stoppages of units in other countries. Given that Brazil has great mineral reserves and suppliers of primary products, the majority of multinational companies make the country an important base for supply of raw materials. Many of them continue to invest heavily and open new factories throughout the country. Chinese, Korean and North American companies, particularly in the automotive and construction machinery sectors, are arriving and establishing new factories, mainly because of the 2014 World Cup and the 2016 Olympic Games, events that are attracting the third wave of productive capital. US$66.6 billion were invested in Brazil in 2011 alone (see chart on page 31). The revenues of subsidiaries established in the country are signicant today in the global context of multinationals. In the case of Cummins, for instance, sales outside the United States have already reached 60%.
It is now up to the Brazilian government to do its part, by maintaining political and economic stability and gradually reducing the Brazil Cost and the level of bureaucracy, in addition to continuing to make important investments in the educational area to prepare professional and skilled manpower.
30
The Brazilian subsidiary now represents around 10% of global sales, compared to 4% at the beginning of the 1990s, contributing signicantly to the process of exponential growth of the company. The subsidiary that once exported almost its total production is today focused on the domestic market. Its now up to the Brazilian government to do its part, by maintaining political and economic stability and gradually reducing the Brazil Cost and the level
of bureaucracy, in addition to continuing to make important investments in the educational area to prepare professional and skilled manpower, already scarce in our country. It is also up to the government to maintain the balance between domestic production and the foreign sector and avoid any surprises in the conduct of economic policy. With all these ingredients, Brazil, together with the other simmering emerging economies, will continue to be seen by multinational companies as a strategic and important country.
66.6
45.1 34.6
Effect of the global crisis
48.4
25.9
2000
2001
2002
2003
2004
2005
2006
2007 2008
2009
2010
2011
31
expand its agricultural production without damaging the environment, thanks to the technology applied and the natural resources available. In recent years it has also seen rapid growth in the mobility of the social classes, increasing the number of consumers with considerable purchasing power. Over the last 20 years, it has further benetted from another competitive advantage: the demographic bonus the country already has, and should continue to have over the next two decades, two workers for each retiree or child. This provides a favorable environment for economic development. This scenario provides opportunities for both domestic and foreign companies. The country is considered one of the levers of the emerging markets, which are showing
greater growth than the developed nations. In 2020, the emerging countries will be responsible for more than a third of the global Gross Domestic Product and will contribute with close to 60% of all global chemical production. In Brazil, data released by the Brazilian Chemical Industry Association (ABIQUIM) indicate that market growth in 2011 was close to 10%. The chemical industry will play a particularly important role in market growth by driving innovation and contributing to sustainability in aspects related to natural resources, the environment, the climate, the area of food and nutrition and the quality of life. In this context, BASF has dened seven strategic sectors in which it intends to contribute with solutions, helping the country capture value from the opportunities linked to global megatrends:
transportation, construction, consumer goods, health and nutrition, electronics, agriculture, energy and natural resources. A more expensive country The promising portrait for the next years, however, is compromised by the structural challenges that over many decades have been slowing the full development of Brazilian industry, undermining the competitiveness of domestic production and threatening the sustainable growth of the economy. The high tax load that burdens the purchase of machinery and equipment and the contracting of engineering services has been a constant inhibitor of productive investments. The tax incentives granted by the government are almost always short-term and they deter broader planning by businessmen. The high social 33
Stimulus to competitiveness
With the Bigger Brazil Plan, started in 2011 and expected to run through 2014, the federal government intends to promote measures that bring more efciency to the productive environment of the country. In the rst half of 2012, a new package of goals and measures was announced to achieve the program objectives. Goals Encourage public and private investment; Increase competitiveness in Brazilian industry through productivity and innovation; Reduce tax, economic and nancial costs. Measures Exchange rate: continuity of timely actions on the exchange rate; Taxing: a continuous process of relaxation; Production: promote domestic production; Development: foreign trade nancing; Trade protection: respond to international competition; Technological: incentives to the information and communications industry; Credit: Investment Support Program (PSI in Portuguese); Automotive: expand procurement of domestic components and ensure investment in research and development (R&D).
Source: Research Deloitte (from consolidation of public data of April 5, 2012)
34
The chemical industry will play a particularly important role in market growth by driving innovation and contributing to sustainability in aspects related to natural resources, the environment, the climate, the area of food and nutrition and the quality of life.
charges, that burden production, and the precarious logistical structure, that makes exports difcult, are other obstacles to development. Energy costs are the fourth highest in the world, seriously harming some industrial sectors, such as chemicals. Brazil has become expensive, very expensive. Faced with these and other factors, it is not surprising that the Brazilian industrial GDP has shown only modest growth the worst result among the BRICS. Some analysts have already begun talking about a process of deindustrialization. It is necessary to reverse the situation. We believe that the Competitiveness Council, which is part of the Bigger Brazil Plan (see chart on page 34) and whose purpose is to analyze the factors affecting the efciency of Brazilian industry and propose measures to counteract them, will allow the government, workers and businessmen
to more openly and constructively discuss the problems that affect each segment. In the chemicals area, we expect that critical questions, as the cost of raw materials and energy, will be raised and addressed, in addition to effective and ongoing support for research and development (R&D). Bringing academia, the government and industry together is an initiative essential for improving Brazilian competitiveness. We are optimistic that this joining of forces will result in effective changes and concrete actions to confront the loss of competitiveness in the industrial sector. And, the condence of entrepreneurs and investors under a sustainable Bigger Brazil scenario will result in even more investment, compatible with the countrys potential, ensuring that this prosperity will be maintained today and always. 35
that intend to survive these generalized impacts have to evaluate their weaknesses and strengths with regard to Chinese competition. This requires identication of competitive advantages, both in their operation as well as in relation to the institutional and market environments in which they operate, including an evaluation of where China closes or opens possibilities for insertion in global production chains. For formation of a strategy, it is important to understand the connections between insertion patterns in global chains, engineering and business models. The risk of focusing all our attention to the Brazil Cost issue and unfair competition lies in that we can lose sight of the size of the challenges that must be faced. The case of the United States is illustrative. There are many explanations for North
By Jos Augusto Coelho Fernandes Executive Director of the National Confederation of Industry (CNI)
American loss of manufacturing leadership in many industries, but the fact is that some countries now have more efcient production. This can be objectively veried: the number of hours to produce a product, the number of years to move from the research phase to production and the accuracy of machinery, for example. The lessons of demobilization of manufacturing in the United States and of manufacturing growth in other countries relates to productivity, innovation and the understanding of the involvement of different industries in global production chains. This agenda will determine Brazils ability to develop its new industrial base. The center of reaction policy is in the companies. It is their reaction that will, in fact, provide support.
Understanding local companies To understand China, it is important to understand its companies business model and how they integrate with global production chains. They take advantage of the fragmentation of production on a global scale, stimulated by gains in economies of scale and helped by the development of the container in transporting cargos and its corresponding logistics infrastructure, as well as by the signicant drop in the cost of data transmission networks and by industrial policies consistent with this environment of fragmented production. China was a major beneciary of the process of globalization that occurred at the end of the 20th century and start of the 21st. The ability to connect to this new environment explains one important source of its growth and its transformation 37
The risk of looking only for the problems of Brazil Cost and unfair competition is to lose perspective on the scale of the challenges that must be faced.
in the center of the production networks of practically all industrial sectors. As it captures portions of the fragmentation of production on a global scale, China is gaining basic advantages associated with economies of scale and of scope, and learning born from specialization. These economies lead to a system that operates with margins much lower than those of more vertical industrial systems. This is the primary source of Chinese competitiveness. Specialization strengthens this movement by encouraging focus, efciency and the development of specic knowledge, more difcult to achieve in less specialized industrial structures. In one of their books, the authors Dan Breznitz and Michael Murphree, academics from the Georgia Institute of Technology, synthesize the Chinese model: Chinas capacity for innovation is not only in the process (or increase) of innovation, but also in the organization of production, manufacturing techniques, technologies, delivery, design and in the second innovation cycle. This structure allows China to move more 38 rapidly into new niches after having a clear vision of the protability of the original invention.1 Beyond the public policies China as an industrial platform benets from a geographic advantage: its location in an area favored by a network of super ports that connect different countries Japan, South Korea, Malaysia, Singapore and Thailand, among others in a strong productive integration of a wide base of suppliers located in the various markets of the region. This productive base, a true industrial ecosystem, has also developed an extraordinary capacity to produce with exibility and recongure processes to supply large quantities and a varied mix of products. The key issue is that, to build a Brazilian industrial strategy with respect to China, the understanding of its public policies is not enough. The starting point for developing a long-lasting strategy is to understand the Chinese company, its business model and the evolution of the process of globalization of production chains.
