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Brazil Unleashed

Lessons in building world-class international operations

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Our Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Operating Model Diagnosis

Organizational Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Leadership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

People . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Corporate Culture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Process and Information Technology . . . . . . . . . . . . . . . . . . . . . . . . . . 20

The Dynamic Operating Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Unlocking the Potential for Global Growth . . . . . . . . . . . . . . . . . . . . . . . . . 24

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Contents

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The rise of multinationals from emerging economies is one of the defining stories of recent decades. While companies within Brazil have a history of exposure to foreign multinationals, it was not until the 1990s that they began to expand beyond their borders in earnest.

But this is just one manifestation of a broader transformation that has unfolded in the global business environment over the past two decades. During that time, multinational business models have proliferated, driven by improvements in technology and freer cross-border trade and investment. Information, funds, products and services flow more easily between the world's established and emerging poles of economic activity. As firms look for the next waves of growth, they are finding new sources spread more widely around the world.

This presents both a major opportunity and a daunting challenge for today’s global business leaders: how to build effective international operating models. Value chains have become fragmented and dispersed across continents. Whether they are chains of supply, distribution, manufacturing or innovation, organizations have systematically disaggregated and located business activities to where the most appropriate resources, talent and capital lie. This process has enabled enterprises to gain operational efficiencies and establish centers of expertise. But at the same time, it has unearthed a new set of risks and challenges related to the increasingly complex and interconnected web of global business activities.

Executive summaryThis is a complicated operating environment to step into, and our research uncovers just how ill-prepared Brazilian companies feel about entering it. We talked to more than 100 Brazilian multinationals and aspiring multinationals and found that fewer than one in five of these companies (18 percent) are confident that they have the full set of operational capabilities required to execute their internationalization strategy.

More worrying, executives are feeling this lack of preparedness and capabilities across all components of their operating model (see Figure 1). Whether looking at their processes and organizational structures, their information technology, their people, culture or even their leadership, Brazilian businesses feel unprepared to fully implement their international expansion plans.

This finding helps explain why Brazilian companies have moved to internationalize more slowly than businesses headquartered in Brazil’s BRIC peers (Russia, India and China) and some other high-growth markets (see the Accenture report “Brazil’s global growth imperative: The challenge of internationalization”). In an effort to understand more about how to overcome the barriers to the emergence of Brazilian multinationals, we analyzed responses from our sample of Brazilian internationalizers. We also conducted an operating model diagnosis, highlighting pain points and uncovering the factors distinguishing successful Brazilian internationalizers from the less successful ones.

3

Six lessons from Brazilian internationalizersBrazil’s internationalizers clearly see significant room for improvement in their operating models. On one hand, the extent of their dissatisfaction with current approaches and their low confidence is surprising. On the other hand, their recognition of these pain points gives them an opportunity to proactively work toward improvements.

This research report uncovers performance gaps and identifies the leading practices that distinguish successful internationalizers from unsuccessful ones, drawing on benchmarks of high performance from Brazil and beyond. We have derived six key areas of focus where Brazil’s burgeoning multinationals (MNCs) can learn from their successful counterparts.

1. Balancing global and local imperatives. For companies seeking to define and execute an international business strategy, there is no substitute for a systematic approach to operating model design. Executives must evaluate every business activity for opportunities to improve both global efficiency and local responsiveness. Only by doing so can they tackle the tough questions centering on the role of headquarters, the right degree of process standardization and ways to use outsourcing.

2. Aligning mindsets with ambitions. To effectively operate a global business, executives must develop a global mindset. Our research highlights the need for improvement among Brazil’s current business leaders, future leaders and the broader workforce. Cultivating a global mindset entails actions such as learning a foreign language as well as gaining exposure to foreign work cultures and global business practices.

3. Developing global models for global talent. As companies around the world race to improve their international competitiveness, talent has become a critical battleground. Organizations aim to optimize recruitment, skills development and talent retention activities across their global operations—while still ensuring responsiveness to local conditions. Successful Brazilian multinationals develop a global view of talent management.

Despite the recent turbulence in the economic environment, Brazilian firms largely remain optimistic about internationalization opportunities. In fact, 76 percent of the respondents in our study believe that global expansion will be critical to their company's growth in the next three to five years. Most of the companies we talked to (74 percent) are confident that they have a clear strategy for international market entry and expansion. But a strategy is only as strong as a company's ability to implement it. Whether Brazilian companies succeed on the global stage will hinge on the strength of their commitment to building the capabilities and operating models appropriate for the coming era of global competition.

4. Investing in process performance measurement. Our research underlines the importance of careful process performance management for running effective international operations. Advanced analytical techniques can help executives measure, evaluate and predict performance and can open new doors to enhancing workforce productivity.

5. Nurturing the nervous system. An integrated information technology infrastructure is critical to allowing people, processes and structures to operate effectively across a global organization. IT systems form the backbone of business processes in today’s organizations because they enable the efficient movement of information and ideas. Such systems are therefore critical for connecting business processes across corporate and national borders.

6. Fostering resilience through dynamism. To succeed in today’s interconnected and volatile global business environment, organizations must develop dynamic operating models. Successful multinationals invest in mechanisms that enable them to effectively mobilize people, funds and ideas across countries and business units.

4

Brazilian companies are optimistic and confident about their international growth plans…

79%See international expasion as a critical source of growth for their company in the next 3 to 5 years

75%Will increase their investment in international expasion in the next 3 to 5 years

74%Have a clear strategy for international market entry and expasion

18%Are fully confident that they have the operational capabilities needed to execute their international growth strategy

…But they are not confident about their ability to execute their plans…

…and this lack of preparedness is found across every component of their operating modelsTo what extent does your company understand the adjustments that will need to be made to its operating model components to successfully expand internationally? (% respondents who responded to the full extent)

22% 22%21%20%14%11%

Organizational Structure

Process Information Technology

Leadership Culture People

5

Our analysis uncovers important findings, including the following:Organizational Structure

11%Only 11 percent of companies fully understand the adjustments they must make to their organizational structure to support successful internationalization

75%The majority of respondents (75 percent) are dissatisfied with the current balance of decision-making between their company’s headquarters and local offices.

