12/31/07 – Los Angeles Times – Brazil’s now a hot commodity

From aviation to agriculture, it’s an economy on the upswing

By Chris Kraul, Los Angeles Times Staff Writer
December 31, 2007 SAO JOSE DOS CAMPOS, BRAZIL — For years, the joke in this country was that Brazil’s economy was the economy of the future. The morose punch line, of course, was that the future never arrives.But finally, it seems, the future is now.

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FOR THE RECORD:
Brazilian economy: An article in the Business section on Monday about Brazil’s economic growth said Sao Jose dos Campos is north of the capital, Brasilia. It is north of Sao Paulo, the capital of Sao Paulo state. —

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Just peek into Embraer’s Hangar F220 in this city north of the capital, Brasilia, where this month the highflying commercial aircraft maker was putting finishing touches on a dozen gleaming planes being readied for delivery to airlines around the world, including Northwest, Air Canada, Tame of Ecuador and Virgin Australia.Or visit the Odebrecht construction company, in Salvador in Brazil’s northeast. It is managing billions of dollars worth of international public works projects, including its second $1-billion bridge over Venezuela’s Orinoco River and a piece of the Panama Canal expansion.Then there’s Petrobras, the quasi-state oil company, whose engineers have launched deep-water drilling projects in places as far afield as Angola and close to home as Colombia and the Gulf of Mexico. Petrobras announced last month that it had discovered what may be the world’s largest oil find in 25 years, in Brazil’s offshore Tupi field. If that pans out, Tupi could propel Brazil into the ranks of significant oil exporters.

After several boom-and-bust cycles in recent decades, Brazil is in the midst of its best sustained economic growth since the 1970s. Optimism is high that the country may have turned the corner on the road to stability. And the emergence of companies like Embraer, Odebrecht and Petrobras on the world stage is one major factor in Brazil’s improved fiscal health.

“The Brazilian economy is probably at its best moment in 25 years,” said Paulo Levy, economist at a Rio de Janeiro-based think tank known by its Portuguese initials IPEA, citing four years of good economic growth.

Exports of manufactured goods and services have given Brazil’s economy balance and helped foreign reserves climb to $167 billion, double the figure of September 2006. The country has paid down its debt, lowered interest rates and kept a lid on spending. Economic growth will come in at 5.3% this year, lower than the hemisphere’s 5.7%, but quite a feat for a country that over the previous 10 years averaged only 2.5% annual expansion.

Foreign investors have taken notice, evidenced by the 44% increase in the Bovespa stock index this year, the fifth year of growth. That’s a bigger percentage gain than in Russia, Chile or South Korea, even though Brazil’s GDP growth this year will fall short of those countries. Brazilian companies have done a record 100 initial public stock offerings in 2007, five times the number of last year, with 70% of the money raised supplied by foreigners.

“That’s good for Brazilian companies because it’s a cheaper source of financing,” said Reginaldo Takara, senior director in the Sao Paulo office of the Standard & Poor’s credit rating agency. “Now they have partners instead of creditors.”

Investors’ improved perceptions of Brazil are also evident in the $30 billion that foreigners have plowed directly into Brazilian companies this year, a 60% increase over last year. The flood of foreign cash has helped spur the currency, the real, to double in value against the dollar in four years.

Also giving Brazil an enormous boost is the jump in commodity prices in recent years. The country is the world’s leading exporter of chicken, coffee, sugar, soy, beef and orange juice.

Much of the foreign money now flowing into Brazil is coming from investors who expect the country’s debt to receive an investment-grade rating from major firms such as Standard & Poor’s over the next couple of years, said Gustavo Franco, a former head of Brazil’s central bank and now an executive with Rio Bravo Financial Services in Sao Paulo, the country’s financial center.

“If the experiences of Russia, Chile and Mexico are an indication, a ratings upgrade will produce a boost in equity prices, stock [price-to-earnings] multiples and earnings,” Franco said. “That’s what investors are anticipating.”

Some institutional investors, such as pension funds, can only invest in countries with top debt ratings, Franco noted. If Brazil is able to secure that, it will drive demand and raise prices, he predicted.

