By Tom Gunner
Any analysis of Brazil's business environment requires a high degree of lateral thinking, something which one feels instinctively upon entering the country. A number of authorities have attempted to articulate this more usefully, perhaps most aptly in the book "Doing Business in Brazil" by the Brazilian-British Chamber of Commerce. Brazilians do business very differently and this takes some getting used to. For a start, the quality of spoken English is variable, and interpreters are often necessary. Working hours can also appear out of kilter with UK norms and some have commented on the length of time it takes to do anything, especially outside Sao Paulo. Meetings in Brazil are frequently different in character to those to be found in the UK or the US. They can be very relaxed and are often accompanied by lengthy asides and anecdotes and much laughter and personal exchanges. Many attendees also seem to be on more intimate terms than their anglo-saxon business counterparts.
Other more frustrating examples include frequently bureaucratic customs officials, prone to strikes and allegations of petty corruption, which can cause long delays in the imports of vital parts. This may seem a trivial point, but it dramatically affects the competitiveness of export-dependent industries, where just-in-time deliveries are the global standard. Nokia is said to have experienced costly delays in exporting their mobiles from its state-of-the-art facility. This may help explain why Brazil is awash with massive, gleaming new facilities erected by multinationals, but most of these are operating well below capacity.
Red tape is a big issue for businesses in Brazil. The World Bank estimates that wading through the red tape necessary to set up a business takes 82 days, well above the average even in the developing world, and three times as long as in Chile. The patent system is notoriously inefficient, and even fast-tracked applications with international patents already in place take at least six months.
There are over 40 taxes in Brazil, a state of affairs which can tie up small businesses in red tape and make the Brazilian marketplace a confusing and impenetrable place for foreign investors. In reality the confusion this disproportionately hurts small businesses, while multinationals have in many cases managed to exploit the many tax loopholes. The absence of a simple, transparent tax regime has contributed to a perceived absence of an entrepreneurial culture in a country dominated by very large companies and very small family businesses, with not much in between. This also contributes to Brazil's tendency for high interest rates and thereby mitigates against foreign investment, contributing to the overall high level of risk associated with investing in Brazil. Current attempts to address this state of affairs are not expected by observers to result in dramatic changes.
Many business terms that the British take for granted are simply not known in Brazil. Occasionally, even the ideas that underpin them are met with blank faces as well. Lean Manufacturing and best practice were the most relevant examples. Best practice as a business term seems to be little known in many parts of the private and public sectors of Brazil. This compares markedly with the British business scene, where trade associations are constantly racking their brains to come up with ever more ingenious ways of improving all business processes within their industries. However, it is clear that best practice as a business concept, rather than a term, does exist in Brazil, and is acknowledged implicitly, even instinctively, by many institutions.
That said, the spirit of working together seems to be relatively undeveloped in many companies, which appear to be content to muddle along in splendid isolation. This communication disconnect is especially evident in public institutions where dialogue with other stakeholders is often undeveloped or unstructured, for example in the field of technology transfer. The country's national aerospace research agency, CTA, appears to have no formal industrial representation through which it can manage technology transfer, although its partnerships in the field of training appear well structured and international in scope. In speaking with several companies, when asked what organizations they speak to to help them improve what they are doing, this project was frequently told - "none".
Embraer's relations with its main research institutions have been described as "informal" and lacking in structure. The Chamber of Commerce for the city of Campinas acknowledged that Brazil lacked a culture of sharing in business, and that this mitigated against its own attempts to modernize its services to the city's business community - it had no partnerships to allow benchmarking or the sharing of best practice. The British Council also observed a general lack of joined-upness in Brazilian business, and several observers commented on a degree of competition between Government institutions. Although the World Bank praises Brazil's many institutes aimed at spreading best practice, in reality many of these do not seem to be getting their message across. The Lean Institute Brasil, for example, was not known to many individuals met within this Project. Other observers point out that often the sharing of best practice is complicated by red tape, especially within the public sector and universities. The management institute FGV, for instance, claimed much of its success was due to its private status, allowing it much greater freedom.
