Category Archive: Managing a business in Brazil

Dec 12

ThyssenKrupp writes off US$ 4bn over Steel Americas operation in Brazil

The plant in Sepetiba Bay, Brazil: It should produce more cheaply than Germany - it produced more expensive

The plant in Sepetiba Bay, Brazil: It should produce more cheaply than Germany – it produced more expensive

Mismanagement and corruption

The crisis of ThyssenKrupp has much to do with the new steel mill in Sepetiba, Brazil: It should produce steel slabs at a significant lower cost compared to the slabs produced in Germany. In fact, the slab was $ 170 more expensive.

The loss was caused primarily by a 3.6 billion euro write down on its steel mills in the United States and Brazil, which Thyssen is trying to sell. The book value of the mills, bundled in the Steel Americas business, is now 3.9 billion euros, well below the 12 billion euros Thyssen invested in the unit over the years. The division had been meant to give ThyssenKrupp a foothold in the Americas, but costs for the mills ran far over budget while demand for the steel they made subsided.

Thyssen said management at the time based its decisions on overly optimistic projections and took too long to tell the supervisory board of problems with the project, which eventually forced Hiesinger’s predecessor Ekkehard Schulz to step down.

The story of a gigantic bad investment.

It should have been the really big coup. What came out is a disaster, likely to shake this company to its foundations. The titan ThyssenKrupp staggers. The largest German steel and technology company in Brazil literally built the steel mill in the slumps  in the bay of Sepetiba. The construction of the steel plant, which would produce steel slabs far cheaper than German plants, without all kinds of cumbersome environmental regulations, fell into a multi-billion dollar disaster. On top of that, fishermen and residents complain against the steel  work due to massive environmental violations.

“At first we had no luck, then came bad luck,” humorously said by Gerhard Cromme, Chairman of the Supervisory Board ThyssenKrupp, almost a year ago to appease the shareholders at the Annual General Meeting in Bochum’s Ruhr Congress. Already there was clear how much of this entrepreneurial venture would come to stand the Group: Instead of the originally planned 1.9 billion euros it cost – until then – a quadruple it.

Not tricked, only optimistic

Cromme, who had recently commissioned a legal investigation into the case, tried to defend the executive management and Board of ThyssenKrupp. They had cheated nor deceived, they had reported only too optimistic.

The shareholders are now more than worried, especially since ThyssenKrupp on Wednesday night fired half board. “Shows this radical solution us how serious the situation is,” says Thomas Hecht Fischer, CEO of the managing director of the German association for securities (DSW), and: “We must now assume that it is about a completely different dimension.

Market value well below book value

The book value of the plants in Brazil and in the U.S. is seven billion euros, but the market value is rather under four billion euros. Therefore ThyssenKrupp has written down around €3 billion. Furthermore, ThyssenKrupp is accused of bribery and violating antitrust regulations. . Now even the has to be feared that the full German steel industry stands on trial.

70 kilometers from Rio de Janeiro can be seen what ThyssenKrupp did stumble: the blast furnaces, the coke plant, the power plant, which is situated between the sea and the favelas of Rio de Janeiro steel work. In September 2006, as Ekkehard Schulz, the former chief executive of Thyssen-Krupp, the first sod was done here, the future seemed glorious. And the numbers that make up the consulting firm McKinsey worked in their feasibility study promised great things.

Cheap energy, low costs labour and “easy” environmental regulations

 

With cheaper energy, lower wages, fewer environmental regulations, each Brazilian steel slab should be $ 55 cheaper per ton of steel produced than in Germany. Million tons of steel were to be transported by ship, refined in Germany or in the United States. A supposedly lucrative large investment.

The reality however was different. The steel mill site turned out to be so muddy and slumpy that an extra million dollar investment had to be made to make sure the mill was not sinking in the slumps. But above all, it was decided in the Thyssen-Krupp’s boardroom, that a Chinese company was given the order to commission the work, rather than the fully owned German subsidiary Uhde.  A decision that was to proved to be fatal. From year to year became the mill became more expensive to build. Up to today the plant due still does not run at full capacity due to technical problems. The steel slab is already $ 170 more expensive than from German production.

