Insights on Brazil

I returned from another interesting week in Brazil and with each visit I find that I get a better glimpse of the dynamic changes happening in this market. This was my second visit in the past six months, and given the deep and ongoing interest by manufacturing companies, it certainly seems to be a place that deserves increasing attention.

During this most recent trip, I had the opportunity to meet with several senior executives at top Brazilian and multinational companies. It was fascinating to receive firsthand accounts from these manufacturing leaders on both the strengths and challenges of the current business environment in Brazil and their outlook on prospects for the future. Not surprisingly, despite the diverse manufacturing sectors these leaders represented, their insights had very common themes.

One of the themes that came up in every conversation was a focus on talent and specifically, talent development. A CEO I spoke with noted they were making increasing investments within their company in this area—and also pointed out they had concerns about the adequacy of incoming talent to meet their growth demands. The shortage of finance talent in particular was cited by several as a common concern.

I found this to be interesting, particularly, as access to “talent-driven innovation” was highlighted by over 550 CEOs and manufacturing leaders surveyed by Deloitte Touche Tohmatsu Limited’s Global Manufacturing Industry group as the top driver of competitiveness in the 2013 Global Manufacturing Competitiveness Index. As it relates to Brazil, executives surveyed viewed Brazil’s current global manufacturing competitiveness has slipped to eighth ranking today, as compared to a ranking of fifth in the initial survey from the 2010 Global Manufacturing Competitiveness Index. This should not be surprising given the challenges in the Brazilian economy in recent years.

When asked about their view of Brazil’s competitiveness five years from now, it was interesting that the executives I met with recently had a much stronger view (moving their ranking up to third globally). These manufacturing leaders, however, were all very pragmatic, pointing out the talent gaps and the need for more investment in infrastructure, as real limiting issues.

From my discussions with a fairly diverse group of CEO’s, it is clear that while they were still bullish on the long term prospects for their business in Brazil, they recognized some short term challenges remain. One CEO noted the challenge of the many layers of bureaucracy in Brazil, making timely decisions to support a better business environment very difficult, echoing the views of the CEOs surveyed in the 2013 Index report mentioned above.

One of the additional challenges Brazil faces is the presence of trade barriers that exist which make it very difficult to export products into the country. To overcome this and given the interest in the robust consumer market, a number of manufacturing companies have recently decided to make more investments in Brazil to establish or strengthen their local presence.

The executives I met certainly agreed however that in the longer term, there is no doubt with the many benefits and advantages that Brazil has, that they should continue to be a very strong manufacturing economy for years to come.

---

Tim Hanley is the Global Leader of the Manufacturing Industry group of Deloitte Touche Tohmatsu Limited (DTTL). In his global industry leadership role, he directs strategic initiatives and investments to grow Deloitte member firm market share within the manufacturing industry. During his distinguished 34-year career, Hanley has led teams serving all business aspects, including consulting with top management regarding organizational financial strategy development and execution, acquisitions, and market development. Follow Tim on Twitter.

A view of U.S. Manufacturing

Recently I had a chance to spend two days with a group of CEOs leading manufacturing companies around the United States (U.S.). I find that participation in these types of meetings provide a great venue to discuss top industry issues. In addition to world-class speakers at the meeting, one of the things I find particularly refreshing is the chance to interact with the leaders from large companies as well as small and medium size manufacturers to get a pulse of what is happening in manufacturing.

A high-point of the session was a CEO panel which featured a vibrant discussion on the key issues facing manufacturing today. These leaders have a relative consensus that business domestically is continuing to grow, although this growth is somewhat muted by the many headwinds that exist in the current manufacturing environment. Unanimously this group of CEOs indicated that they are spending more time than ever before in Washington, D.C. as they find it is critically important for them to ensure that legislators are well aware of the issues that are important to them as the primary providers of employment.

Manufacturing in China during the Year of the Snake

In late January, I traveled back to China for a series of client meetings. My visit was coordinated to join a group of Deloitte partners from our member firms in the U.S., Germany, and Japan as part of a week-long program to take a closer look into the local automotive industry. Each time that I return to the country, I learn something new about this dynamic and changing market.

At the close of the Year of the Dragon – viewed by many Chinese as extremely prosperous – indices appear to signal a mild recovery for China’s manufacturing industry. For example, the HSBC China Manufacturing Purchasing Managers' Index, a gauge of nationwide manufacturing activity, rose to 52.3 in January 2013, up from 51.5 in December 2012. Indeed, the Deloitte China partners and various clients that I met with seemed cautiously hopeful that this pick-up in activity will continue into the New Year and that the Year of the Snake will bring improved domestic conditions in China.

India manufacturing competitiveness

Executives often ask me about the manufacturing landscape in India. Based on my observations during a recent visit to India and my ongoing discussions with our clients, India is a vibrant market which continues to attract investment interest. This trend indeed is echoed in the 2013 Global Manufacturing Competitiveness Index report released by Deloitte Touche Tohmatsu Limited’s (DTTL) Global Manufacturing Industry group.  The global industry survey had over 550 respondents, who were chief executive officers (CEOs) and senior leaders at manufacturing companies around the world. These executives ranked India as the fourth most competitive nation today and believe that the country will rise up in the rankings to be the second most competitive manufacturing nation in five years. As you can imagine, there were many executives and government officials in India who were very interested to hear more about the study, so my trip back to India last month was very timely.

