Swedish industry in Brazil

Summary
Swedish industry in Brazil
– how is production in Sweden affected?
www.teknikforetagen.se
Foreword
The Amazon, Copacabana and the statue of Christ on the mountain top in Rio de
Janeiro are what many people associate with Brazil. At the same time São Paulo,
with all of its offices and factories, is the industrial and economic centre of the whole of South America. For many years Swedish industry has been an important part
of Brazilian industry and trade and Swedish companies assumed an early presence
in the country. Sweden has provided Brazil with a large amount of electronic and
telecommunications equipment, machinery and not least lorries through the years.
This document is a summary of the report “Swedish industry in Brazil – how is
production in Sweden affected?” (Svensk industri i Brasilien – hur påverkas produktionen i Sverige?). With this report we would like to contribute to increasing our
understanding of Brazil and the importance of the presence of Swedish industry
in the country. We will describe the operations conducted by companies in Brazil
and analyse how their presence in the country affects Sweden and the companies’
operations in Sweden.
The conclusion drawn from the report is that the companies’ operations in Brazil
are well-integrated into their operations in Sweden and the rest of the world. Brazil
is often used as both a regional and a global export base and in certain cases components are also manufactured in Brazil for the companies’ own facilities in Sweden. Varying competitive conditions and changes in exchange rates determine how
the production capacity in the respective countries is used. Up to now operations in
Brazil have been advantageous, not only for the individual companies, but also for
Sweden as a whole. In the future operations in Brazil will be integrated to an even
greater extent into the companies’ global operations at the same time as the burgeoning middle class of the country creating a larger Brazilian market. How this will
affect Sweden has not yet been determined.
Interviews with leading representatives of large-scale Swedish enterprises with
operations in Brazil are the principal basis for the study. Interviews have taken place
with representatives of ABB, AB Volvo, Atlas Copco, Ericsson, Sandvik, Scania and
SKF. The report has been written within the Association of Swedish Engineering
Industries by Robert Tenselius. The work of the report has taken place in close
collaboration with Anders Rune who is the Chief Economist of the Association of
Swedish Engineering Industries.
Stockholm in June 2009
Anders Rune
Chief Economist
1
Volvo’s facility for presentation of construction equipment in Curitiba
2
Swedish companies
in Brazil
Swedish companies employ in excess of 30,000 people in Brazil
Swedish industry has conducted business in Brazil for over a hundred years and
several of the companies establish factories in the country as far back as the 1950s.1
Swedish companies are well-established in the Brazilian market, something that is
not least noticeable on the roads where the majority of the lorries are supplied by
Scania or Volvo.
São Paulo, followed by Curitiba, are the most important clusters for Swedish industry in Brazil. Companies are therefore concentrated in the south-eastern part of
the country. Altogether, Swedish engineering companies employ in excess of 30,000
people in Brazil and the majority of these work in São Paulo, which is therefore one
of Sweden’s largest industrial towns. The companies that employ the most people
are Ericsson and Electrolux. The telecommunications product sector and the domestic appliances sector therefore represent significant proportions of the operations in Brazil. An equally important part of Swedish operations in the country is
the automotive industry consisting of Scania and Volvo. If we also consider Swedish
sub-suppliers, the automotive industry is clearly dominant.
l Swedish engineering companies emply in excess of 30,000 people in Brazil.
l São Paulo and Curitiba are the most important clusters for Swedish
industry in Brazil.
Scania and a number of sub-suppliers are based in São Paulo
Scania has built lorries in Brazil since 1957 and the company is based in São Paulo.
Scania’s large factory lies in the southern part of São Paulo in the district of São
Bernardo do Campo. The plant is clearly discernable from one of the motorways
that connects São Paulo with the port town Santos on the coast. In the neat, orangecoloured buildings everything from cabins to engines and axels is manufactured.
Completed lorries are also assembled and rolled out to waiting customers. Approximately 3,200 people are employed in the Brazilian operations and the majority of
these work in production in São Paulo.
1) The description of Swedish companies in Brazil is primarily based on interviews with the heads of Swedish companies and on experiences gained from study visits. The report provides a fairly comprehensive picture of Swedish
engineering companies in Brazil. However, not all of the companies are present since a fairly high number of
Swedish engineering companies have sales organisation or other minor operations in the country. Where no source
is specified, the information has been obtained from annual reports, the companies’ websites and from interviews,
which are listed at the end of the report.
3
Scania’s market share of heavy lorries is on average 20 to 25 percent and Brazil is the
most important market for the company. As the company started its operations in
the country at an early stage, the stock of Scania lorries on Brazilian roads is very
large. Brazil is also the largest market for the company for marine engines and chassis for busses.
