This week, our Business Acumen World Tour 2016 takes us to Brazil where Advantexe is delivering a
Business Acumen for Sales Professionals for a large US company selling to customers in Brazil. In order to prepare for the session, we conducted a macroeconomic assessment of the country and wanted to share some key learning and insights in this blog for our readers currently engaged or thinking about becoming engaged in Brazil. As always, our blogs contain research, data from conversations with our clients and other business professionals, as well as our own observations and insights.
The Outlook
Despite the recent success of the summer Olympics, things in Brazil have not challenged and there is limited optimism in the short term for business success. Below are some key observations, analysis, and applicable lessons learned:
Retail Sales
Being in a different country like Brazil makes you appreciate even the slow growth of the US economy. Retail Sales in Brazil continue to contract and declined in July, 2016 (0.3%) over the previous month in seasonally adjusted terms. On a real-time annual bases, retail sales fell in Brazil by (-5.3%) in July, 2016 which was even more dramatic than the decline of (-4.8) % in June, 2016.
This downward trend projects to a cumulative projection for the year of negative (-6.8) % growth. The implication is that consumers aren’t buying, so if you are a manufacturing company selling or supporting retail goods you should take a hard look at the current situation and unfortunately either cut back or be prepared to lower prices.
By way of comparison, the sluggish US economy’s retail sales project to be 2.9%
(Source: Brazilian Institute of Statistics and Geography (IBGE) and FocusEconomics Consensus Forecast)
Inflation
As the graphic below indicates, the inflation rate has been steadily increasing over and above the inflation target for about 10 years. There is a direct correlation between the budget deficit (government debt) and the inflation rate.
Jobs and Consumer Confidence
After a period of steadily declining unemployment, it has spiked significantly over the past two years and there are no signals that is going to decrease. Based on the current situation of debt, inflation, contracting retail sales, and the spike in the unemployment rate, consumer confidence dropped dramatically in July, 2016 from 105.2 to 101.
Lessons Learned
The questions US-based businessed and political leaders should be asking include:
How did Brazil get here, and what should US business leaders be doing to make sure we don’t replicate this?
Like almost everything in business, there are no easy answers and in this case there is a complexity of issues ranging from social issues, to political corruption, to over forecasted demand. A few additional quick and short thoughts:
- There was too much government debt taken on too quickly.
- Inflation grew too quickly because interest rates were also cut which impacted growth and demand.
- Political corruption and cronyism created inefficient systems and the infrastructure is crumbling. The President of Brazil was recently impeached after a lengthy and ugly battle.
- Ignored lessons learned from other BRIC countries like China (if it sounds too good to be true, it usually is.) 20-30% GDP growth and consumption is unrealistic and can’t be taken seriously unless there is some real and significant disruption either through innovation or something cataclysmic like a war or natural disaster.
Business leaders trying to make sense of these strong and weak signals from Brazil should try to focus on the following controllables:
- Be wary of significant short-term capital investments
- Look to strategically build Human Capital Management (HCM) as there is good talent available
- Don’t expect quick results
- Understand the culture. “Working at home” doesn’t work well
- Hire local lawyers who know the legal system
- Know the employment law system as it is more favorable towards employees than businesses
- Value relationships
- Don’t forget, it’s a really big country!