Leadership

21%Twenty one percent of companies fully understand the adjustments they must make to their current leadership models to support successful international growth.

Top leadership’s commitment to market entry and expansion is twice as prevalent among successful internationalizers (80 percent), compared to unsuccessful internationalizers (40 percent).

80%40%

vs

People

22%Twenty two percent of companies fully understand the adjustments they must make to their people management approach to support successful international growth.

Only 55 percent of successful internationalizers believe that they invest sufficient time, money and management attention in developing a global view of talent management. Yet this is still more than double the figure for unsuccessful internationalizers (22 percent).

55%22%

vsSuccessful

Unsuccessful

Corporate Culture

22%Twenty two percent of companies fully understand the adjustments they must make to their corporate culture to support successful internationalization.

71%Seventy one percent of companies find it challenging to create a corporate culture that enforces global shared principles while remaining locally relevant. There is also significant underinvestment in establishing globally consistent corporate values and in hiring people who have experience working in different cultures.

Successful

Unsuccessful

6

52%

Process and information technology

14%Fourteen percent of companies fully understand the adjustments they must make to their business process design to support successful internationalization.

90%More than 90 percent of companies consider effective process performance management critical to international expansion. But successful companies are twice as likely as unsuccessful ones to invest sufficiently in this.

20%Twenty percent of companies fully understand the adjustments they must make to their technology infrastructure to support successful international growth.

Fifty percent of Brazilian executives do not believe that they are making sufficient investments in an integrated IT infrastructure.

Our analysis also highlights the importance of designing a dynamic international operating model, one that can respond to the diverse and fast-changing international operating environment by moving people, funds, and ideas and leading practices throughout an organization’s global operations. For example:

Mobilizing people

Only 52 percent of successful internationalizers believe that they invest sufficient time, money and management attention in the easy mobilization of people around geographies. Yet this is still almost four times the figure for unsuccessful internationalizers (14 percent).

14%vs

Successful Unsuccessful

Mobilizing funds

Seventy one percent of successful internationalizers believe that they invest sufficient time, money and management attention in the easy mobilization of capital around geographies. This compares to only 40 percent of unsuccessful internationalizers.

71% 40%vs

Mobilizing ideas and leading practices

Only 54 percent of successful internationalizers believe that they invest sufficient time, money and management attention in efficient global best practice sharing. Yet this is almost double the figure for unsuccessful internationalizers (29 percent).

54% 29%vs

50%



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Designing an international operating modelGiven the difficulties inherent in designing and managing international operations, we set out to determine what differentiates successful companies from unsuccessful ones in how they prioritize operational decisions, capabilities and investments.

To this end, we conducted an operating model diagnosis, highlighting pain points and uncovering the significant differences in approach between successful and unsuccessful Brazilian internationalizers. We carried out the process across the full set of operating model components:

• Organizational structure • Leadership • People • Culture • Process and information technology

We based the operating model diagnosis on research that Accenture conducted to investigate the international growth journeys of Brazilian companies. Our survey of 102 business leaders, across 20 industries, asked about their perceptions of the competitive landscape, their company’s plans for growth, their prioritization of operational capabilities and their investment priorities. We supplemented this with extensive secondary research and conversations with clients.

In our research, we were keen to understand the actions of two particular sample groups:

• Successful internationalizers. These are companies that are committed to international growth and that have performed well in their international operations during recent years. Nearly 80 percent of the successful internationalizers in our study have experienced overseas revenue growth of 5 percent or above in the past year. They are defined by the following characteristics, based on their responses to our survey:

- In the past three years, their revenues and profits from foreign markets have developed in line with, or faster than, their expectations.

- They plan to increase their investments in international expansion over the next three to five years.

• Unsuccessful internationalizers. These companies are also committed to growing internationally but have so far been disappointed by their performance overseas. They are defined by the following characteristics:

- In the past three years, their revenues and profits from foreign markets have developed more slowly than they expected.

- They plan to increase their investments in international expansion over the next three to five years.

InFocus: Our Research

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An international operating model is the vehicle through which a company executes its business model and international growth strategy.

What is an international operating model?

To design their international operating model, a company:

• Articulates its core processes, functions and activities, given the positioning it has selected for its target market segments.

• Decides what to centralize, standardize and specialize at all levels in the organization.

• Defines the culture, leadership, competencies and skills required to support the operating model.

• Identifies and puts in place key enablers such as technology, metrics, talent strategy, and incentives and reward systems.

• Designs the operating model to be dynamic, able to evolve in response to changes in the external environment and strategic imperatives.

The leadership skillset of the company’s top management team, including their leadership style, degree of diversity and approach to decision-making.

The firm’s approach to talent management around the world, including the attraction, development and retention of employees.

The company’s beliefs and shared values that bind its members together.

Business activities that produce measurable outcomes, as well as those which help coordinate across the firm. Information technology refers to physical equipment, software and tools that underpin the processes.

Governance mechanisms that include the way responsibilities, reporting and accountabilities are defined. This includes the structural and control mechanisms used both to integrate and differentiate units and businesses.

Organizational Leadership

Operating Model

Operating Model Levers

People Corporate Culture Process and IT

Cont

inua

l Ada

ptat

ion

Buy, Make and Distribute

Corporate support

Value Chain

Design, Sell and Market Transact, Service and Collect

Macroeconomic and Industry Landscape

Business Strategy

Figure 1: Organizational operating model

Structure

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Organizational structure

Balancing global efficiency and local responsiveness

One of the most challenging decisions for internationalizing companies centers on determining the extent to which they will centralize or decentralize decision-making across the value chain. On one hand, decentralized decision-making can allow for more flexibility and responsiveness to local conditions. On the other hand, centralizing decision-making can help companies leverage scale efficiencies and ensure consistency across critical factors like product or service quality and customer experience.

