Ranking of Brazilian multinationals finds internationalization steadily increasing
SOBEET, Valor and VCC release the 2009 ranking of Brazilian outward investors.
Report dated October 29, 2009
EMBARGO: The contents of this report must not be quoted or summarized in the print, broadcast or electronic media before October 29, 2009, 8 a.m. São Paulo; 6 a.m. New York; and 10 a.m. GMT.
São Paulo and New York:
Sociedade Brasileira de Estudos e Empresas Transnacionais e da Globalização Econômica (SOBEET), a Brazilian think tank dedicated to research into the internationalization of the Brazilian economy; Valor Econômico, Brazil’s premier business newspaper; and the Vale Columbia Center on Sustainable International Investment, a joint undertaking of the Columbia Law School and The Earth Institute at Columbia University in New York, are releasing the results of a survey of outward investors from Brazil today.
The survey, conducted in 2009, covers the period 2006-2008. It focussed on companies that a) had their head office in Brazil, b) exercised management control over at least one foreign affiliate in another country, and c) held outward foreign direct investment (OFDI) stock of at least USD 10 million. The purpose of the survey was to broaden our understanding of the internationalization of Brazilian companies, and to trace the evolution of this process over the last few years. This report thus includes a ranking of Brazilian multinationals based on their internationalization index, as well as one based on their foreign assets.
The internationalization index represents the arithmetical average of three ratios: foreign to total assets, foreign to total sales, and foreign to total employees. Note that foreign sales in this report do not include exports. Questionnaires were sent to nearly 200 Brazilian multinationals.1 The final ranking presented here includes 57 companies. Apart from the information needed to calculate the internationalization index, qualitative information regarding the motivations and characteristics of, and barriers to, the internationalization process of Brazilian companies was also sought, as was information about the OFDI intentions of the companies.
1 In the case of companies that appeared among the top 20 in the Valor ranking published in 2008 but did not respond to the present survey, the rankings in this year’s list are based on the companies’ financial statements for fiscal 2008. Page 1 of 12
SOME KEY FINDINGS
The 57 listed Brazilian MNEs together had about USD 21 billion in foreign assets, just over USD 40 billion in foreign sales, and nearly 158,500 foreign employees in 2008.
JBS Friboi came first in the ranking by the internationalization index and sixth in the ranking by foreign assets, with 56% of its assets held abroad. Gerdau (Grupo) was first in the ranking by foreign assets, with 61% of its assets held abroad, and third in the ranking by the internationalization index. (Table 1)
The average internationalization index for the listed companies rose from 14,9 in 2006 to 16.7 in 2007 and to 17,4 in 2008.
The internationalization of Brazilian companies is dominated by the private sector, although state-owned enterprises also play a role. Just one company in our list of 57, Petrobras, is from the public sector.
The global economic crisis has had a major impact on Brazilian OFDI flows (annex figures 2a and 2b). On the other hand, investment intentions remain strongly positive, with nearly 75% of companies planning either an increase in OFDI next year [39%] or no change (35%) – see annex figure 11.