Production chains are not static. They evolve due to changes in relative prices, technological transformations, logistics, evaluations of risk, the prole of demand, societal values such as sustainability and management models. Production chains may be entering a new phase: from a focus on uniting multiple links of low cost to one of shorter chains structured in regional manufacturing networks. If this trend continues, the chances increase for Brazil to capture manufacturing opportunities. This potential will be greater and better if the country is prepared to offer efcient logistics, adequate communication systems, and business models open to integration and information sharing. No less important, to create a point-to-point strategy, the existence of innovative manufacturing companies with the ability to adapt will always be essential in our country. Strategic initiatives In structuring a strategy for Brazilian industry to adapt to the impacts generated by China, the company is the starting point. However, there is a set of equally important actions that require joint public and private action. To better position national manufacturing with respect to the Chinese model: Increase the competitiveness of companies in the country: regardless of the scenario, Brazil needs to raise its competitiveness. China increases the
sense of urgency. Brazil today has an economy of high costs: taxation, logistics, infrastructure, wages, energy and credit. And all within an environment with an overvalued exchange rate. Strengthen the opening of the Chinese market: through its tariff schedule and non-tariff barriers, China makes import of Brazilian industrial products difficult. Brazil should have a strategy and action plan to deal with those problems identified. This is particularly important for agribusiness products, for which Brazil has clear competitive advantages. The action developed in favor of pork is an example of initiative that should be repeated. Consolidate the strategy for natural resource intensive products: Brazil needs to build a strategy that exploits Chinas dependency on natural products in order to maximize the benefits of this relationship. This approach involves actions in infrastructure, logistics and research and development (R&D). Educate the market to identify niches and opportunities: the size of the Chinese market and its development perspectives require systematic work of prospecting, identification of opportunities and business promotion actions. Consider the opportunities for integrating with value chains: in fragmented chains, Brazil needs to identify the links in which the country can sustain competitive positions by means of economies of scope and scale,
1 Run of the Red Queen: government, innovation, globalization, and economic growth in China
39
and the ability to innovate. Multinational companies have taken steps to avoid concentrating their inputs and raw materials in a few suppliers due to the risk of being without supplies in the event of natural disasters or political crises. This strategy represents an opportunity
for Brazilian companies to capture investment and integrate with global production chains. In other cases, due to Chinas high level of competitiveness, the best strategy for Brazil is to maintain competitiveness by integrating with parts of the Chinese supply value chain. This is a step that is being taken by several Brazilian companies, both in connection with importation and investment in China. Facilitate the structural transformation of Brazilian industry: China and Asia as a whole impose structural modifications on Brazilian industry. The critical question is whether the country has the capacity to develop new sectors and products that take advantage of good competitive conditions and meet the challenges of change, both global and of its industries. The size of the Brazilian market and its area of influence, as well as the opportunities related to pre-salt, renewable energy, products derived from ethanol and exploitation of biodiversity are vectors of this process of transformation. Attract Chinese direct investment: China has become an important global investor. It is up to Brazil to develop strategies to capture Chinese Foreign Direct Investment (FDI). One area has become especially promising: infrastructure. Funds recently created for the sector, currently in the regulation phase, should be a powerful instrument
40
The lessons of demobilization of manufacturing in the United States and of manufacturing growth in other countries relates to productivity, innovation and the understanding of the involvement of different industries in global production chains. This agenda will determine Brazils ability to develop its new industrial base.
for achieving this objective. Note that Chinese investment has increased in Brazil and, more recently, it has also begun competing in the manufacturing industry. Develop a trade strategy focused on the interests of industry: one of the paths toward confronting the Chinese challenge is to develop a network of trade agreements in markets significant for Brazilian industry. Free trade agreements result in the establishment of preferences. To the extent that Brazil can succeed in developing these agreements and China has difficulty doing so, our competitive capacity increases. For Brazil, it is especially important to maintain preferential margins in the Americas, where Mexico is the primary priority, and consolidate the penetration of Africa. Coordinate international actions: undervaluation of the Chinese currency and the problems associated with Chinas trade and industrial policy considering its conformance with the World Trade Organization (WTO) , depend on coordinated actions in international forums. Strengthen the trade protection system: it should be ready to use the mechanisms provided for by the WTO efficiently, competently and in a timely manner. Monitor Chinas economic evolution: Brazilian corporate and public policies in relation to China cannot be based on ignorance. Monitoring is important to identify how China will adapt to the challenges of strengthening its domestic economy and increasing its role in the international financial system. The probable increase in domestic consumption, the process of capital liberalization and appreciation of the yuan, the evolution of domestic costs and industrial policies deserve special attention. 41
the reason why practically all signicant multinational groups have a Brazilian production, providing consumers with access to a large range of brands. The success of the Brazilian model has contributed to the growth of the ofcial market in recent years. Before 2005, approximately 80% of the PCs sold in the country were offered by the so called grey market (those with some level of illegality in their chain). Currently, it is the ofcial market that accounts for close to 80% of the amount sold in Brazil, according to International Data Corporation (IDC). In an increasing legalized manner, the Brazilian market has been expanding at a rapid pace, surpassing more mature economies such as those of the United Kingdom and Japan, to become the third largest global market for PCs. This is an irrefutable proof
that the local production model does not pose any obstacle to market development. The international competition One of the consequences of the successful development of the domestic market is that the good opportunities have encouraged multinationals both North American and Asian companies to increase their focus on our territory in recent years. As a result, the increased competition in Brazil has changed the industrys levels of protability, contributing to a convergence with levels close to those realized by developed countries. Although accelerated by the weak demand in the more mature economies, it can be understood as a natural process. The episodes of unfair competition related to imported notebooks, a recurrent
problem in the country, are worrisome. Large volumes of PCs manufactures in Asia have entered the local market at quite reduced prices. This process has occurred with signs of under invoicing, since there is a tax burden of over 40% over imports of this kind, which theoretically would be sufcient to make the entry of nished computers into Brazil inviable. Deciencies in our customs inspection system have allowed such imports, harming the domestic industry as a whole. The impacts have continued to the present, even after the implementation of inspection improvements by the government, since it is hard for computer prices to return to their previous level after having been strongly reduced in the market. The lesson serves as a warning to the government, that it should ensure equal competitive conditions in the ofcial computer industry. 43
Besides greater market oversight efforts, another point that deserves attention from development policymakers is the exemption of taxes on revenue (PIS) and contributions for social security funding (COFINS) levied on imported PCs. It does not make sense to maintain such a benet to foreign manufactures when we have already developed a local industry with production capacity well
matched to demand. This would not be protectionism, given the increasing participation of foreign companies with local production in the Brazilian PC market. Market data support this thesis. Presently, the sales ranking of the ve largest manufacturers already includes four multinational groups. Two years ago, Brazilian companies dominated this list. Positivo Informtica is the only domestic manufacturer that has maintained a solid position in the Brazilian market, a sales leader for the past six years according to International Data Corporation (IDC). It is possible to operate in this market and compete with large international groups. Our leadership in the market evidences that, a natural consequence of a formula that generates value for customers, nimble management, and a rigorous search for competitive costs. It is fundamental to have clear rules applied to all to enable the Brazilian market to maintain its growth trajectory, contributing to the technological development of the country.
