This article originally appeared

in the October 2010 issue of

The journal of
high-performance business

Emerging Markets

Brazil on the move

By Roger Ingold and Marcelo Gil de Souza

 nce known for samba and soccer, Brazil today is a global

O
player to be reckoned with—a rare amalgam of political
stability, economic diversity and dynamism, fiscal prudence
and conformity with the cadence of Western business.
 Flown on a regional airline recently
in the United States or Europe? It’s
likely you were on an Embraer air-
craft—designed and built in Brazil.
Grilled chicken on the Fourth of
July? There’s a good chance the
poultry was Pilgrim’s Pride brand,
now majority-owned by JBS, the
Brazilian meat processor. Have a
Budweiser at that barbecue? These
days, that’s a taste of Brazil too. The
iconic American beer brand belongs
to Anheuser-Busch InBev, the $37
billion Belgian-headquartered com-
pany, most of whose top manage-
ment team hails from Brazil.
Brazil is a global player to be reck-
oned with. Once known for samba
and soccer, the country is now the
land of surprising and substantial
commercial and financial oppor-
tunity. It offers a rare amalgam of
political stability, economic diver-
sity and dynamism, fiscal austerity
and conformity with the cadence of
Western business.
To be sure, there are concerns about
the economy overheating, especially
with gross domestic product on track
to expand by more than 6 percent
this year. Still, some economists say
the country could sustain 4.5 percent
annual growth without inflationary
pressure for much of the next decade.
For businesses and investors world-
wide, Brazil is providing more and
more ways to tap huge and rapidly
expanding consumer markets, put
capital to work, harness the energies
and intellect of its growing profes-
sional class, find new suppliers,
and forge new partnerships in an
increasingly diversified economy.
Some leading multinationals clearly
already understand the nation’s po-
tential: Brazil is the second-largest
market for cosmetics leader Avon
Products and the third-largest for
consumer goods giant Unilever.
2
Outlook 2010
Brazil is also coming into its own
Number 3 on the world political stage. Now the
world’s eighth-largest economy, the
nation is seeking a permanent seat on
the United Nations Security Council.
It sends regular trade missions abroad
and has trade support centers as far
afield as Poland and the Arabian Gulf.
It has been central to a peace-keeping
mission in Haiti, among many other
global initiatives. Meanwhile, Brazil
boasts that it has greater individual
freedom than China, less sectarian
volatility than India, and almost none
of the potential for political unrest
or natural disasters that overshadow
those nations.
Reality trumps perception
But it wasn’t that long ago that Brazil
was known derisively as “the country
of the future—and always will be.”
In the 1980s and into the 1990s, the
country labored under massive for-
eign debt, public borrowing was used
to finance growth, and annual infla-
tion remained high, peaking at 2,477
percent in 1993. Also, Brazil has
attracted worldwide notoriety for
its favelas, the grim shantytowns
adjacent to its largest cities that
have become symbols of the chasm
separating the country’s haves and
have-nots. And although Brazil’s
adult illiteracy rate as computed
by the UN has plummeted from
25 percent in 1980, it was still 10
percent as recently as 2007.
Infrastructure is also inadequate to
properly support Brazil’s breakneck
growth rates. Despite the flurry of
construction nationwide—most of
it related to home building, some
geared to hosting the World Cup
soccer tournament in 2014 and
the Summer Olympics in 2016—much
remains to be done to upgrade the
physical infrastructure and promote
digital inclusion, notably in the
new centers of development fur-
ther west and north in the nation’s
interior.
Brazil still has low densities of road
and rail links—0.2 kilometer of roads
per square kilometer compared
The demographic bonus
Brazil is at the beginning of a cycle in which both children and the elderly—segments that make important
demands on a country's resources while tending not to be productive in GDP terms—will make up a small
proportion of the country’s total population.
Children (percent of total population)
Elderly (percent of total population)