Table 1. Ranking of Brazilian multinationals investing abroad, 2008
Name Industry Ranking by Foreign Foreign Internation- assets assets alization index / total assets JBS Friboi Crop and animal production 6 1 55.9 Odebrecht Construction of buildings - 2 55.9 Gerdau (Grupo) Manufacture of basic metals 1 3 60.9 Metalfrio Manufacture of machinery and equipment 25 4 68.7 Coteminas Manufacture of textiles 17 5 19.5 (Springs Global) Ibope Information service activities - 6 33.0 Sabó Manufacture of other transport 18 7 38.5 equipment Magnesita Manufacture of other non-metallic mineral 12 8 64.2 products Marfrig Crop and animal production 7 9 26.2 AmBev Manufacture of beverages 4 10 12.0 Vale do Rio Mining of metal ores 2 11 38.9 Doce Artecola Holding 27 12 30.6 Marcopolo Manufacture of other transport 16 13 16.3 equipment WEG Manufacture of electrical equipment 11 14 17.6 Gol Air transport 9 15 58.8 Embraer Other manufacturing 10 16 39.4 Duratex Specialized construction activities 22 17 4.1 Itautec Manufacture of computer, electronic and 19 18 19.7 optical products Camargo Conglomerate 8 19 16.2 Corrêa (Grupo) Page 2 of 12
Stefanini Computer programming, consultancy and 34 20 18.3 related activities Votorantim Conglomerate 3 21 22.2 (Grupo) Construtora Construction of buildings 14 22 11.4 Andrade Gutierrez Tupy Manufacture of fabricated metal products, 15 23 19.8 except machinery and equipment CI&T Computer programming, consultancy and 40 24 16.6 related activities TAM Air transport - 25 0.0 Bertin Manufacture of food products 13 26 7.0 All América Warehousing and support activities for - 27 0.0 transportation Petrobras Extraction of crude petroleum and natural 31 28 11.3 gas Natura Manufacture of chemicals and chemical 28 29 2.5 products CSN Mining of metal ores 5 30 12.9 G Brasil Holding 33 31 7.3 Perdigão Manufacture of food products 44 32 11.0 Acumuladores Manufacture of electrical equipment 30 33 8.6 Moura Indústrias Romi Manufacture of machinery and equipment 32 34 2.0 Agrale Manufacture of motor vehicles, trailers 42 35 14.0 and semi-trailers Alusa Civil engineering - 36 0.0 Aracruz Manufacture of paper and paper products 20 37 16.9 Portobelo Manufacture of other non-metallic mineral 36 38 3.4 products Banco Itaú Financial and insurance activities - 39 10.4 Totvs Computer programming, consultancy and 39 40 1.7 related activities Bematech Manufacture of electrical equipment 38 41 1.5 Braskem Manufacture of chemicals and chemical 24 42 1.0 products DHB Manufacture of other transport 41 43 4.6 equipment Módulo Security Computer programming, consultancy and 45 44 3.6 Solutions related activities Altus Manufacture of electrical equipment 43 45 3.5 Inplac Manufacture of rubber and plastics - 46 0.0 products Iochpe Maxion Manufacture of other transport 26 47 0.1 equipment Minerva Manufacture of food products 35 48 0.8 M. Dias Branco Manufacture of food products 23 49 5.1 Marisol Manufacture of textiles 37 50 2.6 Suzano Manufacture of paper and paper products - 51 0.0 Klabin Manufacture of paper and paper products - 52 0.0 Sadia Manufacture os food products 21 53 1.2 Romagnole Manufacture of electrical equipment 46 54 0.4 Banco do Brasil Financial and insurance activities - 55 0.0 Telemar Telecommunications 47 56 0.2 Cemig Electricity, gas, steam and air conditioning 29 57 0.1 supply
Source: SOBEET-Valor-VCC survey of Brazilian multinationals, 2009.
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OTHER FINDINGS
Distribution by industry - The 57 companies on our list are from 28 different industries: in manufacturing, the manufacture of transport equipment, food products, basic metals, chemicals products, textiles, and electrical equipment; in services, computer programming and consultancy; in the primary sector, crop and animal production, and petroleum and natural gas extraction; among other activities (see table 1 above). Note, however, that the pattern of industry distribution in our list may not necessarily be the pattern of distribution of Brazil’s OFDI. Central Bank data show current Brazilian OFDI as concentrated in the service sector. Caution is in order about these figures, though, as it is difficult in Brazilian outflows to separate authentic FDI from purely financial investment under the guise of FDI.2 Moreover, since much of Brazil’s OFDI goes into tax havens in the first instance, it is also not easy to know where and in what activity this investment ultimately ends up.
Localization. The head offices of 25 of the companies on the list selected are located in the state of São Paulo, while the rest are based in the states of Rio Grande do Sul (6), Rio de Janeiro (5), Santa Catarina (4) Minas Gerais (4), Paraná (2), Ceará (1) and Pernambuco (1) (see annex figure 1.)
