Wide global village

The world is going through important transformations in the geopolitical, economic, technological and behavioral areas – and the scenario for businesses accompany these variables. If, on the one hand, communication is more agile and facilitated by information technology tools, on the other hand, there are uncertainties and challenges in terms of the intensification of nationalism discourses, the barriers to foreign trade and political polarization. The consumers’ profile is also changing: more connected, attentive to the companies’ behavior and in search for products and services that meet their exact needs.

In the face of what the Portuguese poet and navigator Luís de Camões could call “uneasiness in the world,” Brazil is no exception to that rule. The present moment has required from corporations that operate in the country flexibility to deal with a domestic scenario of recession, unemployment, loss of household income and political uncertainty. At the same time, Brazil remains an attractive market for investment due to its continental dimensions and the large consumer market. “The past two years have been difficult for Brazil, but the country is still one of the largest economies in the world, with many assets of value, natural resources in abundance and a prominent consumer market. All major global groups realize this, and I believe that, within six to nine months, the Brazilian economy will see signs of growth again,” says Tim Hanley, Deloitte’s global leader for the Consumer & Industrial Products industry.

Tim Hanley, Deloitte’s global leader for the Consumer & Industrial Products industry, talks about connected companies and consumers

In the early months of 2017, the Brazilian economy showed some signs of recovery, even though shy. The financial market is now more optimistic in relation to the direction of the economy: the Focus report from the Central Bank lowered the inflation and interest rates forecast for the end of 2017, with the prospect of, for the first time, the annual inflation being below the target, which is not reached since 2009. The unemployment, however, is still worrisome, with approximately 12.9 million people out of the formal labor market.

Sailing is necessary

While the economy does not grow to its full potential, Brazilian companies, experienced from the lessons from past crises, learned that one should not put all their eggs in one basket. The result: the internationalization movement, of seeking for new markets, continues strong among the country’s institutions. The latest ranking on Brazilian multinationals, a study conducted by Fundação Dom Cabral (FDC) in 2016, shows that 78% of Brazilian companies with operations abroad have expanded their operations in 2015 with the aim of improving performance. The survey assessed 64 institutions – 50 multinationals and other 14 that operate abroad through franchising.

In accordance with the companies interviewed, this trend to invest more abroad is linked to the need to reduce the dependency from the Brazilian market during the period of recession and the increase of competitiveness, with the gaining of new markets. “It is almost a reaction to take shape and avoid being swallowed up,” says Livia Barakat, International Business professor of FDC. The data are for 2015 – which coincided with a period of severe recession – when companies entered 33 countries, more than in the previous year, when they had advanced on 26 countries.

Livia Barakat, from Fundação Dom Cabral: the recent internationalization movement is more strategic in building a global business network

When the FDC ranking began to be drawn up, ten years ago, the companies’ goals to seek the global market were basically expand markets and reduce costs. Today, the perspective has changed, explains Livia. “The Brazilian companies want to gain strength, overcome language and cultural barriers, build a supply chain and strengthen their brands. This movement is much more strategic,” she says. The crisis has emerged as an additional motivation factor for internationalization.

For some performance indicators, the institutions are more satisfied with the international market than with the domestic. However, they already had an internationalization strategy before the crisis: the bad bits of the Brazilian economy only helped to intensify the movement. Among the companies interviewed, 43% plan to diversify even more the countries portfolio in which they operate – destinations such as the Latin American countries and the United States are the preferred ones in the expansion strategies.

It is estimated that the internationalization degree of Brazilian organizations, today at 26.1%, should continue to grow at the same rate of one percentage point at each study. “There has never been a reduction in the internationalization level. Once the companies take this step, it is a path of no return, even if the Brazilian economy is going well,” concludes Livia.

Investments without borders

Planning the global expansion steps and gaining insight into the markets in which one plans to work on are fundamental steps for successful enterprises, according to Mariana Mynarski, global Marketing manager of the company from the state of Rio Grande do Sul Fitesa, considered the most internationalized Brazilian company under the FDC ranking criteria. With its head office in Gravataí, the company is one of the major global manufacturers of non-woven, which is the material used in the manufacture of toiletries, such as disposable diapers and medical-hospital items. The company’s international expansion history began in 2009, when it started to produce in Mexico and the United States through a joint venture with Fiberweb, a global non-woven manufacturer which already worked in this market. The following year, the joint venture, called Fitesa Fiberweb, announced the investment in a unit in Peru. In 2011, Fitesa acquired the Fiberweb’s share, in addition to the whole global operation geared to the disposable toiletry market, including plants in Sweden, Italy, Germany and China.

