Brazil change management by Alexander Chatterjee

Change management in Brazil

Context

In the beginning of March, I was visiting Rio de Janeiro in Brazil as part of my EMBA courses at ESADE.
During the stay I was following courses at the Fundação Getulio Vargas (FGV), a business school in Rio.
The high quality of the courses and the speakers allowed me to form my own picture about Rio and Brazil and it’s potential future (even if right now, it seems very bleak).
But the theory would not have been enough without being able to visit some actual business players.
I was lucky to to visit two sites:
  • FIRJAN, a non profit organization promoting business in the country.They are definitely the first stop on your journey to invest in Brazil and more specifically in Rio de Janeiro.During the visit, I was amazed by the quality of advices and technological knowledge (FIRJAN in Rio is better equipped than any hacker space I have seen in Europe so far …)
  • Zerezes, a small company turning scrap wood into Artisanal Sunglasses. Those passionate young designers (in their early 20s) are making unique (every product is numbered) and sustainable (the frames are from recycled wood, the processes are completely organic) shades; as a bonus, they have a very nice design and high quality Carl Zeiss optics.
Both those visited changed my standpoint view from the label “Made in Brazil": instead of seeing only the highly stereotype of only beaches and carnival scenes, it also produce high quality commodities, products and services.
The quality is as high (or even higher) than our European standards.
So what is wrong with Brazil? Why is it not a super power that should compete economically with the U.S. or China? I will try to respond to that question trough this short study.

Introduction

An old Portuguese colony, Brazil fascinates with it’s size, makes you dream with it’s coastline and struck fear in your heart with it’s Violence and corruption.
We will try to describe through this document the good parts and problems that Brazil faces today and try to find out what changes could transform Rio into the next San Francisco.

A cultural melting pot

Brazil was able to become the mixing ground of several populations: Portuguese, Italians, Germans, Japanese, African slaves and indigenous population.
That permitted the creation of a very specific culture: Brazilians are very warm to foreigners, easy to bond to.
But this warmth hides deeper trust issues (according to prof. Tulio Zanini, the majority of Brazilians only trust their own family) resulting in a another approach to business: you need to create deep bonds with individuals in order to be do business (takes time to know people involved, have to understand that “no" is not part of the business vocabulary etc ...).
Once trust is acquired, it is deep as it is the equivalent as a strong friendship, enabling you to have workers and partners that will work hard for you and that can be trusted on the long term.

Country rich in resources and commodities

Brazil is lucky. Big as the U.S.A., it has reserves of petrol, gold, rare minerals and the Amazon forest (a very bio diverse environment highly sought by pharmaceutical companies).
It is also one of the biggest producers and exporter of agricultural commodities (soya, corn, ethanol, coffee, fruits, livestock ...).

High skilled workers and high quality products

As an entrepreneur, I was amazed by the high skilled workers and managers (working on augmented reality projects require some high-end IT and Engineering skills as showcased in FIRJAN) and high quality of products (the Zerezes glasses are clearly built to last, have nice modern design and use high-end optics).
A week at FGV showed that Brazilian Education is at the same level as U.S. schools.

A tourist destination

Rio and Brazil attract a lot of tourist: the beaches and sights are among the most beautiful in the world ( Copa Cabana, Ipanema, Isla Grande, Christ the Redeemer, Sugar Loafs …), the worldwide events and nightlife are lively (Carnaval, World cup, Olympic Games, Samba clubs …).
Tourist area as Leblon provide foreigners with Luxury malls exist and provide you with international fashion brands.
In layman words, Brazil has all the necessary competitive resources that could make it an economical successful country, if those resources were well managed.
It is also producing high-end quality products thanks to it’s highly skilled workforce, possess a high quality educational system and is blessed to have a lot of tourist sights. So why isn’t Brazil dominating the world market? Why is not it’s Economy as strong as the U.S.A.?

