Miércoles 13 de Diciembre 2017
In Facebook Twitter In
Takeda's acquisition of Multilab (photo) enabled it  to gain a valuable foothold within Brazil’s emerging regions that leaves it advantageously poised for future growth, the authors points out. (Photo: Multilab)
Tuesday, October 16, 2012
Perspectives

Brazil Slowdown Forces Shift

Multinationals shift focus in response to Brazil’s slow down.

BY ANTONIO MARTINEZ
AND CHRISTINE HERLIHY

Brazil has been a cause of concern for multinationals as of late, with credit-fueled consumer spending and GDP growth both trending downwards in the third quarter. This slowdown is particularly worrisome for B2C companies, who fear for their ability to meet annual growth targets.  The macroeconomic drivers of this trend paint a mixed picture: on the one hand, inflation and unemployment both remain low, and an emerging middle class continues to benefit from government cash transfers and social programs. On the other hand, even after the central bank’s most recent round of rate cuts, interest rates remain relatively high, external headwinds continue to hamper demand for exports, and consumers are increasingly hesitant to take on additional debt.

There is, however, an upside to this story which bodes well for long-term growth: consumer spending is expected to rebound over the medium-term, as government spending ramps up in preparation for the 2014 electoral cycle and World Cup. Furthermore, the Rousseff administration has begun the politically difficult process of setting Brazil on the path towards an investment-led growth model. This transition is likely to proceed in fits and starts, given that more than 50 percent of federal government spending goes towards pensions and government salaries at present, and Rousseff’s left-wing and labor union supporters will adamantly oppose any cuts. These challenges, while not unique to Brazil, are exacerbated by the sheer size and diversity of the country, and multinationals should expect structural reforms to proceed gradually, with limited impact over the short-to-medium term. Also, the government’s preference for more politically palatable reforms will cause it to prioritize infrastructure spending and simplifying the tax code over deep cuts to pensions and labor market reforms.

Many multinationals in Brazil who have long been concerned with growth have responded to the current slow-down by shifting their focus to operational efficiency and profitability. Notable best practices include: transitioning from an indirect to a direct or hybrid distribution model, streamlining and centralizing back office services, leveraging technology to improve supply chain efficiency, and pursuing growth by expanding within Brazil’s five regions and second-and third-tier cities.

The experience of Takeda Pharmaceuticals in Brazil illustrates that these strategies often work best in tandem. Takeda entered the Brazilian market in 2011. While its initial acquisition gave Takeda access to major wholesalers and chains, regional wholesalers and smaller pharmacies remained out of reach. Takeda then acquired Multilab, a locally based pharmaceutical company with an established regional distribution network. As a result of this acquisition, Takeda was able to increase its product portfolio and market share within Brazil, while gaining a valuable foothold within Brazil’s emerging regions that leaves it advantageously poised for future growth. Main take away points from Takeda’s success story include the following:

1. Multinationals should anticipate and plan for growth beyond the South and Southeast regions. The North and Northeast in particular are expected to experience economic growth, and multinationals that successfully penetrate these markets now will be poised for success down the road.

2. Multinationals hoping to increase their presence in Brazil through acquisition must carefully analyze the distribution capabilities of potential targets, and choose those with capabilities that best address existing deficiencies. This is especially crucial in lesser-penetrated regions, including the North and Northeast. Infrastructure is less developed in these regions, making scalable direct distribution quite difficult, while indirect and hybrid models require relationships with regional wholesalers and local retailers that foreign multinationals are often unable to forge endogenously.

Antonio Martinez is a senior analyst and Christine Herlihy an analyst of the Latin America Research team at Frontier Strategy Group.

 

Post Your Comments
You can write a comment on this article by clicking here.

There are no comments on this article. If you wish, you can write one.

  Other articles in : Perspectives
Back to Perspectives