Seizing a golden opportunity at Embraer

August 16, 2010 5:59 am

In September 1995, Mauricio Botelho joined Embraer as the CEO. Botelho was a 53-year-old mechanical engineer, a seasoned executive who served on the board of the lead investor in the syndicate that acquired Embraer. When Botelho arrived, along with his long-time colleague Antonio Manso, they did not like what they saw. The assembly line was empty, the mainstay Bandeirante and Brasilia models were outdated, and development had been cancelled on the CBA 123. Botelho later recalled:

When I arrived, we had $330 million in annual losses, a backlog of less than $200 million and 6,100 unmotivated employees. And yet Embraer had a history of products that were to some extent pioneers in the market. First on my agenda was to understand how Embraer got into this position.

Botelho quickly concluded that Embraer had focused too heavily on improving technology, lost sight of its customers and, as a result, lacked a product to serve the customers’ emerging needs. Studies conducted prior

Continue reading: “Seizing a golden opportunity at Embraer”

Tags: , , ,
Posted in creating value in a downturn, emerging markets, execution, leadership, turbulence |

Surviving a crisis at Embraer

August 12, 2010 5:59 am

The late 1980s and early 1990s were as difficult for Embraer as the preceding years had been good. The fall of the Berlin wall in 1989 resulted in steep reductions in military spending around the world. A global recession depressed demand for air travel, leading airlines to delay or cancel their orders for new planes. Even as demand contracted, supply grew because European countries supported their local champions’ entry into the regional jet market, spawning new rivals including Aerospatiale (France), Saab (Sweden), Daimler Aerospace (Germany), Fokker (Holland), and Casa (Spain).

Embraer initially responded to these altered environmental conditions by doing more of what had worked in the past. Historically, executives had seen Embraer as an “engineering company” and believed that superior engineering would sustain the company’s success. These strategic frames led Embraer managers to focus on refining and extending their existing turboprop planes, investing more than $280 million on a state-of- the-art turboprop, known as the CBA 123, even as momentum was building for short-range jets instead.

The CBA 123 was to become the most advanced turboprop ever built. But it had two problems. The advanced

Continue reading: “Surviving a crisis at Embraer”

Tags: , , ,
Posted in creating value in a downturn, leadership, organizational agility, turbulence |

Embraer: The backstory of a Brazilian champion

August 8, 2010 5:59 am

In order to succeed in an unpredictable market, companies must respond quickly and effectively to sudden-death threats and rapidly identify and exploit golden opportunities. During periods of relative calm, managers must excel at active waiting by monitoring the emerging situation, identifying and managing potential risks, building slack resources and maintaining internal and external flexibility. Successfully doing any of these is hard enough, but excelling at all of them is daunting. Few companies have done it all as successfully as the jet manufacturer Embraer.

Today, Embraer is the fourth largest aircraft manufacturer in the world, with over twelve thousand employees and $5.5 billion revenues in 2009. By the end of the 1990’s, the company had emerged as one of Brazil’s largest exporters. Over the 1990’s, Embraer won a 40% share of the global market for regional jets, while the market leader Bombardier lost nearly half of its market share over the same period, and number three Fairchild Dornier filed for bankruptcy.

To understand Embraer’s success in the 1990’s, it helps to start at the beginning and understand the company’s origins. The story begins in 1941, when the Brazilian government created an Aeronautics Ministry to

Continue reading: “Embraer: The backstory of a Brazilian champion”

Tags: , , , , ,
Posted in creating value in a downturn, emerging markets, leadership, turbulence |

How we selected our Brazilian champions

August 4, 2010 5:59 am

To understand how companies thrive in turbulent markets, Martin Escobari and I studied ten Brazilian companies that thrived despite Brazil’s turbulence during the 1990s.  Brahma (brewing and beverages which through a series of acquisitions created Anheuser Busch InBev), Embraer (aircraft production), Votorantim (diversified conglomerate specializing in basic industries), Banco Itaú (banking), Natura (cosmetics), América Latina Logística (logistics), Promon (engineering), Sabó (auto parts), Pão de Açúcar (food retailing), and Aracruz (pulp and paper).

We paired each of the ten with a comparable firm that was less successful in managing turbulence. These paired companies provide a valuable contrast to our more successful firms. The similarities among the more successful companies, as well as the differences between them and their less successful peers, form the foundation for the findings in this book.