There are also a number of companies in São Paulo and its environs that supply
components to the automotive industry. Trelleborg Automotive has a factory in
Guarulhos in northern São Paulo where various rubber components, for example
hoses and vibration-damping pads, are manufactured. Just outside of São Paulo to
the east is Höganäs. The plant, which is located in Mogi das Cruzes, powder is manufactured that is distributed to customers who mould it into gear wheels and other
components. Ball bearings are also an important input product in a region where
the likes of Fiat, Ford, GM, Mercedes, Toyota and VW have their own factories. São
Paulo is thereby an important market for SKF. The company’s factory has long rows
of automated production lines. Rings are hardened and surface treated and fitted to
balls in the plant that employs 850 people. The factory is located immediately north
of São Paulo along the motorway to Campinas.
The wide and good quality motorway from São Paulo towards Rio de Janeiro passes through rolling countryside. Grazing cattle are visible on the green hills, which
are alternately covered by grass and trees. After travelling this road for just over
an hour you reach Taubaté where Autoliv has its Brazilian operations. Haldex has
a factory in Rio de Janeiro where the company manufactures regulating valves for
braking systems. Haldex employs about 180 people in Brazil and the factory in Rio
de Janeiro is located in Cordovil, which is very close to the international airport.
Volvo and Electrolux are among the largest companies in Curitiba
Curitiba in the south of Brazil is a medium-size town in a South American perspective but which consists of a relatively large number of skyscrapers surrounded by
large industrial and residential areas. Volvo has been manufacturing lorries from
this site since 1980 and the bulk of the 2,900 people employed by the company
work in Curitiba. Each year Volvo sells approximately just as many heavy lorries in
Brazil as Scania, which means that the company’s market share is approximately 20
percent. In addition to this Volvo also sells medium-size lorries. Brazil is also one
of the most important markets for the company for buss chassis since a number of
major bodybuilders are located in the country.
Volvo’s industrial area in Curitiba is 1.2 square kilometres and parts of the area are
covered by tropical rain forest that is preserved by the company in the form of a nature park. In addition to its operation in Curitiba, Volvo also has a manufacturing
facility in the town of Pederneiras in the state of São Paulo. Yellowish-black construction equipment of various models are assembled and finished off in the factory
in Pederneiras, which employs in excess of 580 people.
4
ERICSSON, ELECTROLUX AND ABB EMPLOY THE MOST PEOPLE IN BRAZIL
Number of employees in Swedish engineering companies in Brazil 2008
Number of employees
Ericsson*
7 500
Electrolux**
6 773
ABB*
4 107
Scania*
3 207
Volvo*
2 934
Sandvik*
1 590
Tetra Pak***
1 250
Trelleborg**
1 065
SKF*
853
Atlas Copco*
829
Autoliv**
629
Haldex**
178
Alfa Laval**
142
Höganäs**
111
Seco Tools**
99
Munters**
44
Nefab**
18
Total
31 329
Source: Annual reports and information of the respective companies provided directly by the respective companies.
* The company has reported the number of its employees.
** The number of employees has been obtained from the company’s most recent consolidated accounts.
*** The employment figure is an average of several different sources.
Immediately to the south of the skyscrapers in the centre of Curitibas there is an
Electrolux factory, which is surrounded by residential housing and boulevards and
has Wal Mart as its neighbour. Electrolux manufactures refrigerators, freezers and
vacuum cleaners in Curitiba and a large proportion of the company’s Brazilian
operations are therefore located within the town. Cookers, washing machines and
freezers are manufactured in São Carlos in the state of São Paulo and in the middle
of the Amazon, in the town of Manaus, microwave ovens and air-conditioning
equipment are manufactured. The company is the largest manufacturer of vacuum
cleaners in Brazil and the next largest manufacturer of white goods. There were
6,773 employees during 2008, which means that only Ericsson employs more people
among the Swedish companies in Brazil.
Ericsson is present at several locations in the state of São Paulo
Ericsson has conducted business in Brazil since1888 when Lars Magnus Ericsson
met the emperor of Brazil, Dom Pedro II. The company has also been producing
telecommunications equipment in the country for fifty years and four percent of
the company’s sales occurred in Brazil during 2008. With 7,500 employees in Brazil,
5
Ericsson is the largest Swedish company in the country. The company’s Brazilian head
office is located in the north of São Paulo, immediately north of the river Rio Tiete.
Ericsson’s Brazilian factory is located in São Jose dos Campos, one hour by car from
São Paulo, towards Rio de Janeiro. Radio base stations are manufactured here and
the factory is one of three manufacturing units for radio base stations outside of
Sweden. Ericsson products are also developed in Brazil and the company has in
excess of 200 engineers employed at its R & D unit in the small town of Indaiatuba.
Young men and women program components that are used in the company’s mobile systems globally.
Swedish industry manufactures investment goods in São Paulo
The Swedish-Swiss company ABB is present at a number of locations in Brazil but
the two largest facilities are in São Paulo. The company has supplied a large proportion of the country’s power infrastructure over the years. The first factory in the
country was opened in the 1950s and is located in Guarulhos, immediately adjoining the international airport in São Paulo. However, as early as 1912 equipment
was being supplied to Brazil in conjunction with the construction of the cableway
to the world-famous Sugar Loaf Mountain in Rio de Janeiro. A total of 7,900 people
work for ABB in Latin America and just over half of them are employed in Brazil.