About a quarter of Brazilian stock offerings this year have been launched by real estate investment companies targeting a housing deficit estimated at 7.5 million units by ABN Amro economist Zeina Latif in Sao Paulo. She expects a short-term boom in housing construction, fueled by long-term fixed-rate mortgage credit, which was not available in Brazil until recently.

The red-hot quality of Brazilian markets is all the more stunning considering the situation just five years ago. In 2002, leftist Workers Party leader Luiz Inacio Lula da Silva won the presidency by campaigning on promises to renationalize utilities that had been sold to the private sector. Investors fled, and stocks and the currency plummeted.

In something of a surprise, though, Lula has stuck with the fiscal reforms implemented by his predecessor, Fernando Henrique Cardoso. That, plus his “discipline” in limiting federal spending, Franco said, are big factors behind the current economic boom.

“Lula is a converted neoliberal,” Franco said.

At the same time, welfare programs for the poor and elderly that give monthly handouts to one-third of the population have reduced the extreme polarization of wage distribution and helped turbocharge consumer spending, now growing at 15% a year, said Ana Carla Costa, an economist at Sao Paulo-based Tendencias consultants.

Wages are up and unemployment is down. Another encouraging sign for investors has been the rapid expansion of credit and banking activity. The number of bank accounts has grown 50% since 2001, while bank deposits and credit cards have doubled, said Nicola Tingas, the chief economist of the Brazilian Federation of Banks.

The value of outstanding loans is growing 20% annually. Analysts attribute the expansion to tougher bankruptcy laws passed two years ago that allow lenders to tap into borrowers’ wages for repayment.

Of course, Brazil still faces serious challenges that could take the wind out of its economic sails. Lula has invested little in infrastructure, and Sao Paulo economist Roberto Troster said that was causing the nation to slip in world competitiveness.

Roads and ports are overloaded. Electricity demand is growing so fast — 6% annually nationwide — that power may be rationed as soon as next year if there is a cutoff of gas from Bolivia, which supplies half of Brazil’s needs, or inadequate rainfall reduces hydropower output, said Adriano Pires, who heads a Rio think tank that studies infrastructure.

Taxes are 36% of gross national product, among the highest in the world, and bank federation economist Tingas said Brazilians receive little for what they pay. “You pay twice as much and you get nothing in return,” he said.

A deep U.S. or global economic downturn would be damaging to Brazil’s economy. For one thing, it would damp demand for its commodities, which account for 53% of its exports. Economist Troster said it was too early to declare that Brazil’s economy had diversified enough and fundamentally changed. “We’re not turning a corner, we’re repeating a cycle,” he said

At Embraer, management is less concerned about macroeconomics than maintaining a competitive edge and seeking out new market niches in an environment made more difficult by Brazil’s appreciating currency.

It admits to growing pains such as difficulty finding qualified technical staff.

Booming demand for its 70- and 100-seat jets spurred the company to add a staggering 6,000 employees to its workforce this year. The company used to import foreign engineers to fill slots. Now it trains up to 100 engineers a year at its own master’s-level, on-site engineering school.

After exploiting the mid-sized jetliner market over the last decade, the company believes it has found another niche in executive jets. Next year will roll out three private luxury models targeting the United States as well as booming emerging markets, such as Russia and the Middle East.

Such worries weren’t even on Embraer’s radar screen 15 years ago, when the company was primarily making propeller planes for the domestic market. Now, Embraer says it expects to soon become the third-largest commercial jet maker after Boeing and Airbus, passing Canada’s Bombardier.

“Brazilian companies are starting to become global players,” said Horacio Forjaz, the company’s vice president. “We’re in a virtuous cycle.”

chris.kraul@latimes.com
Publication: Los Angeles Times
Date: 12/31/07

01/17/08 – BusinessWeek – Managing the Global Workforce / International Isn’t Just IBM’s First Name

Davos Special Report January 17, 2008, 5:00PM EST

Managing the Global Workforce

As the World Economic Forum opens in Davos, companies ponder how to gain an edge by finding the right talent in the right location

