Editorial: How Pasadena will affect your business

Petrobras is back in the headlines. Now the issue is related to the purchase of a refinery in Pasadena in the State of Texas, US. How will your business be impacted by this issue? Keep reading to learn more.

Big in Brazil, but How big?

Petrobras is big in Brazil.

Everything that happens to Petrobras is relevant because it directly impacts the Brazilian economy.

Petrobras is a massive state-owned energy company that has a major influence on the BOVESPA stock exchange, representing roughly 8% of the IBOVESPA index portfolio. Its revenues in 2013 were of about US$ 10.0 billion. A global company present in 25 countries, it has approximately 85K employees and has a large ecosystem of suppliers, moving all sectors of the Brazilian economy.

Domestically, Petrobras influences virtually every supply chain in all productive sectors in the country. Its commercial strategy directly affects production and transportation costs in the Brazilian market by influencing base fuel prices, and how alternative fuels are used, thereby influencing the cost of living across the nation.

The Pasadena Nightmare

Pasadena comes from the name of a refinery bought by Petrobras a few years ago in the state of Texas, US. The Pasadena acquisition is being considered by far one of the worst financial transactions in the Petrobras history.

In a nutshell, the company bought 50% of the refinery, leaving the remaining half with Astra Oil, a trading company from Belgium. The partnership went sour and, after a judicial dispute, Petrobras bought the remaining shares to become the sole business owner. The Brazilian company spent US$1.85B (i.e. Billion, with big B) to acquire an outdated refinery with the processing capacity of a mere 100,000 barrels a day. The refinery was later discovered to be worth a mere US$180 million.

The issue escalated quickly when a row of high profile top-executives and politicians were asked to explain the rationale for this extremely expensive acquisition to Congress. Amongst them was President Dilma Rousseff, who was the chairwoman of the Petrobras board of directors at the time of purchase.

Government opposition went hysterical; inquiring regarding how much political interest was a factor in paying the exceptionally high price for Pasadena.  They accused the government of using Petrobras as a maneuvering tool to facilitate domestic and international political interests without considering the company’s long-term health and profitability.

In early April, Federal Police agents raided Petrobras headquarters in Rio to recover documents related to the money-laundering investigation, in other words, turning things even more ugly.

How will Pasadena affect your business in Brazil?

In terms of direct impact, if you work with Petrobras or are partnered with a company that directly works with Petrobras, you may expect a higher level of scrutiny in your contract negotiations. One of the eye-catching issues in the Pasadena case was a fine-print type clause found in one of the agreements (more specifically, a mandatory buy-out clause) that drastically increased the company losses when the deal went bad. With this, I’m sure Petrobras lawyers will be going over every contract with a fine tooth comb from now on to avoid any legal traps. So, expect longer negotiations with delays on contract legal reviews because Petrobras will be more closely scrutinizing the fine print in the contracts it is signing.

From a political perspective, we are in an election year. Expect to hear more about this issue in the press and during the election campaign. The main theme that will be discussed will be about how much Petrobras is being affected by political interests and how much this is hurting the ability of the company to carry on solid business decisions. Remember that the Brazilian Government is a key shareholder in the company and has control over major company decisions.

Your organization more than likely won’t be impacted by the political discourse, but you should watch developments closely to learn how these types of crisis are typically dealt with by Brasília – in other words, with considerable use of political maneuvering and damage control.

It is worth noting that Petrobras is still a solid business. The Pasadena issue may keep causing some stir among the company top-executives and President Rousseff, but I would be surprised to see any ongoing damage to company business.  In Petrobras terms, Pasadena is more like a love story gone bad. It’s not a legal divorce.

If you are interested in the company ability to honor its commitments, monitoring macroeconomic risks may be a better predictor for short and mid-term performance. Gas prices are a significant component of how inflation indexes are measured in Brazil. In the past, the government has pressured Petrobras to keep gas prices unchanged to avoid inflation peaks, causing considerable profit losses for the company.  Along the same lines, fluctuations in the Real exchange rates can have a major impact on the company’s cash flow due to its global nature. So, if you do business with Petrobras and want to monitor its financial health, better have your eyes open to systemic risks and trends, such as the inflation and foreign exchange rates in Brazil.

This is my editorial for this week. I hope this was useful. Please reply to my email and let me know!

Have a great day and warm regards,

 

Rodrigo Caetano

5 World Cup Planning Mistakes You Can Avoid

With the FIFA World Cup in Brazil just around the corner, the organizing committee is giving signs of panicking as the event deadline approaches.   Construction costs are soaring and infrastructure is halfway finished. What can we learn from the mistakes made in this mega project?

Lesson #1 – In Brazil, planning is essential, but not everything.

From a general perspective, in my opinion FIFA relied too much on its initial plan, neglecting to notice important changes in the Brazilian context. It seems they didn’t realize until too late that these changes would have a huge impact in their projects.