Above all, the Brazilian model is fair, since it grants similar incentives to all manufactures, independently of their origins. This is the reason why practically all significant multinational groups have a Brazilian production.
44
It is fundamental to have clear rules applied to all to enable the Brazilian market to maintain its growth trajectory, contributing to the technological development of the country.
45
and infrastructure sectors and in the steel sector always looking for ways to protect itself from commodity price volatility, starting, for example, with hedge operations by participating directly in nancing the mining sector , there is still room to make progress in the two areas. The growing number of joint ventures between companies in the two sectors to optimize their operations already shows this movement of greater cooperation, which can only grow. Volatility and other issues In mining, the main issues that affect the sector should continue practically unchanged over the next years. However, from a macroeconomic and geopolitical viewpoint, it becomes clear that the difculties that plague the industry are rapidly reaching an extreme and unprecedented level.
Cost increases are not new, but they are larger. Changes in scal and government policies have been taking place for years, but the associated costs and their unpredictability have increased. The price volatility of commodities is greater than ever, in part, due to market uncertainty and the unprecedented demand from governments and companies in Asia. Issues related to sustainability, which involve conservation of the environment and the guarantee of human rights in work practices, have frequently been transformed into cases of community activism and social unrest. The shortage of labor, on the other hand, continues to increase. Companies cash on hand has increased, resulting in growing expectations on the part of shareholders. Investment project portfolios have assumed an increasingly signicant
role. And, in addition to all this, the regulatory environment continues to be restrictive. Events that normally occur every 100 years are also taking place with an alarming regularity. In addition to the long-term effects of the global nancial crisis that continue to reverberate, primarily in Europe, destructive weather phenomena are taking a toll. To the extent that these global forces converge, the leaders of mining companies must look beyond the traditional scenarios used in their planning. To prepare themselves for the risks not previously predicted, companies must begin to incorporate more complex scenarios into their strategic planning. They must also be ready to look for nonconventional solutions to conventional 47
challenges if they really expect to resolve some of the sectors most endemic issues. Steel and synergy In steel, global competition is even stronger. The steel produced in countries such as China and India is able to enter the country at competitive prices, strongly affecting local suppliers. In the largest
competitors in the sector, at least those that have attractive prices again, the Chinese and Indians , greater synergy can be seen between mining and steel, which leads to competitive gains in the global area and offers a better base for sustaining industry. Might this be an interesting path for Brazil? Possibly. This is a factor that depends on dialogue and the cooperation of the government as leader of the debate. Brazil is one of the largest producers of iron ore in the world and also has an important position in other minerals. In steel, we are one of the ten largest. Shouldnt the manufacturing industry have a competitive advantage as a result of these positions? Reection on the role of basic industry in supporting the manufacturing chain cannot be occasional. Various elements that are directly related to the challenges of steel and mining should be brought into the debate so the country can take care of the manufacturing industry chain as a whole, considering all its links and each one individually, focusing on competitiveness and the best cost-benet of the products that reach the nal consumer whether in the form of a car, a refrigerator or a computer.
Reflection on the role of basic industry in supporting the manufacturing chain cannot be occasional. Various elements that are directly related to the challenges of steel and mining should be brought into the debate so the country can take care of the manufacturing industry chain as a whole.
48
49
destination for capital coming from several nancial centers. According to the Central Bank (BC), Direct Foreign Investment (FDI) totaled more than US$ 66 billion in 2011, equal to 2.7% of the Gross Domestic Product (GDP) for the same period. Even with the crisis in Europe and the international economic and political uncertainties, investor optimism with respect to Brazil was not hurt and is a consequence of the large driving forces of our economy: the size and the growing quality of the domestic market. This is a consequence of the virtuous cycle that was triggered by stabilization of the economy in the rst half of the 1990s and which was consolidated in subsequent years by the good economic fundamentals and the combination of development and social inclusion which have guided economic strategy over the last decade.
The researcher Alan Kay, one of the pioneers of personal computing, said that the best way to predict the future is to create it. In the recent past, Brazil knew how to develop its large domestic market and, thus, project its future. Policies to reduce inequality helped almost 50 million people join the middle class over the rst decade of the new century and in following years, according to the Getulio Vargas Foundation (FGV). Who would have imagined this in Brazil during the 1980s, the lost decade? The repeated desire of the government to maintain the level of consumption through stimulus mechanisms, to reduce interest rates, to preserve economic fundamentals, and to increase the minimum salary, among other factors, contributed to strengthening the domestic market. By the end of 2011, while European countries were suffering
from high unemployment rates, Brazil again showed that it was a nation that advances and surprises. The upcoming events that require infrastructure works, such as the 2014 World Cup and the 2016 Olympic Games, are also a stimulus factor for creating jobs. Challenges for the automotive sector For the automotive industry, the Brazilian scenario is one of opportunities and challenges. In the rst place, there is much room for growth. While, in Europe, the automobile market is practically one of replacement since the rate of motorization has already reached two people per vehicle on average, and, in the United States, this number has reached 1.2 vehicles per person, in Brazil, there is great demand to be met. The country has one car for every 6.4 people. If we wished, for example, to bring our rate of motorization up to 51
that of Argentina, we would need to add a national eet of another 17 million automobiles. This amounts to ve years of domestic production. This scenario of vast opportunity also brings the challenge of growing global attention to such an attractive market.
The recession in the more developed economies led to large surpluses of manufactured goods globally, and this offer is being directed toward the emerging countries, strongly impacting the industrialized product import agenda. The domestic productive sectors and the government are working to develop an industrial policy that strengthens the Brazilian product, encouraging innovation and strengthening production chains, in order to regain competitiveness. Our challenge is not only to be able to compete with imported products in the domestic market, but to cross borders, to confront the competition in global markets and gain technological leadership in strategic sectors. The automotive industry, which represents 23% of the industrial Gross Domestic Product (GDP) of the country and a little more than 5% of total GDP, taking into account the production chain, is strongly engaged in this effort, particularly due to the impact its operations have on the entire Brazilian economy. The education factor It is important to emphasize that success in overcoming several domestic challenges, such as the search for systemic competitiveness and the sustainability of the vitality of the Brazilian domestic market, all depends on the same crucial point: education. The country has made advances in providing education for social
The country has a privileged position in the international scenario, a diversified and technologically up-to-date industrial park, a financial system recognized for its soundness and good practices, a population keen on innovation and a powerful and young domestic market in its favor.