The coking plant: build, demolished, rebuild

And the coking plant, which was also built by the Chinese, has been demolished. Uhde, which was rejected at the first time because of their higher priced  is now building at the same place a new one.Of course this will not be free of charge.

Additionally in 2007, the protests of fishermen came for the pollution of their fish-rich coast. And as soon as the plant was turned into operation in June 2010, it was raining polluted dust all over the place. Residents protested and complained. The dust was found to be adversely affected by toxic heavy metals. The prosecutor of Rio de Janeiro rose soon after charges of massive environmental violations.

“Mr. Cromme, how often were you there?”

Despite all the delays, construction, technical and polluting defects, no one at the board of ThyssenKrupp seems to have recognized the problems and take proper measures. “Mr. Cromme how often were you even there?” Said one shareholder at the shareholders meeting in January 2011.

The day after the shareholders meeting on December the 11th, ThyssenKrupp Chief Executive Heinrich Hiesinger vowed to clean up Germany’s top steel-maker after recent losses and corruption allegations prompted him to axe half his management board.

“I’m not going to talk anything up here, because it is obvious that a great deal has gone wrong in the past,” he told journalists at a news conference on Tuesday, the day after Thyssen reported a 4.7 billion euro ($6.08 billion) annual loss.

Thyssen also decided not to pay shareholders a dividend for the first time in the company’s history,

To be continued…..

 

 

Apr 13

“Brazilians are ruining FACEBOOK …”

"CNN says that Mark is saddened by the behavior of Brazilian Facebook"

“CNN says that Mark is saddened by the behavior of the Brazilian at Facebook”

The news channel CNN said that the behavior of the Brazilians on the social network site Facebook is saddening Mark Zuckerberg. “On the one hand, Brazilians are growing Facebook, however they ruin everything,” he said.

Facebook engineers were considering allowing the inclusion of images in the format animated GIF-pictures (moving images), but Mark refused the idea because he has seen the behaviour of Brazilians at the social network site Orkut, which is loaded wioth animated gif’s.

According to Mark, if Facebook make room for the gifs, sharing among users will be equal to the Brazilian Orkut, full of colorful moving letters, loaded with messages of affection and love.

 

Closing Facebook in Brazil

On the possibility of closing the Facebook in Brazil, Mark drops . “I will not blame the Brazilians use the network, but will create a manual of behavior.”

When asked about Facebook is turning into a Orkut in Brazil, Mark said that there is no difference between social networks, the difference is Who uses. “Any service that has the Internet users in Brazil, in large proportions, it becomes a problem,” he said.

 

[important]

Source: G17.com.br

Note of the editor: This article has been published in Portuguese on the site G17.com.br. So, please don’t take this serious. It has been republished by many serious news websites in Brazil. However, for those of you intending to do business and want to learn about the culture you might be interested to read the various comments been made by the readers.

[/important]

 

Oct 06

Steve Jobs is not Brazilian:The Apple founder Steve Jobs, died without seeing his company operate normally in Brazil.

Steve Jobs is not Brazilian

Icon Steve Jobs

Steve Jobs died

The Apple founder Steve Jobs, died without seeing his company operate normally in Brazil. The he is rightly being hailed as a revolutionary genius who transformed the way we sell and consume culture and technology. That’s a lot. But one thing he could accomplish was to make his business occupy the space it deserves in the phenomenal Brazilian market. And that says a lot more about Brazil than Jobs.

To date, Apple products are commercialized by third parties in Brazil, as the American company was unable to develop a viable business model in the homeland of the high taxes and poor business environment.

Brazilians pay double or more than Americans for an Ipad created by Jobs and his team. The last stand for the normalization of the action here was Apple’s announcement, over hyped to say the least, the construction of an IPad factory here.