45%

40

35
Beginning of demographic bonus
30

25

20

15

10
Ending of demographic bonus
5
0
1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

2010

2013

2016

2019

2022

2025

2028

2031

2034

2037

2040

2043

2046

2049
Source: IBGE

with nearly twice that density in A turnaround story

China, for instance. And although Yet for all its problems, Brazil is
high-speed Internet service is widely a turnaround story on a grand scale.
available, it is not yet easily afford- Certainly the country, like many
able for Brazil’s burgeoning middle in Latin America, has benefited
class, though presumably, as incomes from a run-up in the prices of
continue to rise, more and more people commodities such as iron ore—
will have the means to sign up. largely the effect of China’s ap-
petite for raw materials. But the
Brazil faces institutional challenges nation’s positioning is also the
as well. Both the World Economic product of more than 15 years of
Forum’s latest Global Competitiveness fiscal discipline and pro-growth
Report and The Heritage Foundation’s macroeconomic policy.
2010 Index of Economic Freedom
point to onerous regulation, rigid By the late 1990s, the government of
labor markets, an ineffective and President Fernando Henrique Cardoso
inefficient public sector, and broad was coming to grips with Brazil’s fiscal
mistrust of politicians. While challenges. The measures were tough
INSEAD, in the latest edition of its but effective: Although unemploy-
Global Innovation Index, praises ment rose and public debt soared, the
Brazil’s entrepreneurial spirit as one Cardoso administration tamed hyper-
of the highest in the world (one adult inflation, stabilized the currency and
out of eight is creating a business), laid the groundwork for a balanced
the WEF gives Brazil a low score in economy. By the early part of the
3
Outlook 2010
terms of the numbers of procedures new century, the country had moved
Number 3 and time needed to form a startup. from a trade deficit to a surplus.
Rise of the middle class
Between 2000 and 2010, there were significant changes in Brazil. The middle class jumped from a little more than one-third
of the population to almost half. Average income in PPP terms increased by about 50 percent. The buying power increase
promoted widespread access to capital goods and services.
2000
Population data Population 170 million
Middle class 36%
Income Annual GDP PPP per capita Current international $ 7,203
Minimum monthly salary R$ 151
Shopping cart Overview Staples and basic discretionary
Staples Basic basket with additional categories
such as yogurt and chicken
Discretionary Mobile phones, television, refrigerators
Financing Overview Low access to credit, high interest
rates and uncertainty about economy
Access Mobile phones 22 million
Computers 10 million
Beginning in 2003, the government
of the new president, Luiz Inácio
Lula da Silva, extended Cardoso’s
reforms, helping to accelerate exports
and pushing the trade surplus to
more than $40 billion by 2007. The
transformation of the trade account
has helped eradicate Brazil’s long-
time need to issue debt to finance
growth. Although Brazil was buffeted
by the recent global recession, it
has fared far better than many other
nations. By the end of this year,
its debt-to-GDP ratio is expected to
have declined modestly to around
41 percent, compared with 54 percent
for the United States and a whopping
78 percent for the United Kingdom.
Brazil’s economic vigor has given
the federal government the means
and the freedom to spend on
4
Outlook 2010
much-needed infrastructure and
Number 3 social programs. Although federal
2010
193 million
49%
Current international $ 11,066
R$ 510
Staples basket expansion
Discretionary focus in electronics, vehicles,
beauty, travel and service
Basic basket expansion with focus
on functional items, frozen foods and
prepared meals
Entry-level vehicles, LCD televisions,
entertainment/travel, laptops, beauty products
Stable economic growth, accessible rates
and easy access to credit
180 million (as of April 2010)
60 million
spending on infrastructure is just
2 percent of GDP—compared with
about 16 percent in China—the
activities are extensive. PAC 1—
the first phase of the national
accelerated growth program—has
distributed funds for oil extrac-
tion, electricity generation and
logistics. PAC 2, which was an-
nounced about the time that the
2010 presidential election race
began, will work to catch up on
delayed investments from PAC 1
and boost spending on initiatives
such as the My House, My Life
affordable housing program.
Supersized consumer markets
Economic growth has given rise to
a new middle class—a demographic
that already comprises half of the
country’s population. Between
2003 and 2008, 32 million people
joined this group.
 These individuals and families differ
from their equivalents in China and
India in their concentration: More
than 84 percent of Brazil’s population
is clustered in urban areas. What
they all share is a chance for upward
mobility, spurred by stable mac-
roeconomic fundamentals, the
expansion of the Bolsa Família (the
federal social safety net program that
began to help millions of families in
2003) and falling unemployment.
The new middle class represents
Brazil’s economic engine, powering
Brazil’s economic vigor demand not just for housing stock
but for an array of consumer goods
has given the federal and services. Middle-class family
income now averages $9,200, versus
government the means an average across all classes of
and the freedom to $15,500 a year, and is rising steadily.
These new consumers also make up
spend on much-needed the country’s current and future
infrastructure and workforce, filling the openings for
bank tellers, lab technicians and
social programs. other service economy jobs created
by the expanding economy and
providing the manpower to run
factories and oil rigs. This demo-
graphic also constitutes a vast pool
of voters whose ballots matter and
who will want more say in their
nation’s future.
As family incomes have risen, so
has discretionary income; over the
last decade, the gap between mini-
mum salary and the basic basket of
food has multiplied. The basket of
food currently represents 45 per-
cent of the minimum wage versus
68 percent in the year 2000. The