Complicated laws

Several professors at FGVrevealed some shocking information: you need around 14 months in order to open your company and 5 years to close it! Worse, the tax system is very complicated and is composed of 76 taxes! When it comes to trading, anything that is imported is highly taxed (55% for cars).
Entrepreneurs will find it challenging to open and innovate in this ecosystem; you should also remember that once you hire some employee, it is almost impossible to fire them, making Small and Medium enterprise almost none existent.
For the moment, it makes more senses for established international companies to complete an M&A with a local company and then export their products (as VW did a couple of years ago).

High power distance leading to the acceptance of corruption and low wages

This economic framework is complicated enabling bribes (“Jeithinho") to exist in order to speed up and ease operations. But rather than being rare, it spreading as a cancer at all levels of the Brazilian society.
It’s use explain the huge difference in wages (difference of 8000 euros per month from the bottom to the top of the pyramid) and the transformation of a simple bribe to a corruption ring (FIFA, Olympic games and Petrobras scandals, secured higher education only for the “riches"…) guaranteeing a never ending cycle of corruption and favoritism.
Most of the population accept this situation as it is a high power distance country; the majority of the “poor" population do not question their situation, they just try to live by.
In order to further control them, current political parties bribe them back via the “Bolsa familia" that enables the politician to keep their power and the poorest population to survive by getting a monthly governmental check.

Racism, parallel economy and violence

When you start to scrape the surface, you peak at a very racist society; while visiting Luxury malls, I was struck by the fact that not a single black person.
Approaching this problem to prof. Roberto Motta , another picture of Brazilian society emerged: in the top 300 companies, more than 90% of it’s staff are white.
Since slavery has been abolished (the last country to do it), racism is still high (architecturally, it is visible with mogul-rich complexes that are situated next to Favelas).
The “have" are dominantly white, with strong wages and easy access to higher education.
The “have not’s" can barely survive and are stuck at the bottom of the social hierarchy.
It is only normal that a parallel economy start to exist: the drug trade is an important platform in Brazil and sometimes the only way to escape a hopeless life. With drugs come hard violence, the one that Rio and Sao Paulo have been plagued in the 1990s.

Can be Brazil the next world leader?

Lately, a lot of political turmoil have unfolded. Dilma Roussef , the most unpopular president in the history of Brazil, is on the verge to be impeached and Luiz Lula might be arrested due to corruption charges in the next weeks.
That would send a clear signal to the population that even the richest aren’t above the law; the dawn of a cultural change could start.
I believe it’s a good signal: if there are clear punishment on corruption at any level of the society (a Brazilian jail cell is not the equivalent of a Luxury room), Brazil might transform into a meritocracy country, ending corruption and providing more economic power to the middle class.
But that is not sufficient. A lot of laws haven’t been updated for at least 50 years.
The ticket for brazil’s to transition to a liberal economy is to modify those law, especially the ones that are linked to the importation of goods and the simplification of tax laws, allowing to create international trades and push local entrepreneurs to open companies that will be able to compete with international ones.
Once this is done, we just need to wait. It might take up to two generations so that the actual mentality fades and a equal opportunity culture dominates.
I have no doubt that Brazil will be as stronger, on an economic point of view than the U.S.A.

Conclusion

“Brazil is not a country for beginners" said Tom Jobim . That statement can be applied to Brazil as a place to live or create a business.
With unique natural assets, cultures and high quality of education, It would seems that Brazil has everything to be the leader of the south American continent.
Unfortunately, thanks to complicated laws and a corrupted government, those assets are mismanaged, creating a never ending cycled of favoritism and wealth for a few people controlling the country.
As there is a wind of change, I strongly believe, as seeing the success of Havayanas or Embraer , that if corruption can be eclipsed and a meritocratic conscience is pushed forward, we will be 2 generations away to witness Brazil as a new Eldorado.

Special thanks

  • Diego Velasques for giving me some insights about his lovely country
  • The professors and speakers at FGV for their high quality content and insight in the Brazilian culture (Roberto Motta, Sam H. Leal Fouad, Augusto Sales, Tulio Zanini, Ana Celano)
  • The entrepreneur Eduardo Moreira for giving up some of his time to explain how fun it is to be an entrepreneur when you are passionate
  • My true friends, you will recognize yourselves