Large transformers are one of the components that are manufactured in Guarulhos.
ABB’s other plant in São Paulo is located in Osasco in the north-western part of the
town and from here products and service are provided for process control and automation. The head office of the South American operations are also here.
Sandvik has also had a long presence in Brazil. The company started production of
rock drilling equipment in São Paulo in 1957. Several years later the manufacture of
carbide inserts started in the factory located in Santo Amaro in the south-western
part of São Paulo, next to one of the filthy rivers that flows through the town. The
plant in Santo Amaro is still the company’s main facility in the country but the
company also has operations at other locations. The majority of the 1,600 people
employed by the company in Brazil are involved in the selling and manufacturing
of inserts. At the same time, the business area Mining and Construction employs
around 500 people and a new factory has just been completed in the state of Minas
Gerais. The new factory is located in Vespasiano, just outside of Belo Horizonte.
Endless sugar cane fields are a common sight in the Brazilian countryside and sugar
cane is the raw material for the ethanol industry that is important for the country. Extensive investment has been made into distilleries since the introduction of
the ethanol programme. Equipment such as heat exchangers and separators are
needed in the distilleries and Alfa Laval is the leading supplier of these products.
The company’s operations are located in Vila Jaguara in north-western São Paulo.
About a fifteen minute car journey from Alfa Laval in a western direction is the
industrial district of Barueri. Atlas Copco can be found here in a decorative building that houses both the manufacture of compressors and administration. Atlas
Copco employs approximately 830 people in the country and just over half of them
are involved in the selling and manufacturing of compressors. Nefab, which provides practical and innovative packaging solutions, is also based in São Paulo. The
6
company is located in Embu, which is several kilometres southeast of Atlas Copco,
along the road to Curitiba.
SWEDISH INDUSTRY IS PRIMARILY PRESENT AROUND SÃO PAULO AND IN CURITIBA
Illustration of clusters in Brazil where Swedish industry is most prevalent.
Seco Tools and Tetra Pak are present in towns outside of São Paulo
Around the urban state of São Paulo there are a number of smaller and larger towns
within a radius of several hundred kilometres from the town of São Paulo. One of
these towns is Sorocaba, where Seco Tools has its operations. The factory in Sorocaba manufactures milling tools and tool holders. The administration for the Brazilian market is also conducted from the plant. Monte Mor is another of the towns
inland of the state of São Paulo. Tetra Pak has one of its two Brazilian factories in
this town. The other factory is in Ponta Grossa in the state of Paraná. However, like
so many other companies Tetra Pak has its sales and marketing function located in
São Paulo. Both of the factories manufacture the paper that is used in its packaging.
Both the hot climate and the large numbers of cattle mean that there is great need
to package drinks in the country. The burgeoning middle class also means that
Tetra Pak, just as with other Swedish companies, can expect a growing market for
the future.
7
8
Truck production at Scania in São Paulo
Operations and industrial
conditions in Brazil
Increased sales potential in a country with a burgeoning middle class
The expectations for economic development in Brazil have at time been high.2 At
the same time this growth has been limited over the last few decades and this is
perhaps the very reason why things have been relatively quiet about the country
over the last few years. The fact that Brazil appears as number four on many lists
also contributes to the anonymity of the country. There are no indications that the
middle class of the country is burgeoning and consequently the opportunities for
Swedish companies to sell in the Brazilian market are improving.
Over a five-year period the payroll bill in the country has increased by 28 percent,
whilst income dispersion has decreased, resulting in the middle class growing.3 The
turbulent period of hyperinflation in Brazil ended ten years ago and today Brazil
is relatively stable, both politically and financially. At the same time there remains
much to address and bureaucracy, regulations and taxes mean that the country’s
black sector is relatively large.4 The fact that certain improvements have been made
has nevertheless contributed to Brazil growing at a somewhat faster rate than the
rest of the world over the last few years.
l The Brazilian growth has been comparatively weak over the last few decades
but there are now indications that the middle class in the country is growing.
As people start to receive higher incomes, companies that directly target consumers will be able to sell more. This in turn leads to the need for input goods and
infrastructures to increase. All in all, the development means that the sales opportunities for Swedish companies will improve in Brazil. The twenty or so engineering
companies that we have described in this report consist of both the major Swedish
players in the country and a number of arbitrarily selected smaller companies. In
addition to these companies there are a number of Swedish companies present in
the country with sales, service and in some cases production operations.
2) The chapter on operation and industrial conditions in Brazil is primarily based on interviews that were conducted
with company executives in Sweden and in Brazil and on impressions gained from a study visit to Brazil. The list of
interviews is at the end of the report.
