In my recent post on Harper's visit, I have been insisting on the difficulties posed to private sector entry into the Brazilian market, particularly the fact that Brazil, especially under Lula, has been pushing very hard to protect and promote its own large companies and make them national champions. That view is a bit too simple and if you take it literally, you certainly cannot make sense of the flood of investments that has engulfed Brazil in the last few years, as the total stock of foreign investments in the country essentially doubled in five years, to reach more than $400bn.
So, there must be ways in, and there are. One of them is to produce something that no local champion does. This is the path taken by global car manufacturers and, recently, by RIM: you move in, fighting through the bureaucratic and regulatory maze, produce for the fast-expanding local market, and count your money. The appeal of this strategy is that the outsider, once inside, can reap the benefits of the still protectionist outlook and policies of the government.
Joint ventures represent the other path: work with a local champion, accept a minority stake in the project, and then you can produce both for the local market and for exports, in addition to benefiting from nice government treatment through your local friend. Look at this recent case: two groups from South Korea, Dangkuk (30%) and Posco (20%) are joining Vale, Brazil's largest company, to build a huge steel mill project (the Compañía Siderúrgica do Pecém (CSP)) in the Northeastern state of Ceara. When completed, by 2014, CSP will be producing 12.5 million tons of steel per year. Total foreign investment: $2.1bn or about 20% of the total current value of Canada's investments in Brazil. Vale has a similar project with Germany's Thiessen Krup in Rio de Janeiro, the Compañía Siderúrgica del Atlántico (CSA).
This second path, no doubt, is the one that will be pursued by the Canada-Brazil CEO Forum. Opportunities there will be. Note however, that to play either of those games, you'd better be big.
Photo Jonathan Blair
