Brief Story of Brazil
Brazil is the 5th largest economy in the world, and by coincidence is also the 5th country by population and area, with an estimate population of 200 million people toward the year 2007. In his history has been an important source of raw materials and natural resources like coffee, sugar, soy beans, orange juice, beef and timber (Malinak, 2009). Their official language is Portuguese and the predominant religion is Catholic. The 55 percent of the ethnic composition is European-Portuguese descent; the other percent is a mixture of different cultures coming from Africa, other European countries, Japanese people and indigenous Indian influences (Cyborlink, n.d.). All this mixture makes the Brazilian society a rich, varied and diverse culture, highlighting their hospitality, openness and cheerful character. Understand this diversity, their unique values and attitudes are key factors toward the success of any business venture in Brazil (Malinak, 2009).
Brazil is a traditional agriculture country, with a vigorous and rising industry and service sectors which have supplied his internal market throughout its history. In the last years the Brazilian market has strongly opened to foreign investment, becoming an appealing destination for companies from North America, Europe, Asia and the Middle East. In 2010 Brazil received the third highest foreign direct investment (FDI), reaching almost $ 50 billion (Diaz, 2011). Brazil also benefits of his participation in the South American´s economic free trade area (Mercosur), which involves Argentina, Brazil, Paraguay and Uruguay as members and has in Bolivia, Chile, Colombia, Ecuador and Peru as associate members. Venezuela has been accepted as a new member, waiting the ratification of Brazil and Paraguay (Ball et al., 2010, p. 120-121).
Another interesting insight is related with the socio-economic level of the population. According to an economic report issued form the United Nations in 2007, an impressing 52 percent of the population belongs to the middle class, while the poor population has decreased by 10 percent (Landmann & Di Si, 2010). This socio-economic level is another attractiveness of the Brazilian market, which can represent greater opportunities for new businesses for foreign products and innovative technologies.
Business Cultural Insights
Understanding the Brazilian business culture is essential for a profitable and successful venture. As Brazil has become more political and economically predictable and stable, their huge market potential, high level of FDI and strong GDP growth (Harding, 2010) will increasingly attract more and more foreign companies. This leads us to be aware and ready to confront and adapt to some cultural behaviors that are remarkable and unique in Brazil and can difficult the entrance and develop of new firms without problems.
One of the first things to look out in Brazil is the Management Policies, which include the relationship between the managers and the employees. Brazil is known as having a very strong vertical hierarchical structure (Malinak, 2009). Andréa Novais, from The Brazil Business, says that “it is typical of Brazilians to use the word boss with capital B, as he is seen as the one who has the final word, the one in charge of important decisions and the one whose opinions should never be contested” (Novais, 2011). This takes us in consideration of the stressful that this relationship can be. It is not like the one that is typical in the US or European companies, where the executives and employees collaborate in a more horizontal way. Other important behavior is how the Brazilian employees face work and wealth. Brazil is known to have high income inequities; the problem is that most of them do not believe in the virtues of hard work to gain social mobility, instead of that, sometimes they related it with exploitation, luck and corruption (Novais, 2011).
People in Brazil tend to have a relaxed attitude, spending lots of time cultivating personal relationships to gain trust, one of the most important elements in Brazilian business culture. Besides personal relationship, the family relations have another strong importance, which means that is often to find family members working in the same company. This takes to the conclusion that Brazilian people prefer to make business with people they know and trust (Malinak, 2009). Making business in Brazil without a personal contact is almost impossible; Brazilians expect a good relationship with people they are going to enter in deal with, something that business people of developed countries do not found relevant.
After considering the personal behavior of the business people, managers, employees and their relatives, there are other important issues of the Brazilian business culture, the locally called jeitinho brasileiro, jogo de cintura, custo brasil and the despachante.
The jeitinho is the Brazilian way of doing things; it is the knack for getting around obstacles and reaches something desired in spite of laws, orders or rules. People, institutions, companies, policies and even legislation have been influenced by it (The Economist, 2009). It is the loophole that Brazilians figure when they want something that it is not permitted to happen. It can be considered a “survival strategy” because it is rather difficult to see things running smoothly, so people always have to find a way to get things done, it is a reflection of the precariousness of many institutions and public services (Mello, 2012). The jogo de cintura is similar to the jeitinho and “corresponds to the last minute way of accomplishing a goal by breaking the rules. It is a general belief that there is no need for worries or plans, as everything can be arranged in the end.” (Novais, 2011), very different from the American or European planned way of making things.
The custo brasil are the extra, hidden costs of doing business in Brazil due to the deficient infrastructure, high taxation, logistics costs, impenetrable bureaucracy, inefficient regulatory institutions and workers benefits. A study conducted by The Brazilian Association of Machinery and Equipment Industry revealed that the additional costs in the industrial sector was 36 percent more compared with products manufactured in developed countries and 40 percent of over cost in the machines and equipment sectors (Landmann & Di Si, 2010).
Finally, the despachante it is a sort of local middleman that helps you in the business dealings. You have to hire him to help in the Brazilian bureaucracy navigation (Malinak, 2009).
After overviewing the most important cultural impacts for making business in Brazil, we will review two cases of foreign companies that established operations in this country: the retail firm Wal-Mart and the technological one Lenovo. These two companies come from different nations; have different local cultures, and belong to different industries. What these two cases have in common are the difficulties that they encountered when arriving and established in Brazil. Also we will review what strategies they used to get over and analyze if they succeeded.