3) The argument for a burgeoning middle class is taken from The Economist (2008). The same source states that
the income differentials have decreased. The information about a growing payroll bill comes from a presentation at
Scania in São Bernardo do Campo during 2009.
4) See, for example, McKinsey&Company (2006) for an account of the problems associated with the black sector and
the reasons behind these problems.
9
Swedish companies pay good wages and are good employers
The Swedish companies’ facilities in Brazil are not vastly different to their equivalent facilities in Sweden, with the possible exception of the fact that the Brazilian
factories are surrounded by well-maintained parks with tropical vegetation. The
reason for the high degree of similarity is naturally because the companies wish to
maintain the same level of quality irrespective of where in the world the products
are manufactured.
A BLUE-COLLAR WORKER EARNS APPROXIMATELY 8,000 SEK PER MONTH IN BRAZIL
Average pay in the Swedish companies in Brazil*
Monthly pay
Blue-collar workers
8 000
White-collar workers
19 000
Source: Information from some of the Swedish companies in Brazil, edited by
the Association of Swedish Engineering Industries
* The rate of exchange 3.6 SEK per BRL has been used, which is the average for 2008.
In the Brazilian factories there are regular meetings with engaged employees who
proudly talk about their operations. The pay for blue-collar workers at the Swedish
facilities in the country is on average 8,000 SEK per month. A white-collar worker
who works for one of the Swedish companies in Brazil earns an average of 19,000
SEK per month. For more qualified white-collar workers such as managers or experienced engineers the level of pay can at the same time be both two and three times
higher whilst entry level pay is lower.
l The pay for a worker at a Swedish facility in Brazil is on average 8,000 SEK
per month and the incresae for non-wage costs is approximately 80 percent.
The companies must always reckon on the total labour cost and in Brazil the difference between pay and total labour cost is high. The Swedish companies in Brazil
reckon on an increase of around 80 percent. Brazil therefore has one of the highest
non-wage costs in the world.5 The total cost for a worker in Brazil lies somewhere
between the cost in Western Europe and the low cost areas such as China and Eastern Europe. The total labour costs in Brazil are approximately 1/3 of what it is in
Western Europe.
5) According to World Economic Forum (2008), Brazil belongs to the tenth part of the countries of the world with the
highest non-wage costs.
10
HIGHER LABOUR COSTS THAN IN EASTERN EUROPE BUT LOWER THAN IN WESTERN EUROPE
Rough indication of the labour costs in Brazil in relation to the costs in other areas
1/1
1/3
1/5
< 1/10
Western Europe
Brazil
Eastern Europe
China and India
In general we can say that Swedish companies pay comparatively good wages in
Brazil which is naturally one reason why companies are able to recruit competent
employees. Of less importance is the fact that Swedish companies are known as
good employers who offer good working environments and interesting development opportunities. Swedish companies come out at the top of rankings of the
best employers in the country. For example, the newspaper Você S/A Exame, which
lists the 150 best employers in the country every year ranked Volvo as number one
during 2008.6
Besides this, the companies take great social responsibility in the country, even in
the absence of relevant legal statutes. ABB has ensured that a lot of young Brazilians
from impoverished circumstances have received an elementary education. Many of
the other companies also run similar projects. Volvo runs something called ‘Viking
Association’. Adjacent to the facility at Curitiba the company runs a school and
provides a sports facility for people living in the area. The company’s tropical rain
forest is also used for educational purposes.
Companies export to the global market from Brazil
Since the labour costs are higher in Brazil than in, for example, China or Eastern
Europe, the purpose of the operations is not to exploit low labour costs when ma-
6) See Você S/A (01/06/2009) for this ranking of employers in Brazil.
11
nufacturing for the global market.7 Instead the desire to sell in the Brazilian market
has been the main explanation as to the early establishment of the companies. By
virtue of their local presence the companies have got closer to their customers in
order to better understand the market and in this way take market shares. The high
import duties have also necessitated local production in order to be able to sell
certain products in Brazil. For example, motor vehicles are typical products that
should be produced in Brazil due to the high import duties.
SWEDISH INDUSTRY PRODUCES FOR BOTH THE LOCAL AND THE GLOBAL MARKET IN BRAZIL
Generalisation of the presence of Swedish companies in Brazil
More market-driven expansion
1) Export to Brazil
2)Production in Brazil
for the local market
Common
Very common
More local
companies
More global
companies
Common
4)Import of input goods
from Brazil
Very common
3)Production in Brazil for
regional or global markets
More cost-driven expansion
The nature of the operations of Swedish companies in Brazil has successively changed, but production for the local market is still the most important reason for their
presence in the country. At the same time the most obvious change is that more
and more goods are being exported from the Swedish facilities in the country to the
global market. For example, Ericsson uses the factory in São Jose dos Campos for
export to Africa and the other South American countries. SKF exports almost half
of the ball bearings produced by the Cajamar factory to the global market. Another
obvious trend is that more and more components for use around the world are
being procured in Brazil.
