Thomas White Global Investing
Brazil Stamp
July 15, 2011
A Postcard from the Americas
Brazil: Corporates in the classroom

Catching them young

Foreign companies operating in Brazil face stiff competition from promising home-grown firms for qualified and employable new hires.

Forget high interest rates and soaring inflation. The shortage of skilled managers seems to be the new refrain among multinational companies operating in Brazil. The domestic economy has been booming for several years now, thanks to the country’s thriving oil, gas, and ethanol sectors. The scorching pace of growth has multinationals making a beeline for the largest economy in Latin America, with U.S. foreign direct investment in the country touching $3.1 billion during the first four months of the year. Understandably, the big corporations are leaving no stone unturned to ensure the steady supply of talent needed to run their operations in full swing. They have been sprucing up company internship programs, increasing spending on training, and relocating workers from some of the underperforming markets. Not surprisingly, managers and engineers who can speak the lingua franca of the world are in great demand.

So how has Brazil managed to lag behind other big emerging nations in grooming human capital? A telling statistic from a 2009 study conducted by the United Nations quoted by the WSJ provides a clue: Brazil produces just 428 college graduates for every 100,000 of its populace. Here, certain socio-economic factors come into play. In Brazil, some of the good centers for higher education in the country are state-owned and offer free tuition, while the private ones provide high quality at a steep price. But students from the economically weaker sections of society often find themselves at a disadvantage. They cannot afford the high fees charged by private educational institutions, and the early education that they receive from the public schools does not equip them with the skills needed to crack the tough admission tests conducted by higher state-owned institutions that offer free tuition. The net result is that higher education, both public and private, is out of reach for low-income, poorly educated students who have had their primary training in the country’s public schools. It is this yawning gap between the so-called educated, and the unfit-for-employment group of the country’s youth that the starry-eyed multinationals are trying to bridge.

Though the fast-growing for-profit educational institutions in Brazil such as the U.K.’s Pearson Plc and the U.S.-based DeVry Inc. are trying their level best to arm students with the skill-sets required for the market, the big corporations seem to have taken up the task themselves in right earnest as well. Maker of audio equipment Harman International Industries Inc., for instance, imparts training for its Brazilian engineers at the company’s research centers located in Indiana and California for a three to six-month period. German conglomerate Siemens AG, which employs about 10,000 people in Brazil, has plans to add 800 more this year. The company intends to recruit about 90% of its interns to fill the positions, primarily in the finance and engineering departments. For jobs which require technical skills, Siemens is transferring employees from sluggish markets such as Portugal, and Spain. U.S. elevator behemoth Otis seems to have gone one step further in its search for talent, tying up with technical schools in Brazil to recruit bright graduates as interns, with the crème de la crème eventually getting hired by the company.

Notwithstanding the recruitment efforts, retention of employees also remains a top priority for companies, according to a WSJ report. Otis, for example, recently decided to replace an existing plant in Brazil with a newly built one close by, to entice valuable employees to stay with the company. In a competitive employment scenario, multinationals are also sensitive to the issue of poaching by some of their rivals who are equally desperate to hire new hands to expand their operations.

Though multinationals have made much headway in nurturing and hiring good talent, their efforts seem to have been handicapped by the backwardness of Brazil’s northeastern region. And education, precisely, is where this part of the country lags behind compared to the prosperous south, despite a huge improvement in infrastructure development. An Economist article points out that one-fifth of Brazil’s northeastern region’s adults are illiterate. Multinational miner Vale S.A. offered a program to take on more than 1,000 high school graduates for a one-year training period. Still, very few could make the cut in the end, which forced the company to look elsewhere to meet its hiring targets. Despite the initial setback, the private sector initiative has spurred the region’s youth to attend short-term courses, which provide job-specific training in sectors such as construction and hospitality.

The Brazilian experiment, which is akin to the famed Mittelstand business model of Germany, is also a glorious example of private enterprise supplementing efforts by the government. Competition is the name of the game as multinationals and promising local players alike slug it out to hire the best. And now it appears that the Brazilian corporate battles will be fought more in the classrooms rather than in board rooms in the years to come.


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