Brazil | Round up

Robert Habib ’13 | Brazil

A few weeks back in NY have provided a good time to reflect on the Global Immersion Program to Brazil. One of the benefits of the GIP is to see businesses operating in ways and in markets different to what students are used to. As such it was no surprise that all of the students on the trip were from outside Latin America.

However, from a personal perspective, it also provides an insight into how life could be in a country different from one’s own. To me this is where Brazil stood out. Of the BRIC countries, Brazil is way ahead on quality of life and happiness indices. For MBA, living in Brazil offers the coveted benefit of riding a growth wave coupled with envious quality of life. Democracy, enduring national security, stable banking and delicious fruit mark out Brazil from the BRICs.

I spoke at length with a carioca about how her perceptions of Rio had changed over the last decade. The change in GDP/capita was unequivocal to her, evidenced by tangible changes in her own daily life.

I’m sure I’m not the only European questioning whether successive generations will inherit the welfare state and quality of life that I enjoyed. In Brazil, there is no need to ask.

Brazil | Natura

Robert Habib ’13 | Brazil

Continuing work on the beauty industry, we visited Natura, a phenomenal company outside São Paulo. Natura grew from one salesman to a multi billion dollar company, with over 20% market share in the world’s third largest beauty market. As their name suggests they have a relentless focus on natural ingredients and sustainability. Professor Martinez, who seems to know everything about every industry in every emerging market, suggest three legs to Natura’s magic. Below I relate these to some other business case studies, MBA style.

1) Trusted corporate identity
Seen it before: Google
A holistic ethos rooted in nature, well being and doing good is pervasive across every element of the company. The notion that their raw materials, formerly discarded, are now being cultivated by Amazonian communities, creating jobs and halting deforestation, is a great sales pitch. Google wouldn’t get away with its creepy tracking of our data without its ‘do no evil’ mantra. Natura’s identity allows it to expand willingness to pay of consumers – higher margins.

2) Investing in employees
Seen it before: Southwest Airlines
Natura’s campus is a cross between a botanical garden and an engineering faculty. Connected to the corporate identity they have exercise breaks every hour and a daycare centre looking after 200 infants (admission following 6 months maternity leave until enrolment in school). But maybe the most important employees are the 1.3m Brazilian direct sales reps (called consultants). A typical sales rep is a zealous customer looking for a secondary income. They have training at the campus and celebrations at anniversaries. Like Southwest Airlines, Natura benefits from a willing to supply lower costs from its employees – in this case lower turnover and reps going beyond the call of duty because frankly they love their product.

3) Supply chain / distribution
Seen it before: Benetton
Natura incentivises its reps by offering them discounts on stock that rotates every 21 days. Since the natural products are perishable, manufacturing has to be very flexible. Getting stock to reps in the deepest favelas requires creatives logistics in a country with woefully inadequate infrastructure. That’s all amazing. But what I love most is the distribution channel. In the 80s Benetton achieved a lower cost base than the Far East by channeling manufacturing through Italian mamma’s, knitting between dropping the bambini off at school and putting the pasta to boil. In the same way, Natura is leveraging the low cost and risk bearing housewives as a lethal sales channel.

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Brazil | Sugar high

Robert Habib ’13 | Brazil

As I discovered in my Security Analysis class, agriculture’s future won’t look anything like its past. Growing populations, shifts in their diets coupled with shrinking arable land and water shortages are coming together in a maelstrom of dislocations. Our investment thesis centred on Cosan, the leading Brazilian ethanol producer.

Today we visited a large producer of sugar and ethanol a few hours outside São Paulo. Brazil is abundant with sugar cane, which through harvesting, crushing, decanting, treating and distilling become sugar, hydrous ethanol (ethanol fuel for cars) and anhydrous ethanol (component of gasoline).

A few factors of change:

1) Mechanisation: the plantation was heavily mechanised with the US latest tractors, complete with auto pilot and computer programmed fertilisers dispensers. Largely the result of reforms, the government has put money to work in retraining seasonal workers being displaced.

2) Brazil has barely enough supply to meet its domestic demand, let alone any increase in US demand. Plantations like the one we visited have already undertaken a multitude of efficiency improvements to reduce waste and increase crop yield.

3) Anyone who gets hold of cane harvesters that don’t compress soil will see huge yield increases as canes would harvest infinitely without needing to be replanted every few years.

Overall we were very impressed with the technology we saw today of Brazil’s ethanol industry.