The input goods that are used by Swedish industry in Brazil come from a number
of places in the world but the majority of the purchasing takes places locally in
the country. Import duties in combination with requirements on local content are
contributory factors to local purchasing. Castings, metal goods and all sorts of mechanical components are a few examples of products that are primarily purchased
7) The fact that the total cost of production in Brazil is quite high is also stated in McKinsey&Company (2006).
12
in Brazil. At the same time certain advanced mechanics and certain knowledge-intensive products that can be manufactured in a capital intensive manner are coming
from Sweden. The companies also make some purchases from China. It is primarily
economic factors that govern where the input goods are purchased from and the
landed cost is decisive.
l Cost considerations do not explain the presence in the country – instead
market considerations are decisive.
l Brazil has become an export base for Swedish industry and companies are
increasingly exporting to the global market from their factories in Brazil.
R & D for both local and global needs is being conducted in Brazil
There are a large number of universities in Brazil and some of the engineers who
are examined are employed by Swedish companies. The results of the Brazilian
development operations are used primarily in the local market, but sometimes the
results can also be used in other places in the world. It is most common for the
engineers to be involved in quality work and the streamlining of production processes. We can also quite generally state that it is development work and not research
that is mostly conducted in the country.
IT IS PRIMARILY ERICSSON THAT DEVELOPS COMPONENTS FOR THE GLOBAL MARKET IN BRAZIL
Generalisation of the R & D operations of Swedish companies in Brazil
3)Complete responsibility for core areas
2)Design of components for the global market
Does not occur
1)Local adaptation of products and processes
Occurs in some
companies
Common
Lower degree of R & D responsibility
Higher degree of R & D responsibility
Some of the companies also conduct development operations for the global market
in Brazil. Ericsson’s development unit in Indaiatuba and Volvo’s engine development operations in Curitiba are both examples of this. The components that are
13
created by the Brazilian engineers then become important jig-saw pieces of products that the companies sell across the globe. However, none of the Swedish companies have placed overall responsibility for their development or located strategic
management functions in Brazil. It is instead usual to gather core competence and
strategic R & D in Sweden.
Dealing with the problems in Brazil is of vital importance
The physical conditions are relatively good for industrial operations in the developed regions of Brazil. The roads around the large towns and cities of southern Brazil are straight and wide. Anyway the large number of cars means that long queues
often occur on the traffic routes of São Paulo. Unfortunately there are problems that
complicate daily operations for the Swedish companies. The tax system is convoluted with a lot of detailed regulations and taxes at both local and federal level.8
According World Economic Forums annual ranking, Brazil has the very worst tax
system in the world.9 Bureaucracy and in part also corruption are other problems
that are problematic for Swedish companies. Criminality is a third problem area in
Brazil according to Swedish companies.
Further measures need to be implemented in order to achieve increased prosperity
in all parts of the country.10 An improved school system is needed and the road
network must be improved. In sparsely populated agricultural and forest areas you
drive along earth roads that quickly turn into seas of mud when it rains heavily. A
reduction of the import duties would also be a positive move. The extent to which
the politicians and authorities manage to address the major challenges in Brazil are
all in all of vital importance for development in the country.
l The companies believe that the following in particular should be addressed
in Brazil:
– The tax system
– Bureaucracy
– Criminality
l Further measures in a number of areas need to be implemented in order to
achieve increased general prosperity for the whole country.
8) See, for example, The Economist (2009) or Lledo (2005) for descriptions of the problems associated with the
Brazilian tax system.
9) In the latest edition of Global Competitiveness Report Brazil is ranked as number 134 out of 134 studied countries
in the category ’extent and effects of taxation’. See World Economic Forum (2008).
10) Analyses of the areas that should be improved for increased growth in Brazil are available from, inter alia, Goldman
Sachs (2007) and McKinsey&Company (2006)
14
15
ABB’s plant in Guarulhos in northern São Paulo
16
Swedish engineering trade
with Brazil
Limited but growing engineering trade between Sweden and Brazil
The engineering trade between Sweden and Brazil was stepped up during the 1990s,
which is explained by the trade liberalisations that were implemented in the years
prior to this.11 Despite duties being reduced on several occasions, Brazil’s international trade is still heavily regulated, which characterises Swedish-Brazilian trade.12
The level of duty when importing a lorry to Brazil is 35 percent, for example. In addition, the duty is also relatively high for automotive components and many other
input goods. However, under certain conditions companies are able to received discounts to the import duty. A common requirement is that 60 percent of the input
goods must be locally produced in Brazil.
SWEDISH ENGINEERING EXPORT TO BRAZIL GREW AT ITS GREATEST RATE UNDER THE 1990s
Engineering
8000 export and import to and from Brazil between 1988 and 2008 (million SEK)*
7 000
7000
Export
6 000
6000
5 000
5000
4 000
4000
3 000
3000
Import
2 000
2000
1 000
1000
00
1988
1993
1998
2003
2008
Source: SCB, edited by the Association of Swedish Engineering Industries
* The value for 2009 must be viewed as a rough indication and is based on the results for the first three months
of the year.