Impact of the crisis on Brazilian OFDI. There is no doubt that Brazilian multinationals are being severely hit by the international crisis. This explains why Brazilian OFDI flows is being reduced during 2009 (see annex figure 2). According to our survey, less than 2% of the companies have not been affected by the crisis. The majority, 54%, are facing lower demand for their products, besides lower prices and less credit for their international operations. About 5% of the companies see the crisis bringing new opportunities in their business (see annex figure 3). It is also interesting to note that, despite the crisis, only 1,8% of the companies are planning to sell all their assets abroad. Most are planning to reduce costs (47%) or temporarily reduce investment (22%) (see annex figure 4).
Motivations to internationalize - The reason most mentioned, the company’s international competitive position, received 26% of the responses. The second most mentioned option with 16% of the responses was following clients into international markets. Other motivations include growing world demand, fiscal incentives, and the desire to reduce dependence on the domestic market (see annex figure 5).
Functions carried out by the overseas units - The answers indicate that most of these units (45%) consist of offices for exporting goods manufactured in Brazil. The second most frequent response was the manufacture of goods and the provision of services overseas (29%). It is interesting to note how other functions, such as logistics services and R&D, already figure among the overseas activities carried out by respondent companies (see annex figure 6).
Most important factors for companies locating overseas –41% of the responses mentioned access to international or regional markets, while 36% mentioned market size (see annex figure 7).
2 See "The growth of Brazil’s direct investment abroad and the challenges it faces," by Luís Afonso Lima and Octavio de Barros, Columbia FDI Perspective No. 13, August 17, 2009, http://www.vcc.columbia.edu/pubs/documents/BrazilOFDI-Final.pdf, for further discussion. Page 4 of 12
Principal sources of financing – This question showed the greatest concentration of responses. 71% of respondents indicated their own capital as the main source of funding. It is interesting to note that the answers do not mention domestic bank loans. Access to BNDES funds were mentioned by 5% of the respondents (see annex figure 8).
Internal barriers to internationalization - A diverse range of factors was mentioned as barriers. 24% of respondents cited currency fluctuation. Among other internal barriers frequently mentioned were high taxes, high logistics costs, and the cost of credit (see annex figure 9).
External barriers to internationalization - Tough competition in mature markets was the main barrier outside Brazil, with 32% of the responses. In second place, with 17% of responses, came taxation issues, like double taxation and tax charged on foreign exchange. Other factors mentioned were the regulatory environment of host countries, credit terms and risk on overseas buyers (see annex figure 10).
Outward investment intentions in 2009–2010, compared to 2008. Despite the crisis, 39% of respondents declared their intention to increase OFDI. Among these, the majority intend to increase OFDI by less than 30%. Another 35% of respondents planned to maintain OFDI at current levels, while 27% intend to reduce their investments (see annex figure 11). It is interesting to note that the United States and Argentina still remain the preferred destinations for OFDI from Brazil. Other destinations cited were China, South Africa and India.
BRAZILIAN OFDI: THE BROAD PICTURE3
In 2008, Brazil was the 6th largest outward investor among emerging markets in terms of FDI stock, with USD 162 billion. In terms of outward FDI flows, Brazil was the 5th largest, with nearly USD 21 billion.
The internationalization of Brazilian companies is a relatively recent phenomenon. From 2000 to 2003, OFDI averaged less than USD 1billion a year. Over the four-year period 2004−2008, this average jumped to nearly USD 14 billion. In 2008, when global FDI inflows were estimated to have fallen by 15%, OFDI from Brazil almost tripled, increasing from just over USD 7 billion in 2007 to nearly USD 21 billion in 2008. UNCTAD data put the current stock of Brazilian OFDI at USD 162 billion in 2008, an increase of 96% over 2003. According to the most recent data, 887 Brazilian companies have invested abroad.
Despite its relative novelty, the internationalization of Brazilian companies has achieved a wide geographic spread. Brazilian OFDI can today be found in 78 countries. Admittedly, some destinations matter more than others. Putting aside investment in tax havens, which accounts for 67% of the total, according to the most recent data, half the stock of OFDI from Brazil had gone to Denmark, the United States and Spain, with developed economies together accounting for 75%. Among emerging markets, Argentina leads, followed by Uruguay.
