It is a summary of some points of my PhD dissertation about Vale and how it became a leading mining company. It was presented on January 31rst at the Economic History Seminar, Maison de la Recherche, Sorbonne University.
The dissertation summary:
The internationalisation of companies located in developing countries is a feature of contemporary globalization. Inverting the trend of capital flows, they represent what the Boston Consulting Group calls the global challengers: “a group of emerging challengers that are becoming important players in both developing and developed countries around the globe.”
This dissertation examines the case of one of these challengers: the Brazilian mining company Vale. In the beginning of 2000s, Vale was already a leader in the global production of iron ore, thanks to high quality and low cost reserves in Brazil. But its ability to face growing international competition was in question due to its local profile. After the acquisition of the Canadian giant Inco in 2006, Vale jumped from the sixth to the second position among global mining producers.
Such a drastic move elicits a number of questions. What reasons led this unknown emerging company to venture in an international environment? How successful was Vale in this endeavor? What are the effects of Vale’s internationalization on the Brazilian economy? Since its creation in 1942 as a state-controlled company, Vale had no choice but to turn to international markets. At the same time, as a fundamental part of the mining-steel sector, Vale plays a leading role in Brazil’s economic development.
After its privatization, the company defines the goal of becoming a global player with an aggressive plan for national and international acquisitions. Results are expressive. Vale succeds in expanding both its international presence and its product portfolio. The share of its workforce abroad rose from 1% in 2005 to 26% in 2010. Nevertheless, the becoming a global player ambition is not completely achieved. In 2010, Vale remains a company that suffers from Brazilian political interference and cost of doing business.
In this presentation I added a couple of slides to talk about the recent Brumadinho accident.
“The values Rio Branco espoused—peace, moderation, trust in international law, non-intervention and what would now be called the pursuit of soft power—became integral to Brazil’s idea of itself, Mr Ricupero argues. And Itamaraty, as the foreign ministry is known (from the palace in Rio de Janeiro it formerly occupied), came to be seen as the Rolls-Royce of Brazilian government, its prestige based on meritocracy and knowledge.”
Brazilian foreign policy is never more important than now, as the view of great powers like the United States is that we are again in a era of great power competition.
After electing a pro-business president who is committed to anti-corruption, Brazilians send a message to the world: “dear investors, please come back”.
Concerns about Bolsonaro
Some concerns may arise, of course. Is this Bolsonaro guy a dictator? Will he turn Brazil into a populiste society? My short answer is: No and No. In fact, investors seems to have understood this better then the international press.
As Jean van de Walle’s explains in his blog, The Emerging Markets Investor, there is a disconnect between the Brazilian electorate and the “furious criticism” expressed by the foreign press. Walle points out that the high esteem which the international press still holds for former President Lula, despite the fact that he was convicted for corruption. The basic divergence can be explained by the almost exclusive focus of the foreign press on public persona. “Lula is remembered as an endearing and charismatic crusader for the poor, (… while) Bolsonaro is taken to task for a history or rude and politically incorrect statements on socially sensitive issues.”
The business community seems to have understood this better then the press. Some companies have already announced they will be investing in Brazil. The Brazilian stock exchange index Ibovespa is up.
Brazilian investment bank Itau’s report last week points out that Bolsonaro will face several challenges. Legislative reforms will impact Brazil’s fiscal situation.
Staying on top of the opportunities
Companies targeting emerging markets can not forget that Brazil has a population of over 200 million. It is time to assess industry competitiveness and market segmentation. The goal is to combine performance, market perceptions, strategic analysis, growth potential and specific industry dynamics in Brazil.
These issues are the top of the iceberg. They are part of a study I prepared about the new investments opportunities in Brazil. I will be happy to talk about it.
The challenge of feeding a growing population was in the center of Malthus problem theory. This large subject will be addressed by a panel during the World Economic History Congress in Boston. Our group will discuss the history of food production, processing and trade from a global perspective, focusing on the effective role of scientific and practical innovation in the availability of food on a large scale. I will present the Brazilian case with the paper Turning Brazil into an agricultural powerhouse with research and planning, 1970-2010.
Some members of the group and family during our pre-conference in Milan (from left to right) Silvia Conca, Benjamin Davison, Hildete Vodopives, Philip Dehne, Dominique Barjot, Christiane Cheneaux (and her husband), Fabrice Le Graet and Yves Tesson
The Brazilian innovation story
Brazil is the largest country in terms of arable land, with around 264 million hectares. Nevertheless, food production faced a number of constrains, poor productivity and difficult logistics.