52
The best path is to optimize the capacity for investment in infrastructure, technology and education, without pressing the public accounts. These investments are the essential pillars for sustainable Brazilian development.
sectors previously excluded, but investment in the quality of public education is needed. Higher education is a priority since it is responsible for the training of technicians, managers and leaders who will guide the productive processes and technological and social development. However, it is essential to universalize the quality of basic public education in order to strengthen citizenship, offer equal opportunities and ensure workers who can absorb, at a higher level, the knowledge that we need to achieve our potential as a nation. Brazil can go much farther than it ever dreamed. The country has a privileged position in the international scenario, a diversied and technologically up-todate industrial park, a nancial system recognized for its soundness and good practices, a population keen on innovation and a vigorous and young domestic market in its favor. But we cannot lose sight of the fact that the relative comfort of the emerging countries with respect to the crisis that persists in the more developed countries does not mean that we are immune from storms. In an interconnected world with completely interrelated markets, there is no place to hide. The best path is to optimize the capacity for investment in infrastructure, technology and education, without pressing the public accounts. These investments are the essential pillars for sustainable Brazilian development since they signify the elimination of logistic and supply bottlenecks and the denitive inclusion of Brazilians in the process of producing economic goods and knowledge. The new span of the country and its ability to deal with uncertain times, supported by the strength of its domestic market and its investment capacity, is a reassuring vision, but it increases our responsibility to do the best we can based on our abilities. 53
installed production capacity of up to 5million vehicles per year. A picture that will continue to grow leveraged by companies new investment plans. Such perspective is based on existing and not yet exploited characteristics or on new events. Below, some factors that demonstrate this trend. We have a population of almost 200 million inhabitants and one of the lowest ratios of inhabitant per vehicle on the planet around seven, behind Mexico, Germany, United Kingdom, France, Japan, Italy and the United States. The growth of the so-called C class that jumped from 63 million people in 2005 to more than 100 million in 2010 is an extremely impressive aspect of the Brazilian economy. It is a huge contingent of consumers eager for products such as
In the rst decade of the new century, the Brazilian automotive industrys greatest achievement was the consolidation of a strong industrial park, supported by an excellent supply chain with a current
54
automobiles. The Brazilians are supported by a sound and expanded access to solid, long-term credit, although interest rates continue to be very high. Its also worth pointing out that default levels remain relatively low. Prior events led to the consolidation of the domestic market, helping to lower dependency on the foreign market. Automotive industry export revenue continues to be signicant, although restrained on due to the excessive appreciation of the real. The Brazilian automobile industry has recorded successive growth in recent years, although it reached a more restrained level of growth in 2011. Within the context of the 2008 international crisis, the Brazilian automobile sector performed well in
comparison to other countries. Even considering the uncertainty of the current scenario, the industry in Brazil is expected to continue delivering sound performance in the mid to long term. For those whose task is to plan investments in search of basic returns for shareholders, Brazil shows that it has eluded the perverse logic expressed in the economic jargon as stop and go, thus moving forward toward sustainable development. Efciency in cost management Companies established in Brazil still face quite high operational costs. The situation has been made even more challenging by the relationship of the exchange ratio with the appreciation of the real and the increase in salaries. There is no doubt that the erce competition between the traditional automakers and those recently 55
In the current business environment, it is almost impossible to pass along the effective increases in the cost of inputs and in the production of cars. Therefore, efficiency is an increasingly essential condition to compete in the Brazilian market.
Rapid evolution
Automobile sales in the 20 major markets
In thousands of units sold
56
entering the domestic market will demand not only an intelligent strategy, but a greater effort by all of us to control costs, eliminate wastes and simplify the how we approach all aspects of the business. In the current business environment, it is almost impossible to pass along the effective increases in the cost of inputs and in the production of cars. Therefore, efciency is an increasingly essential condition to compete in the Brazilian market. The big challenge is, in part, counterbalanced by the perspective that the country will continue to enjoy political stability, supported by factors such as sound macroeconomic fundamentals,
increase in family income, maintenance of credit and strong global demand determined by China and the other emerging markets, in addition to the likelihood that commodities prices will remain at a high level. Added to that are elements such as the start of pre-salt oil exploitation and the holding of mega-events such as the World Cup and the Olympic Games, which will require large investments in logistics and infrastructure. That is, we have many reasons to continue believing in the growth potential of Brazils economy and industry, as well as in new opportunities for those intending to invest in the country.
57
technology and the concrete effects of electronic inspections are undisputed. There were concerns about the program when it was rst announced, due to its extremely large scale. However, its implementation and operation took place in a relatively short period of time, proving that the forces that advance or hold back social and economic changes really result from the priorities that each receive from the government. The Public Digital Record-keeping System (SPED) is one of the programs that shows this advance. In this context, it is necessary to rethink some company processes and needs to adapt to this new tax authority era, highlighting the importance of training professionals in the area to use appropriate technological resources and support decision making in the best ways. Starting
from these points, we can make some observations about the Brazilian tax model, which is both one of the most sophisticated in the world and one based on a rats nest of taxes, fees and contributions distributed among the three levels of government. Professionals dedicated to the tax practice must simultaneously develop their technical knowledge and their practical experience in law, accounting and technology. However, practice itself has shown that this mix of afnities is not easy to nd. In addition to these capabilities, the new technological era also requires a considerable change in professional behavior. This era results from the urgent need for cultural change so that the new demands can be met. Aspects that were previously less important, that did
not get the proper attention of those responsible, are currently essential to activate the correct elds of electronic les. Among them, we can mention codes and tax substitution. Because of the demand that tax control by the scal authorities operate at a high level of sophistication, technological resource compatibility in companies is also an extremely important point. Sometimes, multinationals operate with global contracts for technology management, which limits local operations and results in difculties and additional costs when complying with tax obligations. To better support decision making, information sharing is becoming increasingly essential. More than before and less than will be the case in the future, procedures related to debatable issues are visible 59
Now that the race to meet the electronic requirements on time has passed this aspect received much attention at the end of the first decade of the 21st century , today the time is right for more rational planning to deal with the new reality.
60
and comparable among taxpayers. Consequently, the sharing of experience and opinions by taxpayers, through trade associations, technical committees, consultants and legal advisors, is increasingly more necessary than in the past. Good practices One may say that the demonstrated efciency of the tax authorities in controlling taxpayers is not likely to change. On the contrary, the investments already made and the good results achieved tend to increase the tax authorities commitment to this new model. The new reality requires good practices. Companies would be advised to anticipate possible information verications and the total control of their risks. Nevertheless, practical implementation of the ideal situation is difcult and may involve major efforts in terms of money and people , and, in spite of its direct connection with protability, the tax area is still subsidiary to others directly connected to companies actual business. In any event, a satisfactory level can be pursued that does not require much more than planning activities, monitoring and compliance steps that are great allies in any management activity.
Now that the race to meet the electronic requirements on time has passed this aspect received much attention at the end of the rst decade of the 21st century , today the time is right for more rational planning to deal with the new reality. For this, it is essential to review the internal processes related to taxes. It is most interesting that the initiative to rectify deciencies can provide, in itself, a chance to rethink the business model by evaluating its efciency from the tax point of view. For a long time, the market did not adequately see the importance of indirect taxation. This amounted to 48% of Brazilian tax revenue in 2011 alone. Just in the area of customs, based on the regime called Blue Line1, one can see an opportunity that industrial manufacturers are not fully taking advantage of. Certainly, there is room to plan business in a more structured manner and legally manage the tax burden more efciently to achieve desired protability. To identify opportunities, however, we need to put the topics presented here on the relevant agenda of companies. Rethinking is needed and this seems to be a good time to put this into practice.