Colin Powell used to say that no battle plan survived contact with the enemy. So, no matter how well (or badly) planned World Cup planning was for Brazil, shifts were expected in the execution priorities as issues came up during the construction phase of the stadiums and infrastructure. In a mega project like this one, extra caution should be taken in order to keep things on track.

Just to name a few high-impact issues that arose during infrastructure construction phase were the political changes with the 2010 Brazilian elections, the economic change with the global recession and consequent slowdown in the Brazilian economy and the social backlash brought by the movements against the World Cup. None of them were small enough to be overlooked.

It would be naïve to consider issues faced by FIFA were simply brought on by poor planning. There was a lot more happening in the country that wasn’t initially foreseen by the organizing committee.

The baseline is that, if you are involved in large projects in Brazil, consider the entire context you are operating in. Changes in the economic, political and social environment can – and will – directly affect your timelines, costs and public perception. Therefore, go beyond monitoring your plan; monitor the entire context of the country you are operating in.

Lesson #2 – In Brazil, you need to be present to know what is going on.

I have the feeling that FIFA took too long to realize things were out of control and that it needed to increase its presence in Brazil. As FIFA leadership focused exclusively on approving World Cup legislation, it lost precious time, completely overlooking the negative impact infrastructure delays would have on the overall project. In fact, I am still amazed to think that the official site visits only began after it was too late and project delivery dates were already compromised.

Know one thing for sure. Operating in Brazil will require a higher level of your presence in the country. Having a country representative, a liaison officer or a local partner may not be enough to provide you accurate information of what is going on in the field. Complex projects will require your personal commitment and many times a physical presence in Brazil.

Managing remotely may work for certain types of initiatives, but there will be a time when things will stall and, unless you don’t take the next plane to Guarulhos  and see with your own eyes what is going on, things simply won’t move forward. That is something you should always have at the forefront of your mind when doing business in Brazil.

Lesson #3 – In Brazil, if something looks too good to be true… maybe it is.

All the early political moves, the cordial pats on the backs of FIFA reps, and the solemn promises from smiling high-profile politicians indicated that this would be the World Cup of a life time. Then, in a short while, the harsh reality appeared and serious problems began to surface. Besides being the best World Cup ever, this would also be the most difficult for FIFA to execute.

In Brazil, if your project is sailing too smoothly, if problems stop popping up in your email inbox, if you stop hearing negative things from your Brazilian management team, it’s time to make an unannounced visit to the project. If something is looks too good to be true, it certainly isn’t.

It is notorious how project managers tend to underestimate the difficulties of projects they are involved in. This is no exception in Brazil: no one will be willing to talk about the bad things hidden in the closet and difficult decisions will end up delayed.

If you feel your local team is not raising any risks and issues – regardless of your repeated inquires – a red flag should go up. They may simply be avoiding telling you the bad news. If you feel things sound too good, take action and check them out for yourself.

Lesson #4 – In Brazil, kicking people’s backsides won’t help your project get back on track.

In early 2013, FIFA learned that things weren’t progressing as planned. Under pressure and in the heat of the moment, one of its officials heavily criticized Brazil’s organizing committee. “Brazil needs a ‘kick up the backside’ over World Cup preparations”, he mentioned. After an enormous backlash from the Brazilian Government, the official had to apologise for his comments, saying he had been misinterpreted. The project still isn’t on track.

When running projects in Brazil, you may be the person in command and have all the reason to be angry. However, shouting at or insulting your local staff may help very little towards getting your project back on track. In the end, you will need these same people to help you carry on your project work.

Although it may be tempting to kick someone’s backside, and you may have valid reasons to do so, the result will be your complete loss of credibility. Things simply won’t get done.

If you are upset with your local team, my recommendation, for sure, is to call people on their responsibility and get to the specifics in regards to what needs to get done and how it should be done.

If you don’t fully trust someone on your local team, have a serious – but respectful – conversation with the person and, if necessary, replace them.

However, always hear what your staff has to say. It may also be that you are completely biased towards your own way of doing things and what you are attempting to do something that is simply not feasible in Brazil.

Never, ever, leave these types of conversations for later. But, be respectful and human.

Lesson #5 – In Brazil, cash is king and financing the queen.

As the deadline for the World Cup games was looming, FIFA discovered that many of the venue construction projects hadn’t secured enough financing to get the work completely done. Work had fallen behind the schedule because of basic cash flow problems.

Working in Brazil, monitoring your project’s financing may be one of the most important priorities you should have. In time, your local partner may lose the ability to access the required capital needed to carry your project on.

There are many reasons this may happen. But, know for sure that it may happen because your local partner may have underestimated his fund raising ability. In some situations, your partner may also have become more leveraged in other unrelated projects, or even have lost some important assets which could have been used to secure further financing.

