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Posts Tagged ‘Business in Brazil’

JBSJBS spreads its wings
By Cluck, moo, oink, ka-ching – The Economist

UNLESS you work with quadrupeds, it may have escaped your notice that a Brazilian company, JBS, is about to become the world’s largest
processor of meat. Its recent acquisition of Pilgrim’s Pride, a big
chicken processor in America and Mexico, and a pending merger with
Bertin, another Brazilian firm, will soon give it bigger sales than
Tyson Foods, the American firm that currently claims the top spot.
Other Brazilian names–Vale in mining, Embraer in aviation, Petrobras
in oil–may be more famous. But JBS is now the second-largest
private-sector company in Brazil by sales, after Vale. And a large
majority of its sales come from outside the country.

This is a stunning transformation for a business that began life in
Goias state 56 years ago with a slaughterhouse that could butcher just
five cattle a day. Its founder, Jose Batista Sobrinho, used to carry
sides of beef on his back to market, according to a friend. The
expanded firm will slaughter more than 140,000 animals a day and employ 129,000 people. Mr Batista’s three sons still control and run the
company, although 49% of it is publicly traded.

The mixture of family control and rapid expansion is unusual in
Brazilian agriculture. Many cattle-ranchers operate in the informal
economy and lots of slaughterhouses do not pay taxes, making the
industry difficult to consolidate. As in other parts of the world,
family-run agricultural firms in Brazil tend to focus on keeping things
intact for the next generation rather than betting the farm.

JBS has behaved differently, bringing in professional management and
expanding through ambitious acquisitions from an early stage. Some say
the company has been too aggressive. It was fined 15m reais ($8.4m) in 2007 for anti-competitive behaviour by Brazil’s antitrust regulator,
although it recently improved its image by agreeing to forgo buying
cows raised on deforested land.

GADOAn international shopping spree has brought the company big operations in Argentina, Italy, Mexico, America and Australia. But none of the company’s previous buys compares in size to its purchase in 2007 of Swift, the third-biggest processor of beef and pork in America and the biggest processor of beef in Australia. With it came a lesson in the politicking that can hamper big foreign acquisitions.

The Ranchers-Cattlemen Action Legal Fund lobbied against JBS before the antitrust committee of America’s Senate, warning of price-gouging of farmers and anti-competitive behaviour, and got a sympathetic hearing. But in the end American regulators approved JBS’s purchase of Swift, just as they approved the Pilgrim’s Pride transaction in mid-October.

Part of the resistance to JBS in America has come from the
distinctively Brazilian way in which the firm is financed. Brazil’s
national development bank, BNDES, has a mandate to promote the
international expansion of Brazilian companies, among other things. It
is funded by a compulsory levy paid by companies and public-sector
bodies on each worker they employ. BNDES bought 13% of JBS’s stock in 2007 as part of a capital-raising that allowed it to buy Swift. It also
provides long-term loans to the company. One way around the
public-relations problem this creates is to buy struggling companies
like Pilgrim’s Pride, which JBS is rescuing from bankruptcy.

A far bigger problem for JBS is how to integrate all its new operations
into a coherent beast. This will be a big test for the Batista brothers
and for Brazil’s tropical brand of capitalism, which mixes family
control with traded stock, and finance from state-run banks with
foreign acquisitions. Brazilian companies in other industries are
watching how JBS gets on and plotting similar moves themselves.

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Eric Farnsworth, Vice President of the Council of the Americas, has produced a special report for the October issue of Poder Magazine called Brazil Rising. In it Farnsworth says that the next US administration should necessarily work with the South American nation on matters such as trade negotiations, energy security and even Iran’s nuclear program.

“Virtually all the economic news coming out of Brazil these days is positive, and Brazil’s global weight has dramatically increased as a result. The largest economy in South America and now the world’s 10th largest, Brazil’s emergence as a middle-income BRIC nation, with powerful growth rates driven by the global commodities boom, have repositioned Brazil as a global actor”, he said. Here is a recent clip he also produced talking about Brazil:

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The growing potential of the Internet in Brazil is astonishing. According to figures from Ibope Net Ratings, in July 2008 over 23.7 million people accessed the Internet, a 28% increase comparing to the same figure last year. Research groups have already said this is only the start of a trend that may see the South American country between the three biggest Internet bases in the world.

Ibope Net Ratings has also registered the habits of Brazilian when surfing the Internet. A new revealing fact here. Brazilian net users spend monthly 24 hours 54 minutes on the Internet. This is substantially superior than even North American standards – 20 hours 30 minutes – or Germans – 21 hours 20 minutes.  Taking into account the fact that currently 35 million homes have Internet access, these numbers are the proof that Brazilians are net addicts.