Brazil | Beauty x Cash

Brazil | Robert Habib ’13

My study group roped me into exploring the beauty industry in Brazil. Brazilian women spend eleven times more of their income on beauty care than British women. My suggestion that British women are simply more beautiful to begin with, was met with derision in my class. But this does give me an excuse to legitimately, and indeed academically, comment on what lies before me in Brazil. I have seen elegant women full of style, but also espousing a fairly natural approach to makeup. I’ll look continue looking for more comments.

Deep in such thoughts I received a concerned and ‘told you so’ message from my mother, reprimanding me for forgetting the Brazilian Reals she had kindly left for me. Along with my US credit cards, US dollars, keys and US immigration documents. Fortunately I had my UK credit cards. Of the 8 ATMs in a row at Sao Paolo GRU airport, there was a large queue in front of precisely one of them. When I finally got to a semi-functioning, English speaking ATM in Florianopolis airport, the clearly displayed daily withdrawal limit reminded me of the prevalence of ‘express kidnapping’ in Brazil. Here’s one idea from New York – get rid of cash, you’ll have fewer more secure ATM machines, and the express kidnappings might reduce too. The state would need to encourage uptake of chip and pin machines of course.

I suspect this simplistic view ignores the underlying forces driving express kidnapping in Brazil, particularly enormous economic inequality. Hopefully I’ll find out more in the coming 10 days.

It’s a Japan thing

On Thursday we saw two special Tokyo based companies: Ghibli, the ‘Disney of Japan’, and DeNA, a giant social gaming developer. Both companies have precisely defined models and are supremely self confident in their ability to satisfy the demanding Japanese consumer. Comprehension of their core markets has lead to ubiquity nationally and significant awareness beyond.

I had never heard of Ghibli (despite them having won an Oscar) but visiting their museum was like being teleported into an enchanting snow globe. Designed as a child’s wonderland, the house exemplifies the magic and richness of Ghibli animations. In a industry driven by stratospheric budgets and technological wizardry, Ghibli’s animations are the aesthete’s pure choice. At around 300 employees, Ghibli is a tight knit operation revolving around a couple of key individuals. Strong ties with distributors and licensors ensure the movies and brand are presented just so. Ghibli understands its raison d’être to be enchanting viewers with its magical animations, which is does with aplomb.

DeNA social gaming was a demonstration of how fads can generate traction in Japan years ahead of the rest of the world. Penetration rates and expenditure by mobile gaming consumers in Japan show a glimpse of might be in store for the west. Not all Japanese fads are likely to make it across the Pacific – for example maid cafes.

– Robert Habib –

http://www.ghibli-museum.jp/en/exibition/

Japan: Always better cars

By Wednesday afternoon our bullet train cruised phantom like to modernity into Tokyo’s main station. Earlier that day we had left our sleepy Ryokan an hour from Nagoya towards the Toyota HQ. A tour of one of their fifty odd assembly plants was memorable. Walking around, I overheated at the complexity of the operation. Defect rates across the 350 cars rolling off the assembly line are close to nil, thanks in part to a collective responsibility for quality control. A discussion with the group Executive Deputy VP gave us a strong sense of what Toyota stands for – critical to add meaning to everyday life on the assembly line.

The 1.5 hour bullet train ride afforded forty winks of sleep and a chance to forge more friendships within our group. However, a spectacular view of Mount Fuji evaded us as it lay shrouded in thick fog, despite the sky being otherwise resolutely clear. Evening entertainment kicked off with aplomb at the ‘Kill Bill restaurant’ in Tokyo’s Roppongi district, galvanised after our previous night’s group karaoke.

– Robert Habib –

Japan: bullet train, sumo, karaoke, hot springs

Yesterday, the Chazen Japan group spent the day in Osaka. We started off with free time in the downtown area, which is filled with food stalls, arcade halls, and shops. Students indulged in local delicacies such as octopus balls and bowls of ramen. Afterwards, we made our way to a sumo tournament where we watched professional wrestlers partake in this traditional sport. Tournaments like the one we attended last for approximately 15 days and matches take place throughout the day, culminating with some of the country’s top talent facing off with another. Each match lasts anywhere from a few seconds to a few minutes and the group saw approximately 25 matches during the two hours we spent there.

Following the sumo tournament, we made our way to Osaka’s train station where we hopped on a bullet train to Nagoya. These high speed railways connect major cities throughout the country and allow for efficient transportation between business hubs. Our day ended at a traditional Japanese “ryokan” where we dressed up in kimonos, ate dinner, performed karaoke, and slept on the floor of our rooms. The hotel included hot springs, which was a relaxing way to end a jam packed day.

Up next on the agenda: the Toyota manufacturing plant and our arrival in Tokyo.

– Jason Feirman –