Frontier markets peak manufacturers’ interests

During a recent trip to Tokyo, I met with 40 leaders from Deloitte member firms across the Asia Pacific region to discuss what is happening in this dynamic market. As you might imagine, China and India dominated the conversation, but several other countries in the region, often referred to as the next frontier growth markets, were very much part of the discussion.

With the expected government leadership changes this month and signals that manufacturing activity is declining, executives are closely watching what is happening in China. Last month, a 7.4 percent year-on-year rise in China's gross domestic product (GDP) in the third quarter was announced. Some believe however that those government statistics may be more optimistic than the reality experienced by many manufacturers in China. This is the weakest announced growth rate since the start of 2009 and the seventh straight quarter of decline. Many executives are cautiously waiting to see what the new Chinese leadership will do to spur accelerated economic growth and improve manufacturing industry activity.

Can innovation be underpinning a Manufacturing Renaissance?

I had the privilege of speaking a few weeks back at the Australian Industry Group National Forum, the premier industry event which is held annually at Parliament House in Canberra, Australia. More than 350 CEOs, senior executives, and government officials listened to an array of local and international speakers address some of the major issues and big ideas on Australia’s national agenda together with strategies to improve the industry competitiveness. It was quite an honor to be invited to participate in this session.

During my presentation, which was featured in ABC TV’s The Business program (see video clip) I shared perspectives of how innovation is at the heart of what some are calling a “Manufacturing Renaissance” or an industry revival. Often overlooked as a place for innovation, manufacturing continues to be on the leading edge of innovation. You just have to look at the bold innovation plays that are happening today in areas such as advanced materials systems, additive manufacturing, and sustainable mobility.

Talent and reinvesting for growth

With the 2012 Olympics just around the corner, I cannot imagine a better venue to host a discussion on competitiveness than in London. The city provided an ideal backdrop for a recent Deloitte industry event which underscored the talent issues faced by many global manufacturers and the importance for companies to continuously reinvest for growth to remain competitive.

The Deloitte Manufacturing Competitiveness Summit event featured a distinguished panel of senior executives from three prominent manufacturers, ArcelorMittal, Siemens, and Jaguar Land Rover, as well as a senior representative from the European Commission.

The panel shared views on how they were working to ensure their companies remain globally competitive. It was fascinating to hear one of the executives say that 100,000 apprentices will be needed in the United Kingdom (UK) manufacturing industry alone in order to replace the retiring baby boomer generation in that company. Another executive reinforced the talent issue by outlining the skill shortage in fields like engineering and production supervision saying it was particularly challenging in their business to find these experienced hires.

An eye on Africa

Two weeks ago, I traveled to Johannesburg for my first ever trip to South Africa. It really expanded my perspectives to the many opportunities and challenges that lie ahead in both South Africa and the broader continent of Africa. It is easy to see why many companies have an eye on Africa.

While I was only in the country for four days, they were certainly full ones. I was able to lead several client workshops, participate in a forward-looking discussion on the future of the manufacturing industry in Africa, and join a media interview.

An 8,500 mile journey to the other side of the world

A couple of weeks ago, I took an interesting trip to Chennai, India. In advance of my trip, one of my clients pointed out that if you drew a straight line through the center of the earth departing from my home city of Milwaukee in the United States, to the other end of the earth – some 8,500 miles away – it would take you to Chennai. So it goes to say that it was certainly a long airplane ride.

In preparing for my first trip to Chennai, I learned that the city is actually known as the Detroit of Asia. A number of global automobile manufacturers (OEMs and suppliers) have set up operations there to serve the domestic market and also use it as an export base given the fact that Chennai is the second largest port in India. As a result, Chennai has become a significant manufacturing hub for India. Complementing this manufacturing focus, the city is also known for its extensive engineering and technology talent. As I met with a number of executives it was apparent that an increasing number of manufacturers are relying on the engineering talent in Chennai to design the products produced there.

Davos…A thrilling experience

Last week at the World Economic Forum in Davos was a whirlwind - the three days go by in a heartbeat. The DTTL Global Manufacturing Industry group is serving its second term as the executive industry partner for the Forum’s Chemical sector leading a project focused on Collaborative Innovation. Because of our involvement, this was my second opportunity attending the Annual Meeting.

Each day at Davos is filled with activities from day to night. My first day (Wednesday 25 January) started off by attending a panel led by DTTL CEO Barry Salzberg entitled The New Context for Leadership. Barry cited several interesting observations from DTTL’s point of view on Business: Society. The panel joining Barry was a diverse group that discussed a wide range of topics focused on leadership. One interesting statistic from the report that Barry pointed out was that 73 percent of business leaders believe that their core business activities make a positive contribution to society, but only 25 percent think it is well know by their customer, consumers, and clients. The panel shared with the audience interesting observations about the impact their company’s contributions are making to society.