The Wal-Mart Case
Wal-Mart the biggest retail company in the world entered in the Brazilian market in the year 1995, through a partnership with the local company Lojas Americas, Brazil´s leading department store chain. In this joint venture, Wal-Mart owned the 60 percent leaving the remaining 40 percent to Lojas, which was owned by the Banco Garantia, an aggressive and very profitable investment bank that also had the control of the Beer Company Brahma, the leading brewer in Brazil and by that time the fifth largest in the world (Kotabe, 1997).
The initial intentions of Wal-Mart were to reach the number one retailer position in the Brazilian market in the shortest time and displace the number one retailer company, the French Carrefour, by implementing their expertise and practices through an extensive set of operational manuals that proved to be successful in the US. These manuals included product assortment, internal space utilization and product mix (Kotabe et al., 2003).
After the first years of bringing their strategy of “everyday low prices” to the Brazilian emerging market, the company found that the results were not the expected (Friedland & Lee, 1997). Many reasons explained this initial failing to gain ground in this market: high stock rate, unreliable supply lines, faulty management-performance measures, traffic congestion, competitor´s reaction, and government forces (Kotabe et al., 2003).
If we center the analysis on the controllable forces, we find that one of the principal problems of Wal-Mart was related with their adaptation and assimilation of the Brazilian managerial culture. Faulty product mix and store-space misallocations were examples of bad management policies, besides that local managers established prices below cost to artificially stimulate demand and inflate sales volume numbers trying to reach their higher budgets (Kotabe et al., 2003). According to Nelson Fraiman, a Columbia Business School professor, one of the reasons for the Wal-Mart´s Brazilian operation problems was “mainly because of not understanding the local culture”. He argues that imposing a series a systems and procedures that work in the US, did not guaranty that they would to be useful in other countries (Blackman, 2010). In this case, working in a closer way could have avoided misunderstandings and managerial bad decisions, remembering that Brazilian workers like to develop close relationships and expect to have usual orders form their bosses, in this case the US controllers.
After 15 years of operation in Brazil, Wal-Mart reached ground and gain double digit year-over-year in sales during the global downturn of the year 2008, exceeding the 6 percent overall growth of the Brazilian retail market. We can mainly explain this finally success by the capacity of Wal-Mart to adapt to the local market by acquiring two established local chains and adopting their hyper-local approach and moving away from doing all things at “the American way”, instead they adapted to the local culture using innovative ideas coming from the local workers. These ideas commonly go to the other countries, making a fluent exchange from one country to another (Bustillo, 2009).
The Lenovo Case
According to the China Brazil Business Council (CBBC), in 2010 the estimation of Chinese FDI in Brazil reached the quantity of $ 13 billion, climbing almost 37 times compared to the amount accumulated in the last 20 years (CBBC, 2011). For the Brazilian economy it is not a great impact, but it is a great start for consolidating the FDI of China in this country. The inclusion of this investment has two patters, one is related with the supply of raw material, and the other is entering in the consumer market and industrial sector. In the technological segment we have companies like Lenovo, Huawei, ZTE and Foxconn that are planning to make important contributions through FDI in Brazil in the next years (CBBC, 2010). In this line, Lenovo has a long history selling computers in Brazil, since their computers where owned by the company IBM, and expects to rice up their PC´s market share up to 10 percent within the year 2014 (Monte, 2009).
All this huge growth of the Chinese investment in Brazil is generating some uncomfortable cultural frictions between the Brazilian employees and their Chinese bosses. Historically, when a Chinese company went abroad they used to bring their laborers with them; the difference in Brazil is that government regulations and unions require hiring Brazilian people. This reality has caused frequent contact between two cultures that hold vastly different expectations about the role of the employees (Brooks, 2011). One of the main differences is that Chinese companies do not use to offer al the labor protections that Latin-Americans workers are used to have. According to the Global Institute for Labor & Human Rights, the Brazilians have benefits like one month of vacations, an annual salary bonus and stipends for lunch and transportation, compared with the Chinese that are used to pay low salaries and practically the absence of laws to protect the workers (Alto Nivel, 2011).
This is only a part of the problem; the most difficult issues are the cultural stresses that are appearing in their relationships. According to Jack Chang, the Associated Press´s Latin American Desk Editor, the company Lenovo is having increasing frictions between their employees, an executive of the firm “said most Brazilians at the company´s local offices were frustrated by demands to come up with almost immediate results in a country with some of the world´s worst red tape” (Brooks, 2011). Also the Lenovo Brazilian workers think that their Chinese superiors´ have a suffocating management style, requiring a people to be most of the time in the office, so they could control them.
By the other hand, Asian executives complain about the lax work ethics of Brazilian employees, their lack of punctuality, endless meetings and vacations.
This cultural behavior of the Chinese Bosses are very far from the Brazilian relaxed attitude toward work, besides the importance that they gave to personal relationship to gain trust; Brazilian people always expect to have good relationships!
Time will tell us the way out, as Charles Tang, the founder of the Brazil-China Chamber of Trade, said that “he soon learned the Brazilian way – essentially to relax, realize nobody is going to arrive at a meeting on time and understand that informality doesn´t necessary equate with a lack of professionalism”. He concluded that differences in style do not affect the final bottom line (Brooks, 2011).
We have seen two cases that show us the importance of cultural issues in the development of business ventures of foreign companies in Brazil. One of the strongest conclusions that we can gather is that the power of adaptation to the local cultural behavior is a fortress. Foreign manager and owners need to understand that differences are always going to exist and that workers can make important contributions by their knowledge of the local culture, the clue is to include them in the company´s decisions by showing them that they can be trustable, a very important factor for the Brazilian people. The other point is that cultural differences or different ways of doing things not always mean bad results or not reaching the final objectives.
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