By Jena McGregor and Steve Hamm 

The war for talent never ends. Middle managers in China? Good luck finding them, let alone keeping them. Assembly line workers in Central Europe? They’re well-educated and hard-working: Trouble is, every company wants them. The cubicle warriors of Bangalore? They get the job done—if they stick around. I For corporations, managing this widely scattered, talented, restive, multicultural workforce has never been harder. This Special Report, written to coincide with the 2008 World Economic Forum in Davos, Switzerland, brings readers to the front lines of the struggle. It delves into IBM’s effort to rein- vent the way it gets tasks done around the world, follows a Nokia manager as he recruits a workforce from scratch in Transylvania, meets a restless generation of IT workers in India, and hears from the corporate road warriors who never, ever stop traveling. These and other stories make a simple but powerful point: The old way of managing across borders is fading fast. In the first half of the 20th century, the globalization of business was based on the British colonial model. Headquarters, functions, and capital were in one place, with managers dispatched to run regional operations like colonies. In the second half of the 1900s, companies adopted the multinational model, replicating their home country operations in other places where they did business. Country units rarely dealt with other divisions in other markets. Today, global corporations are transforming themselves into “transnationals,” moving work to the places with the talent to handle the job and the time to do it at the right cost. The threat of a U.S. recession only makes such efforts at lowering expenses and grabbing the best talent even more urgent. William J. Amelio, the CEO of Lenovo, the world’s third-largest computer maker, calls his global workforce strategy “worldsourcing.” Lenovo has executive offices in five cities worldwide and organizes its workforce around hubs of expertise, such as hardware designers in Japan and marketers in India. “You operate as if there’s just one time zone,” Amelio says. “And you’re always on.” If anything, companies are devising new strategies to reach global scale faster. To retain workers in China, for example, PepsiCo’s snacks unit funneled nearly 300 extra people into its talent assessment program last year and promoted three times as many managers as it did in 2006. In mid-2007 storage equipment maker EMC started a global innovation network for research and development workers at six labs around the globe. EMC set up a wiki Web site for scientists and engineers to develop technologies and product concepts together. Moving people across borders and ensuring that workers’ visas and permits are compliant with local immigration rules are also vital to the tasks of globalization. Deloitte principal Robin I. Lissak has a client, a CEO of a large multinational, who was told he could quintuple his business in Dubai if he quickly moved 2,000 workers there from India. But like half of the companies in Deloitte’s 2007 Global Mobility Survey, the CEO simply wasn’t set up to do it. “You’re not just moving people from the U.S. to the rest of the world anymore,” says Lissak. “You’re sending people from all continents to all continents.” The companies that play this global, mobile game best will emerge the winners.

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International Isn’t Just IBM’s First Name

Big Blue has built a global network for client services and in the past three years has hired 90,000 people in low-cost countries

by Steve Hamm  

  

Big Blue, with 375,000 employees worldwide, used to focus on developed markets. Now itis hiring fast in emerging countries, where many of the new employees perform services for global clients. Here’s a sampling of its staffing levels. Alberto Mena/BW  

When Rogerio Oliveira strolls through the vast IBM (IBM) service delivery center in Hortolandia, Brazil, the contrast between the old and new IBM is stark. What was once a factory for mainframes is now crowded with hundreds of Brazilians on a different sort of assembly line. Their output is information, and they sit in rows of cubicles that stretch the length of a football field under a soaring, metal-trussed roof. A few years ago, the factory work performed here was just for Brazilian customers. Today, 100 clients for the facility’s services, which range from software programming to financial accounting, come from 40 countries, including Canada, Mexico, South Africa, and the U.S.

