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Summary

Swedish industry in Brazil– how is production in Sweden affected?

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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 who-le 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 pro-duktionen 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 com-ponents are also manufactured in Brazil for the companies’ own facilities in Swe-den. 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 burgeo-ning 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 RuneChief Economist

22 3Volvo’s facility for presentation of construction equipment in Curitiba

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Swedish companies in Brazil

Swedish companies employ in excess of 30,000 people in BrazilSwedish 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 indu-stry 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 do-mestic appliances sector therefore represent significant proportions of the opera-tions 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.

Scania and a number of sub-suppliers are based in São PauloScania 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, orange-coloured buildings everything from cabins to engines and axels is manufactured. Completed lorries are also assembled and rolled out to waiting customers. Approx-imately 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 compa-nies 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.

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.

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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 chas-sis 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 ma-nufactured 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 pas-ses 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 CuritibaCuritiba in the south of Brazil is a medium-size town in a South American perspec-tive 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 na-ture 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 con-struction equipment of various models are assembled and finished off in the factory in Pederneiras, which employs in excess of 580 people.

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ERICSSON, ELECTROLUX AND ABB EMPLOY THE MOST PEOPLE IN BRAZILNumber 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 PauloEricsson 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,

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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 mo-bile systems globally.

Swedish industry manufactures investment goods in São PauloThe 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 pro-portion 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 adjoi-ning 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 auto-mation. 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 coun-try. 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 buil-ding 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 pro-vides practical and innovative packaging solutions, is also based in São Paulo. The

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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 Soro-caba manufactures milling tools and tool holders. The administration for the Bra-zilian 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.

88 9Truck production at Scania in São Paulo

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Operations and industrial conditions in Brazil

Increased sales potential in a country with a burgeoning middle classThe 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.

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.

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 consu-mers 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 oppor-tunities 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.

Truck production at Scania in São Paulo

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Swedish companies pay good wages and are good employersThe Swedish companies’ facilities in Brazil are not vastly different to their equiva-lent 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 BRAZILAverage 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 expe-rienced engineers the level of pay can at the same time be both two and three times higher whilst entry level pay is lower.

The companies must always reckon on the total labour cost and in Brazil the dif-ference 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 Eas-tern Europe. The total labour costs in Brazil are approximately 1/3 of what it is in Western Europe.

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.

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.

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HIGHER LABOUR COSTS THAN IN EASTERN EUROPE BUT LOWER THAN IN WESTERN EUROPERough indication of the labour costs in Brazil in relation to the costs in other areas

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 develop-ment 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 BrazilSince 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-

Western Europe Brazil Eastern Europe China and India

1/1

1/3

1/5

< 1/10

6) See Você S/A (01/06/2009) for this ranking of employers in Brazil.

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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 BRAZILGeneralisation of the presence of Swedish companies in Brazil

The nature of the operations of Swedish companies in Brazil has successively chan-ged, 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 me-chanical components are a few examples of products that are primarily purchased

Very common

Common

More market-driven expansion

More cost-driven expansion

More local companies

More global companies

1) Export to Brazil

4) Import of input goods from Brazil

2) Production in Brazil for the local market

3) Production in Brazil for regional or global markets

Common

Very common

7) The fact that the total cost of production in Brazil is quite high is also stated in McKinsey&Company (2006).

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in Brazil. At the same time certain advanced mechanics and certain knowledge-in-tensive 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.

R & D for both local and global needs is being conducted in BrazilThere 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 proces-ses. 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 BRAZILGeneralisation of the R & D operations of Swedish companies in Brazil

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.

Lower degree of R & D responsibility Higher degree of R & D responsibility

1) Local adaptation of products and processes

Common

2) Design of components for the global market

Occurs in some companies

3) Complete responsibility for core areas

Does not occur

Some of the companies also conduct development operations for the global market in Brazil. Ericsson’s development unit in Indaiatuba and Volvo’s engine develop-ment operations in Curitiba are both examples of this. The components that are

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created by the Brazilian engineers then become important jig-saw pieces of produc-ts that the companies sell across the globe. However, none of the Swedish compa-nies 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 develo-ped regions of Brazil. The roads around the large towns and cities of southern Bra-zil 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 convo-luted 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.

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)

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.