The announcement came during Rousseff’s trip to China in April. In the absence of any tangible result of the visit, it was announced with great fanfare and no substance that Foxconn, the Taiwanese company that manufactures iPads would open a new factory in Brazil to produce them here. It was what Dilma and PT needed to capture the emerging middle class in the country.

As I wrote here at that time, Apple cannot sell its products in Brazil because of its poor economic conditions, called on the Taiwanese company that manufactures and iPods, IPads in China to produce them here and so get around the precarious economic environment and still be sold as an asset of Dilma’s visit to China. There is the “spin”!

The factory as of today is still obviously a promise. First there was talk of initial production in November, then that BNDES would finance the US$ 12 billion investment, then came the talk that there was no skilled labor in the country to implement the project, then start the operation would begin with Mexican “maquiladoras” only assembling the products here.

The fact is that Steve Jobs is dead, and Brazil is still largely excluded the Apple revolution. While we continue with one of the most expensive and slowest internet connections in the world.

These are the things that explain why we are behind despite the huge advances in recent years, and our dependence on blessed commodities, which without them we would have disastrous trade deficits.

If Jobs was able to transform so much, who knows that maybe this commotion with his death will illuminates the heads of our bureaucrats and accelerate liberalization of the Brazilian market and digital technology.

Taxing technology is taxing knowledge, innovation and the future. It closed the borders to Steve Jobs.

Attributions:

BR ECON: Steve Jobs | Expat Living in Goiânia, Brazil. /

Article by Sérgio Malbergier, Folha de São Paulo, published on Expatbrazil

Sergio Malbergier is a journalist. He was editor of the special money section of Folha (Dinheiro – 2004-2010) and Mundo (2000-2004), correspondent in London (1994) and Special Envoy for Folha in Iraq, Israel and Venezuela, among others. He has directed two short films, A Árvore (The Tree -1986) and Carô no Inferno (Dear Hell – 1987). He write for Folha.com on Thursdays.

Aug 23

Top 5 Compliance Issues for Businesses Expanding to Brazil

Depending on the opportunity – and there are many – doing business in Brazil can be quite rewarding. And it certainly is an adventure. But while Brazil offers a wealth of opportunities to prospective investors, it is also a country beset with bureaucratic and cultural difficulties – so it is imperative to do your homework in advance.

via Top 5 Compliance Issues for Businesses Expanding to Brazil.

Aug 22

Doing business in Brazil: opportunities, challenges – Business Monday – MiamiHerald.com

I have been doing business in Brazil for a decade now. That experience has shown me that doing business in Brazil has great rewards for investors, but also presents a series of challenges.

With growth rates above G-7 countries, investment grade, current GDP close to 2 trillion, inflation under control, a relatively comfortable balance of payments, a market of 190 million people, and a strong manufacturing and commodities production base, Brazil is attracting a lot of interest.

Any investor thinking in doing business in Brazil needs to have key information regarding: (a) how to enter the market, (b) sources of funding, (c) investment incentives, (d) taxes, (e) labor, and (f) international trade.

How to enter the market: The main ways to enter Brazil are through: (a) Sales representation or a distribution network, (b) setting up a subsidiary or a branch, or (c) acquire a company.

Setting up sales representation and distribution networks is challenging even though it saves costs when compared to the incorporation of a subsidiary. The challenges are mostly related to finding the right individual or company and the potential lack of control over the way third parties distribute your products and deal with your trademarks.

In starting up a company, most likely you will have to decide if you start a corporation or a LLC. There are some key differences with the type of LLCs and corporations we have in the US.

Acquiring a company presents its own challenges as well. M&A activity in Brazil increased sharply during the last few years. Most transactions in Brazil are in the range of US$10-US$50 million. Some of the issues in company acquisition are: informal practices (income not recorded), unregistered employees, aggressive tax planning, low quality of financial information and controls, high number of tax lawsuits, and succession risks. Thus, a high quality due diligence is a must in the pre-acquisition phase.