11) This chapter is primarily based on trade figures from Statistics Sweden (SCB) but also partly on information from individual companies. We have attempted to analyse the ten-year period between 1998 and 2008 but in order to see
long-term trends we sometimes follow developments as far back as 20 years in the past. The analysis is based
on both the SITC classification and on SPIN 2007 depending on where individual product groups are best defined.
Engineering trade is defined as product groups 25 to 30 and parts of 32 according to SPIN 2007.
12) The section on how the trade policy in Brazil has developed through the years in based on Library of Congress
(1997) and Kommerskollegium (2009). Information on import tariffs comes from WTO (01/06/2009).
17
During 2008 engineering products was exported to Brazil from Sweden for just under 7 billion SEK. Engineering products thereby constituted 70 percent of Sweden’s
total export to Brazil. However, we must remember that Sweden’s trade with Brazil
is relatively limited when compared with its trade with other parts of the world.
Only 1.2 percent of our engineering exports goes to Brazil.
During 2008 Sweden imported engineering products at the same time to a value of
1.8 billion SEK from Brazil, which constituted just under a third of its total import
from Brazil. The fact that the engineering import from Brazil is much less than
Sweden’s export to Brazil contributes to Sweden having a positive trade balance
with the country. The engineering import from Brazil has successively increased
over the last ten years while the export has been more varying. At the same time
due to the global financial crisis both the import and export of engineering decreased during early 2009.
Machinery and parts for lorries constitutes half of the export to Brazil
Scania and Volvo’s manufacture of lorries in Brazil is clearly seen in the flow of goods
between Sweden and Brazil. The product group ‘parts and accessories for motor
vehicles’ constituted approximately 13 percent of the total Swedish export to Brazil
during 2008. Furthermore, other product groups such as ‘internal-combustion engines and transmission shafts’ (which is classed as the mechanical industry) each constituted several percent of the export. In addition to this a large amount of machinery and telecommunications products were sent from Sweden to Brazil. At the same
time almost no finished cars were exported there due to the high import duties.
MACHINERY AND VEHICLES PARTS ARE EXPORTED PRIMARILY TO BRAZIL
Export value and apportion of export from Sweden to Brazil 2008 (million SEK and percent)*
Export value 2008
Proportion of total export
Machinery 3602
38,3%
Motor vehicles and motor vehicle parts
1292
13,7%
Telecommunications products
986
10,5%
Electrical equipment
563
6,0%
Metal goods
177
1,9%
11
0,1%
6631
70,6%
Other vehicles
Total engineering products
Source: SCB, edited by the Association of Swedish Engineering Industries
* The classification is in accordance with the SPIN 2007 classification and the table shows the product groups 25 to
30 and part of 32.
Vehicle components and machinery also constitute a significant proportion of the
import from Brazil but Sweden also imports a lot of other things from the country
such as foodstuffs and ethanol. Aircraft are also supplied from Brazil but the variations between years are large. High values are noted when aircraft are supplied from
the Brazilian company Embraer. The large variations are natural since the Swedish
carriers do not purchase Brazilian planes every year.
18
Ericssons huvudkontor i Gurgaon utanför New Delhi
ALMOST 10 PERCENT OF THE IMPORT CONSISTS OF VEHICLE COMPONENTS AND CARS
Import and proportion of import from Brazil to Sweden 2008 (million SEK and percent)*
Import value 2008
Machinery Proportion of total import
1010
19,0%
Motor vehicles and motor vehicle parts
371
7,0%
Other vehicles (principally aircraft)
163
3,1%
Telecommunications products
150
2,8%
Electrical equipment
149
2,8%
39
0,7%
1882
35,4%
Metal goods
Total engineering products
Source: SCB, edited by the Association of Swedish Engineering Industries
* The classification is in accordance with the SPIN 2007 classification and the table shows the product groups 25 to
30 and part of 32.
Increased export from Brazil with a modernised industry in the country
Certain engineering goods, including vehicle components, are sent in relatively large
volumes both from Sweden to Brazil and in the opposite direction. Just over ten
years ago the price per kilo for vehicle components that were exported from Sweden
to Brazil was almost twice as high as the price per kilo for an equivalent flow in the
opposite direction. Today the price per kilo is almost identical for both export and
import. Global sub-suppliers that established themselves in Brazil have actively contributed to this structural change. The demands placed by customers on domestic
companies have also contributed to increasing quality and productivity within the
local industry and the structural change can best be described as a modernisation of
the Brazilian industrial sector.
l Brazilian import duties are high and its trade with the rest of the world is
highly regulated.
l During 2008 engineering for just under 7 billion SEK was exported from
Sweden to Brazil whilst the import of engineering from the country amounted
to 1.8 billion SEK.
l Vehicle components constitute signficant proportions of both Swedish export
to Brazil and of the import from Brazil.
l Swedish export to Brazil no longer has a higher prices per kilo than an
equivalent import from Brazil, which indicates the modernisation of Brazilian
industry.