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1616 17ABB’s plant in Guarulhos in northern São Paulo

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Swedish engineering trade with Brazil

Limited but growing engineering trade between Sweden and BrazilThe 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 interna-tional 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 ad-dition, the duty is also relatively high for automotive components and many other input goods. However, under certain conditions companies are able to received dis-counts 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 1990SEngineering export and import to and from Brazil between 1988 and 2008 (million SEK)*

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.

7 000

6 000

5 000

4 000

3 000

2 000

1 000

01988 1993 1998 2003 2008

Export

Import

0

1000

2000

3000

4000

5000

6000

7000

8000

11) This chapter is primarily based on trade figures from Statistics Sweden (SCB) but also partly on information from in-dividual 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).

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Ericssons huvudkontor i Gurgaon utanför New Delhi

During 2008 engineering products was exported to Brazil from Sweden for just un-der 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 de-creased during early 2009.

Machinery and parts for lorries constitutes half of the export to BrazilScania 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 engi-nes and transmission shafts’ (which is classed as the mechanical industry) each con-stituted several percent of the export. In addition to this a large amount of machi-nery 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 BRAZILExport 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%

Other vehicles 11 0,1%

Total engineering products 6631 70,6%

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 varia-tions 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.

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ALMOST 10 PERCENT OF THE IMPORT CONSISTS OF VEHICLE COMPONENTS AND CARSImport and proportion of import from Brazil to Sweden 2008 (million SEK and percent)*

Import value 2008 Proportion of total import

Machinery 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%

Metal goods 39 0,7%

Total engineering products 1882 35,4%

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 countryCertain 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 con-tributed 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.

2020 21Sandvik’s plant in southern São Paulo

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The exchange with Brazil and its impact on Sweden

Companies are expanding in Brazil – they are not moving from SwedenA 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 redu-ced number of employees in Sweden and the developments in employment in Bra-zil. 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 manu-factured in Sweden. For each lorry or radio base station that is produced in Brazil transmission systems, radio links and miscellaneous other components are requi-red. 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 AUSPICESGeneralisation of trends that emerge from the Swedish companies in Brazil

More work under own auspices due

to increased customer focus

Increased integration of operations in

Sweden and Brazil

Increased service content of products that are manufactured and

sold in Brazil

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.

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Increased integration, more service content and more customer focusThe 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 opp-ortunity to improve time to market, i.e. the delivery time, flows and security of deli-very 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 INTEGRATEDIllustration of the increased integration that is taking place

Brazil operation

Swedish operations

Increased organisation and operational integration

Increased standardisation of products and quality

Improved opportunities to exploit global

production capacity

Increased ability to react to changed conditions

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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 se-veral 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 SwedenA burgeoning middle class and an increasing industrialisation are positive for Swe-dish 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 determi-ned. It is obvious that the increased integration between operations in Sweden and Brazil makes conducive competitive conditions in Sweden extra important. Espe-cially 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.

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Centrala MumbaiSKF’s factory in Cajamar just north of São Paulo

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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.mckin-seyquarterly.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?, Teknikföre-tagen, Stockholm

Teknikföretagen (2007), Svensk industri i östra Europa – Hur påverkas produktionen i Sverige, Teknikfö-retagen, Stockholm

Teknikföretagen (2008), Svenska företag i Indien – Hur påverkas verksamheten i Sverige, Teknikföreta-gen, 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 Sep-tember 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

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Interviews

ABB (January 2009), Interview in São Paulo with Carlos Roberto Hohl – Senior Vice President Com-munications 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 Ame-rica, 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 Consul-ting Director, Christer Johansson – Production Rirector, Iolando José de Casilho Júnior – Production Rirector

Sandvik (January 2009), Interview in São Paulo with Heloisa Giraldes – Manager Corporate Com-munication, 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 Rela-tions

Scania (January 2009), Interview in Södertälje with Per Hallberg – Executive Vice President Produc-tion 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 Develop-ment Coordinator Service Division Brazil

Swedcham Brasil (January 2009), Interview in São Paulo with Jonas Lindström – Executive Secretary

2626 27View of São Paulo from Jardim

2828 29Children at Volvo’s school in Curitba

www.teknikforetagen.se

Summary

Swedish industry in Brazil– how is production in Sweden affected?