Home' Trinidad and Tobago Guardian : March 5th 2015 Contents BG18 | REGIONAL
BUSINESS GUARDIAN www.guardian.co.tt MARCH 2015 • WEEK ONE
Brazilians make up almost
three per cent of the plan-
et s population and produce
about three per cent of its
output. Nonetheless, of the
companies in Fortune mag-
azine s 2014 "Global 500"
ranking of the biggest companies by revenue,
only seven, or 1.4 per cent, were from Brazil,
down from eight in 2013. On Forbes list of
the 2,000 most highly valued companies
worldwide, only 25, or 1.3 per cent, were Brazil-
ian. The country s biggest corporate "star,"
Petrobras, is mired in scandals, its debt down-
graded to junk status.
In 1974 economist Edmar Bacha described
Brazil s economy as "Belindia," a Belgium-
sized island of prosperity in a sea of India-
like poverty. Since then Brazil has done far
better than India in alleviating poverty, but in
business terms it still has a Belindia problem:
a handful of world-class enterprises in a sea
of poorly run ones.
Brazilian businesses face a litany of obstacles:
bureaucracy, complex tax rules, shoddy infra-
structure and a shortage of skilled workers,
to say nothing of a stagnant economy. However,
a big reason for Brazilian companies under-
performance is less often cited: poor man-
Since 2004 John van Reenen of the London
School of Economics and his colleagues have
surveyed 11,300 midsized companies in 34
countries, grading them on a five-point scale
based on how well they monitor their oper-
ations, set targets and reward performance.
Brazilian companies average score, at 2.7, is
similar to that of China s and a bit above that
of India s. Brazil ranks below Chile at 2.8 and
Mexico at 2.9, however, with America leading
the pack at 3.3. The best Brazilian companies
score as well as the best American ones, but
its tail of badly run ones is longer.
Part of the explanation is that medium and
large companies tend to be better-organised
than small ones, and not only because well-
run ones are likelier to grow. Brazil offers
incentives aplenty to stay small, such as pref-
erential tax treatment for companies with a
turnover of no more than US$1.3 million. As
they expand, many split rather than face
increased scrutiny from the taxman. According
to the World Bank, a midsized Brazilian com-
pany spends 2,600 hours filing taxes each
year. In Mexico it is 330 hours.
Ownership patterns play a part too. Many
Brazilian concerns are controlled by individual
shareholders or by one or two families. Two-
thirds of those with sales of more than US$1
billion a year are family-owned, notes Heinz-
Peter Elstrodt of McKinsey, a consulting firm.
That is less than in Mexico or South Korea,
where 96 per cent and 84 per cent respectively
are family-owned, but more than in America
Van Reenen s research suggests that, when
family owners opt for outside chief executives,
their firms do no worse than similarly sized
ones with more diverse shareholders. All too
often, however, they pick kin over professional
managers and performance suffers. This is
particularly true in "low-trust" societies such
as Brazil, where bosses hire relatives instead
of better-qualified strangers to avoid being
robbed or sued for running afoul of overly
worker-friendly labor laws.
Decades of economic turmoil, which ended
when hyperinflation was vanquished in 1994,
meant that companies were managed from
crisis to crisis. This forced Brazilian companies
to be nimble, but it also encouraged short-
termism, which management consultants and
academics finger as Brazilian managers No 1
sin.Faced with a record drought in 2014, for
example, and a subsequent spike in energy
prices in a hydropower-dependent country,
the steelmaker Usiminas stopped smelting
and started selling power that it had bought
on cheap long-term contracts. Energy sales
made up most of its operating profits that
year. Such short-term stunts are hardly the
path to long-term greatness.
Worse, crisis management all too often con-
sists of going cap in hand to the government.
Brazilian bosses continue to waste hours in
meetings with politicians that could be better
spent improving their businesses. In January
2014, as vehicle sales flagged, the automotive
industry s reflex reaction was to descend on
the capital, Brasilia, and demand an extension
of its costly tax breaks.