The agriculture methods imported from the temperate regions of Europe were not adapted to the local climate. The problem escalated by the end of the 1960s, when a supply shortage forced the government to look for solutions. This paper looks into Brazil’s reorganization of the agriculture research system in the 1970s and, in particular, the Brazilian Agricultural Research Corporation, (Embrapa).
Founded by the Brazilian government in 1973, Embrapa radically changed food production in the country. In a 40-year period, Brazil overcame food shortage and became a leading international player. Embrapa’s agenda made innovation a priority, adapting products and production chain to the peculiarities of the Brazilian climate and soil. More recently, this State controlled organization, turned to international competitiveness and sustainability.
Organiser: Silvia A. Conca Messina, ‘La Statale’ University of Milan, Italy, email@example.com
Franco Amatori, Bocconi University, Italy, firstname.lastname@example.org
Claudio Besana, Catholic University of Milan, Italy, email@example.com
Silvia A. Conca Messina, ‘La Statale’ University of Milan, Italy, firstname.lastname@example.org
Rita D’Errico, Roma Tre University, Italy, email@example.com
Irina Potkina, Institute of Russian History RAS, Russia, firstname.lastname@example.org
Dominique Barjot, Paris-Sorbonne University, France, email@example.com Christiane Cheneaux, Paris-Sorbonne University, France, firstname.lastname@example.org
Yves Tesson, Paris-Sorbonne University, France, email@example.com
Hildete de Moraes Vodopives, Paris-Sorbonne University, France, firstname.lastname@example.org Rajkamal Singh Mann, Oxford Brookes University, UK, email@example.com Tahar Abbou, University of Adrar, Algeria, firstname.lastname@example.org
Phillip Dehne, St. Joseph’s College, New York, USA, email@example.com
Benjamin Davison, University of Virginia, USA, firstname.lastname@example.org
Paper Titles (Provisional)
Franco Amatori, From Malthusian tension to GMO
Claudio Besana, Silvia A. Conca Messina, Rita D’Errico, The Italian Food Preservation Industry since the 19th Century.
Irina Potkina, The formation of food industry in the Russian Empire in the 19th Century
Dominique Barjot, Scientific and practical innovation in the French Food Industries: the strategy of the Danone Group from the origins to today
Christiane Cheneaux, The nature of the famine and the” King law” in the Seine Department (19th Century)
Hildete de Moraes Vodopives, Turning Brazil into an agricultural powerhouse with research and planning, 1970-2010.
Rajkamal Singh Mann, Exploring the change in net-food status of countries in South Asia and South- Eastern Asia: 1961-2013
Phillip Dehne, Feeding hungry Europe after the First World War: American food, British transportation, German gold
Benjamin Davison, The Beef Economy and Malthusian Worries in Cold War America
Who will the “big-center” parties (DEM, PRB, PP, and SD) support? According to a report of ITAU BBA, it could be with he PSDB (pre-candidate Geraldo Alckmin) or PDT (pre-candidate Ciro Gomes). This is a sensitive decision because these parties have around 18% of the time available for TV and radio campaign, starting August 31st onwards.
By the way, the first debate of pre-candidates took place July 4th in Brasilia at the Brazilian Confederation of Industries (CNI). Geraldo Alckmin (PSDB), Marina Silva (REDE), Jair Bolsonaro (PSL), Ciro Gomes (PDT), Henrique Meirelles (MDB) and Álvaro Dias (PODE) participated in the debate.
Wall Street Journal reported that Boeing is in discussions to take over Embraer, the Brazilian airframer. The deal would boost Boeing’s presence in the regional jet market.
For the moment, they confirm only that they are talking but there is no guarantee a transaction will result from these discussions.
An Embraer-Boeing deal will allow them to combine forces after Airbus announced plans to acquire a majority stake in the Bombardier CSeries programme. The Series is already at the center of trade disputes involving both the USA and Brazil with Canada.
Embraer was founded in 1969 by initiative of the Brazilian gouvernement, a military regime at the time. The company was later privatised and its stocks are now traded in São Paulo and New York
Stock Exchanges. In 2000, Embraer began exploring the executive aviation market, introducing the Legacy, built on the same platform of Embraer’s ERJ 135 regional jet.
WITH his reversed baseball cap and facial fuzz, the style of 29-year-old Daniel José Oliveira (pictured) is hardly typical for a Brazilian politician. Nor is his background: he was one of 11 siblings brought up in a small town by a domestic servant and an office porter. After winning a scholarship to a Catholic school, he studied economics at a fine São Paulo campus. That led to a job at J.P. Morgan, a scholarship to study at Yale University and a job offer from another American investment firm.