There are a few things to note about the companies we studied. First, they represent a broad cross-section of the economy. Most studies of management in turbulent environments have focused on U.S. information technology companies, primarily in the period between 1980 and 2000. By sampling across a variety of industries we hope to glean general insights about managing in unpredictability that would not emerge from a

Continue reading: “How we selected our Brazilian champions”

Tags: , , , , , , , , , , , , ,
Posted in creating value in a downturn, emerging markets, leadership, organizational agility, turbulence |

Brazil in the 1990s: A hotbed of market turbulence

July 31, 2010 5:59 am

My last post provided a brief overview of Brazil’s economy and long history of economic turbulence. Even by Brazilian standards, the 1990’s were extremely turbulent. The best way to illustrate the impact of shocks on companies’ ability to build long-term competitiveness is to imagine yourself as the CEO of a Brazilian company in the 1990’s. These are the challenges you would have faced.

The decade began with President Collor freezing all financial assets for eighteen months. This asset freeze caused a liquidity crisis, and companies in certain industries such as retail and consumer goods witnessed sales plunge 30-50% within a few months. Collor simultaneously eliminated an extensive list of preferential incentives and protective tariffs for Brazilian companies, thereby exposing them to direct competition with some of the most competitive and efficient global competitors. In contrast to Mexico’s gradual integration into the North American Free Trade Agreement (NAFTA) over ten years, these changes took place over the span of months in Brazil.

Four years later, Brazil’s government launched a new currency as part of its Real Plan, and inflation dropped from a monthly rate of 47% in June to 3% in August of 1994. You might think that is good news, but inflation

Continue reading: “Brazil in the 1990s: A hotbed of market turbulence”

Tags: , ,
Posted in emerging markets, turbulence |

Brazil: Why it was the country of the future that always would be

July 27, 2010 5:59 am

Before introducing the Brazilian champions that succeeded despite volatility, it is worthwhile pausing to discuss the Brazilian economy and economic history as context for the companies that succeeded in the 1990s out of that country.

Brazil has been described as a slumbering economic giant waiting to awake. It is the fifth largest and most populous country in the world, the ninth largest economy (in terms of purchasing power), and the largest market in South America, accounting for up to 60% of South America’s total Gross Domestic Product (GDP) during the 1990’s. Brazil is highly integrated in the global economy. The country is among the world’s top three exporters of tobacco, sugar, orange juice concentrate, soy, beef, chicken, iron, and tin. China is the only country that received more foreign direct investment among the developing countries between 1998 and 2001.

Much of Brazil’s trade was done with the United States, and Brazil was a larger trade partner to the U.S. than Italy, Spain, or India throughout the 1990’s. Despite its impressive accomplishments, many commentators argue that Brazil has failed to fully realize its potential. “Brazil is the country of the future,” as the old joke goes, “and always will be”. Annual growth in GDP averaged a modest 2.5% between 1980 and 2000 versus 10.2% for China, 7.8% for South Korea and 5.7% for India.

Brazil’s progress in recent decades has tended to come in jubilant bursts, including president Juscelino

Continue reading: “Brazil: Why it was the country of the future that always would be”

Tags: , , ,
Posted in emerging markets, turbulence |

Lessons from Brazilian champions

July 23, 2010 5:59 am

How can managers survive and thrive in unpredictable markets? To shed light on this question, I and my co-author Martin Escobari, who is now a managing director of Advent International in Brazil, analyzed ten Brazilian companies that managed to survive and thrive amidst the turmoil of the Brazilian market during the 1990’s. In several cases these companies emerged as world-class competitors in global industries including aerospace, brewing and banking.

We published our findings in the book Success Against the Odds. My posts through the rest of the summer will draw on our research and this book to bring to light some of the impressive success stories and the broader principles they illustrate about thriving in turbulent markets.

These firms’ success is an impressive accomplishment, because Brazil is one of the most unpredictable markets in the world. Brazilian managers during the 1990’s faced volatile exchange rates, sporadic availability of capital, inconsistent industrial policy, unpredictable rates of inflation and interest, and sharply increased levels of foreign competition, in addition to the competitive threats, shifting consumer preferences, and potential technological disruptions common to every country.

An elite group of Brazilian companies not only survived this turmoil, but actually emerged stronger at the end of the last decade. They responded quickly and effectively to shocks that threatened their very survival and

Continue reading: “Lessons from Brazilian champions”

Tags: , , ,
Posted in business models, creating value in a downturn, emerging markets, entrepreneurship, execution, leadership, mental maps, organizational agility, performance culture, talent, turbulence, value creation |

Reverse innovation from emerging markets

July 19, 2010 5:59 am

The model of emerging market innovation that most people have in mind is a multinational corporation pioneers a novel product or service in their sophisticated home market, drops some features and cuts the price, and then exports the stripped-down innovation into emerging markets.