To resolve this dilemma, companies must make difficult choices and tradeoffs. Just how much flexibility and responsiveness are executives willing to give up for a specified improvement in efficiency? Or vice versa?

To complicate matters further, the answer to this same question may vary when business leaders consider recruitment processes, compared to sales and marketing or research and development processes. The chances are that a company’s desire to centralize will vary significantly across business activities and business units.

Our research with Brazilian companies confirms their unease with these questions. In fact, among all the operating model components, organizational structure proved to be the most troubling for our respondents. Even among successful companies, just 11 percent said that they fully understand the adjustments that need to be made to their organizational structure in order to expand internationally.

Dissatisfaction across the entire value chain

We questioned the Brazilian executives in our study about the role of headquarters in decision-making across a range of business activities. Strikingly few of them express satisfaction with the current distribution of decision-making between headquarters and local offices. For most business activities, at least 75 percent of executives believe that some change is required to the status quo (see Figure 2). Even the most positive result—which refers to the sourcing function—shows only a third of respondents comfortable with their current decision-making protocol.

11%Fully understand the adjustments needed to their organizational structure for successful internationalization

Figure 2: Dissatisfaction with the decision-making balance across the organizationPlease think about the location of decision-making authority across your international organization. What changes, if any, do you think are necessary over the next 3 years across the following processes? (% respondents)

Operations performance management

Marketing and sales activities

Research and innovation

Operations planning and forecasting

Talent management

Treasury and risk management

Distribution and logistics

Tax management

Manufacturing

Sourcing

Change decision-making balance No change required

NB: For the full survey question, see the notes in the references.

Source: Accenture Brazilian Multinationals Survey10

Biases and trends

Our findings suggest that unsuccessful companies tend to seek centralized decision-making more than successful ones do. It is natural for headquarters to want to seize control in an effort to improve performance. This bias implies that companies will tend to decentralize more as their performance improves. This is a result of the complex international operating environment that organizations face, highlighting the need to be responsive to challenges that emerge around the world.

The research also uncovers a bias toward the decentralization of core business functions (such as manufacturing and sales) and the centralization of support functions (including treasury, risk and talent

Figure 3: Brazilian companies overall favor decentralized decision-making across core business functions and centralized decision-making across support functionsPlease think about the location of decision-making authority across your international organization. What changes, if any, do you think are necessary over the next 3 years across the following processes? (% of respondents who answered “centralize more” or “decentralize more”)

management) (see Figure 3). Many Brazilian firms have yet to benefit from the establishment of shared service centers and similar structures that typify the operations of established multinationals. The desire to centralize support functions illustrates their early stage in the lifecycle of multinational organizational models. More recently, global business service solutions offer opportunities for efficiencies that cut across core and support functions. The reality is that Brazilian companies have a wealth of options to improve their organizational models. Their challenge is to figure out the setup that is appropriate for their specific industry, corporate culture, lifecycle, and legacy processes and systems (see InFocus: Tailoring decision-making structures to needs).

Decentralize moreCentralize more

Support functions

Treasury and risk management

Talent management

Research and innovation

Tax management

Operations performance management

Core business functions

Source: Accenture Brazilian Multinationals survey

Manufacturing

Sourcing

Operations planningand forecasting

Marketing and sales activities

Distribution and logistics

11

Infocus: Tailoring decision-making structures to needsGeneral prescriptions around decision-making structures are not useful. Each company will have unique corporate priorities and strategic vision, and the right decision-making structures will bring these to life. Changes in where and how decisions are made across different parts of the organization will feed up to an overall dashboard for corporate headquarters that meets specific needs at that point in time. There is no substitute for systematically defining these needs or for making a full diagnosis across the organization’s business activities.

To design decision-making structures, executives must consider the role of headquarters and the desired degree of standardization for each capability or business function, as these factors are intertwined. The following questions can help:

Locating decision-making authority

Does this capability/function require rapid responses to market change? What degree of local knowledge should this capability/function have? To what degree does this capability/function affect the customer’s experience?

Fast food provides a classic example of an industry whose design of products and delivery channels hinge on local tastes and preferences. Consider KFC’s enormous success in China. The company’s brand remains globally consistent and centrally defined in terms of imagery and expectations of customer service. In contrast, decisions regarding the menu and store layout are locally driven. The menu in China is far broader than in KFC’s home country (the United States) and includes locally adapted products such as congee porridge and pork-based dishes; in addition, its stores are twice as large, to offer room for families and groups to meet.1 Similarly, McDonald's succeeded in India by transforming its traditional hamburger menu into one with an identical look and feel, minus the beef. By contrast, McDonalds in Brazil offers an extensive selection of beef options, reflecting the country’s taste for that ingredient.

Defining degrees of standardization

What impact does this capability/function have on our core business? What is the degree of regulatory constraint around this capability/function? What resources does the capability/function need to succeed?

AB InBev, the global brewer, takes a systematic approach to determine the appropriate locus of decision-making. Executives start by assessing the importance of each function to the company’s performance and by evaluating the current and desired degree of standardization of these functions. Business activities that require rapid responses to market change and a high degree of specialized knowledge are kept close to the organization’s key decision-makers. Activities that are non-core to the business and have low added value are candidates for bundling in a shared service center, and ultimately, for outsourcing to a low-cost provider (see Figure 4). Reorganizing its operations in this way has enabled AB InBev to take advantage of its global scale and standardized processes. As a result, it has gained cost efficiencies and performance improvements.

12

Key questions

As Brazilian executives work to align organizational structures with their company’s strategic objectives, they can benefit by asking themselves critical questions that include:

• Does our company’s strategy drive the choices around where and how decisions are made across the organization—or are these decisions driven by other concerns?

• Which business activities should be governed locally? regionally? centrally?

• To what extent can capabilities be standardized and shared across function/business units/geographies?

• Where might there be relevant opportunities for outsourced solutions?