Sources of Funding: Ideally, capital should come from the parent company, since bank credit is very expensive. According to the Brazilian Central Bank, the median interest rate for a working capital loan from a commercial bank is about 28% per year and the median for a capital expenditures loan is around 23% per year. Larger companies, though, might tap the public markets through issuance of stock and/or bonds and notes. Other traditional forms of financing are available as well. For long-term financing, Brazilian firms use the Brazilian Development bank (BNDES).

Investment incentives: I categorize those by geographical area, for international trade and by economic sector. Some states and cities offer tax incentives, free land and building leases. There are other incentives for industrial and agricultural technology, oil and gas, infrastructure, port facilities, the semiconductor industry, and the industry of equipments for digital TV. There are also tax incentives for exports and export focused companies.

Taxes: Brazil has a complex tax system. Even though the direct tax system is relatively straight forward, the indirect tax system is complicated. Brazil has foreign tax exemption and credit, its own pricing transfer rules, tax loss carry forwards (offset up to 30% of taxable base per year), heavy penalties for delay of payments and fraud, and no tax treaty with the US. It does not have tax carry backs.

Labor: Labor cost inflation in Brazil is among the highest in Latin America. Decrease in unemployment and the strengthening of the Real against the dollar increased salaries in dollar terms. There is also a myriad of labor charges besides salaries.

International trade: Export revenues are generally tax exempt, except for corporate taxes. Even though the Brazilian government has tried to simplify and lower import tariffs over time, still there are a number of taxes foreign investors have to know. Brazilian importers also have a series of special custom regimes.

Foreign firms reap high rewards when investing in Brazil. Rates of return are generally higher than here in the US. It is a market with a great future. However, foreign investors, be aware of the key issues you need to consider before investing in Brazil.

Luis Fernando Lopez Cobo, PhD, is President of Mergium Advisors, an M&A, capital raising, business valuation, and business intelligence firm based in South Florida.



Link

Comments on Brazils labour laws: , beware | The Economist.

Brazil’s labour laws

Employer, beware, an archaic labour code penalises businesses and workers alike

Mar 10th 2011 | SÃO PAULO | from the print edition

IN 1994 Ricardo Lemos (not his real name) and two friends bought a chain of pharmacies in Pernambuco, in Brazil’s north-east. Immediately afterwards they were taken to court by four former employees of the pharmacies who claimed they were owed 500,000 reais (then $570,000) for overtime and holidays. Since the new owners lacked the payroll records, the labour court ruled against them—even though they had only just bought the business and the claimants had been in charge of payroll and work scheduling. The court froze their bank accounts, so they had to close the stores, with 35 redundancies. Seventeen years later three of the cases have been settled, for a total of 191,000 reais. The last drags on as the claimant’s widow and son squabble over how much to accept.

Aug 20

BBB – Business in Brazil Blog: Guides to doing business in Brazil

BBB – Business in Brazil Blog: Guides to doing business in Brazil.

 

  • Doing Business 2010, Brazil – PDF file published by the World Bank that gives details of doing business in Brazil and rankings compared to other countries.
  • Doing Business in Brazil – Prepared by the legal writer, Elísio de Souza, this guide provides an overview of the early legal issues foreign investors face upon market-entry in Brazil.
  • Guide to Doing Business in Brazil – PDF file from Pinheiro Neto Advogados that presents a comprehensive guide to the legal norms ruling foreign investments and corporate activity in the country, and is an important support for foreign businesspeople willing to invest in Brazil.
  • Doing Business in Brazil – PDF file published by UHY Moreira – Auditores in Porto Alegre. This detailed report provides key issues and information for investors considering business operations in Brazil.

Aug 20

Doing business in Brazil – UK Business Forums

Brazilian Imports

via Doing business in Brazil – UK Business Forums.