Blue Line is a customs regime that allows companies to complete the requirements necessary for export and import operations and, in this way, operate through a special channel for express treatment of customs clearance (Green Channel)
61
Chapter 2
For an innovative and sustainable future The role of the industry in a new model of development
All the components to attain this objective were implemented without any type of questioning, permitting workers and nature to be exploited in a compulsive manner. The new products and the enormous evolution provided to humanity as a whole justied all the models applied at the time in relation to the worker, the factory employee and nature. A polluting chimney was something to be proud of. Movement from rural areas to the cities and the opportunity to enjoy, even if in a minimal way, situations absolutely unimaginable in their places of origin made this subhuman system present in the routine of the workplaces viable. On the other hand, it was also the opportunity to learn a new skill, to operate new machines and make new products with enormous impact on society. The
possibility of entering a new socioeconomic class was then opened, leading, if only timidly, to social progress. The unfolding of this movement brought with it a high cost for workers, with conditions that would be unacceptable to us today, but at the same time an opportunity that did not exist before, was born. The extremely difcult conditions generated great opportunity for the future generations of the families that were subject to the degrading conditions of that situation. Everything appeared, at the start, better than could possibly be imagined. Industry played, thus, a determining role in the evolution of society and the global economy. The assumption that resources were abundant, the effects of the new era on people and the environment due to their complete ignorance of their relationship with the world and the
visible improvement in humanitys day-to-day life, dened the role of industry for the greater part of the 20th century: generate wealth and products that everyone desired. Nothing else was of interest or concern. Access to consumer goods and innovative products and the chance to realize ones dreams were the great direct and indirect drivers of industry at that time. This was successful as long as it was limited to a few developed countries. The natural resources obtained from poor countries at low prices were destined to supply only the rich economies. The economy was dominated by those nations that controlled the process of transforming resources into consumer products destined primarily at that time for the nations dened as rich and developed. A small part of the global population benetted and the entire world contributed 65
with unscrupulous and uncontrolled exploitation. By the end of the 20th century the limitations of the economic development model became evident due to the enormous social and environmental damage, the limited natural resources and the explosive population growth. The exuberance of the rich nations resulted in a high cost to the environment, with effects on all nations. An intense debate is underway, but a quick potential solution is not apparent. A new social role The major effects occur in industry and in the goods it produces. After all, those most responsible for the damage caused result from industrialization and the use of natural resources for the products destined for current society. Those that we consider indispensable. Industrys challenge within society is to continue to increase the availability of
products and services within the limits of natural resources and impacts on the environment. The effects caused by the Industrial Revolution are continuing in the poor countries which have not yet passed through the same evolutionary process. The only difference is that they are happening in signicantly shorter time periods. China is no doubt the most important example of this 21st century industrial revolution with the same characteristics as those at the start of the 20th century. This means a signicant increase in people with the same consumption expectations as those in the developed countries, living, at the same time, with the need to reduce consumption of natural resources while drastically reducing the impacts on the environment. Today, industrys ability to be a driver of human well-being continues, but on another basis. Under the current model of production and services, we do not have
Today, industrys ability to be a driver of human well-being continues, but on another basis. Under the current model of production and services, we do not have the natural resources to equally meet all the populations expectations.
66
the natural resources to equally meet all the expectations of the current population. Development and expectations The base for development of nations continues to be very close to what existed at the start of the last century products such as cars, domestic appliances and energy continue to be the main economic indicators for all countries. Nevertheless, we no longer are able to meet the demands with the prior model. Transformation of the worlds industrial essence is necessary. Our base of personal expectations has not changed over the years. We have the same dreams of well-being that our grandparents had, with greater technological demands, however, conceptually equal. Independent transportation, easy communication and the reduction of work in our daily lives will always be part of the dreams of each inhabitant of the world. Add to that, complete economic disparity and inequality, with some having abundance and others with absolute restrictions, and we can be sure that the search for these objectives, focused on products and services, will continue to exist forever. The challenge is how to meet all the current expectations. It is up to industry then to develop new technologies and products that can satisfy all our desires, taking the limits of nature into account , whether in resources
Sustainability starts projects and guides products, requiring new qualifications and attitudes of professionals for the success of industry.
or in the capacity to absorb the resulting products and byproducts. We can no longer continue to follow the model of the 20th century. We need to be prepared to satisfy a signicantly higher number of people with the same level of well-being that exists in the countries we currently call rich. In practice, the role of industry continues unchanged, although a little less important than previously, as the main driver of peoples well-being. The way this is accomplished, however, must be completely different. Sustainability starts projects and guides products, requiring new qualications and attitudes of professionals for the success of industry. This principle will allow us to accomplish and satisfy needs with perfect balance between the limits of nature and human expectations. 67
This scenario leads to the estimate that we will have to double the production of grains on the planet in the next 40 years. Paradoxically, according to the U.N. Food and Agriculture Organization (FAO), the number of hungry people worldwide is not diminishing, but increasing, reaching 1billion persons today. This does not seem like a good start. Still on the demand side, agriculture has increasingly been used as an alternative source of energy, not only for ethanol (sugar cane and corn), but also for biodiesel. Not to mention other potential uses, such as for other products that are currently produced from petroleum. On the offer hand, there are a lot of limitations. In many parts of the planet, we see a reduction in planted area, both due to increased urbanization and industrialization
and the exhaustion of soils and water resources. In the same way, the productivity growth rate of many crops has been lower in recent years. Finally, climate phenomena have reduced various countries production and affected the availability of supplies for consumption. On top of all this stands the real need to preserve our natural resources and not mortgage our childrens and grandchildrens future in order to meet our needs today. We need to do even more with even less. Produce and conserve more. Sustainability. Brazil has a key role to play in this challenge. From the beginning of the 1970s to the start of the second half of the 21 century we have gone from a food importer country to one of the world major producers and an essential supplier of various items. How we have done that over this time
provides indications of how the world may solve this problem of feeding 9billion people. Only with the help of technology will we be able to solve the challenge of producing even more and, at the same time, conserving efciently. Only by helping farmers of all sizes to gradually produce more on the same hectare while using less resources like water and energy, will we be able to build a sustainable future. This increase in productivity will, necessarily, require intensive adoption of technology. Our country has made great strides in this direction. Economic and institutional stabilization, respect for intellectual property and a stable regulatory environment have encouraged companies to invest in research and development 69
We need to do even more with even less. Produce and conserve more. Sustainability. Brazil has a key role to play in this challenge.
(R&D), training and continuing education, which, in turn, have a multiplier effect and, once again, are sustainable in the eld. Unfortunately, there is still a vigorous debate that divides sides that should be working together for construction of a better future for Brazil and the world. Conservationists, farmers, companies and non-governmental organizations (NGOs) have the chance to build a very positive environment. Wasting this opportunity is unforgivable. At Monsanto, we believe we are contributing with part of the solution for this challenge. Our mission: produce more, conserve more and improve lives, with technology applied to agriculture. Taking this path we will indeed be able to not only feed but also dress and move 9 billion people in the next decades.
70
1804
1927
1959
1974
2050*
71
results achieved. From the 2002 launch of Braskem through 2011, we have signicantly improved our performance. Our rates of personnel accidents fell more than 80% and are at levels comparable with those reached by the sector in the more developed countries. The rate of waste by unit of product fell more than 60% and those for wastewater by more than 35%. With regard to greenhouse gas emissions, we amended the intensity of emissions by more than 13% from 2006 the year we began to conduct our inventory to 2010. Just to mention some numbers. Nevertheless, this is insufcient for the challenge of sustainability. In Brazil and in the world, advances occur, no doubt, but the global and local numbers show that there are still many challenges to reaching a stage of development minimally adequate for all. There are still more than 1.6 billion
people without water and more than 900 million undernourished in the world1. There are clear signs of depletion of some natural resources, as sources of energy or materials, or even as destinations for our wastes. The average global temperature continues to rise. In Brazil, in 2009, we still had more than 15 million families living on less than one half of one minimum salary per capita per month and close to 10% of our population over 15 years of age was illiterate. Furthermore, in 2008, more than 40% of urban residences did not have access to sewage treatment systems2. Therefore, more needs to be done. This is where the opportunities come in. Innovative responses Each company can ask itself: how can my business contribute to sustainability? Or how can my company drastically increase its contribution to attain this objective? What
revolutionary solution can we introduce? The answers will come and, no doubt, innovation will be a key factor if those answers are, in fact, to provide a distinctive position. At Braskem, fortunately, we have found a local aspect that can differentiate us from the rest of the world. Production of chemical products from renewable raw materials has great potential in Brazil. Two aspects can be emphasized: The installed base for ethanol production and its better energy efficiency; The better productivity of the ethanol produced from sugarcane compared to its corn (in the United States) and sugar beet (in Europe) competitors. We are investing in this technology and risking introduction of the largest factory in the world for production of a biopolymer 73
that we call green polyethylene. In all, more than R$500 million has been invested. There is great satisfaction in seeing that several companies view this product as a solution for increasing their contribution to sustainability. For this reason, we have decided to continue investing more than R$50 million per year in technology, in search of new solutions. We have already announced our intention to build a pilot plant to produce a new biopolymer, a polymer made from renewable resources, and we continue to study new technological paths. In addition to innovation, this movement toward increasingly sustainable solutions is characterized by a very signicant factor that mitigates its risks: collaboration. In the case of green polyethylene, Toyota Tsusho the trading company of Toyota Corporation, in the automotive industry was the rst client to support our rst steps in technology investment. Subsequently, new partners appeared. On the supply side, we created a code of conduct to guide our choices of ethanol supplier partners who adequately deal
with the environmental and social aspects of their production chains. This code even had the support of the ProForest nongovernmental organization. The government of Rio Grande do Sul also collaborated to make construction of the industrial unit viable in its state. In other words, collaboration was fundamental for the realization of this investment. Competition and cooperation In conclusion, I would like to question what I consider to be a false dilemma: the idea that competition is counter to sustainability. Although I know that cooperation has been one of the main success factors for Braskem and that it is also one of the basic values of sustainability, I understand that it is the competition, the competitors and the desire to differentiate that drives the businessman. In other words, collaboration and competition can coexist in search of a solution that attracts societys attention and allows the earning of prots in a sustainable way. Companies cannot survive without prots; however, the economic variable is inherent to corporate
Collaboration and competition can coexist in search of a solution that attracts societys attention and allows the earning of profits in a sustainable way.