Figure 4: A retail company redesigns decision-making structures

Illustrative Implications for Select Capabilities

Candidate for outsourcing Today To-be

Post-sale CRM(Today)

Post-sale CRM(T )

Procurement(Today)

Procurement(To-be)

stro

ng

Stan

dard

izat

ion

Decision-making authority

wea

k

centrallocal

o-be

Source: Accenture

13

21%Leadership

Commitment to growth

Only one in five of the Brazilian companies we surveyed acknowledge a full understanding of the adjustments required to their leadership structure to successfully execute their international strategy. Even among successful internationalizers, only a quarter (26 percent) appear fully at ease with this topic. Developing current and future leaders who feel, act and behave like international high performers is a critical element of the international growth journey.

Commitment from the top is a crucial starting point. Eighty percent of successful Brazilian internationalizers state that their leadership team is fully committed to international market entry and expansion, compared with just 40 percent among the unsuccessful internationalizers. This is clearly a critical factor for success, and is confirmed by our research with business leaders across the world.2

Senior-level commitment increases the likelihood that resources will be allocated to capabilities that are core to achieving strategic objectives. With such commitment, decisions will also probably be signed off in a more timely manner, improving responsiveness to opportunities as well as threats. And critically, the watchful eyes and attention of top leaders ensure execution of the strategy, particularly across parts of the organization that are culturally and geographically distant from headquarters. In these ways, an attentive and committed top leadership team can maximize the chances of international success and minimize execution risks.

Fully understand the adjustments needed to their current leadership models for successful internationalization

Starwood Hotels and Resorts Worlwide Inc. is an apt example. Frits van Paasschen took the role of CEO in 2007 and kick-started a transformative journey that has established the company as one of the world’s leading hotel and leisure firms. In 2013, two-thirds of the company’s new hotel openings were in fast-growing emerging markets, such as China, India, Ukraine and Mexico, but there was also expansion in major European cities.3

Mr. van Paasschen recognized the company’s global potential from his first day on the job, but he also understood the need to convince the leadership team of his vision. Instilling this shared focus and ambition has proven critical to the success of the team’s global expansion strategy.4 One of the ways he tried to show his commitment to the company’s growth in overseas markets was through temporary relocation. In June 2011, he relocated the firm’s headquarters from New York to Shanghai for one month. The relocation included meetings with partners, employees and customers, and crucially, also provided the leadership team with a first-hand glimpse of the growth opportunities in China and the Asia Pacific region.5 There was a similar move in March 2013, with the leadership team moving to Dubai. “To change the global mindset of any company, you have to brave the world beyond the boardroom.”, van Paasschen explained.6 And though the relocation was limited to executives and general managers, the CEO demonstrated his commitment to diffusing this thinking throughout Starwood, by using social media to update employees on their findings and ideas.

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Leadership Van Paasschen plans to continue the firm’s transformation from a US-based company into an truly global enterprise. A look through the company’s press releases over the last few months uncovers significant expansion plans across the world, including a 50 percent increase in its Latin America footprint and a 60 percent increase in its Middle East and Africa presence over the next five years.7

Global leaders with global mindsets

Do Brazil’s business leaders have what it takes to be global business leaders? The most recent Harvard Business Review assessment of the best performing CEOs in the world gives reason for optimism. Brazil’s CEOs account for 9 percent of the top 100 ranking in the article, even though they make up just 4.5 percent of the global sample that the authors assessed.8

But this handful of success stories aside, the bulk of Brazilian companies are not led by teams that have significant international experience and global mindsets. An Accenture study of about 200 company leaders finds that Brazilians do not have confidence in the global mindsets of their leadership teams, especially in comparison to the respondents from the six other countries included in the survey. Indeed, only 24 percent of Brazilian respondents feel that their global leadership team has a strong global mindset (see Figure 5). Academic studies, such as Reis and Fleury (2011), Cyrino et al. (2010) and Tanure et al. (2009), reinforce this notion that Brazilian executives, business owners, entrepreneurs and boards lack international experience.9

Despite some recent improvements among a limited number of players, most executives in Brazilian companies appear to have much room to improve their global mindsets. They can do so by engaging more actively with the international business landscape; for example, by living in their foreign markets and gaining an in-depth understanding of those markets. Accenture’s report “Brazil’s Global Growth Imperative: The Challenge of Internationalization” underscores the dangers of the insular perspective characterizing

many Brazilian executives, particularly in the face of increasing competition from foreign companies eager to take market share from Brazil’s domestic players.

Nurturing the next generation

There is no clear prospect that the next generation of Brazilian business leaders will be any more prepared for international business than the current generation. Accenture’s survey on global leaders finds that only 7 percent of Brazilian executives believe that their high-potential managers have a strong global mindset. That is significantly lower than respondents from China, Germany, India, Russia, South Africa, the UK and the US (see Figure 5).

Brazilian companies recognize the importance of nurturing “future-ready” leaders, but there are clearly many areas for improvement. Where can they start? Our research uncovers some specific capabilities that successful Brazilian internationalizers prioritize more than unsuccessful ones (see Figure 6).

For example, successful companies seem to place greater emphasis on developing global ambition and an entrepreneurial spirit and on building specific international market know-how. The largest gap between successful and unsuccessful companies seems to be around the development of multicultural skills, such as being able to lead effectively across diverse cultural groups. Global leaders must have credibility in each of the markets in which they operate. This, in turn, demands an understanding of the strategic and operational realities facing executives in these markets.

Even internationally established firms are continually developing their approaches to build the required levels of exposure and credibility among their global leaders. For example, Manpower, the human resources group, has a “reverse expat model” in many of the emerging markets where it does business. The company is keen to hire local managers who have expertise in the local market. However, to develop an international mindset, it sends newcomers to work on short-term projects in other countries so they can gain familiarity with the company’s global culture. 10

Key questions

As Brazilian executives work to align their company’s leadership structures with its strategic objectives, they can benefit by asking themselves critical questions such as:

• Is our top leadership team fully committed to the company’s international strategy?

• Can our leaders consider assumptions and implications from a variety of points of view, especially from culturally foreign perspectives?