Without fear of crisis, the company followed with investments in new production lines in Brazil and abroad – in 2016, new machines in Brazil and Mexico were installed, and for 2017, an expansion in the production capacity in Germany and in the United States is planned. “In addition to the challenges traditionally faced, an international expansion, either through acquisition of other companies or of a greenfield project, also requires the development of new ways of thinking and addressing the difficulties from day to day, due to the cultural differences encountered along the way,” says Mariana, from Fitesa. The company also announced the acquisition of Pantex International, a manufacturer of specialties for the toiletries market with units in Italy, the United States and the United Arab Emirates. With the acquisition, Fitesa counts with 11 plants in eight countries (Brazil, Mexico, Peru, United States, Sweden, Germany, Italy and China).

Duane Dickson, Deloitte’s global leader for the Chemical industry, talks about the digital dissemination in his industry

In addition to non-woven for medical and consumer products, Fitesa has also wagered on the chemical specialty materials segment toward agribusiness and industry segment, as well as partnering in innovation with companies such as Braskem petrochemicals for the use of renewable sources polymers in their products. In the assessment of Duane Dickson, Deloitte’s global leader for the Chemical sector, the portfolio diversification also represents an advantage in terms of global insertion. “In the age of digital transformations, many chemical sector companies are intimidated by not knowing how to use the technologies in their favor,” he says, citing the study “Digital Transformation: Are chemical enterprises ready?”, conducted by Deloitte, which points out that the increased competition, changes in consumer needs and in the regulatory environment and the intricate cost equations have turned the scenario for the global chemical industry challenging.

Brazil is no exception: although it has innovative companies in the segment, the Brazilian economy’s scenario of recession has affected profit margins and market share and cause the country’s chemical industry to lose positions, falling from the 6th to the 8th place in revenues in the sector’s global ranking of 2016, presented by the Brazilian Chemical Industry Association (Abiquim), in the sector’s international meeting. Despite the delicate moment, the national chemical industry has conditions to recover. “Brazil is a mature market for the chemical industry, especially in areas such as construction and aerospace, and must again become robust when the country overcomes the crisis and return to growth,” says Dickson.

Tailored conquest

One of the major Brazilian companies of the personal care products segment, the cosmetics manufacturer Natura, has already 35 years of presence abroad since it started its internationalization process in 1982, with the entry in the Chilean market. Since then, it planted its flag in 21 countries, with emphasis in Latin America (it is present in Argentina, Chile, Colombia, Peru and Mexico, and counts with a distributor in Bolivia), has retail operations in Paris and New York and, in 2013, acquired the Australian brand of premium cosmetics Aesop, which contributed to the expansion of the company’s operations abroad.

Erasmo Toledo, from Natura: portfolio of customized products for each market

Latin America was the region chosen to concentrate the internationalization efforts for two reasons: in addition to high growth rates for the cosmetics market, Latin American countries have a long tradition in direct sales, which inspired the company to take its business model, with portfolio and marketing adjustments. “We have a specific plan for each market, which has its peculiarities. The perfume and make-up products are the best-selling categories, but we also have strong performance in body products, including leadership in some markets,” says Erasmo Toledo, Natura’s vice president of International Operations. In practice, Colombia and Mexico consumers prefer more striking fragrances when choosing a perfume, while the Argentine and Chilean give preference to fresh and smooth smells. Yet the products with ingredients from the Brazilian biodiversity, such as chestnut, Carapa guianensis and moriche palm, are successful throughout Latin America.

The Natura’s plans for international expansion are ambitious: until 2021, the company wants to be among the four major manufacturers of cosmetics, fragrances and toiletries in the markets in which it operates. To achieve this goal, according to Toledo, the company wagers in the digitalization of sales channels and new value propositions for the consultants – there are 543 thousand brand representatives, considering the whole Latin American market. Not that the scenario is not challenging, since the demand in these countries is also affected by economic and political factors.