Thanks to lifelines cast by the state, feeble
companies stay afloat rather than sink and
make room for more agile competitors. Shield-
ed from competition by tariffs, subsidies and
local-content rules, they have little reason to
A locally invented gizmo which lets cars
run on both gasoline and biodiesel is nifty.
However, as Marcos Lisboa of the business
school Insper asks, does that really justify six
decades of public support for the automotive
Indeed, a glance at the "Belgian" end of
Brazil s corporate landscape suggests that suc-
cessful companies cluster in sectors the state
has not tried desperately to help, such as retail
or finance. Bradesco, a big lender, is interna-
tionally praised as a pioneer of automated
banking. Each month Arezzo creates 1,000
new models of women s shoes and picks 170-
odd to sell in its shops.
Brazil s other world-beaters are in industries
such as aerospace and agriculture, which are
free to compete at home and abroad, and in
which the government sticks to its proper role.
In 1990 farms were allowed to consolidate
and to buy foreign machines, pesticides and
Efforts by Brazil s trade negotiators opened
up export markets. JBS, a meat giant, can
slaughter 100,000 head of cattle a day, selling
more beef than any rival worldwide. Thanks
in part to Embrapa, the national agriculture-
research agency, Brazilian farms have been
raising productivity by about four per cent a
year for two decades.
Similarly, a supply of skilled engineers and
know-how from the government s Techno-
logical Institute of Aeronautics has helped
turn Embraer, privatized in 1994, into one of
the world s most successful aircraft-makers.
The success of businesses such as these
offers a lesson for the state. The best way to
make Brazil s underperforming firms more
competitive would be to make them compete
more. Coddling by the state can be more a
curse than a blessing.
Ronald Reagan s dictum that the nine most
terrifying words in the English language are,
"I m from the government and I m here to
help," translates well into Flemish, Hindi and
@2015 The Economist Newspaper Ltd. Distrib-
uted by the New York Times Syndicate
"We have to wait and see. There isn t a lot of talk about it,"
are the responses from tobacco workers in this rural area in
western Cuba when asked about the prospect of an opening
of the US market to Cuban cigars.
"If the company sells more, I think they would pay us better,"
said Berta Borrego, who has been hanging and sorting tobacco
leaves for over 30 years in San Juan y Martínez in the province
of Pinar del Río, 180 km west of Havana.
The region of Vuelta Abajo, and the municipalities of San
Juan y Martínez, San Luis, Guane and Pinar del Río in particular,
combine ideal climate and soil conditions with a centuries-
old farming culture to produce the world s best premium hand-
In this area alone, 15,940 hectares are planted every year in
tobacco, Cuba s fourth top export.
While continuing to hang tobacco leaves on the Rosario
plantation, Borrego told IPS that "there is little talk" among
the workers about how they might benefit if the US embargo
against Cuba, in place since 1962, is eased, as part of the current
process of normalisation of bilateral ties.
Borrego said "it would be good" to break into the US market,
off-limits to Cuban cigar-makers for over half a century. And
she said that raising the pay of day workers and growers would
be an incentive for workers, "because there is a shortage of
both female and male workers since people don t like the coun-
Cuban habanos, rum and coffee represent a trade and invest-
ment opportunity for Havana and Washington, if bilateral ties
are renewed in the process that on Friday February 27 reached
the second round of talks between representatives of the two
Habanos have become a symbol of the thaw between the
two countries since someone gave a Cuban cigar to US President
Barack Obama during a December 17 reception in the White
House, a few hours after he announced the restoration of ties.
Among the first measures approved by Washington to boost
trade and ties between the two countries was the granting of
permission to US tourists to bring back US$100 worth of cigars
and rum from Cuba.
But the sale of habanos in US shops, where Nicaraguan and
Dominican cigars reign, is still banned, and US businesses are
not allowed to invest in the local tobacco industry here.
Furthermore, the lifting of the US embargo depends on the
US Congress, not the Obama administration.
But when it happens, annual sales of habanos in the US
Tobacco workers in Cuba dubious about opening of US market
is hard to do
Continued on Page 19
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