In general terms, either as a consequence or as a cause, there appears to be a strong reliance on individuals rather than institutions or business processes as the primary disseminators of best practice. There are countless examples in the aerospace sector where the individual towers above the institution. Brazil's aerospace trade association, AIAB, is personified by its charismatic and well-known head, Walter Bartels. Brazil's emphasis on the individual is in part an example of just one of the many short-cuts to industrial development rampant in the country, in this instance a short-cut to spreading best practice. Short cuts are not in themselves a bad thing, especially for developing economies with limited resources to do things by the book. Embraer's ability to get its hands on high-skilled foreign engineers played a vital role in its 'learning strategy' (half of the 600-man team working on the ERJ 170 are from mostly foreign suppliers and partners).
However, this people migration is most effective when it is accompanied by business processes which extract and embed the best practice they carry about in their heads. A strategic relationship with an expert can offset the need to hire them, and can therefore ensure the benefits are spread throughout a wider stakeholder base than the building they happen to be in at the time. Dependence on personalities in partnerships has been identified by the (UK) Department of Trade and Industry as something it wishes to see industry get away from in its efforts to promote enduring partnerships.
However, it is worth remembering that there is no one-size-fits-all formula, and one should remember that froideur is not a business imperative and does not by itself lead to greater transparency or effectiveness in decision-making and partnership management. Indeed aloofness can generate a bureaucracy all of its own - the ability to 'just pick up the phone' is well known to anyone who has tried to do anything in business or anywhere else for that matter.
In addition, the relative compactness of Brazil's aerospace industry makes personal relations an inevitability, and therefore to an extent mitigates against attempts at institutionalizing these relationships.
Institutions can appear therefore more effective and relevant to more dispersed aerospace industries such as the UK's. The geographic clustering evident in Brazilian aerospace is also true of Quebec, where it is frequently said that "everyone knows everyone else". Like Quebec, most aerospace executives in Brazil went to the same engineering schools and universities - the ITA and CTA. And their executives are now mostly taking the same MBA from the same college, FGV. Indeed, the private company Avibras observed that its entire board of directors were ITA educated, and that the case was similar for Embraer.
One should also remember that one of the vital ingredients of any partnership is trust. In the experience of this project, trust is far and away the most frequently cited of all factors in the success of a partnership. Notable examples of the importance of trust are the marketing partnership amongst aerospace SMEs in the Netherlands and the human resources committee in Quebec, which latterly exchanges very sensitive information between competitors about future changes in manpower which would be impossible if the individuals did not have absolute trust in each other. And trust is by and large a personal commodity. It is very hard to institutionalize trust. It relies ultimately on the characters and indeed the professional integrity of the individuals concerned.
However, most other aerospace nations accompany a degree of personal networking with a strong systematic partnership structure. Quebec is a good example, where a strong camaraderie sits alongside an organized interlocking matrix of institutions. It is this culture of teamwork and working together which is most desperately needed in Brazil, and which would help to prize the lid off the technologies contained within its universities and its research institutes.
However it is important to add that such differences in business practice do not amount to a lack of professionalism in management.
There is a strong focus on management skills in Brazilian business and most companies have business management training strategies in place. Many foreign businessmen are impressed with the high quality of the management of the sector's main companies. Embraer's senior management team for example has been the subject of much praise by foreign observers.
The defense company Avibras last year trained 30 executives in management skills through the local subsidiary of the US Project Management Institute. MBAs are widely undertaken in Brazil, and Embraer conducts most of its MBAs with the management school FGV. Embraer also promotes its own 'management by objectives' technique to the wider business community.
Notwithstanding some cultural adjustments, doing business with Brazilians can be a richly rewarding experience and the potential of the country and its people is evident. However, the culture of best practice is not as developed as in the UK and the US and there are fewer structured partnerships between the key stakeholders. A more structured, process driven approach to partnership and best practice could undoubtedly play a key role in the sector's overall development.
This process should at least involve the sector's trade association. However, the AIAB is not currently well resourced or structured. Nonetheless, one single institution should ideally be driving the promotion of best practice in aerospace, possibly in conjunction with others specializing in specific areas such as lean manufacturing or skills.
For more information on the Partnership Project contact Tom Gunner at +44 20 7227 1071, or tom.gunner@sbac.co.uk or visit www.sbac.co.uk/PartnershipProject.htm
In August 2003, Tom Gunner, Government Relations Manager of the Society of British Aerospace Companies in the UK, undertook a two week study trip to Brazil as part of an international project looking at some of the world's major aerospace communities. The project was supported by the Department of Trade and Industry and the UK trade union Amicus. The above article on the general business environment in Brazil is an edited extract from Tom's final report on the country's aerospace industry, Strategic Partnership in Brazil's Aerospace Community.
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