• Do we have formal and informal processes that encourage diversity of background and experience among current and future leadership teams?

• Do we have mechanisms and processes to effectively build global leadership networks across the organization, rather than only at headquarters?

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Figure 5: Brazilian companies believe that the global mindset of their current and future leadership teams is weak

% Respondents who said their company’s global leadership team has a strong global mindset

China

UK

Germany

India

US

South Africa

Russia

Brazil

64%

62%

47%

45%

38%

34%

27%

24%

% Respondents who said their company’s high-potential managers have a strong global mindset

UK

India

China

Germany

US

South Africa

Russia

Brazil

62%

62%

46%

40%

38%

31%

27%

7%

Figure 6: Successful companies place a greater emphasis on the development of the future generation of leadersTo what extent is this leadership capability critical for international success ? (% respondents)

Global ambition and entrepreneurial spirit

80%

97%

17%

91%

Specific international market know-how

72% 19%

64%

89%

25%Multi-cultural skills (e.g. leading effectively across multiple cultures)

68%

83%

15%Diversity of leadership team (e.g. different nationalities)

Successful Unsuccessful Gap between successful and unsuccessful

Source: Accenture Brazilian Multinationals Survey

Source: Growing Global Leaders Survey, Accenture, 2012 Source: Growing Global Leaders Survey, Accenture, 2012

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People

Investing in global talent management

Brazil compares poorly with much of the world in the global war for talent when it comes to academic qualifications, foreign language proficiency or the flow of qualified workers and students in and out of the country. The numbers tell the story. Only 7 percent of Brazilians aged 25 to 34 have been to university, one of the lower percentages among emerging economies. Brazil is ranked as one of the 10 worst countries in the world for business English proficiency.11 And the country struggles to attract high-quality talent from abroad; among the foreign population living in Brazil, less than a quarter has university-level qualifications.12

External factors, such as the education system, and bureaucratic hurdles, such as visa controls, contribute to the struggle facing Brazilian executives as they try to build a workforce ready for global competition. It is no surprise, therefore, that even among successful Brazilian internationalizers only a third (34 percent) feel that they fully understand the adjustments that need to be made to their approach to people management to successfully expand internationally.

Our research suggests that many Brazilian businesses are falling at the first hurdle, in that they are not investing sufficiently in building a global view of talent management (see Figure 7). Only about half (54 percent) of successful Brazilian internationalizers believe they are investing adequate time, money and management attention in this. And among unsuccessful internationalizers, the statistics are worse, with only 22 percent confident that they are prioritizing these investments sufficiently.

The practical task of designing and building a global talent management model can seem overwhelming. The perennial difficulty of balancing global and local imperatives lies at the heart of this challenge. Whether executives are considering ways to attract new employees, train them or build engagement and productivity, they must determine which human resources processes and incentives should be managed globally and which locally. They also need to decide which should be standardized and which remain unique. For example, a performance management process that allows for equality of opportunity across the global organization might contravene local labor laws or customs. This is a classic situation where the systematic, granular approach described in “InFocus: Tailoring decision-making structures to needs” is applicable. Established high performers have realized that HR systems must be designed to balance both global and local imperatives.

Diageo, the alcoholic beverage multinational, has developed a customized shared services model that achieves this balance. The system provides consistent HR services to employees around the world but can also be quickly adapted to meet unique local market requirements. In just seven months, the company had two centers up

and running — one in Europe and one in North America. These centers serve as the virtual hubs for Diageo’s hub-and-spoke operating model.13

These centers provide a global view of HR management, while also ensuring local relevance. HR services can now be delivered faster and more consistently to employees. A knowledge repository, for example, helps standardize functions and materials, and enables staff to process transactions consistently and in compliance with local laws.

The centers also help Diageo navigate complex data protection and privacy laws across borders. For example, an electronic employee filing system provides data security that meets requirements in the European Union and North America. It also affords easier access to employee information for the service centers to support HR personnel across dispersed locations.

Figure 7: Brazilian companies under-invest in developing a global view of talent management

Key questions

As Brazilian executives work to align their talent management approaches with their strategic objectives, they need to ask themselves critical questions including:

• Can each member of our top leadership team articulate the firm’s global talent strategy?

• How are attraction, development and retention of talent managed across our global organization?

• Are common HR tasks identified, standardized and managed globally? Does the organization give local talent management concerns sufficient consideration, in terms of funding and management attention?

• How well are we positioned to access key relevant talent pools, now and in the future, around the world?

22%Fully understand the adjustments needed to their approach to people management for successful internationalization

83%

72%

54%

22%

Successful

UnsuccessfulReceiving Adequate Investment

Considered Critical

Receiving Adequate InvestmentConsidered Critical


Source: Accenture Brazilian Multinationals survey

Capability: Global view of talent management (% respondents)

17

22%

Corporate Culture

Shaping minds and beliefs

In our survey, only 22 percent of Brazilian companies said they fully understand the adjustments that need to be made to their corporate culture in order to successfully internationalize. The paradox is that Brazil itself is held up as a success story of integration across disparate cultures; its population is global in its composition. Yet the evidence suggests that there is much room for improvement when it comes to Brazilian business culture and internationalization.

Just as Brazilian leadership teams lack global experience and global mindsets, so does the nation’s broader workforce. Even when we look exclusively at employees whose roles span multiple countries, we find that the levels of global mindset are dramatically lower than those in China, Germany, India, Russia, South Africa, the UK and the US. This matters: Research shows a positive and significant relationship between the cross-cultural global mindsets and performance of Brazilian multinationals.14 However, we see that too few Brazilian firms invest in hiring people with cross-cultural experience. Sixty percent of successful companies believe they invest adequate time, money and management attention in this effort. Among unsuccessful internationalizers, the number plummets to 30 percent.

Brazilian companies also struggle to prioritize investments in building a truly global perspective. Only 60 percent of the successful companies in our study are confident that they invest adequate time, money and management attention in developing globally shared corporate values (see Figure 8). Among the unsuccessful internationalizers, the number is 29 percent.