But in 2015, with Brazil’s economy crashing and its politics mired in scandals, he instead came home. Inspired by En Marche!, the French liberal party which propelled Emmanuel Macron to the presidency, he hopes to be elected next October as a federal deputy for São Paulo state.
Until recently, politics was a turn-off for his generation. The average age of lower-house deputies elected in 2014 was 50, 19 years above the national mean. Brazil’s old-timers are discredited: after more than three years of the Lava Jato (car wash) corruption probe, 40% of congressmen are under investigation. Politicians are unloved. Just one voter in 20 admires them; only 3% approve of President Michel Temer.
Confidence in congress has been sagging for ages. In 2010 Tiririca (Grumpy), a professional clown, was elected to Brazil’s lower house under the slogan “It can’t get any worse.” It did. On December 6th he told his congressional colleagues he would not seek re-election in 2018. “Only eight of the 513 actually show up here,” he moaned. “I am one of those eight and I am a clown.”
Young Brazilians are fed up. “Four years ago someone like me running for congress would have made no sense,” says Mr Oliveira. But renewing Brazil’s congress will not be easy. Independent candidates are banned and parties are unwelcoming to newcomers. In some states seats stay in the hands of well-known families.
Dislodging them may get harder. In 2015, after a series of scandals, Brazil’s supreme court outlawed corporate campaign contributions. In October congress created a “special campaign-finance fund” for next year’s election. But the fund, and airtime, will be allocated in proportion to parties’ current representation. That frustrates newcomers. “Congress is like a cancer,” says Mr Oliveira. “It’s not working in the best interests of the body and it’s defending itself to survive.”
People are trying to find a cure. Mr Oliveira has applied to RenovaBR, a programme to support young Brazilians who want to run for congress. Financed by entrepreneurs, it offers 150 “scholars” courses on Brazil’s institutions plus advice on campaigning and policy. It has thousands of bidders for a half-year programme starting in January. Scholars will get a monthly stipend of 12,000 reais ($3,645).
They will be selected by written tests and interviews. They can belong to any party, but cannot hold extremist views. In return the scholars vow to complete their mandate, justify their voting decisions to their constituents and avoid hiring family as staff members. Eduardo Mufarej, who started the project, hopes to see at least 45 scholars elected.
Other groups are working to make congress more representative. Bancada Ativista (Activist Group) is a left-leaning outfit, formed to fight São Paulo’s city-council election in 2016. Rather than creating a party, it chose eight candidates from two established ones. Only one was a heterosexual white male. “By definition, a black woman is more representative than a white graduate from Harvard,” says Caio Tendolini, a 33-year-old member of the group. It arranged “speed-dating” events for candidates to meet voters and offered social-media training and public-policy contacts. It started working: the candidates drew a total of 75,000 votes and one got in. It will scale up its operation next October.
Agora! (Now!) was founded in 2016 to coax into politics young Brazilians who had shown leadership skills in other fields. Until now it has largely focused on developing policy ideas. “Politicians here think about getting elected first and then worry about their agenda…it should be the other way around,” says Marco Aurélio Marrafon, one of the group’s 150 members. Agora! has working groups on everything from health to homicide. It initially had no plans to run for congress, but “things are getting out of control”, says Ilona Szabó, a co-founder. Next year it plans to field 30 candidates for congress by persuading two parties, Partido Popular Socialista and Rede, to be vehicles. “We want to be a new political force,” says Ms Szabó.
October’s elections are perhaps the most important since democracy was restored in 1985 after 20 years of dictatorship. They are also unpredictable. Fewer Brazilians than ever identify with the old left-right model. Most want to try something new. That can favour extremists: Jair Bolsonaro, a congressman who says harsh things about gays and women, is second in the polls for the presidency. But it could also help moderate newcomers. Four out of five Brazilians say they want “ordinary citizens” to run for congress next year.
Their efforts may fail. New candidates fret about finances and some are already running low. Mr Oliveira used to help his parents out with the bills. Since deciding to run for office he has had to stop. With corporate donations banned, the candidates must rely on individual contributions, and no one knows how generous Brazilians will be. Lack of broadcast time will hurt.
“Next year might not be the tipping point,” warns Mr Oliveira. “But we have to open a trail. If not, there will be no hope of renewal in 2022.” Political renewal may not happen overnight. But Brazil’s Young Turks are making a start.