consequence: More than 90 million
consumers buying everything from
new LCD TVs—much in demand to
watch last summer’s World Cup—to
cars, prepared foods, mortgages and
vacation packages.
On the digital front, Brazil is trying
to quickly move up the technology
ladder. There were 184 million cell
phones in use in May 2010—which
5
Outlook 2010
means a majority of the population
Number 3 is now mobile. The number of person-
al computers leaped from 10 million
in 2000 to more than 60 million in
2009; about 32 percent of the middle
class owns a computer at home. And
although the country is the fifth
largest in Internet connections in
the world, high-speed connections
are rarer because of the high price
of access and the absence of ser-
vice in remote locations. However,
the expansion of mobile broadband
services is on the horizon thanks to
the national plan to offer broadband
access at rates substantially below
current prices. This web-enabled
landscape will present many oppor-
tunities for such digital services as
m-payments, personal productivity
enhancers, mobile advertising and
entertainment such as online games,
music and news.
Follow the (new) money
Brazil’s potential has not gone
unnoticed abroad. Foreign direct
investment is pouring in from
corporations and investment funds,
accelerating government spending
and private investment alike. FDI
grew 35 percent annually between
2003 and 2008. After a decline in
2009, inward investment is flowing
again this year and is projected to
reach pre-crisis levels of $40 billion
in 2011, with more and more money
earmarked for activities that will
serve Brazil’s new middle class—
retail, logistics, software, financial
services, housing construction and
infrastructure.
Consider three recent examples.
State Grid Corp. of China, that
country’s largest electrical utility,
recently spent $1.7 billion to buy
seven Brazilian electricity transmis-
sion companies. Energy conglomer-
ate Shell International Petroleum
has signed a non-binding agreement
with Cosan, a top Brazilian producer
of ethanol, sugar and electric
energy, to create one of the world’s
largest biofuels companies; the
(Continued on page 7)
Meet Brazil’s new corporate dynamos
• JBS. The company is now the world’s largest beef processor
and exporter. It has annual revenues of $30 billion, a market
capitalization of $11.8 billion and a presence in more than 110
countries. Acquisitions have been integral to growth: In the
last 15 years, JBS has made more than 30 acquisitions. One
of its most significant purchases: its 2009 majority stake in
US-based Pilgrim’s Pride.
• Cosan. Cosan is Brazil’s top sugarcane processor. In early 2010,
the company signed a non-binding agreement with energy
giant Shell International Petroleum to form a joint venture that
would create one of the world’s largest biofuels companies,
projected to be a $12 billion to $21 billion enterprise. If trade
barriers are lifted in the United States, Europe and Japan,
Brazilian ethanol may soon be sold in gas stations worldwide.
• Itaú Unibanco. Now Brazil’s second-largest bank, as measured
by assets, Itaú Unibanco is one of the 20 largest in the
world, based on market capitalization. Relatively low
use of financial services in Brazil presents the bank with
New sources of supply
China’s history of purchases of Brazilian iron ore amply dem-
onstrate Brazil’s potential as a supplier of raw materials. But
they don’t tell nearly half the tale—of the country’s increasing
ability to supply items like food, beverages, minerals and
even oil. Self-sufficient since 2006, Brazil will reach the
status of medium-sized oil exporter once pre-salt wells start
to be operational.
Brazil’s agricultural productivity has surged: Grain production
increased by 142 percent between 1990 and 2008, but the
acreage used to grow that grain rose by just 26 percent in
that time. And the country’s minerals exports say little about
the sheer diversity of materials, components, subassemblies
and finished goods the country supplies as well.
6
Outlook 2010
Number 3
vast growth opportunities in areas ranging from savings
accounts and credit-card operations to insurance products
and 401(k)-type retirement savings programs.
• T AM Linhas Aéreas. Brazil’s No. 1 domestic airline is also
the world’s 19th-largest carrier. Global events being held
in Brazil—such as soccer’s 2014 World Cup and the 2016
Summer Olympic Games—will help boost leisure travel
in a country where business travelers account for most
passenger air miles. TAM is currently in conversation with
another regional carrier to merge operations.
• W
 EG. Latin America’s largest manufacturer of electrical
motors is quickly expanding its global presence, spurred
by growth in demand for equipment for energy transmis-
sion, generation and distribution. At the end of 2009, WEG
had nine plants in Brazil and six overseas. In May and June
of this year, the company made three acquisitions in sec-
tors including electronic sensors for industrial automation.
One sector stands out: ethanol made from abundant sugarcane.
More than four-fifths of new cars in Brazil run on ethanol or
an ethanol-gasoline mix, and the country’s sugarcane-based
fuel is much cheaper to make than the US corn-based variety—
one reason Brazil is the world’s top ethanol exporter. But the
ethanol itself is only part of the biofuels export potential; Brazil
also has biofuels know-how for sale.
Crucible of new ideas
Brazil’s business sector has attracted attention for what
Accenture calls its “super-agile” management models. Today,
business schools such as IMD and Wharton regularly feature
Brazilian case studies. “Brazilians are known for their ability
to manage complex situations,” said Mauro Guillén, strategic
management professor at Wharton, following a field trip a
few years ago to study Brazil’s financial systems.
The nation is also creating new centers of knowledge. Petrobras
and the Federal University of Rio de Janeiro are developing a
giant global research center for the oil sector. The technology
park, which is expected to employ up to 5,000 researchers
by 2014 at Fundão Island in Rio, is designed to bring together
leading oil-exploration companies to develop the technologies
needed worldwide to access undersea oil reserves.

