Brazil: Rise of the Amazon Giant

Abstract

The first BRIC report of Goldman Sachs published in 2003 predicted that the long term growth rate of Brazil would be 3.7%. In 2006, when the second BRIC report was published, Brazil had registered a growth rate of only 2.7% on an average every year. The country not only underperformed, it underperformed when the all the other three BRIC countries more than doubled their estimated growth rates of Goldman Sachs. But, Goldman Sachs continues to remain bullish on the Brazilian market and estimates that the growth rate will only increase in the future despite the less than predicted growth. The potential for the country to expand exists but will the various forces driving the country take it forward is a question. This report aims to combine macroeconomic principles and strategic perspectives in order to study the globalization of Brazil and the local homegrown firms at the vanguard of this development. A study of the political transition of the country, the social & demographic structure along with the macroeconomic trends has been undertaken. Brazil had colonial beginnings and a military past. When it did get a civilian elected government the initial policies were expectedly leftist & protectionist in nature. The growth of Brazil as a global economy is only a decade old story. While Brazil has the scale including the market size, natural resources demographics and the industrial wherewithal to become a large player, it is inhibited by poor socioeconomic parameters including high unemployment, uneven regional development, high income disparity, cultural issues, poor primary health & education systems and limited infrastructure. While these are being addressed by the Government, corruption & red tape continue to be major concerns. On the economic front, like India, the real thrust in the Brazilian industry came post the liberalization phase adopted by the government in the early to mid 1990?s where many firms including the Brazilian equivalent of “Navaratnas” were privatized. Strategic sectors were thrown open to international players forcing the traditional industrial giants to take notice and be counted. The second part of the study focuses on trying to study the globalization pattern followed by 5 different firms in the Brazilian market. The companies operate in 5 different sectors namely Oil, Steel, Aircraft manufacturing, Cosmetics and IT/ITES. Each of the companies had global ideas and global strategic outlook but the success of their globalization venture was mixed. The reasons for globalization by each of these companies were mixed, prime reason being a search for new markets coinciding with the growth in the Chinese market, a hedging option against usage of domestically available resources, a highly competitive domestic market. The reasons for the failure of the globalization strategy included poor marketing plan, poor end market selection, insufficient financial backing and inability to compete against International firms. The key drivers behind globalization were the institutional changes, proximity of US markets and abundance of natural resources. Some of the challenges that Brazil is expected to face in the immediate future would be to address the manpower challenge, bracing for more international competition in its own backyard from other Latin American countries and other BRIC countries and the increased environmental awareness due to Amazon forest degradation.