Global Players from Emerging Markets: Strengthening ... - Unctad

Box 6. Brazil: Some constraints on OFDI
CHAPTER III 33
A number of constraints had limited Brazilian firms from venturing abroad. These include the absence
of government policies and support for companies that want to expand abroad, the stickiness of some
of the Brazilian TNCs competitive advantages and management ethnocentrism.
• Lack of policies measures to support OFDI. In spite of the Government’s declared intentions
of creating 10 Brazilian TNCs, this has not been translated into concrete government policies and
programmes that support the internationalization effort involving OFDI. While this laissez-faire
position may not have a great influence in larger companies, it becomes an obstacle for SMEs, which
lack the resources to expand their activities abroad and to compete successfully in international
markets. Modernization of the legal framework, in order to adapt to the new reality imposed by
globalization is fundamental for Brazilian companies’ competitiveness in the international market.
Even though recent changes have considerably reduced the red tape faced by companies expanding
their international activities, the legislation restricts the consolidation of results generated abroad.
Furthermore, changes to modernize legislation must be comprehensive. Often this is neglected and
ad-hoc reforms in one area do not canvass effects in other fields.
• The stickiness of the competitive advantages of Brazilian TNCs. Larger Brazilian TNCs built
their advantages in the domestic market becoming leaders in their industries. By internationalizing,
they try to exploit their competitive advantages and distinctive assets and capabilities that they
have long developed in the Brazilian market. To be effective in international markets, however,
these capabilities must be transferable. In the Brazilian case, where, with some exceptions, most
of the competitive advantages are linked to process technology, access to raw materials and low
labour cost. Process technologies are in general “sticky” – deeply ingrained in the routines and tacit
know-how of managers and qualified workers. While there are ways to manage tacit knowledge
for competitive advantaga a , it needs a conscious effort in order to organize information into best
practices, develop mobility and invest in support systems to transfer knowledge. Low cost labour and
raw materials are comparative advantages – and, as such, location-specific. In order to overcome
market failures and institutional voids, Brazilian TNCs have in the past relied on internalized
activities and transactions creating strong vertical integrated companies – an advantage difficult
to transfer to new settings without incurring in huge investments and risks – surely a shortcoming
for Brazilian companies. The main challenge for Brazilian TNCs is to adapt and reconfigure their
business model abroad, and to organize their knowledge and transfer mechanisms in order to add
value to the foreign operations. This has been the case of Gerdau (box 4). Before investing abroad,
Gerdau has focused on the upgrading of their process technology and operations management to
upgrade them to international best practices.
• Managerial Ethnocentrism. Most boards and top management do not have experience in
managing cultural diversity. Being predominantly composed of Brazilian natives lacking a robust
international experience, top management tends to be biased towards an ethnocentric approach.
Because of that, domestic issues – that for most companies still represent the most representative
part of their business – are favoured over international issues. Usually, the international ventures
are segregated in an international department, which acts as an interface between the affiliates and
the headquarters. Usually, they are perceived as simple implementers of operating policies – not as
business units, with the need and autonomy to adapt to local circumstances and even contributing to
global solutions. Most of these companies are still controlled by second and third generation family,
and their exposure to international financial markets is limited. Most of the Brazilian TNCs rely, for
the implementation of their international strategies, on expatriates with international experience, a
scarce resource that limits international expansion. International capabilities (including language
knowledge) are still scarce in most companies. Companies are overcoming this obstacle by
recruiting new managerial talent with international skills and experience, and learning to work with
local talent in the countries in which they operate.
Source: Authors.
a Cemex, the Mexican company in the cement industry, has been a successful case of transferring their best
practices to their cross-border acquisitions. Strongly backed by information technology, they were able to organize the
accumulated tacit knowledge and, with the development of teams, manage to integrate it in their network of subsidiaries.
For more details, see: Marchand, D., Kettinger, W. and Chung, R. (2005). The Cemex way: the right balance between
local business flexibility and global standardization. IMD - International Institute of Management Development Case,
Lausanne, Switzerland. IMD-3-1341.Ghemawat, P. (2002). “The Globalization of CEMEX”, by Pankaj Ghemawat.
Harvard Business School Case. 9.701.017.