CONCLUSION
The internationalization of Brazilian companies is a much more widely disseminated phenomenon than one might conclude from the few cases always mentioned by the
3 See the article mentioned in fn. 2 above. Page 5 of 12 media as examples of overseas success. This survey of internationalized Brazilian companies seeks to contribute not only to identifying opportunities and overcoming the difficulties companies face, but also to understanding this phenomenon, and defining national strategies regarding it. To do this, the survey focussed on obtaining a representative sample of companies.
The conclusion of this survey is that the internationalization of Brazilian companies is not a limited or short-term phenomenon. As with other emerging market OFDI, Brazil’s internationalization movement is only just beginning.
The results of the survey also suggest some issues public policies might usefully focus on. These include taxes, logistics, currency fluctuations, and investors’ unfamiliarity with potential markets. One issue that stands out is the low participation of Brazilian banks, both private and BNDES, as sources of funds for internationalization. Greater access to credit could make a major contribution to increasing the overseas presence of Brazilian companies.
For further information, please contact:
At SOBEET, Luís Afonso Lima, President, 55-11-3549-7275, [email protected]
At Valor Econômico, Antônio Félix, Editor, 55-11-3767-1391, [email protected]
At VCC, Vishwas P. Govitrikar, Global Coordinator, Emerging Market Global Players project, 1-347-350-6935, [email protected]
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Annex figure 1: Locations of head offices in Brazil
Source: SOBEET-Valor-VCC survey of Brazilian multinationals, 2009.
Annex figure 2a:
Brazil: Foreign Direct Investment - Flows
(US$ bi) Accumulated 12 months 50
40
30
20
10
0
-10
set/96 set/97 set/98 set/99 set/00 set/01 set/02 set/03 set/04 set/05 set/06 set/07 set/08 set/09 set/95 Outward FDI Inward FDI
Source: BCB
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Annex figure 2b:
Outward Foreign Direct Investment (US$ bi)
6,8 7
5,0 4,5 5 4,1
3
1
-1 -0,4 -1,4 -3 -3,4 -5 1Q2008 2Q2008 3Q2008 4Q2008 1Q2009 2Q2009 3Q2009 Source: BCB
Annex figure 3:
How does international crisis in 2009 affect your activity abroad ? (%)
60 53,6 Services Intermediate Goods 50 16,1 Consumer Goods
40
30 21,4 19,6 20 3,6
8,9 8,9 10 16,1 5,4 7,1 3,6 3,6 3,6 7,1 1,8 1,8 3,6 1,8 1,8 1,8 0 1,8 1,8 1,8 1,8 1,8 Lower demand Lower prices Less credit New Higher Fluctuation of the Others The international opportunities to delinquency real affects my scenario does my business among my clients competitiveness not affect my business abroad
Source: SOBEET-Valor-VCC survey of Brazilian multinationals, 2009.
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Annex figure 4
Facing international crisis, which measures have been taken ? (%) 50 47,3
Services 40 12,7 Intermediate Goods Consumer Goods 30
21,8 25,5 20 10,9 10,9 9,1 10 3,6 7,3 3,6 5,5 9,1 3,6 1,8 1,8 1,8 1,8 3,6 3,6 3,6 5,5 0 1,8 1,8 1,8 Cost reduction Investment Despite Mix of the Elected Partial sale of Total sale of Others reduction international products sold countries to do assets abroad assets abroad crisis, no abroad has been business have measures have changed been changed been taken
Source: SOBEET-Valor-VCC survey of Brazilian multinationals, 2009.
Annex figure 5:
What are the main reasons that led your company to internationalize? (%) 50
Services 40 Intermediate Goods Consumer Goods 30 26,3 5,3 20 15,8 14,0 14,0 17,5 5,3 8,8 8,8 10 7,0 8,8 1,8 1,8 5,3 8,8 1,8 3,5 3,5 7,0 3,5 3,5 1,8 1,8 3,5 5,3 3,5 1,8 0 1,8 1,8 1,8 1,8 1,8 1,8 Company’s To accompany World demand Intention to To establish The search for Others Saturation of To accompany Fiscal international clients in reduce export economies of Brazilian the competition incentives competitive international dependence on platforms in scale domestic in international position markets the domestic other countries market markets market Source: SOBEET-Valor-VCC survey of Brazilian multinationals, 2009.