“Our operations in Latin America in 2016 faced an environment of government changes and economic policy transitions. Even in this scenario, we could sustain our expansion and maintain our growth pace,” says Toledo. The Aesop network is also in an expansion trajectory. “Since it began to integrate Natura, in 2013, the Australian brand Aesop has quadrupled in size. Our experience in the international retail is combined with the New York and Paris shops, spaces that nourish us knowledge about the portfolio adequacy and for the design of a scalable model for a future expansion”, says Natura’s vice-president.

A new global consumer

Natura’s international experience confirms a trend of the consumer products market that has been captured in recent years: the success of the products that have as sales call the consumer health and the planet sustainability. These attributes are strongly present in Natura’s construction of supply chains and marketing and are well appreciated in the cosmetics and toiletries market. And the food and beverage industry is heading in the same direction, in the assessment of Jack Ringquist, Deloitte’s global leader for the Consumer Products industry. “The consumer goods industry is changing very rapidly. Five or six years ago, if we told that the consumer was looking for less processed, less packed, with organic ingredients and transgenic free food, we would get as a response that this was a niche market. However, all surveys indicate that this is a trend that is creating roots around the world, in different consumption ranges,” says Ringquist.

Jack Ringquist, Deloitte’s global leader for the Consumer Products industry talk about the consumer evolution

One of the motivators for this is the increase in awareness of the consumers who, more well-informed and active in social media, is also concerned with the origin of the products they consume – an example of this is the recent international concern around the palm oil, the cultivation of which in Indonesia has been causing environmental damage, such as loss of native forests. Multinational companies such as Nestlé and Unilever were confronted by non-governmental organizations (NGOS) and consumer groups about the origin of this raw material, with boycotts being organized, and ended up taking on a commitment to only buy the ingredient from certified and sustainable sources.

Ringquist sees major opportunities for companies of all sizes to operate in this segment of healthy and sustainable products. “With the movement of consumers toward being healthier, what we see is the money changing hands, leaving the large traditional companies to the startups,” he says. In the United States, this may be seen in the rise of companies that sell meat from organic and free range (raised unconfined) animals, drinks free of sugar, such as juices and coconut water, and cosmetics free of parabens and other allergenic ingredients. “The markets for food, cosmetics and personal care items are becoming more multicultural and multi-ethnic, and Brazil is a country of exuberant nature, beaches and forests. So, Brazilian companies can exploit this potential, engaging and informing consumers about these elements,” says Ringquist.

For global consumer products companies that are present in the Brazilian market, the present moment calls for caution in more comprehensive investments, but anything that enables the company to gain efficiency in their production processes and increase their profit margins is welcome, in the evaluation of Reynaldo Saad, Deloitte Brazil’s lead partner for the Consumer & Industrial Products industry. “In the consumer products segment, the pressure comes from all sides. The consumer pushes retail for better prices, and retail transfers the pressure to the industry, which needs to be increasingly efficient in this tight margins scenario,” says.

The shrinkage in the labor market also brings the need for companies to commit to retain the best professionals in their staff. Parallel to this, Saad says, the rise of the Brazilian middle class at the beginning of the 2010’s and the greater connectivity to information tools have also outlined a new consumer type. “The Brazilian consumer has become very demanding. He wants the best product, service or experience quality that he can pay – even with less disposable income. He will consume less, but will not fail to consume”, evaluates the Deloitte’s partner.

Experienced to dribble economic and political difficulties, the Brazilian corporations did not fall behind in the globalization movement and many reap the fruits of this process, becoming competitive global players in their industries. Now, the time is to look at the last two decades’ achievements and learn to operate in a fiercer competition scenario, but also with good opportunities.

The recipe to stay in the game seems to embrace some patterns: seek innovation in their segments and observe global trends dictated by the consumer, who is each day more connected and sustainable; explore new markets, either alone or in partnership with other players, government and universities, to survive amid the whirlwind; face the country’s internal crises; and still take risks in the also unstable international business environment. Certainly, the challenges are not few, but the Brazilian companies show that they stay up to the end of the game and, most importantly, with a will to win.