19
Sandvik’s plant in southern São Paulo
20
The exchange with Brazil
and its impact on Sweden
Companies are expanding in Brazil – they are not moving from Sweden
A number of factors indicate that operations in Brazil are all about expansion and
not about leaving Sweden.13 For example, there is no correlation between the reduced number of employees in Sweden and the developments in employment in Brazil. The fact that labour costs are also lower in many other parts of the world means
that cost considerations are not the main reason for the operations in Brazil. Instead
the exchange with Brazil has had a positive impact on Swedish operations.
Production in Brazil means that all kinds of components are needed that are manufactured in Sweden. For each lorry or radio base station that is produced in Brazil
transmission systems, radio links and miscellaneous other components are required. Some of these components come from Sweden and in this way the operations
in Brazil contribute to production and jobs in Sweden. Sales in Brazil also provide
better cost-covering for R & d and various other operations.
INCREASED CUSTOMER FOCUS MEANS THAT MORE WORK IS DONE UNDER OWN AUSPICES
Generalisation of trends that emerge from the Swedish companies in Brazil
Increased
service content of
products that are
manufactured and
sold in Brazil
Increased
integration of
operations in
Sweden and Brazil
More work under
own auspices due
to increased
customer focus
13) This chapter is based on both interviews with executives in Sweden and in Brazil and on our overall picture of
Swedish industry and its operations in growing markets and in Sweden. See the list of interviews at the end of the
report.
21
Increased integration, more service content and more customer focus
The customer is always the focus of the Swedish companies and the goal is to deliver
the right product of the right quality at the right time. For some of the Swedish
companies in Brazil this endeavour has meant that they started to work under their
own auspices where the work had previously been passed onto sub-suppliers. The
companies’ motives for doing more under their own auspices are several. The opportunity to improve time to market, i.e. the delivery time, flows and security of delivery is a strongly contributory reason to more being done under their own auspices.
Another trend is that operations in Brazil are being increasingly integrated with
Swedish operations. São Paulo and Södertälje are more than 10,000 km apart.
Nevertheless the employees at Scania’s units in both of these towns work in one and
the same factory – from an organisational perspective. There are major differences
in working methods and organisational structures between the companies. The
trend is still moving towards the increasing integration of the companies’ Brazilian
operations with the Swedish or global operations. The driving forces behind the
companies’ integrating operations and management structures are several. One of
the more important reasons is that customer must be able to encounter equivalent
quality and products irrespective of the factory from which delivery took place.
Another reason for increased integration is that the companies wish to be able to
better exploit available capacity and be able to faster deal with varying conditions
in different parts of the world. When the Brazilian currency is at a low level against
the Swedish Kronor more lorry engines will be built in São Paulo and when these
conditions reverse, the volumes in Södertälje will increase.
OPERATIONS IN SWEDEN AND BRAZIL ARE BEING INCREASINGLY INTEGRATED
Illustration of the increased integration that is taking place
Increased organisation and
operational integration
Increased standardisation
of products and quality
Brazil
operation
Swedish
operations
Improved opportunities
to exploit global
production capacity
Increased ability to react
to changed conditions
22
A further trend in the company’s operations in Brazil is an increase in the service
content of the products. The trend of increased service content has existed for several years. It is nevertheless interesting to note that the development is continuing
and that the Swedish companies are expanding their service organisations in Brazil
and in Latin America.
Brazil’s future impact will be determined by the conditions in Sweden
A burgeoning middle class and an increasing industrialisation are positive for Swedish companies who will thereby be able to sell more in this growing market, but
how Sweden and production in Sweden will be affected has not yet been determined. It is obvious that the increased integration between operations in Sweden and
Brazil makes conducive competitive conditions in Sweden extra important. Especially since the consequence of the increased integration is that companies will be
able to adapt faster on the basis of varying conditions and more easily control the
volumes between the facilities in the respective countries.
Since changes in costs can be sudden, the competitive conditions in Sweden must
allow for flexibility in order to enable the Swedish operations to adapt so as to
retain their competitiveness. The global economic crisis means that overcapacity
in certain cases may lead to closures. Since Sweden is far removed from many large
markets, it is not a given that a manufacturing industry should with any naturalness
exist in the country. Instead world class conditions are required in Sweden. Should
such conditions be created, it is also likely that we will be able to be content with a
Swedish industry that produces goods and offers services in both Brazil and Sweden
and which in this way makes life easier for people around the world.
l The companies’ operations in Brazil are all about expansion and not about
moving from Sweden.
l Obvious trends in the companies’ operations in Brazil are:
– Increased integration of operations in Swden and Brazil
– More work under own auspices due to increased customer focus
– Increased service content of the companies’ products
l The increased intergation means that companies can faster adapt to chan-
ges. This increases the need for improved competitive conditions in Sweden.