Watch for signs that your partner may be having financing issues. There could be that they no longer want to share interim financial reports with you. Or, they begin to slow down on project execution missing important deadlines. Then, your partner may want to pressure you to use your cash to finance the project, claiming that Brazilian banks are taking too long to review their credit application.

In essence, we can learn a lot about doing business in Brazil based on the issues FIFA had while coordinating infrastructure construction for the 2014 World Cup. I hope you read this article many years from now and know that the event is safely over and that everything had a happy ending.  But for now, let’s learn from FIFA’s mistakes and avoid major issues in our own projects in Brazil.

Photo credits: Digo Souza

 

How to Hire Brazilian Talent without Traveling to Brazil

Did you know there is a way to hire talented professionals from Brazil without setting a single foot on Brazilian soil? Keep reading to learn more.

You may already know that the Brazilian government has created an audacious program called Science without Borders (CsF). The program was created in 2011 and aims to send 75K students to foreign colleges and universities over a period of four years.

What you may not know is that a number of these Brazilian students need to take part in a mandatory internship program in the countries they are visiting. This is great news if you are seeking skilled workers who are fluent in your language and Portuguese.

A step by step guide on how to find and hire Brazilian talent

The best way to have access to Brazilian talent is to get involved with the CsF program. Here’s how:

Find out if your country is participating in the CsF program. Here is a list of program partners: Australia, Austria, Belgium, Canada, China, Germany, South Korea, Denmark, The US, Spain, Finland, France, The Netherlands, Hungary, India, Ireland, Italy, Japan, Norway, New Zealand, Portugal, The UK, The Czech Republic, Russia, Sweden and Ukraine.

Look for the universities in your area which are hosting CsF students. For instance, if you are in British Columbia, search google for “British Columbia Science without Borders” or “British Columbia Ciencia sem Fronteiras” to find the program information for the University of British Columbia and Simon Fraser University

Contact the international liaison office at the educational institution.  Learn more about their partnership with the CsF program. Ask about the type of students they are hosting and the areas these students are studying. Also, check if they are looking for internship opportunities and if there are any timelines you need to be aware of.

With all this information in mind, create a recruitment and selection process for an internship position and develop a job posting with the job requirements you have mind.

Promote your CsF internship posting by adding it to your website. Ask the university to broadcast this information to all its CsF students.

Consider promoting your posting in other locations. Being that CsF students are allowed to participate in internships outside their home university, consider broadcasting the posting to other universities in your country.

Contact the Brazilian Government to add your posting to the Ciencia sem Fronteiras job board. You can advertise the position to a large number of students for free.

Depending on the skill level required for the position, consider using alumni associations, such as the Alumni Canada Brazil Network, to help spread the word.

Go through the selection process and chose the best candidate for the job. Call people for the interview and hire the best candidate you find. There are a lot of smart, ambitious students in Brazil. Don’t settle for average candidates, hire the best person you can find!

Once the internship is over, keep the student’s contact information in Brazil handy.  Csf students need, by obligation, to be back to Brazil for a certain period of time once the program is over. I am sure if the experience was successful, they may be very interested in continuing to work with you in Brazil, Canada or elsewhere.  Keep that in mind.

Benefits of hiring Brazilian talent through the Science without Borders Program

Although the internship may last a short period of time, there are some great advantages of piggybacking on the CsF program. Here are a few, just to help you think about it.

You may get a talented professional from Brazil for free. Some CsF scholarships will cover the costs, providing a stipend to the co-op student while they work for you.

If you have any plans of doing business in Brazil, this is a great start to understand the Brazilian culture and to establish connections in the country.

You will have someone who understands both cultures on your team. This person can be extremely valuable to navigate through the problems you may face in Brazil as well as to communicate with your team.

The student will eventually go back to Brazil and be a trustworthy contact there. If that person does a great job, you may want to deepen the relationship with them and re-hire them back in Brazil.

These are my tips for hiring a Brazilian professional without traveling to Brazil. If you have any tips and challenges for hiring Brazilians, please don’t hesitate to share them.  It would be great to hear from you.

 

Photo credits: Joel Kelly

4 Steps to Enter the Brazilian Market


A prudent approach to enter the Brazilian market is to structure your activities into phases. Doing it this way will help you aggregate knowledge about the country as you go and give you the opportunity to manage risks as they arise.  This way you evolve your market entry process based on your own perspective of things and by controlling each stage of the process progress.

First, define your major business goals for your Brazilian venture. Start broad and think about how your competitive advantage can be leveraged outside your domestic market. Consider how your company products and services can benefit Brazilian consumers.

Focus on creating a strategic plan that can be further expanded as time passes. Having clear goals will save you time and money because it will help you focus in the main opportunities that really matter to your organization.

