Brazil is hot now what?

Global Finance, Jun 2001 by McCrary, Ernest S

The role of foreign companies in the economy and the

future of Brazilian companies as dominant players in their own country and abroad, is certain to be an issue in next year's "super election" campaign-which will involve the selection of new governors and most members of Congress, as well as a new president.

"This will be the thing that marks 2002," says Roberto Setubal, president of Banco Itau in Sao Paulo, the country's second-largest private bank. "An election like this will throw everything up for debate, including the model for the economy. But Brazil has passed the phase of questioning certain things like the commitment to fiscal balance, so I am optimistic even in such a political year."

This topic gets to the core of what the Brazilian market is all about today, and how it will evolve. "The culture of Brazilian business always was oriented toward the local market, which historically has been closed and protected," says Luiz Fernando Furlan, president of Sadia, a poultry and pork producer that is one of the country's contenders for world-class exporter status, with sales last year of $1.6 billion."We can be very competitive in food exports, and this is an area that will see an increasing presence of Brazilian companies in the 21st century," he says."So far, there are almost no Brazilian `global brands' in any industry, but that has to change."

Even companies with a strong global presence, such as state oil company Petrobras, have trouble building a crossborder image. Petrobras earned $5.1 billion in net income last year, making it the sixth most profitable oil company in the world-after Exxon Mobil, BP, Royal Dutch Shell,TotalFina Elf, and Chevron. With extensive operations around Latin America, Petrobras five months ago aimed to change its name and logo (which resembles the Brazilian flag) to something less offensive to customers in neighboring countries. But when it was announced in Brazil that Petrobras was to become Petrobrax, the uproar at home (especially in Congress) was immediate and vociferous. After seven months of secret preparation, the Petrobrax name was killed in a day.

For his part, Sadia's Furlan has just negotiated a joint international marketing pact with Sadia's smaller domestic rival Perdigao (sales of $1 billion last year), to combine forces for a stronger push into poultry and pork product export markets with a new global brand.Their combined exports last year were almost $700 million. Although Brazil (mainly represented by Sadia and Perdigao) already has an 18% share of global poultry exports-trailing only the United States-there are still formidable obstacles to further growth.

"Our problems are weak infrastructure, high cost of capital and taxes, bureaucracy, and import duties; says Furlan. On top of that, Sadia and Perdigao face a stone wall of nontariff barriers in the biggest market of all, the United States. "They use unreasonable restrictions, sanitary requirements, quotas, and technical regulations to keep us out of the US market,"he says. On the other hand, his US competitors are blocked out of the Brazilian market, too.