74
sustainability which, in turn, is inherent to global sustainability. It is no surprise that one of the main topics of the United Nations (UN) Conference on Sustainable Development, the Rio+20, held in Brazil in 2012, deals with The Green Economy in the Context of Sustainable Development and the Eradication of Poverty. There will be no sustainability if the main economic points are not included. There will be no sustainability without the participation of companies and industry. And their participation will not be sufcient until they all see themselves as part of the solution and start applying the principles of sustainable development in their business strategies.
1 Report of the United Nations Environment Programme Towards a Green Economy (2011) 2 Reports of the Brazilian Institute of Geography and Statistics (IBGE) Sustainable Development Indicators (2010) and Synthesis of Social Indicators for the Brazilian Population (2010)
75
with environmental and social issues, with direct impact on the image of the products they manufacture or services they provide. Consequently, their participation in international corporate social responsibility indexes is no longer merely embellishment of the institutional brand; it has become an attribute as important as quality or price, with increasing inuence on purchasing decisions. Dialogue as solution How can a global company in the healthy industry balance the challenges of promoting economic and social growth, maintaining harmony with the environment and ensuring the continuity of its business, particularly when its future is so intrinsically connected to its own capacity to contribute to the very sustainability of human existence?
By engaging in ongoing, constructive dialogue and staying close to its publics in all markets it operates in. There are no short cuts when the ambition is to focus on the needs of patients, supply innovative solutions for the medical demands still not met, and meet the expectations of an emerging society that demands more access to health care and committed employees who do not separate professional achievement from human development. At Sano, corporate social responsibility has increasingly become a tangible and structured means mainly with the development of recognized global standards to gain more efciency and promote the sustainable development of the company. Encouraged to continuously innovate, our target is to meet not only todays challenges, but to
anticipate the development of a segment in which there is no room for irrelevance. However, for social and environmental responsibility to perform a transformational role in all levels of the company and be clearly perceived externally Sano Group (Brazil) places the set of social, nancial and environmental performance indicators in a perspective more integrated and shared by its branches in the country. The aim is to broaden the eld of view of potential improvements and opportunities to add value. The rst corporate report on social responsibility released by the Brazilian subsidiary in 2011 launched a virtuous cycle of debates in the organization. These targets direct the efforts of the branches in constructing individual agendas in
1 The term was dened by the philosopher Marshall MacLuhan, a communications scholar in the 1960s
77
tune with the corporation, but consistent with local demands. They also reveal the legitimate ambition to increase and protect the trust of consumers, the medical class and the other interested parties accrued over decades in the country. To develop a portfolio of products adapted to the Brazilian reality, to have the largest industrial platform outside 78
France, to be one of the largest employers in the pharmaceutical segment in Brazil generating more than 5,200 direct and 2,000 indirect jobs are only some of the links Sano has with the country. Research is another powerful link, established long ago with the Brazilian scientic community. Ranking 7th in the Group in the number of patients that
Participation in the international corporate social responsibility indexes is no longer merely embellishment of the institutional brand; it has become an attribute as important as quality or price, with increasing influence on purchasing decisions.
participate in clinical trials, Sano Brazil is responsible for the BRICS, promoting signicant funding and new research technology. Recently, the decision to deepen this interaction with Brazilian centers of innovation has brought Sano and the Biominas Foundation together in a program organized to look for projects in their early phases developed by private initiative or Brazilian public entities with potential for future development with the corporation. In the eld of vaccines, innovative partnerships, such as those with the Butantan Institute and the Oswaldo Cruz Foundation, also show the Groups willingness to collaborate with some of the main players in Brazilian public health. The Sano Group manufactures 95% of the drugs it sell in the country at Sano Farma and Medley factories, contributing
to the development of hundreds of local suppliers, the strengthening of domestic production and generation of millions of jobs in the value chain. The awareness of employees and the improvement of productive and environmental efciency levels are the basis for the sustainability agenda of the companys industrial sites. To build a really long-lasting development model for the country, Sano could not do without a comprehensive and sustained program of professional training. In challenging vertically structured organizations to make them more matrix-like and collaborative, we were challenged to provide our employees with a more cross-sectional view of the evolution of the Brazilian health market, preparing them to understand the demands of the different segments and offer customized solutions for their needs. 79
through up to nine stages before the product is effectively delivered to the nal consumer. Its worth emphasizing that the chemical industry is one of the most important sectors of the Brazilian economy. The sectors industrial Gross Domestic Product (GDP) is fourth in the ranking, which shows how strategic the chemical segment is for the country, particularly to raise Brazilian competitiveness abroad. Innovation is essential in this sense. Opportunities for development of a chemical industry that drives innovation are translated into increasing demand for research and creation of new and increasingly advanced products and processes. The support of a dedicated industrial and innovation development
policy for the sector, in recognition of its strategic importance and transformational potential is fundamental to take full advantage of these opportunities. Priority fronts Dow understands that in the search for innovative solutions, the chemical industrys best practices should focus efforts on four separate fronts: Culture of innovation: it is based on a clear vision that innovation is not just something that occurs within labs, but something that has an essential value that permeates the whole business strategy and is connected to all within an organization. People, performance and partnerships: innovation begins with highly educated and above all energized people, with full access to resources and technologies.
Research and Development (R&D): innovation of products and processes should be understood as the basis for a transformational approach in the search of solutions, as well as for the ability to form partnerships. Important solutions for human progress: the development of businesses, organizations and technological advances needs to focus on the transformation of the human condition, helping to construct a future focused on four main megatrends (see chart on page 82). Science for a sustainable planet The world needs solutions for great challenges in the most varied areas, such as energy, climate change, water, food, housing and health. That is why, in Brazil, Dow has some of the best scientists and engineers 81
Opportunities for development of a chemical industry that drives innovation are translated into increasing demand for research and creation of new and increasingly advanced products and processes.
82
dedicated to resolving such challenges through innovation. All we do, and how we do it, is important. This way we invest not only in the planet, but also in business.
The chemical industry plays a fundamental role in the creation of this more sustainable future. We accept the responsibility and the challenge and work hard to contribute to the legacy of future generations.