Increasingly, however, innovation flows the other way. Companies develop a product that appeals to emerging market consumers who combine discerning tastes with low disposable income, then managers quickly recognize that these products would appeal to some segments within mature markets as well.

At a recent London Business School panel on multinationals in emerging markets, I had the chance to discuss this reverse innovation with Paul Bulcke, CEO Nestlé; Anshu Jain, who runs Deutsche Bank’s investment banking business; Vittorio Colao, the CEO of Vodafone; and John Connolly, the global chairman of Deloitte.

Tags: , , , , ,
Posted in business models, emerging markets, entrepreneurship, leadership, organizational agility |

Beyond GDP growth: What makes an emerging market attractive?

July 12, 2010 5:59 am

Last week, I moderated a panel on multinationals in emerging markets for the London Business School’s Global Leadership Summit. Four prominent business leaders–Paul Bulcke, CEO Nestlé; Anshu Jain, who runs Deutsche Bank’s investment banking business; Vittorio Colao, the CEO of Vodafone; and John Connolly, the global chairman of Deloitte shared their insights on several topics, including which multinationals (other than their own) they most admired for their success in emerging markets.

People often use the term “emerging markets” as a catch all phrase implying that all countries within this category are broadly similar to one another. In reality, of course, the differences between India and China or Brazil and Russia dwarf their similarities. The heterogeneity of emerging markets raises questions for companies seeking to invest in these countries: How should we prioritize investments across emerging markets? How do we differentiate a more attractive market from a less attractive one? What criteria should we use in evaluating and comparing different markets?

Below I summarize some of the insights on how four different executives from four very different industries evaluate emerging markets.

Tags: , , , , , , , , , , , ,
Posted in emerging markets, leadership, portfolio agility |

Which multinationals do CEOs admire in emerging markets?

July 6, 2010 9:55 am

Yesterday the London Business School held its annual Global Leadership Summit, I moderated a panel on how multinationals can seize opportunities in emerging markets. My panelists were Paul Bulcke, CEO Nestlé; Anshu Jain, who runs Deutsche Bank’s investment banking business; Vittorio Colao, the CEO of Vodafone; and John Connolly, the global chairman of Deloitte. (The podcast of the full panel is here).

Emerging markets are important for each of these companies. Vodafone books 22% of its revenues in emerging markets including India, Egypt, and Turkey. Deutsche Bank earns about €3 billion in these markets. Currently emerging markets account for approximately 32% Nestlé total sales (and more than half the firm’s factories), but Nestlé intends to increase revenues from emerging markets to 45%.  Deloitte has about 15% of headcount in the BRIC countries.

One of the questions we discussed was other than their own company, which multinationals do the panelists most admire for their performance in emerging markets. Their answers are interesting.

Tags: , , , , , , , , , , , ,
Posted in business models, emerging markets, entrepreneurship, leadership |
BackOlder entries
Newer entries

Leading in turbulent times

This blog is no longer active but it remains open as an archive.

Don Sull is professor of management practice in strategic and international management, and faculty director of executive education at London Business School. This blog is dedicated to helping entrepreneurs, managers, and outside directors to lead more effectively in a turbulent world.

Over the past decade, Prof Sull has studied volatile industries including telecommunications, airlines, fast fashion, and information technology, as well as turbulent countries including Brazil and China, and found specific behaviours that consistently differentiate more, and less, successful firms. His conclusion is that actions, not an individual’s traits, increase the odds of success in turbulent markets, and these actions can be learned.

Don Sull’s blog: a guide

Comment: To comment, please register with FT.com, which you can do for free here. Please also read our comments policy here.
Contact: You can find contact information for Don on his website.
Time: UK time is shown on posts.
Follow: Links to the blog's Twitter and RSS feeds are at the top of the page. You can also read the blog on your mobile device, by going to www.ft.com/donsullblog
FT blogs: See the full range of the FT's blogs here.

Elsewhere on FT.com: Dear Lucy

Lucy Kellaway, FT columnist and associate editor, offers her solution to your workplace problems in a column in the Financial Times. In the online edition of her Dear Lucy 'agony aunt' column, readers are invited to have a say too.

FT Business School videos

Managing in an Unpredictable World
A series of video lectures by Professor Don Sull

Part 1: Fog of the future
Part 2: Future reconnaissance
Part 3: The strategic agility loop
Part 4: Executing with commitments
Part 5: Leading into the fog

Featured blogs

MBA blog

Business school students write about their experiences

Management blog

For leaders and managers