A recent academic study indicates that Brazilian multinationals
such as Vale and Embraer excel because they demonstrate
unusual organizational flexibility, for example, permitting and
even incentivizing subsidiaries to be unusually independent.
Another winning Brazilian management characteristic identified
by the researchers: “active waiting”—that is, constantly moni-
toring conditions and getting ready to give immediate answers,
as opposed to the traditional approach of focusing on short-
term planning and intuition.
Brazil has also blazed trails in financial services. Years of
hyperinflation compelled its banks to invest heavily to
accelerate transaction times. Today, checks clear in one or
two days, and direct debit accounts further streamline processing.
The World Bank has praised Brazil’s “efficient, highly automated
payment system.” Cash machines in Brazil can offer more
than 500 types of service, including bill payment, movement
between funds and opening savings accounts.
Embrapa, the nation’s agricultural research center, has
collaborated with agrichemicals company BASF to create
herbicide-tolerant soybeans—the first genetically modified
crop developed in Brazil. And Brazilian petrochemicals giant
Braskem is blazing trails in bioplastics—in this case, plastics
made from sugarcane ethanol. The company, which aims to
be one of the world’s 10 largest petrochemicals companies
a decade from now, is building a giant plant, due to open next
year, to produce so-called green plastics. Food packaging
company Tetra Pak International, part of Swiss conglomerate
Tetra Leval, is set to be a customer. The bioplastics market has
tremendous potential. For example, the Coca-Cola Co. expects
all of the plastic bottles it ships in 2020 to be made from
bioplastics.