83
years now, innovation has been given many names, especially, starting in the 1980s, when the scenario of globalization and still vigorous growth in the western nations in the Northern Hemisphere was a reason for security, on one side, and demands for growing quarterly results, on the other. And, due to this situation, aggravated by the strong changes in the nancial markets during those years, new initiatives and modeling began to be demanded, focusing on cost reductions, business and company reinvention and reengineering and so many names for an effort to achieve continuous, or even radical, improvement, to sustain growing, stable, predictable and guaranteed earnings per share, ensuring the attractiveness of shares in the capital markets.
The topic became even more complex in the 1990s. From that point on, the challenge was to be innovative and, at the same time, sustainable. The concept of sustainability here, refers, in principle, to that most adopted currently, which is the triple bottom line, a term coined since the end of the 1990s by John Eikington in his book, Cannibals with Forks. Sustainability supported by three pillars people (social), the environment (the planet) and nancial resources (the economy-results) has, in fact, promoted a better understanding of the role of industry for many decades. A critical view We are living at a crucial time for industry in Brazil. Grey clouds are taken as certain in a context of an overvalued real, expanding commerce and an economy that is generally growing,
while the industrial sector moves at rates below 2.5% for years on end, with a downward trend. We need, however, to expand our point of view. The diagnoses and the evaluations of the performance, the results and the stages of evolution of industry are made today, for the most part, based on a sample of the 500 largest companies, the 1,000 largest companies or of the little more than 600 companies with shares traded on the Bovespa. But, according to the Brazilian Institute of Geography and Statistics (IBGE), we certainly have more than 300 thousand companies in Brazil, from micro to mega companies. Therefore, based on what reality do we want to build the future of Brazilian industry as an agent of innovation and sustainability? The best practices will 85
The process of building the future is not only for companies of a certain size and age, but for those companies that apply the minimum effort and investment in a consistent and ongoing manner.
certainly come from the large successful companies, but the new reality will only be consolidated in the future if the majority of the large, medium-large, medium and small companies are also agents aware of this process of fostering innovation. They need to act as the driving force for success and self-sustained growth, based on appropriate actions to maintain results, with the proper counterpart for society and with responsible use of environmental resources in social relations, commercial and economic, local and global. Weights and mesures Here is the rst critical point. Demming and Juran, back in the 1950s, already asserted that I can only improve that which I am able to measure. So, we have the famous indicator of utilized capacity of Brazilian industry, which has not been renewed, reviewed or updated in more than 30 years and which, between periods of deep recession and high expansion of consumption, has always varied between 78% and 85%. Thus, this implies that Brazil is always likely to suffer from demand 86 ination, that the government is always expected to provide subsidies or lines of nancing to expand capacity and that the capital goods industry and the alternative import of means of production should, every year, have an average minimum movement greater than the growth of industrial production itself. This does not seem true to me, but, no doubt, it is an accepted point, to be questioned by industry, which intends to be an agent of change for a future of innovation and sustainability. A second critical point is that productivity criteria are still rudimentary for the majority of our industrial companies. The concept of operational excellence has reached the level of corporate awareness, however, what we still frequently see is a number of short-term solutions and extreme emotional inuence. All that is needed is for the dollar to devalue and nancing to ease providing greater momentary liquidity in the world, and we see the trade balance become unbalanced with regard to the import of new capacity. In general, without an adequate market
analysis and a sales and marketing plan that justify an investment in assets, the rebound comes quickly, with insufcient net generation of cash ow and, therefore, an inability to sustain the consequent growth of working capital. The systemic view of the processes is today clouded by acronyms and labels, without the needed consistency: TQM, Q circles, A Target, 6 Sigma, Lean, Kaizen, Just in Time, Total Cycle Time, etc. Each of these methodologies brings an extremely valid set of excellent concepts, most of which are complementary and supplementary to each other. What is the problem? The problem is implementation and the lack of perseverance and consistency. In this case, consistency is understood as permanent coherence, over the longterm coherence of actions, decisions, investments, attitudes, leadership and objectives. And why is coherence lacking? Basically because of the existence of a system of labor laws more than 60 years old, with little innovation and exibility for current times and international competition. Rudimentary R&D R&D investment in Brazil is still rudimentary. Even more so if we consider only that focused on industrial activity. Innovation has a signicant component of R&D, especially when applied to products and solutions, but the rates of investment in Brazil are still much lower than those of our global
competitors. Even after the advent of the Good Law, we have a paradox to deal with regarding R&D efforts. One of the characteristics of industrial management in Brazil has historically been to try to copy imported models without due consideration of the differences in scenarios and contexts. Rarely have there been discussions focused on business management from the economic and nancial point of view. In part, because the government is always expected to come to the rescue, with barriers to foreign competition or subsidized nancing for investments in capacity or even to support working capital, and so on. For a long time there was apparently the illusion that the models of the more developed nations could be copied. Initially, planning and strategy were poor or neglected and only improved substantially over time. Today, unfortunately, implementation of strategy continues to be poor and only tolerable. The economic and nancial view The cost of capital in our country is still one of the highest in the world, in spite of the fact that credit has improved and become more available. What have the development banks and market investors complained about in the last ten years? That we do not have projects good enough for the investment capital and credit available for investment in production. 87
Nevertheless, if the cost of capital is still among the highest, the working capital and nancial turnover of production and distribution operations are critical and important. This is where industrial sustainability starts on the economic and social level. One cannot expect to grow and deal with normal uctuations of demand by leveraging working capital based on bank credit and/or discounted trade bills. The total cycle of the business cannot be sustained and the impact is direct on the company with cyclical hiring and ring. Self-sustained growth, with self-nancing of working capital, is key to the longevity of an enterprise. And the turnover of this capital in the companys value and supply chain is the most efcient way to maintain healthy protability, permitting reinvestment in growth. If the industrial Gross Domestic Product (GDP) represented more than 38% of total Brazilian GDP in the past and today represents less than 32%, and is trending downward, we cannot, just because of this, conclude that deindustrialization is taking place in the country. We must consider that, after the 1970s, GDP growth in the service sector followed the modern global trend of growing at higher rates. It should also be noted that Brazils agribusiness, which is growing and is important for the countrys trade balance, maintains a substantial participation in total GDP. Therefore, this is not how we should verify deindustrialization. 88
Merger and acquisition activity in the manufacturing industry was stronger in the recent past, but, in the majority of investments, the industrial park and the level of production was maintained, accompanying the consumption sector, the greatest driver of growth in the past ten years. The exchange rate has been made the scapegoat for the process of deindustrialization, but lets agree, it is not the role of industry to demand intervention in this area, but to plan and execute effective competitive projects in a scenario and context already known since 2004, strongly expected to remain at levels that will never be sufcient to compensate for our competitive inefciencies and the persistent and anachronistic Brazil Cost. The greatest risk we have today in the industrial sector, in addition to the already established labor costs and the renewed enforcement of archaic laws and norms, is the growing cost of investment in education, training and improvement of direct, indirect and technical manpower. This is because the serious shortage of manpower due to current full employment is accompanied by an also anachronistic process of declining quality in the education system, in addition to a certain stimulus to continue temporary informal work, supported by assistance programs. No doubt, the S system, also continued by companies, is still a positive, but insufcient, exception on the educational scene.
Brazilian industry should not worry about whether it represents 30% or 40% of GDP in the next 10 or 20 years, but whether it continues to generate value for customers and wealth for the country, growing domestically in proportion to demand and internationally because its own value makes it competitive.