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Annex figure 6:
What functions does (do) your company’s overseas unit(s) carry out? (%)
50 44,6 Services
40 10,7 Intermediate Goods Consumer Goods
30 28,6
17,9 10,7 20 12,5 10,7 10 14,3 16,1 7,1 3,6 5,4 1,8 5,4 1,8 3,6 0 1,8 1,8 1,8 Sales / distribution Production of goods Others Logistics / support Research and Finance office and services services development
Source: SOBEET-Valor-VCC survey of Brazilian multinationals, 2009.
Annex figure 7:
Which factors most influenced the location of your company overseas? (%)
50
41,1 Services
40 Intermediate Goods 35,7 Consumer Goods 10,7 8,9 30
10,7
20
21,4 8,9 10 19,6 7,1 5,4 3,6 3,6 7,1 5,4 3,6 1,8 3,6 0 1,8 Access to Market size Others Stable investment Local market growth Availability of labor international and/or environment regional markets Source: SOBEET-Valor-VCC survey of Brazilian multinationals, 2009.
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Annex figure 8:
What are the principal means of financing your company’s overseas activities? (%) 80 70,9 Services 70 Intermediate Goods Consumer Goods 60 23,6
50
40 25,5 30
20
5,5 9,1 7,3 7,3 10 21,8 7,3 3,6 3,6 3,6 3,6 3,6 0 1,8 1,8 Own capital BNDES Overseas debt Overseas banks Others
Source: SOBEET-Valor-VCC survey of Brazilian multinationals, 2009.
Annex figure 9:
What are the principal internal barriers for your company to internationalize? (%) 50 Services 40 Intermediate Goods
Consumer Goods
30 23,6 3,6 20
10,9 12,7 10,9 10,9 9,1 9,1 9,1 10 5,5 5,5 3,6 7,3 5,5 5,5 5,5 3,6 3,6 7,3 1,8 9,1 3,6 5,5 1,8 3,6 3,6 3,6 1,8 1,8 0 1,8 1,8 1,8 1,8 1,8 1,8 Fluctuation of Others High tax burden High credit High logistics Competition Difficulty in Lack of skilled Low economies Lack of the currency costs costs with projects in accessing human of scale, making knowledge Brazil distribution resources production about potencial channels to costs high in markets international relation to markets international Source: SOBEET-Valor-VCC survey of Brazilian multinationals, 2009. competitors
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Annex figure 10:
What are the principal external barriers for your company to internationalize? (%) 50 Services 40 31,5 Intermediate Goods 30 Consumer Goods 11,1 16,7 16,7 20 14,8 9,3 3,7 7,4 3,7 7,4 10 5,6 5,6 13,0 3,7 1,9 3,7 11,1 1,9 1,9 1,9 5,6 5,6 3,7 1,9 1,9 0 1,9 1,9 1,9 1,9 1,9 Tough Taxation (double Others Regulatory Barriers Difficulties in Credit terms Difficulties in Difficulties in Patents competition in taxation of environment imposed by local raising funds on raising funds on obtaining the legislation mature markets overseas industry competitive the overseas guarantees profits, taxes terms on the market on required for the charged on the domestic competitive financing results from market terms foreign exchange variation) Source: SOBEET-Valor-VCC survey of Brazilian multinationals, 2009.
Annex figure 11:
What is your intention regarding outward investment in 2009 - 2010, compared to 2008? (%) 50
Services 40 Intermediate Goods 34,7 Consumer Goods 28,6 30 12,2
8,2 20 14,3 14,3 10,2 12,2 10,2 6,1 10 8,2 10,2 6,1 8,2 8,2 2,0 4,1 2,0 0 Remain the same Increase of less than Reduction of over 30% Reduction of less than Increase of over 30% 30% 30% Source: SOBEET-Valor-VCC survey of Brazilian multinationals, 2009. --
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