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Brazilian multinational centers

DANILO ZAMBONIIf foreign multinationals have been bringing their research and development centers to Brazil, the opposite path is also being trodden, though still in a timid and limited way, by Brazilian multinationals that are opening R&D units abroad. To understand the dimensions of this phenomenon, it has to be remembered that the globalization process of Brazilian companies is recent. It gained momentum in the 1990’s with the opening of the Brazilian market to imported products between 1990 and 1992. It has intensified in the current decade, as explained by Afonso Fleury, a professor of the Department of Production Engineering of the Polytechnic School at the University of São Paulo (USP) and coordinator of the thematic project “Business management for the globalization of Brazilian companies”, funded by FAPESP and finalized in May this year. “Historically, our industry grew under the paradigm of import substitution. From the 1990’s, with the opening of the market, the entry of multinational subsidiaries into Brazil intensified, which led to a ‘purging’ of Brazilian companies; those that were competent remained and became competitive,” he says. “Since they were more competitive, they had to ‘play’ against multinationals in global markets and so the globalization process of our companies intensified.”

This process, emphasizes the researcher, started with Mercosur and Latin American countries. In the 1990’s, for example, some 300 Brazilian companies were operating in Argentina. Then they spread to other markets, like Asia and North America, where the learning possibilities are great. “Few Brazilian multinationals are going to Europe because of its more protectionist stance,” says Fleury.

Brazilian companies going abroad was accompanied in some cases by the globalization of their research and development areas. One peculiarity of this process, points out Simone Galina, a professor from USP’s School of Economics, Administration and Accounting in Ribeirão Preto, is that Brazilian multinationals regularly only set up product development (PD) units abroad, and not really R&D centers. “Research, when it exists, is centralized in their head offices. This movement – locating product development abroad – is still recent, because the globalization process of Brazilian companies is also a recent occurrence,” points out the researcher. To understand this scenario, it has to be considered that, in general, Brazilian companies, even the global ones, come from sectors in which technological innovation is not a priority. “They are not characterized as being innovative companies in technology. So, they have few R&D centers, even in Brazil,” she states.

Simone and another professor, Geciane Porto, also from USP in Ribeirão Preto, were responsible for one of the seven sub-projects, called “Globalization of R&D”, in the theme project coordinated by Professor Fleury. They investigated the R&D globalization process of Brazilian multinationals in detail. Among those whom they looked at were the manufacturer of bus bodies, Marcopolo, the electric motors industry, WEG, steelmaker Gerdau, the manufacturer of pipes and fittings, Tigre, the industrial automation company, Smar, and the producer of compressors, Embraco, which was recently taken over by US company, Whirlpool, the maker of Brastemp and Consul products . From this sample, she sought to outline the factors that most influence Brazilian companies to globalize their product development units and the benefits they acquire by implementing such an initiative.


Forward position
One of the main reasons for setting up R&D centers abroad is the possibility of having access to technological resources that are non-existent or difficult to acquire in Brazil. That was the objective of Smar, a supplier of automation equipment for the sugar and alcohol industry, whose headquarters are in Sertãozinho, in São Paulo State, which decided to open an R&D center in the United States. The delay in acquiring the electronic components necessary for the assembly of its prototypes was an obstacle encountered by the company in Brazil. The globalization that began in the mid-1980’s, when one of the company’s researchers moved to New York, allowed the company to acquire components in the USA and manufacture prototypes right there. “At the time, we realized that we needed to have a forward research position to gain access to new technologies. It was opened to develop the R&D activity, along with the company’s sales and production offices in the United States,” points out Libânio Carlos de Souza, director of the Development Division of Smar, a company that had sales of US$ 80 million in 2009. He said that technologies created abroad are incorporated into the company’s projects. “For example, we use communication controller chips developed in New York in the company’s line of transmitters and controllers. We have already supplied more than 2 million of these communication controllers to the world market,” he says. The New York experience was so positive that the company opened another R&D unit in Houston, Texas. Over the past 15 years about US$ 10 million has been invested in maintaining the two centers, which have eight employees, all Brazilian. “The company is one of the best examples of the R&D globalization of Brazilian multinationals,” says Simone.

Another situation that leads a Brazilian multinational company to have a research and development sector abroad is when it buys a foreign subsidiary that has an R&D area. This happened with steel manufacturer, Gerdau, a leading producer of long steel in Brazil, with production units in 14 countries and sales of R$ 30 billion in 2009. In 2006, it bought a plant in Spain that had a research and development department with about 30 employees. For Simone, the existence of the R&D center weighed favorably on the deal. “This center of the Spanish subsidiary has built up knowledge of all stages of the production process and also has partnerships in Europe with vehicle assemblers or with suppliers to the automotive industry for the development and supply of special products,” Simone Galina and Paulo Guilherme Moura indicated in their book, “Brazilian Multinationals”, published by Artmed Editora. A similar situation occurred with Marcopolo, which kept the development engineering sector active in its subsidiary in Colombia, to create new products and improve existing ones. The company had sales of R$ 2 billion in 2009 and production at its plants in Brazil and abroad resulted in 13,007 buses.

Working together
The adaptation of products to the markets abroad in which the subsidiaries operate is also an important reason for investing in an R&D area outside Brazil. This is what happened with the electrical engine manufacturer, WEG, whose headquarters are in Jaraguá do Sul, in Santa Catarina, and has a subsidiary in Portugal. This unit not only adapts products to meet local demand in a better way, but also serves the needs of adjusting to European market standards. The subsidiary focuses on a special line of engines, of greater added value. “Our Portuguese unit had the competence to manufacture this type of product and cooperated with the head office in the development of a new line of products for risk areas,” the company said in a statement. According to Simone, it is advantageous for WEG, a company with sales of R$ 5 billion in 2009, to maintain an R&D unit in Europe because the products sold on the continent must have certification from laboratories in the region. “Instead of developing the product in Brazil and sending it to be certified in Europe, a WEG subsidiary is responsible for adjusting it to meet local requirements, manufacturing it and then getting it certified,” she comments.

The search for skilled labor, which is scarce or nonexistent in Brazil, is also motivation for the globalization of R&D activities by Brazilian multinationals. A good example occurs with Embraco, which is putting together an R&D structure in China to take advantage of the large number of undergraduate and post-graduate students in engineering in that country. According to the researcher from USP, the perceived trend in the Brazilian multinationals analyzed in this study is to centralize the majority of their development activities, delegating specific tasks to units abroad, under the coordination of the head office. Even so, the researcher welcomes the move towards R&D globalization by our multinationals. “It’s fundamental that these companies be concerned with technological innovation in order to maintain their competitiveness in the global marketplace,” she says. “Like any other company operation, the globalization of R&D – or part of it – should be part of the company’s strategic planning. If, for the company to be more competitive internationally, it needs to globalize its R&D center, it should do so. Multinationals from developed countries discovered this some time ago and take advantage of this opportunity to gain comparative advantages,” she concludes.

The project
Business management for the globalization of Brazilian companies (organized into 7 sub-projects) (2004/10231-0); Modality Thematic Project; Coordinator Afonso Carlos Fleury – USP; Investment R$ 491.098.42 (FAPESP)