Oliveira, a 35-year IBM veteran and general manager for Latin America, stands at the heart of IBM’s effort to transform itself into what it calls a “globally integrated enterprise.” IBM has talked about its new global vision for two years. But only recently have managers like Oliveira turned that vision into a practical and solidly profitable business.This is not the IBM of the 20th century, when Big Blue defined what it meant to be a multinational. Back then, its subsidiaries in 160 countries behaved like mini-IBMs—essentially, standalone operations serving their local customers. But replicating itself became too costly for IBM. So now the company is reorganizing around the principle that it will perform work for customers where the jobs can best be done—tapping the right talent at the right price.  That philosophy has produced a monumental shift in how IBM operates. In the past three years, the company has hired some 90,000 people in low-cost countries including Brazil, China, and India. These people, working in so-called global service delivery centers, provide a wide array of services for clients. The work goes beyond software programming to include data center operations, help-desk call centers, financial accounting, and benefits management. Initially, cheap labor was the big attraction of this move, with pay in India 70% to 80% lower than in the U.S. But these days, tapping the abundant talent pools—and new ideas—in emerging markets such as India and China is important as well.  
Many of those global service employees report both to local supervisors and to managers thousands of miles away. Pressure is most intense on those managers who run countries or regions, like Oliveira. “My worst day was the last day of the quarter,” he says of his job as the Brazil country manager, which he held until he was promoted in late 2007. “I was measured for producing sales in Brazil, and at the same time, I had 6,000 global service delivery people with a different way of measuring. It was schizophrenic.”  The task may be complex, but IBM is committed to it. “IBM is making real some new ideas about what it means to be global that were just a lot of talk before,” says Rosabeth Moss Kanter, professor at Harvard Business School. The results are starting to come in. You can see them most clearly in the performance of IBM’s $50 billion global services business, the focal point of the effort, which represents about half of IBM sales. In the third quarter of 2007, global services revenues grew 14%, to $13.7 billion, and pretax profit margins topped 10.7%, up from 8.2% three years earlier.   But there’s still plenty of work to be done before IBM, with 375,000 people on six continents, is a smooth-running global machine. Says Chief Executive Samuel J. Palmisano: “The big issues for us are: Where do you put them? How do you retain them? How do you develop them? How do you move work to them or them to work?”  Palmisano began this journey almost three years ago. After getting the top job in 2003, he focused on innovation in high-end computers, chips, and software, and rapid expansion in emerging markets and services such as back-office information processing. Yet Palmisano’s rise coincided with that of a handful of aggressive Indian tech services companies, which, thanks to their low-cost labor force, were able to undercut IBM’s pricing.The result: Growth in services revenue slowed, and margins flattened out. IBM responded in 2005 by slashing more than 15,000 jobs in high-cost Western Europe, U.S., and Japan.Cost-cutting alone wouldn’t do the job: Palmisano had to transform how service work was done. He assigned Robert W. Moffat Jr., 51, a longtime IBMer, to the task. Moffat had already wrung $5 billion of annual costs out of IBM’s manufacturing supply chain. For decades, IBM factories had focused primarily on one product and one geographic market. But by 2005 they made any number of products for a wide range of locales, so IBM was able to operate fewer plants and keep them running at higher capacity.Moffat figured that the same approach could be taken with services. His team surveyed countries for costs, available talent, educational pipelines, languages spoken, proximity to markets, and political stability. They used this information to choose locations where IBM would serve clients anywhere around the world. Moffat set up finance and administration back-office centers, for example, in Bangalore, Buenos Aires, Krakow, Shanghai, and Tulsa.Some longtime IBMers have found it difficult to accept the changes. When a bank in Spain asked IBM to provide financial services from two different delivery centers in order to reduce the risks of a major disruption, the first thought of IBM’s Spanish staff was to set up a second facility within their country. Another executive pointed out that IBM’s office in lower-cost Argentina could handle the bank’s tasks. “Some people still think of themselves as being in separate companies,” says Moffat.Moffat and his colleagues also have used their manufacturing experience to keep track of IBM’s far-flung employees. Just as every component used in an IBM computer is described in detail on inventory and planning documents, new databases contain profiles of employees that list their capabilities and their up-to-the-minute availability. Yet while a computer part doesn’t change over time, people do. So the databases can be continuously updated by employees and their managers as employees gain skills and experience.Before, project managers assembled teams largely made up of people they had worked with. But as IBM expanded around the globe, managers found it harder to pull teams together. Now project managers post detailed requests in one of the databases called Professional Marketplace that lists more than 170,000 employees along with their skills, pay rate, and availability. Other managers monitor the database and serve as matchmakers between jobs and people. The databases have shaved 20% from the average time it takes to assemble a team and have saved IBM $500 million overall.

