Cmi Brazil 2012.04.25. Student Post

Jens Lage Hansen

10-04-2023 [email protected] 1

SOUTH AMERICABRAZIL

GRUNDFOS

CMI: FDI IN DEVELOPING COUNTRIESCBS 26.04.2012

Jens Lage Hansen


My background

• Danish and Brazilian citizenship• Lived in Brazil, Argentina, Spain, U.S. Virgin Islands and

Denmark• MSc in Electrical Engeneering (DTU) and Bcom (CBS)• International career with marketing, general management

and board responsibilities in Novo Nordisk, Novozymes, Foss, Danisco and Grundfos

• Board member in two biotech startups: Aquaporin A/S (from 1995) and Intomics A/S (from 2009)

• Adjunct associate professor at CBS

Jens Lage Hansen


Agenda

• The situation– BRIC– South America– Brasil – Grundfos

• The decisions – Question 1: Should Grundfos enter Brazil?– Question 2: How should Grundfos enter?

• Building and managing Grundfos do Brasil– Question 3: How would you manage the company?

Jens Lage Hansen


BRIC countries. What crisis?World GDP growth the last 5 years

Jens Lage Hansen


Where are they right now?BRIC countries economy and population

2011CIA factbook

POPULATION(MIO)

GNP at PPP(billion US$)

GNP per capita(US$)

Political Risk *

Brazil 205 2,282 11,600 Low

Russia 138 2,380 16,700 Medium - Significant

India 1,205 4,463 3,700 Moderate - Medium

China 1,343 11,290 8,400 Low - Moderate

USA 314 15,040 48,100 Low - Moderate

* Lasserre 2nd ed. pg. 179BRIC countries all have Medium economical risk (Lasserre)

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The giant and the restMap of South America

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Don’t they like their nabours?Intraregional exports in Latin America

The Economist

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Biggest economies of South AmericaBrazil, Argentina, Venezuela, Colombia and Peru

2011CIA factbook

POPULATION(MIO)

GNP at PPP(billion US$)

GNP per capita(US$)

Political Risk *

Brazil 205 2,282 11,600 Low

Argentina 42 710 17,400 Significant

Columbia 45 471 10,100 Medium

Venezuela 28 374 12,400 Significant

Peru 30 300 10,000 Medium

* Lecturers subjective assesment

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Brazilian regions

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The AcademicPresident Fernando Henriques Cardoso 1995 – 2002

• Tamed inflation in 1994 as fincance minister

• Sound economical policies• Limiting and reducing states

and governments deficits and huge loans

• Opening of economy• Beginning of social progams

Jens Lage Hansen


The Union ManPresident Luiz Lula da Silva 2003 – 2010

• Won for the first time in 4 elections by moving to the center

• Continuity• Boosting social programs • Pursuing south – south ties• Increasing state

intervention in economy

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The Efficient BureaucratPresident Dilma Rouseff 2011 –

• Lula’s choice, and that was enough

• Continuity and in control• Fighting corruption

– 7 ministers out in one year

• Promoting meritocracy • Boosting education• Incrasing state control and

protectionism• Personal approval rating

march 2012: 77%

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A picture says more than a 1,000 wordsFormer president Lula and president Dilma

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Brazil’s extraordinary energy mixDomestic energy supply in Brazil

SOURCE BRAZIL (% in 2007)

OECD (% in 2005)

Oil 37.4 40.6

Gas 9.3 21.8

Coal 6.0 20.4

Uranium 1.4 11.0

Hydro 14.9 2.0

Biomass 30.9 4.2

Total 100.0 100.0

Renewable 45.8 6.2

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Just start diggingReserves of natural ressources. World ranking

• Bauxite no. 3• Iron ore no. 5• Nickel no. 3• Tin no. 3• Uranium no. 6• Oil no. 10• Forests no. 2

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Feeding the worldAgrobusiness production. World ranking

• World class Brazilian institute for agroresearch• Orange juice no. 1• Sugar no. 1• Fuel-ethanol no. 2• Soyabeans no. 2• Chickens no. 3• Coffee no. 1• Beef no. 2• Pork no. 4• Maize no. 4• Cotton no. 5

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What markets are interesting?Business opportunities as seen from Denmark

• Environmental technologies– Supply of potable water– Effluent treatment. Industrial and domestic– Reducing air polution– Energy saving

• Oil and gas exploration• Food processing technology• Bioethanol production• Fashion, design and clothes• Pharmaceutical equipment• Medicotechnical products• Information and communication technology in health care

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The Brazil cost

• High interest rates– SELIC 9.00 %

• High taxes– Brazil 34.4 % of GDP– Russia 36.9, India 17.7 %, China 17.0 %, Denmark 48.2 %

• Complicated tax system• Bureaucracy• Poor physical infrastructure• Inflexible labour market with untouchable employees

– Cost of employees double up because of taxes, social contributions and mandatory benefits (transport, meals, vacation bonus, extra salary)

– HSBC doorhandler– Grundfos time clock

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GRUNDFOS AND BRAZIL 1998

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Do you want to move water?Some examples from Grundfos product range

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How do you make that work?Grundfos matrix organization around 2000

Corporate Management (CEO, CFO, CPO)

Businesses Regions

Ground water Industry Building services

Europe

North America

South America (JLH)

Asia

Group Executive council: Corporate management, business managers, regional managers

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Where were we heading and how?Grundfos strategy

• Purpose– Grundfos is a global leader in advanced pump solutions and a

trendsetter in water technology. We contribute to global sustainability by pioneering technologies that improve quality of life for people and care for the planet.

• Values– Sustainable– Open and trustworthy– Focused on people– Independent– Parthership– Relentlessly ambitious

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Grundfos strategy (cont.)

