Over the past decade, Brazil has made strides toward laying the foundation for long-term economic growth. Recent improvements in business transparency and environmental compliance have made Brazil an attractive target for foreign direct investment. A combination of factors, including favorable interest rates and low inflation, further highlights opportunities for investing in Brazil. In addition, expected high unemployment will enable businesses to attract and retain talent. These factors in Brazil are in stark contrast to developed markets, like the United States, that were likely headed toward a downcycle prior to the pandemic.

Experts believe that with the existing market fundamentals, the next positive cycle in Brazil will be even stronger—there will be more value to be gained following the COVID-19 crisis. While conservative strategies will be prioritized in the near-term, these measures must be taken without sacrificing the potential for long-term growth. Fortunately, cost-cutting measures and preparation for future scaling up are compatible. As companies review their business planning to align with pandemic response, they should do so while integrating potential for Brazil’s future growth.

How to Prepare for Future Growth

Multinational companies with subsidiaries in Brazil should also prepare for future growth, as they weather this downcycle and anticipate the long-term economic shifts resulting from COVID-19. They should consider the following questions regarding shifts in Brazil’s business environment, keeping in mind that Brazil still has the most Foreign Corrupt Practices Act (FCPA) violations with the U.S. Securities and Exchange Commission/Department of Justice today:

• Is compliance risk being appropriately identified and addressed?
• Is the compliance program implemented in Brazil strong enough to fulfill the demands of local legislation?
• Are relationships with contractors and third parties (both distributors and dealers) transparent enough to avoid FCPA or UK Bribery Act issues? Risk involving subsidiaries can quickly rise to the level of headquarters.
• Have you considered all mechanisms for risk mitigation? If a Brazilian subsidiary is performing poorly, the Brazilian company can file for Chapter 11 bankruptcy, gaining access to government support.

Lessons learned in past downturns, including 2009 and 2015, should be in front of the mind as leaders prepare to emerge stronger from the pandemic crisis. Companies that managed to plan for growth while still preserving cash, managing risk, and maintaining continuity, emerged more successful than their competitors. This period can allow companies to determine what core activities are essential for future growth versus those that can be pared back without compromising future opportunities. Shared services strategies, including centralization, standardization, and automation, can lead to both cost savings and the ability to rapidly scale operations in line with future growth.

Reducing Risk and Seizing Opportunities

Companies can both manage risk and prepare for the end of the downturn by leveraging opportunities related to business model optimization and considering the following:

• How can non-core activities be consolidated or standardized?
• What activities can be automated to promote consistency and scalability?
• Where else can companies incorporate additional flexibility, both in terms of costs and personnel? The proven success of digital and remote work in recent months presents new opportunities to reduce fixed costs, including real estate.
• What additional considerations are required with changing delivery models? What actions are required to maintain key aspects of business continuity, including data privacy and cybersecurity?

Actions taken in this period should be thoughtful, ensuring that short-term cuts or other measures continue to strengthen prospects for long-term growth. Companies should look to adopt staffing and service models that optimize the way employees work and account for new risks presented by this changing environment. A focus on high-value activities and creating a resilient, sustainable delivery model will allow companies to adapt to the current crisis as well as future business cycle fluctuations.

ScottMadden and Vistazul provide complementary services that will help companies in Brazil gain the flexibility to both navigate the current environment and prepare for a new business environment.

To learn more, please reach out to ScottMadden and Vistazul to discuss optimizing your service delivery today and preparing to quickly scale operations in the “new normal.”

Additional Contributing Authors: Tina Jeffress, Rodrigo Ogawa of Vistazul