Fully understand the adjustments needed to their corporate culture for successful internationalization

Companies that do take corporate culture seriously see the positive impact infusing across geographies and far into the future. Consider Votorantim Industrial, which faced cultural differences between its Brazilian and Canadian managers.15 Executives realized that they had to bridge these gaps to ensure that all employees were working toward the company’s common goals. In 2011, the enterprise launched a program—“The Votorantim we believe in”—to strengthen its organizational culture. The program included training for leaders alongside their teams, training of Votorantim suppliers on the company’s values and an internal competition to share stories that demonstrate the firm’s beliefs. In 2012, Votorantim rolled out its “beliefs” system around the world. The management team has similarly focused on communication, including committing to virtual meetings held since 2006 among all unit heads in Brazil and overseas.16 During these meetings, CEO Raul Calfat, who in 2012 won Latin Trade Magazine’s CEO of the year award, answers questions via text messages.17

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Corporate CultureGlobal principles, local interpretation

Infusing globally shared principles across the organization is one part of the battle. But just as we saw with talent management challenges, companies must strike a balance between globally consistent principles and locally relevant interpretation when shaping their organizational culture. This is not easy: 70 percent of our respondents told us that creating a corporate culture that enforces globally shared principles and that is also locally relevant is a struggle for them.

This is an ongoing challenge for all multinationals, as they grow and try to shape their corporate cultures to embrace a multiplicity of beliefs, norms and behaviors—many of which are rapidly evolving themselves. For companies in the earlier stages of internationalization—as is the case for most Brazilian multinationals—the question revolves around how to blend the successful ingredients of the home culture with the cultures of foreign operations. This is particularly daunting for countries that

have not traditionally had strong exposure to foreign ways of conducting business, such as China and South Korea. It is instructive, therefore, to observe how South Korea’s Samsung has worked to mold the company’s deeply-rooted Korean culture to its new global business reality. As a critical initial step, Samsung executives accepted that this journey would require top-level commitment to change, and that it would take time and effort. The company has drawn several Western business practices into its traditional Korean corporate culture, striving to retain the benefits of each while stripping away unhelpful aspects. For example, the company launched meritocratic promotion and pay into a culture based on seniority and reverence for elders. It also combines a focus on innovation with expertise in process improvement. During this journey, Samsung executives have learned to embrace and incorporate new behaviors while preserving the best of their well-established culture.18 As Brazilian firms chart their own course, it will be essential for them to remember that preserving what is already good is as important as absorbing new traits.

Key questions

As Brazilian executives work to align their corporate culture with their strategic objectives, they will need to explore critical questions such as:

• Which of our firm’s core cultural strengths should be replicated and reinforced globally?

• Who is responsible for ensuring a consistent global corporate culture across the organization? Who is responsible for ensuring local interpretation and relevance of that culture?

• What tools, processes and informal mechanisms are available to encourage the infusion of the corporate culture across borders?

Figure 8: Brazilian companies are not prioritizing investments in building truly global values

91% Considered Critical

60% Receiving Adequate Investment

Successful

76% Considered Critical29% Receiving Adequate Investment

Unsuccessful

Capability: Establishing a set of corporate values that are consistent across the company (% respondents)



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14%

Process and information technology

Success through process performance management

As a company expands its operations to additional countries, business process design becomes increasingly critical and complex. Processes are the vehicles through which a company coordinates its operations across the value chain and across geographies. They represent the business activities that produce measurable outcomes for the enterprise. And it is precisely this aspect of process design—producing measurable outcomes—that appears to lie at the root of many problems encountered by Brazilian executives.

Nearly all of our sample’s respondents believe that effective performance management across their operations is critical to their international success. In fact, this capability had the highest number of Brazilian executives highlighting its importance. But this is where successful companies stand out: They put this belief into practice. In our research, 82 percent of successful internationalizers believe that they invest sufficiently in performance management, compared with just 44 percent of unsuccessful companies (see Figure 9).

As we have seen with other capabilities, balancing global and local decision-making is a key struggle when it comes to process performance management. In fact, 96 percent of unsuccessful internationalizers wish to change their current decision-making models in this area.

AB InBev has implemented a global operations management system called Voyager Plant Optimization (VPO). This system provides a globally consistent assessment of the company’s processes and standards for operations, quality, safety and sustainability. As well as training all employees in observing the global standards, the system also encourages adaptation to local conditions and resources. For example, in the Houston, Texas, facility, more than 70 percent of all the plant’s fuel needs are derived from landfill and wastewater treatment methane.19 Another key process that helps the company manage its performance is Zero-Based Budgeting, meaning that at each new budget cycle, every project must be reviewed and re-approved. This rigorous focus on managing performance has enabled AB InBev to achieve its ambitious sustainability goals as well as reach cost-efficiency targets, such as a 30 percent reduction in water usage per unit of production worldwide during 2007-2012.20

Fully understand the adjustments needed to their process design capabilities for successful internationalization

Exploiting data and analytics solutions

The good news is that there has never been a better time to access tools and solutions to improve process performance management. Recent years have seen a massive expansion and accumulation of data, spurring dramatic advances in analytic tools with predictive power. These tools can improve the quality of decision-making as well as the speed of executing decisions.

Take Itaú Unibanco, the largest private bank in Latin America. The company is investing in the design of an analytics platform that will integrate its data, systems and methodologies. The aim is to create more timely and useful information for decision-makers and improve the company’s credit-approval processes.

Figure 9: Performance management capabilities are a key differentiator between successful and unsuccessful companies

Capability: Effective performance management across operations





Successful

Unsuccessful



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Integrating technology

Effective performance management requires relevant, accurate, timely and consistent measurement and metrics. The underlying data must be accessible across business units and geographies so that it can reach decision-makers in a timely manner. These information flows rely on data-sharing infrastructures and systems integrated across the global organization. Our research uncovers under-investment in integrated technology infrastructures for many Brazilian companies. Fifty percent of Brazilian executives do not believe they are making sufficient investments in the required integrated IT infrastructure. Even successful internationalizers struggle in this area (53 percent) (see Figure 10).