Second, take time to visit the country and build business contacts. Organize a business visit to Brazil, tag along on an official trade mission by your home country and get involved with the international chambers of commerce in São Paulo.

There is a lot of leg work that needs to be done in this phase. Be prepared to travel and visit sites and facilities.  Never rely in the international press for the latest news. Learn Portuguese and start to follow the main Brazilian newspapers.

Take the time to build your local team of advisors with bankers, lawyers, translators, certified accountants and domain experts.

Third, structure and pursue one single relevant opportunity at the time. This will help you test the waters. Start by asking as many questions as you can. Educate yourself about the market your are targeting.

What would be the best way to structure a business, finding a local partner, opening a subsidiary or manufacturing locally? Is your Brazilian lawyer answering your emails timely?  Is your accountant avoiding you and not answering your phone calls? This is the time you will see if all your connections are working correctly.  You will get used to dealing with your Brazilian counterparts and test your connections thoroughly. You will know exactly the main challenges you need to overcome to obtain results.

Drill down to the details, search for answers about cash flow, how money moves around, legal agreements, taxes, financing options, and international insurance mechanisms. There is lots to be learned, but, at the end of the process it is more likely to that you will know more about your industry than many of your advisors and local partners.

Finally, be ready for takeoff.  At this point, you have a great grasp of what works and what doesn’t work so well in Brazil. You’ve learned about how to do business in the country. Maybe it is time to think about bigger business. Maybe, pursue an acquisition or a new venture partnership. More importantly, by reaching a new level of maturity, you certainly have experienced the back-and-forth of the Brazilian economy. It is very likely, you’ll even develop your own “ginga” style, learning to deal with issues and testing your persistence.

You need to have your goals clearly set and develop a long-term plan. All the effort will yield a considerable return. I assure you.

Start Now

Having any plan is better than having no plan. Having a good plan is better than having any plan. Having an excellent plan is better than having a good plan.

Get to Action. Don’t wait for later, take a sheet of paper now and write down your business goals in Brazil. Think about the future and build a rough structure of your entry plan. Don’t worry about the details. They will come with time. Go! Write it down now!

Photo credits: Fernando Stankuns

Entering a Foreign Market is a Business Decision

Entering the Brazilian market is no different from entering any other foreign market. You need to base your decision on the prospect of getting something back for your investment.

Sure, there are market specifics, the economy and the politics. However, for those venturing outside their domestic market, it is a question of finding the right opportunities. That means finding opportunities that make business sense, whether they may be in Brazil or somewhere else on the globe.

The process of entering a foreign market starts with a decision at your office:  “Yes, we should look into a new market for our products.” This is the exact point when your strategy begins to take shape – not when you are landing for the first time in Guarulhos, São Paulo.

Companies that were successful entering the Brazilian market very likely would also be able to successfully enter any other foreign markets.

To be perfectly clear, what makes a company succeed in the Brazilian market goes beyond knowledge of the local market. It has lots to do with how your company defines its objectives and manages them, as well as, how it tackles unexpected issues as they appear.

  • Foreign companies that do well in Brazil have clear goals.
  • They know when things are working well and when it is time to change direction.
  • They spend considerable time doing their homework. They are resilient and prepared for changes in the economic and political environment.
  • And they understand that entering a new market is a long-term commitment.

Think widely and consider all your options. Going overseas needs to make business sense, period.  Anything else is expensive tourism.

Photo Credits: Victor Camilo

You don’t need to be Brazilian to do Business in Brazil

São Paulo
You may have heard from many friends, colleagues and business contacts:

  • “It’s unbelievably difficult to do business in Brazil.”
  • “I’d never go back to Rio for business.”
  • “Brazil, oh… my friend [my co-worker, my business acquaintance …] lost big money in Brazil! But, hey, he did learn good Spanish!”
  • “You’re investing in Brazil? You must be travelling a lot to Buenos Aires.”

Oh, yes! These are some of the common things I have heard about Brazil. I’ll spare you the comments I get when someone refers me to those classic Brazilian investment videos; those ones with aerial shots of ports, stadiums and beach properties, featuring caipirinhas and beautiful women dancing samba. They provide a very strange view of how business is done in this country. They bring very little information about the reality of investing in projects in Brazil.

When there have been so many misleading ideas and preconceptions about doing business in Brazil, it may be frustrating to overcome the strange cultural barriers and work effectively to enter the Brazilian market.

So, does this mean you need to be a Brazilian to understand the complexity of the Brazilian market?…

I don’t think so! And I’m writing you to prove the contrary. I strongly believe that, using the appropriate strategy, any foreign investor can succeed in doing business in Brazil and can operate in the same way locals do.

Leave your preconceptions behind and consider the Brazilian market. There is lots of money to be made by finding the right opportunities. Go after what really matters to you and your business!

Photo Credits: Fernando Stankuns