23
SKF’s factory in Cajamar just north of São Paulo
Centrala Mumbai
24
References
Publications
Goldman Sachs (2007), BRIC:s and Beyond, Goldman Sachs, New York
Hudson R A (1997), Brazil: A Country Study, Library of Congress, Washington
Kommerskollegium (2009), BRIC-länderna i världshandeln – Brasilien, Ryssland Indien och Kina i
fokus, Kommerskollegium, Stockholm
KPMG (2006), Manufacturing in Argentina, Brazil and Chile: Challenges and Opportunities, KPMG,
München
Lledo V D (2005), Tax Systems under Fiscal Adjustment: A Dynamic CGE Analysis of the Brazilian Tax
Reform, IMF, Washington
McKinsey&Company (2006), How Brazil Can Grow, McKinsey Global Institute, San Francisco
McKinsey&Company (2007), The McKinsey Quarterly: Five priorities for Brazil’s economy, www.mckinseyquarterly.com
Palmeus L (2009), “Latinamerika sist in och först ut ur krisen”, Dagens Industri, 28 May 2009
Teknikföretagen (2005), Svenska företag i Kina – Vad betyder de för produktionen i Sverige?, Teknikföretagen, Stockholm
Teknikföretagen (2007), Svensk industri i östra Europa – Hur påverkas produktionen i Sverige, Teknikföretagen, Stockholm
Teknikföretagen (2008), Svenska företag i Indien – Hur påverkas verksamheten i Sverige, Teknikföretagen, Stockholm
The Boston Consulting Group (2008), Winning Over the Next Billion Consumers in Brazil – A Guide for
Growth, The Boston Consulting Group, Boston
The Economist (2002), “From pauper to president: now Lula’s struggle really begins“, The Economist,
31 October 2002
The Economist (2008), “Half the nation, a hundred million citizens strong”, The Economist, 11 September 2008
The Economist (2009a), “Ready to roll again”, The Economist, 13 June 2009
The Economist (2009b), “Lula’s last lap”, The Economist, 8 January 2009
Você S/A (1/6/2009), http://vocesa.abril.uol.com.br
World Economic Forum (2008), The Global Competitiveness Report 2008-2009, World Economic
Forum, Geneve
WTO (1/6/2009), www.wto.org
25
Interviews
ABB (January 2009), Interview in São Paulo with Carlos Roberto Hohl – Senior Vice President Communications and Sustainabillity Affairs and Ricardo Campodarve – Regional Division Manager
AB Volvo (December 2008), Telephone interview with Tommy Svensson – President Volvo do Brasil
AB Volvo (January 2009), Interview in Curitiba with Carl-Gustaf Hörnestam – President & Cjief
Executive Officer Volvo Financial Services Latin America, Carlos Morassutti – Director HR/Corporate
Affairs, Jorge Marquesini – Manufacturing Operations, Per Gabell – President Volvo Bus Latin America, Tommy Svensson – President Volvo do Brasil, Sergio Gomes – Strategic Planning Latin America,
Yoshio Kawakami – President Volvo Construction Equipment and Wim Keja – Chief Financial Officer
Atlas Copco (January 2009), Interview in São Paulo with Carlos Frateschi – General Manager Atlas
Copco Brasil
Brazilian Business Partners (January 2009), Interview in São Paulo with Johan Fager – Managing
Partner
Ericsson (January 2009), Interview in São Paulo with Leandro Baghdadi – Communications Manager
and Márcia Goraieb – Marketing Communication Director
Ericsson (January 2009), Interview in São José dos Campos with Caeoano Notari – Business Consulting Director, Christer Johansson – Production Rirector, Iolando José de Casilho Júnior – Production
Rirector
Sandvik (January 2009), Interview in São Paulo with Heloisa Giraldes – Manager Corporate Communication, Luiz Manetti – Managing Director and Wilson J. Pedsoni – Tooling Supply Brazil Insert
Manager
Scania (January 2009), Interview in Södertälje with Gunnar Boman – Senior Advisor Corporate Relations
Scania (January 2009), Interview in Södertälje with Per Hallberg – Executive Vice President Production and Procurement and Stefan Palmgren – Vice President Production & Development
Scania (January 2009), Interview in São Paulo with Johan Haeggman – Vice President and CFO, Stefan
Palmgren – Vice President Production & Development and Sven Antonsson – President Scania Latin
America
SKF (January 2009), Interview in São Paulo with Donizete Santos – President SKF do Brasil, Hilário J.
Sinkoc – Engineering Manager Service Division and Luciana A. Arenola Rosa – Traning and Development Coordinator Service Division Brazil
Swedcham Brasil (January 2009), Interview in São Paulo with Jonas Lindström – Executive Secretary
26
View of São Paulo from Jardim
27
Children at Volvo’s school in Curitba
28
Summary
Swedish industry in Brazil
– how is production in Sweden affected?
www.teknikforetagen.se