• Scope in 1998– Pump systems for water supply, water movement and water treatment– In house R&D, Production and sales– Sales and service companies in most important global markets– Traditionally only production in Denmark, Germany and USA with

Denmark being the dominant supplier– Recently established sales and service companies in Russia, China and

India

• Value proposition– The most sustainable, advanced and effective pumps and pumping

systems in the world

Jens Lage Hansen


What were we looking at?Brazilian market

• Huge geographical teritory• Big billion dollar pump market• Vast variety of products to cover every application• Products low to medium end• Intense rivalry with focus on price• Low to no profitability amongst suppliers

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Who were the customers?Customer needs and segments

• Customer needs– Low prices– Short delivery times– Technical advice in choosing product– Reliable technical after sales service

• Groundwater segment – Public and corrupt

• Industry segment– Technical oriented buyers

• Building segment– Fragmented with many competitors

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How about competition?Competitors in Brazilian market

• Leao– Brazilian competitor with plant in Sao Paulo state– Dominated groundwater segment

• KSB– German multinational– Plant in Sao Paulo city– Strong in industry segment

• Smaller local outfits

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High value of Reais gave favourable COGAverage price and cost of goods Thousand Reais excl. all taxes

1994 1995 1996 19970

0.5

1

1.5

2

2.5

Average COGAverage selling price

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Case question 1

• Should Grundfos enter Brazil?• Why?

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Case 1 wrap-up

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What should we look at?Country attractiveness

• Market and competitive opportunities• Country risk

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Is it going to be easy?Market and competitive opportunities for Grundfos

• Market– Big market– Growing– Customer quality

• Price• Some quality segments (BOT groundwater, industry high enery users)

• Competition– High intensity of rivalry– High entry barriers

• Established relationsships and trust• Government protection of local production and jobs

– Bargaining power • Suppliers: Low• Customers: High

– Industry profitability low

• Incentives– Taxes, subsidies and global competitiveness

• Critical ressources– None

Lasserre 2nd ed. pg. 165

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What is the country like?Country risk

• Political risks were low– Shareholder exposure– Employees exposure– Operational exposure

• Economic risks were significant – a fact we underestimated– Economic growth but high variability– Inflation under control– Cost of inputs risky– Exchange rates

• The Devil is in the detail Lasserre 2nd ed. pg. 165• More later

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Country risk (cont.)

• Competitive risk– Public contracts influenced by some corruption– Cartels were not in evidence– Networks did not influence

• Operational risk– Infrastructure

• Power, telecommunicaion, transport low risk• Suppliers secure

– Regulations• Nationalistic preferences very much in evidence. High risk• Constraints on local capital, local content, local employement a factor• Taxes on imports to protect local production

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Case question 2

• What should Grundfos objectives for entry be?• What phase is the Brazilian pump market in?• What entry mode would you recomend?• Why?

Jens Lage Hansen


Case question 2 wrap-up

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Why do we want to do it?Strategic objectives for entering a country

• Market development• Resources access• Learning• Co-ordination

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Factors influencing entry modes

• Corporate global strategy• Country risks• Market opportunities• Companies internal capabilities• Time pressure• Government requirements

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Entry modes

Limited control Full control

High investment

• JV without control (50% or below)

• Wholly owned subsidiary by greenfield investment

• Full aquisition• JV with absolute control (above

66%)

Low investment

Arms lenght agreements• Distributor• Agent• Representative• Franchisee• Licensing

• Marketing subsidiary• Regional headquarters• Pocurement office• Representative office• Technial observatory

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Lets do it ourselvesBuilding an managing own company

• Status end 1998– Sales orgnization in place– From Sao Paulo to Curitiba

• Organization• Two page action plan• Surfing the edge of chaos (Pascale 1999)• Fighting battles in different worlds

– Mandatory member of Group Executive Management (topmanager)– Sorting out Argentina (local chairman)– Building Brazil (entrepreneur)

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Now lets get this up and runningBuilding operations in 3 months

• Warehouse and offices• Assembly, test and service facilities• Energy and water• Furnishing offices and warehouse• Recruiting and training people• IT• Accounting• Approvals

Jens Lage Hansen


Where are the results?Building sales

• The exchange rate– Russian , Asian and South American crisis in 1998

• Customers• Territories and segments• Pricing• Availability and delivery times• Staying power

• Company sales policies– Wining, dining and ?– Consignment stocks– Payment terms

Jens Lage Hansen


Who said economical risk?Average price and cost of goods Thousand Reais excl. all taxes

1994 1995 1996 1997 1998 1999 2000 20010

0.5

1

1.5

2

2.5

3

3.5

Average COGAverage selling price

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Building sales (cont.)

• Competitors– Relationships

• Logistics– Forecasting sales per product– Airfreight– Wladimirs small big orders

• The technical support people• Promoting Grundfos

– Exhibitions– Traning courses

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Why do they react like that?Managing in Brazil

• The boss – Avis in Gongonhas– Manuel and Manolo– Staff meetings for all

• Hierarchy vs. effectiveness– Nelson and Fernanda

• Relations vs. tasks– New customers– Brazilian meetings– Saying hallo and goodbye– Argemiro’s sightseeing

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Managing in Brazil (cont.)

• High context language– verbal communication vs. emails

• Perception of Time• Work ethics• Planning• O jeitinho

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Case question 3

• How would you manage Grundfos do Brasil S.A.?– What would your priorities be?– How would you interact with the staff?

Jens Lage Hansen


What am I missing?Open session

• Questions?• Comments?

Jens Lage Hansen


Thanks for listening!

Cmi Brazil 2012.04.25. Student Post

Documents

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