This is a critical shortcoming, because an integrated IT infrastructure is essential to enable the exchange of ideas and knowledge across borders. Moreover, the development of these capabilities has become crucial, as speed-to-market and innovation become comparative differentiators for multinationals. India’s Tata Communications discovered this firsthand. When the company was trying to standardize operations and processes across its different acquisitions, it created a common intranet for all its employees around the world, so they can readily exchange best practices. It also consolidated its two ERP systems (SAP and Oracle) into one platform. Fragmentation of these platforms had made it difficult for shared services to coordinate their work and had led to costly inefficiencies. This consolidation was aimed at addressing these problems as well as enabling the company to accelerate integration of its various performance measurement systems across borders.21

Catalyzing success through the cloud

The lack of investment in IT integration belies a broader problem among Brazilian executives: Only 20 percent of our survey respondents fully understand the adjustments that need to be made to their technology infrastructure for international success. This is about the physical equipment, software and tools that underpin all the company’s processes. As such, decisions around technology infrastructure exert an impact across the entire operating model; thus they can either help or hinder business activities across the value chain.

Aspiring Brazilian multinationals may have an advantage here. As with data and analytics, we sit at a fascinating moment in the development of new tools and solutions around IT infrastructure. In particular, cloud computing allows low-cost, flexible access to infrastructure, platforms and software as a service. This is an opportunity for new multinationals to grow at speed, unencumbered by the cost and complexity of legacy systems that established multinationals must grapple with.

Figure 10: Nearly all Brazilian companies suffered from under-investment in their IT infrastructure

Key questions

As Brazilian executives work to align their process design with their strategic objectives, they will need to address critical questions including:

• How does our organization define key performance metrics? Who is responsible for setting and attaining targets for the different metrics?

• Are we using the latest analytics solutions to improve our operational planning and performance management?

• How do we decide which processes to standardize across the global organization?

• Is our IT infrastructure prepared to effectively support the full set of business processes that will reach across our global organization?

Capability: Efficient data-sharing through an integrated IT infrastructure





Successful

Unsuccessful



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The dynamic operating modelToday’s complex and fast-changing global operating environment demands agility and speed from multinationals. Only a dynamic international operating model can position a company to respond effectively to opportunities and threats.

But what does this mean in practice? What specific capabilities allow this kind of flexibility?

Our research highlights the importance of being able to mobilize people, funds and ideas around the global organization.

Mobilizing people

All companies find it challenging to mobilize their people to wherever they are needed in an enterprise’s global operations. But in Brazil, we find a significant difference between successful and unsuccessful companies when it comes to committing sufficient time, money and management attention to this capability. Only 52 percent of successful internationalizers believe they invest sufficient resources in developing the ability to easily mobilize people around geographies; and this was strikingly lower among the unsuccessful internationalizers (14 percent) (see Figure 11).

Mobilizing funds

Redeploying capital to different geographies enables organizations to quickly seize new opportunities. Though 71 percent of successful internationalizers say they invest sufficient time, money and management attention in the easy mobilization of capital around geographies, only 40 percent of unsuccessful internationalizers do so (see Figure 12).

Figure 11: There is a major gap between successful and unsuccessful companies’ investment in moving talent around the organization

Figure 12: Successful companies are more likely to invest in the mobilization of funds around their geographically dispersed operations

Capability: Easy mobilization of people across geographies





Successful

Unsuccessful





Successful

Unsuccessful

Capability: Easy mobilization of capital around the organization





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Mobilizing ideas and leading practices

The effective exchange of ideas and best practices throughout an organization becomes even more important during international expansion. Established multinationals have increasingly realized that new innovations and practices can come from the most surprising places. Witness how GE was able to deploy a portable low-cost electrocardiogram device with medical teams at large concerts and sporting events in the United States, based on an innovation developed for India’s rural markets. Moreover, these ideas are increasingly originating outside the company’s formal borders; for example, through open innovation programs with customers and suppliers.

Braskem, a leading multinational in the thermoplastic and petrochemical products sector, is pushing far and fast with its “open innovation” strategy, actively inviting input from stakeholders around the world, including staff, suppliers and customers.22 At the core of that strategy is the Braskem Program for Innovation —essentially a global database of ideas accessible to all those involved. Partnerships with research centers and universities, as well as scholarships for doctorate and masters degree students, are important elements of Braskem's innovation strategy. The company also has its own innovation and technology centers, one in Triunfo (Brazil) and another in Pittsburgh (United States).23

The results of this innovation push are impressive. The Brazilian company, founded in 2002, has filed for over 650 patents, and some 12 percent of its revenue comes from products developed in the last three years.

Especially noteworthy: Braskem’s “Green PE,” the world’s first polyethylene made of sugarcane. Production of Green PE generates far less carbon dioxide than does the manufacturing of conventional polyethylene. The new plastic has been a hit worldwide; it has found use everywhere from packages for Carolina Herrera perfumes to seats in the Amsterdam ArenA stadium. Now the company has linked up with Novozymes, a Danish company and industrial biotechnology leader, to develop a “Green PP” (polypropylene).24

Capability: Efficient best-practice sharing

How does our sample of Brazilian companies measure up in this space? Only 54 percent of successful internationalizers believe they invest sufficient resources in sharing new ideas and innovations; for unsuccessful internationalizers, the number is just 29 percent (see Figure 13).

This brings us back to the importance of developing integrated processes and IT infrastructures that allow these ideas, innovations and practices to be shared effectively across the global organization.

Figure 13: Only half of successful companies invest sufficiently in the exchange of ideas





Successful

Unsuccessful



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Unlocking the Potential for Global GrowthBrazilian businesses are still at the beginning of their international growth journeys. Our research reveals stark differences in the way successful companies prioritize their investments for international success, compared to their less successful peers. We have identified six important lessons that can be drawn from Brazil’s successful multinationals:

1. Balance global and local imperatives by evaluating every business activity for opportunities to improve global efficiency as well as local responsiveness.