CROSS-BORDER HIRING

By sifting through several personnel databases with sophisticated software, IBM’s top managers can quantify the skills they have on hand worldwide and compare them with projections of what people they’ll need in six to nine months. When they spot a coming shortfall, managers coordinate with colleagues in other countries to recruit or train people. In one case, IBM managers in Phoenix wanted to build a team in Brazil to test software for a large U.S. corporate client. After they put a request on Professional Marketplace, a manager in Brazil assembled a team in a week. Now IBM has 30 software testers working in Brazil.IBM Brazil is a true microcosm of the enterprise. In five years the workforce has grown from 4,000 to 13,000 people, many of them based in Hortolandia, Brazil’s Silicon Valley, about a 90-minute drive from São Paulo. Employees fly the national flags of their clients on their cubicles. Walk down the aisles and you’ll hear English, French, Portuguese, and Spanish spoken. Salaries are about half of what IBM pays in the U.S. for similar work. While most of the management team in Brazil is local, IBM mixes in people from other countries to hasten the global integration process. One such “assignee” is American Robert Payne, a 22-year IBM executive who runs part of the tech services organization in Brazil. Payne, 48, immerses himself in the cultures of the countries where he’s assigned. He learned Japanese for his Tokyo gig. When he arrived in Brazil three years ago, he promised to conduct all of his meetings in Portuguese within nine months. And he did.Yet at the start Payne found that when resources were tight, Brazilians favored local customers, while IBMers from other countries pushed for their clients. The rule of thumb, Payne advised them, was to “think as if you’re the president of IBM. What’s best for the company long-term?” That reduced the conflicts. Payne and other senior executives know that operating globally requires a great deal of hands-on management. In the old days at IBM, projects often were born and died within a single office building in New York State. These days, they’re broken into pieces and farmed out to small teams worldwide.To understand how IBM choreographs this dance, consider Lotus Symphony, a package of PC software applications. Work on a new version of Symphony started last July. Teams in Beijing; Austin, Tex.; Raleigh, N.C.; and Boeblingen, Germany, are all contributing. Remarkably, it’s the first time ever that the Beijing team is heading up a global project. Having an important role is vital for attracting and keeping top Chinese programmers.

TROUBLED WATERS

It didn’t sink in with the Chinese that they were actually in charge until five days after a test version of the product was released. The programmers were getting complaints about the software from testers and knew they needed to make improvements. They realized that they were responsible for the success or failure of the product. “The team had a Holy crap!’ moment. They were just terrified,” recalls Michael Karasick, a 48-year-old Canadian who runs the Beijing lab. He and the local Chinese managers calmed the programmers by setting priorities. The project is now on schedule.One of the major challenges in this setup is the difficulty of communicating by e-mail or even videoconferencing when programmers have never met one another. Strangers don’t readily share knowledge. “A big problem is trust,” says Dirk Wittkopp, director of IBM’s Boeblingen lab. “It works better if you can go out to dinner with somebody and have a beer. But we can’t put people on planes to visit each other all the time.” So Big Blue is trying to bridge the gap with software that borrows heavily from social networking. A new program called Beehive is essentially a corporate version of Facebook. IBM employees create profiles and post photos, list their interests, and comment about company events or happenings in their private lives. Klaus Rindtorff, an engineer who works for Wittkopp, lists his five favorite places to revisit, such as Death Valley, Calif., and includes photos of IBM colleagues in Germany, Italy, and the U.S.   Another program, called Small Blue, is a search engine for finding experts within the company. The software scans employees’ blogs, e-mail, instant messages, and reports, then draws conclusions about each participant’s skills and expertise. When other employees search by topic on Small Blue, the program scans its findings to get a list of experts. Currie Boyle, an IBM consultant in Vancouver, used Small Blue to find a specialist for a Canadian client. His initial search turned up people in the U.S. and Europe, who in turn led him to an IBM staffer in Haifa, Israel, who had just the information he needed to help his customer.  Last month, IBM introduced a version of Small Blue called IBM Atlas for sale to customers. The company is positioning itself as a helping hand to other corporations who are taking similar paths to globalization. That puts extra pressure on IBM to succeed as a new sort of organization. If it thrives, that’s good marketing. If it stumbles, that would be a very poor advertisement for itself.

Publication: BusinessWeek

Date: 01/17/08

Address: http://www.businessweek.com/magazine