Conservative figures estimate that the number of homes with Internet access will grow by 50% in 5 years, which makes Brazil as the place to invest for Internet companies. In the meantime, Brazilians fulfill their addiction on the millions of Internet cafes – or Lan Houses – spread across the country (such as the one in the picture).

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Reuters

EVER since it was first spotted amid the factory smoke of western Europe’s industrialising nations, the middle class has borne the hopes for progress of politicians, economists and shopkeepers alike. It remains hard to define, and attempts to do so often seem arbitrary. But in Brazil, the middle class describes those with a job in the formal economy, access to credit and ownership of a car or motorbike. According to the Fundação Getulio Vargas (FGV), a research institute, this means households with a monthly income ranging from 1,064 reais ($600) to 4,561 reais. Since 2002, according to FGV, the proportion of the population that fits this description has increased from 44% to 52%. Brazil, previously notorious for its extremes, is now a middle-class country.

This social climbing is a feature mainly of the country’s cities, reversing two decades of stagnation that began at the start of the 1980s. Marcelo Neri of FGV suggests two factors behind the change. The first is education. The quality of teaching in Brazil’s schools may still be poor, but those aged 15-21 now spend on average just over three more years studying than their counterparts did in the early 1990s.

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ONE of the most popular laws passed by some city vereadores, members of the legislative arm of Brazil’s municipal governments, has been to make any bank queue lasting longer than 15 minutes illegal. No matter that their authority is meant to be limited to duller things, like the mayor’s budget or zoning laws. The vereadores, who along with mayors are up for election in more than 5,000 cities on October 5th, reject such constitutional leg-irons. Competition for the office is fierce—strangely so, perhaps, given that this is the lowliest political post in the land—and can be very expensive.

Transparência, an NGO, has examined the last set of races in three state capitals (São Paulo, Rio de Janeiro and Belo Horizonte), which took place in 2004. Of 55 vereadores elected in São Paulo, 40 declared that they had spent more than 100,000 reais (then $35,000) on their races. One candidate spent over five times that amount. In Rio de Janeiro, some campaigns were even more expensive in terms of votes gathered per real spent. Certain successful candidates in the city spent more than $15 for each vote they won. (In comparison, George Bush spent $5.60 per vote he garnered in the American presidential election that year, and John Kerry, the Democratic candidate, $5.20 for each of his.) If undeclared spending were added, the sums would be even greater.

Why is it worth spending such sums just to become a member of a municipal council? In the big cities, the mayor controls a substantial budget. In smaller ones, money from the federal government, funnelled through the municipality, is often the mainstay of the local economy.

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Asked about the current global financial meltdown, Brazil President Luiz Inacio Lula da Silva, answered: “What crisis?”. This was not a dismissive response. It was a fact. Brazil rock-solid stability protected the country against the turmoil. As a Reuters news report has rightly remarked, commodity-rich and with $ 200 billion in foreign reserves Brazil has proved it has done its homework.

Brazil is the world’s largest exporter of biofuels, including ethanol. But it is not only the high price of commodities which is sustaining the Brazilian economy. The country’s financial system has lower debt, a respectable fiscal policy and a central bank with more autonomy than many others in West Europe. If this wasn’t enough, Brazil became a net creditor this year a direct consequence from amassing more reserves than foreign debt.

Another proof of Brazil’s economical strength came today with a record jobless rates, published by Bloomberg News:

Unemployment in Brazil’s six largest metropolitan areas fell to 7.6 percent last month, down from down from 8.1 percent in July, the national statistics agency said today. The jobless rate was lower than the median forecast of 8 percent in a Bloomberg survey of 19 economists. Brazil’s companies have been adding jobs at a record pace, fueling a surge in income that contributed to second-quarter economic growth of 6.1 percent.

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Direct foreign investment from South American countries in the US has been growing rapidly, particularly in IT. In spite of the current wariness of investors, foreign IT companies have made big gains in the US within the last 8 years. According to the Commerce Department’s Bureau of Economic Analysis direct investments in the sector have increased dramatically reaching 196 million dollars in 2007, from a tiny base of 3 million dollars in 2000.

Brazil is by far the largest investor, with at least five important IT vendors (Modulo, Noordek, Actminds, Politec and Stefanini) expanding rapidly in the American market. Brazil has long been a pioneer in science and technology policies, research development and investment in the IT industry. The Brazilian government has granted a variety of incentives offering tax breaks to subsidize development and boost the IT market which now translated in highly competitive transnational companies.

One of such organizations is Modulo, developer of IT Governance Risk and Compliance solutions. Since opening its offices in the United States, Modulo has achieved great success thanks to partnerships with high-profile clients across America. These include the prestigious New York University’s Medical Center – premier center for health care and research –, Delta Dental – America’s largest dental benefits carrier – and Greenstone – amongst the four most important agricultural lenders in the country.

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