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Contextual Intelligence

Fank P. Neuhaus - Spezialist für Brasilien mit Sitz in São Paulo

Contextual intelligence – using Brazil as an example. What is Brazil's profiling and thus the implications for your business in the country?

Soft Power

Brazil maintains the largest global number of neutral relations with other nations, one could also say conflict-free relations. This correlation of Brazil with the world is repeatedly confirmed by the periodically published report of the Harvard Business School on the so- called soft powers in the world. There are two ways to interpret this relationship pattern.

It is easy to do business in Brazil because the local partners are very open to the opinions, business models, values and behavior of outsiders.

But ... .

Brazilians like to learn from the outside world, but it doesn't matter if a business model works in another part of the world. They have to show that it works in the Brazilian reality.

This is a basic understanding to do business in Brazil, to initiate a reorganization, a restructuring process, a business transformation or even a new start of the company or brand in the national Brazilian market. It is crucial to accept this reality and build the contextual intelligence for your operation in Brazil.

Where do we come from?

Over the past four decades, many managers have been convinced that management know-how could be easily transferred to other cultures, including Brazil. Gradually it became clear that the differences were greater and that only the company that was able to adapt to local challenges would be able to operate abroad with a strong comparative advantage in the specific market.

It no longer makes sense to apply the same management practice around the globe, although we like to believe that it does. There is no doubt that management goals such as value creation and development of local management personnel are accepted and make sense worldwide.

But only one step further, by looking beyond the general description of management, we see the cultural differences and meanings of these words. The local Brazilian culture, the history of the nation, the institutional structure, the geographical environment, education and social development of the society define different views on how to motivate Brazilians and which values are really important.

Change mindset – avoid risk!

This is by far the best approach to localize the risks and integrate them into the scenario compass. It is not the study of country risks or exchange rate movements alone.

The one-to-one transfer of technology and management know-how to Brazil harbors a hidden risk: being convinced that the know-how implemented at headquarters will naturally bring success in Brazil. It rarely works out one-to-one.

The analytical tools available today are excellent, but adapting to the Brazilian reality on site and using them defines one of the success factors. We at iManagementBrazil define this requirement as contextual intelligence.

Contextual intelligence is essential for success in Brazil, even when entering a new market or restructuring local operations. It defines the ability to know and accept the limits of knowledge in the head office and to adapt the requirement and knowledge to new environments.

The media is full of sensationally failed companies that wanted to gain a foothold in Brazil. This situation is especially true for medium and small companies. As long as the contextual intelligence is not acquired and ready for application in the Brazilian management environment, the risk of failure is more than increased.

To this very day, I still encounter many companies from industrialized countries that are convinced that similar industrial sectors around the world have similar structures and similar profitability profiles, including Brazil.

They came to the conclusion that similar industries should generate almost the same profits with the same management tools. The so-called industry analysis and unreflected so-called benchmark analysis was one of the most powerful working tools for the management of the headquarters.

What do we see?

The analyses carried out in our projects objectively and without prejudice came to a different conclusion in about 4/5 of the cases:

We were not able to confirm the management's decades-long assumption that branches in emerging markets could achieve the same results with the same management tools. Over the past 12 years, we have been able to do so with companies from a wide range of industries, including the automotive industry, oil and gas, packaging, general mechanical and plant engineering, engineering, mining and real estate.

No solid profiles have been confirmed, and the profitability of the same industry sectors in different countries showed enormous and incredible variation. Very often the parent companies in the reorganizations tried to establish benchmarks to other branches of other emerging markets again and again.

Functions and roles change

The holistic understanding of Brazil, the individual behavior of professionals in the subsidiaries and in the parent company, culture and history, combined with the knowledge of the industrial sector and the ability to adapt management tools to the individual situation had some fundamental effects on the local Brazilian operations and the interpretation in the responsible headquarters:

The position and selection of expatriates was re-defined and companies started to be much more sensitive when sending expatriates to Brazil. And in many cases even to refrain from doing so.

The role of a globally uniform effect of a specific technology or management tool used in a specific industry sector was no longer as relevant. This then also placed higher demands on controlling in the parent company and forced controlling to take a more differentiated look at individual regions and markets.

Example: India vs. Brazil

I vividly remember a project where we had an intensive exchange with the Indian branch office as part of a reorganization. At the European parent company, India was regarded as the successful model for emerging markets.

But the result was quite different. India had such low personnel costs that we were never able to reach from Brazil. We could never compensate for this comparative factor of India.

But did we really want to?

No!

People as the only certain cost factor and commodity in the value chain could not be the goal.

Through targeted supplier development and the uncompromising nationalization of some product lines in Brazil, the products manufactured in the country became cheaper than the Indian product due to a higher quality of the end product, a significantly lower complaint rate and a much more concentrated production integration. Brazil's higher personnel costs no longer played a role in the full-cost calculation and the post-calculation.

The Brazilian subsidiary has developed a solid export business in recent years, which helps to keep budget figures on track, especially in the current pandemic.

Sensitive homework must be done

One of the most difficult tasks is the sensitive coordination of the solid management models used in the head office. It is crucial to understand how important it is to distinguish between general principles that are taught at headquarters and have been rooted for decades, and specific manifestations about the Brazilian market or the behavior of a local manager in an existing subsidiary in Brazil.

The management concepts must be adapted to the respective country and culture. Best practices from other regions of the world cannot be transferred without a sensitive analysis and robust on-site assessment. If this transfer is not elaborated and implemented by a strong local partner in Brazil with the necessary context intelligence, the local operation may be doomed to failure and the investment may be lost.

In addition, the necessary brand awareness in the relevant customer group to be established in the Brazilian market during or after a reorganization could be jeopardized and the product launch could be impaired.

We have seen time and again that companies with great success have clearly defined processes in certain geographical markets. In contrast, these companies have operational difficulties in redesigning and re-adjusting processes in another location, such as Brazil.

Top management rarely has the time to devote to these tasks, and expatriates often do not have the contextual intelligence to act accordingly. The reverse engineering of process adaptation, often cited by successful medium-sized companies, is negatively influenced by this.

Managers have to find new channels to operate in Brazil and face the unknown institutional market environment. Prejudices and very rigid business models are big obstacles and very costly. It is necessary to accept new local experiments and adjustments to find the way that really works.

The next step

This view has implications for your company. What does contextual intelligence mean for your local organization, your team, your management team in Brazil? Under which premises should the team be built and managed?

If you sometimes ask yourself questions like this, if you look at the performance of your Brazilian subsidiary, if you have the feeling that the whole thing is possibly more complex than expressed in brief conversations at the coffee machine – then we could have a chat about your topic.

We have very deep experience in working with a wide variety of corporate cultures from a wide variety of continents. We are also experienced in transferring and implementing successfully proven concepts from a Brazilian project mission to other branches of your company.

Frank P. Neuhaus
UNITEDINTERIM PROFILE

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