2. Cultivate a global mindset among leaders and the broader workforce by supporting foreign language acquisition and exposure to foreign work cultures and global business practices.

3. Take a global approach to talent management by optimizing recruitment, skills development and talent retention activities across the global organization—while also ensuring responsiveness to local conditions.

4. Invest in process performance management by using advanced analytical techniques to measure, evaluate and predict performance and to identify opportunities to boost productivity.

5. Establish an integrated information technology infrastructure to enable people, processes and structures to operate effectively across the global organization.

6. Construct dynamic global operating models that enable people, money and ideas to move freely across business units as well as national and regional borders.

A handful of global industry leaders have shown that there are no limits to the possibilities ahead for Brazilian companies that can unlock their potential for global growth. But doing so will require confidence and hands-on experience. Our research suggests that many Brazilian executives do not yet feel that they are sufficiently prepared for global expansion. It is difficult to say how much of this is perception and how much is reality. But the research illustrates clear differences in the way successful companies prioritize certain investments to support their international growth. These organizations’ experiences can provide both inspiration and guidance for Brazilian executives seeking to lead their firms to success in today’s increasingly complex global operating environment.

As Brazilian executives well know, there is no quick or easy way to achieve international success. However, by using the systematic approach implied in our operating model diagnosis, business leaders in Brazil can more clearly see how to allocate scarce resources to execute their internationalization strategies.

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References1. David E. Bell and Mary L. Shelman, “KFC’s radical approach to China,” Harvard Business Review, November 2011.

2. In an Accenture survey of about 600 respondents across 64 countries, 91 percent of the successful internationalizers surveyed reported that their leadership team was committed to entry and expansion in high-growth markets, compared with just 60 percent among those companies disappointed by their performance. Fast Forward to Growth, Accenture 2012.

3. Starwood news release, “Starwood growth momentum continues”, January 2013.

4. Barron’s, “CEO spotlight: Innkeeper to the world”, May 4, 2013.

5. Wall Street Journal, “Starwood’s CEO moves to China to grow brand”, June 6, 2011.

6. Harvard Business Review Blog Network, “Why we’re relocating our HQ to Dubai for one month”, March 13, 2013.

7. Starwood news releases, corporate website.

8. Hansen M.T., Ibarra H. and Peyer U.,“The 100 best-performing CEOs in the world”, Harvard Business Review, January 2013.

9. Reis G.G. and Fleury M.T. (2011), “Global mindset, psychic distance and the achievements of Brazilian multinationals’ subsidiaries. A multilevel analysis.”, V Encontro de Estudos em Estrategia, 2011.Cyrino A., Penido E. and Tanure B. (2010), “International trajectories of Brazilian companies: empirical contribution to the debate on importance of distance”, Journal of Emerging Markets, 5 (3/4). Tanure B., Barcellos E. and Fleury M.T. (2009), “Psychic distance and the challenges of expatriation: looking at Brazil”, The International Journal of Human Resource Management, 20 (5).

10. Manpower corporate website, “The borderless workforce 2011, global research results”, 2011.

11. Global English, "Heightened Urgency for Business English in an Increasingly Global Workforce", 2013.

12. Exame, “A guerra global pelos talentos”, April 3, 2013.

13. Gartside D. et al., “How to manage a global workforce”, Accenture Outlook, June 2011.

14. Reis G.G. and Fleury M.T., “Global mindset, psychic distance and the achievements of Brazilian multinationals’ subsidiaries. A multilevel analysis.”, V Encontro de Estudos em Estrategia, May 2011.

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15. Borini F.M., Fleury M.T. and Urban T.P., “Internationalization strategies and the architectures of competencies of first and late movers, a case study in the cement industry,” SciELO Portugal, 2009.

16. Votorantim corporate website, “Integrated Annual Report”, 2011.

17. PR Newswire, “Latin Trade announces the winners of the 2012 18th annual BRAVO business awards” October 1, 2012.

18. Khanna T., Song J. and Lee K., “The globe: The paradox of Samsung’s rise,” Harvard Business Review, July 2011.

19. AB InBev corporate website, “Social Responsibility Report, Better World Programs”, 2012.

20. AB InBev corporate website, “2012 Annual Investor Report”, 2012.

21. Accenture, "Tata Communications: building a global-local operating model”, November 2009.

22. Bernardi, Alessandro and Lima Cruz Teixeira, Francisco, Inovação na Petroquímica Brasileira: o Caso do Projeto de Copos Descartáveis em Polipropileno, 2010.

23. Braskem corporate website, "Uma década de inovação" and "Pesquisa e Desenvolvimento"; Stoeckicht, Ingrid Paola, "O Modelo de Gestão de Inovação de Inovação Aberta", Instituto Nacional de Empreendedorismo e Inovação (INEI), 2008.

24. Exame, “A falta que bons engenheiros fazem”, September 03, 2012.

25. NB: For Figures 7 - 13 the survey wording was as follows: "To what extent do you think the following capability will be critical for your company's successful international expansion over the next 3 years? Please rate the extent to which you believe your company is currently investing adequate time, money and management attention in this capability. "

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About Accenture

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About the Accenture Institute for High Performance

The Accenture Institute for High Performance creates strategic insights into key management issues and macroeconomic and political trends through original research and analysis. Its management researchers combine world-class reputations with Accenture’s extensive consulting, technology and outsourcing experience to conduct innovative research and analysis into how organizations become and remain high-performance businesses.

Authors

Armen Ovanessoff [email protected] Athena [email protected] Carolin [email protected]

Executive Sponsor

Vasco Simoes

We would like to thank the following individuals for their contributions to the study: Josh Bellin, Ghislaine de Give, Svenja Falk, Analia Ferrera, Lauren Keller Johnson, Karine Kirner, Fabio Mittelstaedt, Orgesse Neto, Eduardo Plastino, Charlotte Raut, Carron Sass, Ivan Scarpelli, Carmen Uys.

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