Posted on behalf of Aaron Winter
One of the common themes in the business presentations we attended during our global residency trip was the tremendous growth potential of the Brazilian domestic market. One driver of this growth is the increased spending power of the nation’s so-called “class C” citizens. (Brazilians are more literal than Americans about their nation’s wealth distribution; this is not merely an economist’s term but is used routinely in casual conversation. Class C Brazilians earn $12,000 to $15,000 per year and account for 51% of the nation’s population.) Another driver of growth is geographical, as the consumer economy expands outward from the wealthy southeast region that contains Rio de Janeiro and São Paulo, further north toward the Atlantic tip and further west toward Amazonia.
When we visited Natura, a Brazilian cosmetics company, we were shown a lush corporate propaganda video that explained how the company was making it a priority to transform economically underdeveloped areas (that had formerly practiced slash-and-burn subsistence farming) into key cogs in a sustainable supply chain that made fantastic soaps, perfumes, and lotions from all-natural ingredients like passion fruit and cocoa butter. This concept of an Amazon-to-the-coast supply chain was all the more interesting because Natura, which has an Avon-like business model, sells its products not only in urban centers, but across all of Brazil’s 26 provinces.
“There was a time,” read the video’s English subtitles, “when Brazil didn’t know Brazil yet.” The country is still nationalizing, culturally, economically, and politically, in a way that can be somewhat hard for Americans to understand. In our country, much of this process happened before our grandparents were born. And – apologies for a brief flashback to my Ph.D. dissertation here – it can be hard to put your finger on the difference between what counts as a true cause in this chain of nationalizing events, and what counts as a mere epiphenomen. Sometimes the soap comes first, and it’s everything else that follows.
So Brazil is still in the process of getting to know Brazil, even today. When we visited Arezzo, a shoe company, our presenters were suave bilingual cosmopolitans who attended the same American MBA program as Dr. O’Neill (our trip chaperone). They were speaking to us in our own language, in more ways than one. But we were thrown off by one term they used repeatedly in their presentation. It took no fewer than three questions from our group to figure out what they really meant.
“Is any of your production outsourced?” we asked. “All of it,” they replied. But they had Brazilian designers, Brazilian cows, Brazilian leather workers, and Brazilian distributors? We finally figured out that they were using the word “outsourced” to mean produced outside of São Paulo, in the neighboring state of Minas Gerais. It was the equivalent of a Virginia-based company saying that it had outsourced manufacturing to North Carolina.
In other words, this was not a glitch in linguistic translation, but rather a gap in economic translation. Both consumption and production in that retail sector had been historically concentrated, such that this really was an instance of outsourcing, with all the value-creating opportunities and logistical hassles we associate with the term. It’s this kind of “aha” moment that makes the global residency trip worthwhile.