Examples of success It is certainly not possible to exhaust the alternative paths for Brazilian industrial success. Today, we can easily nd exemplary cases. Brazilian multinationals growing globally are good examples that all this is possible. But lets not deceive ourselves into thinking this is easy. None of this happens without less than 3 to 4 years of real perseverance and consistency and with some suffering due to the decision to be innovative and sustainable. On the other hand, we should keep in mind that the process of building the future is not only for companies of a certain size and age, but for those companies that apply the minimum effort and investment in a consistent and ongoing manner. Brazilian industry should not worry about whether it represents 30% or 40% of GDP in the next 10 or 20 years, but whether it continues to generate value for customers and wealth for the country, growing domestically in proportion to demand and internationally because its own value makes it competitive. The external social role of industry in an innovative and sustainable future will only be seen once good practices are rmly incorporated into companies, inuencing their operational and strategic way of thinking. To involve Brazilian society and also make it innovative and sustainable, we should reach a point where most of industry expands its planned evolution and shares knowledge, together with voluntary and nonpolitical action and real investment, as a few foundations have shown is possible to do in defense of ethics, social and environmental sustainability and education. 89
integration into companies businesses, particularly in the manufacturing industry, has become an indispensable condition for success and the search for business competitiveness. In the broad discussion of topics related to sustainable development and social responsibility, one of the important aspects is the denition of the role of the business sector in establishing and implementing concrete and pragmatic actions in businesses and processes industrialization, distribution and sales , taking the changes needed for adapting to a green economy into account, together with the new concepts proposed by the UN. The business community, in particular the manufacturing sector and its segments, should be part of the solution of the
*Marcelo Drgg Barreto Vianna is a civil engineer, M.Sc and Ph.D from the University of Birmingham, in England, vice president of the International Chamber of Commerce (ICC Brazil) and president of its Sustainable Development and Energy Committee; he is also a board member of several companies and institutions, including the Alcoa Institute and the Cancer Institute of the State of So Paulo; he is a consultant/advisor of the Inter-American Development Bank (IDB)
90
By Marcelo Drgg Barreto Vianna* Vice president of the International Chamber of Commerce (ICC Brazil) and president of its Sustainable Development and Energy Committee
environmental, sustainable development and social responsibility issues and it should be proactive and pragmatic in making concrete efforts that include: the reduction and elimination of the social and environmental impacts of its operations and processes, the continuous improvement of energy efciency, the reduction of carbon emissions using renewable energy in its processes and operations, the efcient use of water and the reduction of wastes, among other important actions (see details on page 93). The International Chamber of Commerce (ICC), representing the global business community and as the result of consultations with the executives of its member companies, prepared the document Ten Conditions for a Transition to a Green Economy, which highlights important points that should be part of
the business strategy of companies in the manufacturing sector and in all its segments. They are: Awareness; Education and skills; Employment; Resource efficiency; Product life cycle; Innovation and savings; Metrics and reporting formats; Finance and investment; Governance and partnerships with stakeholders; and Business integration of the environmental, social and sustainability aspects. The green economy requires three pillars: economic, social and environmental, for an effective transition that enables sustainable development. Economic and social growth is indispensable and needed for the transition to a green economy, 91
as proposed by the UN, taking human and nancial resources into account, as well as short, medium and long-term planning, involving all society stakeholders. The new concepts of corporate sustainability and social responsibility management require that issues of innovation, technology, environmental management and work safety, in addition to quality and concern for social issues be part of all efforts and actions of business management and of all its employees not only to comply with legal requirements, but primarily as a matter of awareness and responsibility to all of society, in searching for sustainable development, increased efciency and business competitiveness in the short, medium and long-term.
A challenge for the entire company One of the important factors in the success of sustainability management involving environmental, work safety, health and social issues is the commitment of upper management and, consequently, all levels of the company. This commitment should be expressed by means of a sustainability policy that integrates all these issues, clearly written to be followed, implemented and observed by the entire company. Line management is responsible for ensuring compliance with this policy, starting with the highest levels of the company and extending to all levels of the organization. Lack of planning for potential social and environmental changes and their repercussions, as well as unfamiliarity with the issues and aspects of sustainability in the implementation and operation of enterprises in the manufacturing sector including in their products and services , could cause adverse consequences that, subsequently, will require human, nancial and material resources to deal with them. The relationship of businessmen with stakeholders in the government, civil society and the academic community is a need that should be addressed in a companys business strategy, in the search for sustainable development. In managing the manufacturing industry in the next decades, the need to incorporate issues of sustainability and
The new concepts of corporate sustainability and social responsibility management require that issues of innovation, technology, environmental management and work safety, in addition to quality and concern for social issues be part of all efforts and actions of business management and of all its employees.
92
social responsibility into companies businesses should be considered a premise, not only in the company, but also in the entire community where it operates and participates, involving the greatest number of stakeholders in the process of increasing awareness for the sake of sustainable development. Upon analysis of the various models for management of sustainability and social responsibility as well as environmental, work safety, social, quality, technology and innovation policies of model and successful companies in the international environment focused on sustainable development, it can be seen that the main objectives and guidelines are focused on: Preventing and controlling pollution and the environmental impacts resulting from industrial operations, their products and services; Acting in a sustainable manner in environmental control and in the health of employees an citizens of the communities where the company operates; Obeying and complying with the environmental, work safety, health and social laws and regulations whenever necessary, and adopting more stringent internal standards; Anticipating sustainability, environmental, work safety, health and social issues, respecting the environment, the health of employees, customers and consumers;
Working with the government, nongovernmental organizations, civil society and independent entities academia, associations and society in general , at all levels, in the search for transparency and shared sustainable development; Recognizing the importance of the continuous and ongoing involvement of employees and of the commitment of management, ensuring that they have the necessary support and training with regard to environmental, work safety, health and social issues; Preparing inventories of greenhouse gas emissions and adopting mechanisms to reduce emissions;
93
Developing energy efficiency, natural resource conservation, and water use and waste reduction programs, in search of efficient means of using raw materials, recycling materials throughout the product manufacturing and distribution chain, fighting waste and establishing more rational and sustainable forms of consumption; Establishing criteria and norms to prohibit child or forced labor, fight discrimination and corruption in its industrial, distribution and sales operations, as well as in those of its suppliers and customers, and continue the monitoring and verification of suppliers of goods, services and products; 94
Preparing emergency and contingency plans to be implemented in situations that may compromise industrial, distribution and sales operations of products and services in relation to employees, society, the environment, consumers and customers; Identifying situations that could expose the company to material loss, environmental and labor liabilities, risks and future contingencies; Conducting life cycle analysis, as well as studies of the social and environmental impacts and risks inherent to its industrial processes, products and services;
For business in the next decade, the incorporation of sustainability models in accordance with the concepts of the green economy model will become both necessary and essential.
Adopting clean technologies that enable the reduction of wastes by using energy and raw materials more efficiently and, consequently, minimizing, recycling and reusing wastes; Ensuring the implementation of social and poverty-reduction practices in the communities where the company operates; Implementing mechanisms for auditing, process monitoring, legal compliance verification, internal company rules and standards, and adherence and achievement of goals, objectives, metrics and sustainability indicators established in planning and implementation of corporate actions and activities;
Adopting mechanisms of transparency to fight corruption, respecting human rights and social inclusion and promoting these strategies with its customers, suppliers and the community where the company operates. For business in the next decade, the incorporation of sustainability models in accordance with the concepts of the green economy model will become both necessary and essential. In the future, the manufacturing industry will need to adjust its policies, its procedures and i ts norms to address the issues of sustainability and social responsibility, if it is to become competitive in the global arena.
95
Deloitte wishes to thank all the companies and institutions represented in this work by their executives for making the collection of these articles possible.
Jos Othon Tavares de Almeida Deloitte leader in Brazil for manufacturing industry
97
98
99
In the first year of its second century of operation in Brazil Deloitte, an ever active participant in the local business environment, is pleased to put together in this publication an exceptional group of decision-makers representing the most important companies in the countrys manufacturing industry. The result of this work, expressed in a collection of never before published articles, is translated here through a set of comprehensive and, at the same time, deep reflections with respect to the major issues of national development. Competitive Brazil Challenges and strategies for the manufacturing industry is an essential read for all those intending to understand and deal with the complex situation that companies operating in one of the most dynamic and emerging markets in the world face today.