For further reading (Continued from page 5)
“Gearing up for the two-speed global joint venture is projected to have
recovery,” Outlook, October 2010 revenues between $12 billion and
“Game over?” Outlook, June 2010 $21 billion a year.
Billionaire Chicago real estate
entrepreneur Sam Zell has already
injected more than $500 million in
a number of Brazilian companies that
specialize in property and infra-
structure. He has also announced
plans for more investments in
construction projects that will help
Brazil prepare to host the World Cup
and the Olympics. Meanwhile, the
housing sector continues to hum: In
2010, two of the country’s biggest
homebuilders, PDG Realty and Agre
Empreendimentos Imobiliarios,
merged, and six of Brazil’s 13
share offerings in the first months
7
Outlook 2010
of 2010 were made by real estate
Number 3 companies. House prices are sky-
rocketing, thanks to easier access
to credit and rising incomes.
In the financial sector, Brazil is
becoming more attractive for global
private equity and venture capital
funds. With several huge public
offerings on the Bovespa, Brazil’s
stock exchange, in the last two
years, the funds have more opportu-
nities to cash out. (Among the high-
er-profile investments: US venture
firm Weston Presidio helped capital-
ize Azul Linhas Aéreas Brasileiras,
the budget carrier launched in 2008
by David Neeleman, Brazil-born
founder of JetBlueAirways.) Also,
in 2009, several new local venture
funds were created in Brazil to
invest in infrastructure, real estate,
agribusiness and clean energy.
At the same time, Brazil’s business
sector is generating big FDI out-
 flows. Energy colossus Petrobras,
which is 68 percent privately
owned, is an enormous influence
by itself. By 2014, the company is
set to invest nearly $200 billion—
with $12 billion in oil exploration,
refining and distribution world-
wide, from Turkey and China to
Senegal and the United States. And
a host of Brazil’s private-sector
businesses—from meat processor
JBS to mining giant Vale—are
understood to be lining up acquisi-
tion targets around the world.

Brazil’s rapid rise from inflation-dogged underdeveloped economy drowning

in debt to new world power has been astonishing. Two parts fiscal discipline,
one part export-led growth and one part rich natural resources, the nation’s
economic flywheel is spinning at top speed.

Of course, there are still plenty of potential brakes. The more the economy’s
annualized growth rate nudges 6 percent, the greater the fears of inflation.
Additionally, government spending as a proportion of GDP remains high,
and the current account deficit is expected to increase as the trade surplus
shrinks (with slowly recovering exports and quickly rising imports) and
profit repatriations rise. Moreover, currency appreciation due to high inflow
of dollars with increased resource exports may hinder competitiveness of the
local industry in favor of imports. For the most part, though, the prognosis for
the Southern Hemisphere’s superpower is very good. Few believe the incoming
administration will veer from the policies of the Cardoso and da Silva governments.
And with resources to spare, Brazil, an IMF creditor since 2009, is not about to
become a debtor nation again.

For executives in the rest of the world, the signals are all too clear. They have
Outlook is published by Accenture. a choice about whether their businesses get involved in Brazil, and they would
© 2010 Accenture. be unwise to ignore the abundant opportunities there. But they may not have
All rights reserved. a choice in whether Brazil soon gets involved in their businesses.

The views and opinions in this article

should not be viewed as professional
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About the authors
Roger Ingold, chairman of the Latin American Geographic Council for Accenture, is
the company’s county managing director for Brazil. Mr. Ingold, who began his career at
Accenture as an intern in 1981, specializes in the retail and food distribution industries
and has extensive experience in sales strategy, supply chain and operations. Mr. Ingold is
based in São Paulo.
roger.ingold@accenture.com
Marcelo Gil de Souza is the global head of Accenture’s Corporate Strategy and
Growth Strategy groups. Mr. Souza, who is based in São Paulo, has worked with
clients in areas including corporate governance, M&A, post-merger integration,
corporate strategy and operational excellence.
marcelo.gil.souza@accenture.com

São Paulo-based Accenture manager Sabine Wimber contributed to this article.

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Outlook 2010
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