EY Human Capital Conference 2012: Strategic growth markets - Brazil and South America

2012 Human Capital Conference23–26 October

Strategic growth markets: SASASASAHuman Capital developments and specificities for the South America Sub Areafor the South America Sub-Area

Circular 230 disclaimer

► Any US tax advice contained herein was not intended or written to be used, and cannot be used, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.

Human Capital on SASAPage 2

Disclaimer

► Ernst & Young refers to the global organization of member firms of E t & Y Gl b l Li it d h f hi h i t l l titErnst & Young Global Limited, each of which is a separate legal entity. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited located in the US.Thi t ti i ©2012 E t & Y LLP All i ht d N► This presentation is ©2012 Ernst & Young LLP. All rights reserved. No part of this document may be reproduced, transmitted or otherwise distributed in any form or by any means, electronic or mechanical, including by photocopying facsimile transmission recording rekeyingincluding by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP. Any reproduction, transmission or distribution of this form or any of the material herein is prohibited and is d st but o o t s o o a y o t e ate a e e s p o b ted a d sin violation of US and international law. Ernst & Young LLP expressly disclaims any liability in connection with use of this presentation or its contents by any third party.

► The views expressed by panelists in this session are not necessarily those of Ernst & Young LLP.


Presenter

► Carlos Henrique Martins Tonnusq► Ernst & Young Terco► [email protected]


Agenda

► Latin America/South America (SASA) projection► Brazil and the immigration scenario► SASA’s global mobility issues


SASA projection

SASA: key countries

Investments in Latin America:► In 2011 Latin America and the Caribbean received a► In 2011, Latin America and the Caribbean received a

record volume of US$153.4 billion in foreign direct investment, which represents 10% of those global flows.investment, which represents 10% of those global flows.

US$137 billionUS$153.4 billion

US$120.9 billion

20102008 2011


Source: http://www.brasil.gov.br

SASA: key countries

Top four foreign investment receiver countries:Top four foreign investment receiver countries:

► Brazil — US$66 7 billion I iFor 2012 the► Brazil US$66.7 billion► Mexico — US$19.4 billion► Chile — US$17 3 billion

Investments in Brazil

represents, 43 8% f th

For 2012 the entries of direct investments in the region may ► Chile US$17.3 billion

► Colombia — US$13.2 billion43.8% of the

total flow to the region

g yvary between 2% and 8% in

respect of 2011.p


Source: http://www.brasil.gov.br

SASA: key countries

Rank in world Country GDP (2011)

8 Brazil $2 102 018 millionSouth America’s GDP has 8 Brazil $2,102,018 million

21 Argentina $694,690 million

26 Columbia $484,960 million

South America s GDP has been in the spotlight in the international scenario.

34 Venezuela $369,324 million

41 Peru $300,114 million

44 Chile $281,368 million

$62 Ecuador $125,066 million

88 Uruguay $52,111 million

89 Bolivia $51,478 million

100 Paraguay $36,235 million

152 Guyana $5,842 million

154 Suriname $5,069 million


Source: CIA World Factbook

SASA: key countries

Present and future of South America:Present and future of South America:► Chile has an estimated GDP growth of 4.5% for 2012.► Peru has an estimated GDP growth of 5% in 2012► Peru has an estimated GDP growth of 5% in 2012.► There are good economic perspectives for 2013.► Brazil announced in August a US$66 billion stimulus plan► Brazil announced in August a US$66 billion stimulus plan

to complement investments for World Cup and Olympic Games.

► Resilience before European international crises.


Source: CIA World Factbook

Brazil and the immigration scenario

Business reactions: what we have seen as a trend patterntrend pattern

► Investment on education:► Corporate universities

► External recruiting:► Top management► Corporate universities

► Post-graduation► Research centers

► Top management► Regular job positions► Technicians

► Attractiveness and retention:► Compensation strategies► Benefits and flexibility► Retirees

Approximately 33,000 work visas were granted

in the first semester

A number 19% higher when compared with the first

► Retirees in the first semesterof 2012.

ptwo quarters of 2011.


Immigration scenario: inbound/outbound flows hit records year after yearflows hit records year after year

80 000Other

53,441

66,690

56,006

70,524

60,000

70,000

80,000North

America35%

Asia/

18%

40,460

29,065

42,914

32,913

30,000

40,000

50,000

Europe29%

Oceania18%

2,454 2,565 3,834 3,84810,000

20,000

30,000

Top five countries 2009 2010 2011 2012*United States 559 755 10 049 4 646

29%

02009 2010 2011 2012*

Permanent visas Temporary visas Total

United States 559 755 10,049 4,646Haiti 6 15 720 2,302Philippines 4,969 6,531 7,784 2,302United Kingdom 3,496 3,809 4,817 2,083Germany 1,454 2,904 3,142 1,695


* First two quarters of 2012

Improving unemployment rates and rising GDP per capitaGDP per capita

12.0

14.0► The unemployment rate in Brazil has

been decreasing. The average for 2011

Source: IHS Global Insight

4 0

6.0

8.0

10.0

%

g gis 6.18%. Such a path is sustainable once it is associated with investments spread throughout the country and in sectors such as energy, oil, agribusiness

-2.0

0.0

2.0

4.0 gy, , gand manufacturing.

► In addition, real GDP per capita is also increasing.

► Both factors indicate that social

Real GDP per capita (% yoy) Unemployment rates

► Both factors indicate that social conditions in the country are improving, and as a result, the country has rising domestic demand and consumption.

Nasdaq Crisis 2000–2002

11.7%

Financial Crisis 08–09

8%

2010

6.7%

2011

6.18%Unemployment rates in Brazil

have been decreasing


Internal marketplace: manpower shortage in the oil and gas industrythe oil and gas industry

Engineering bachelor’s — number of new graduates per year

Local supply ability versus domestic demand

32,000Brazil

of new graduates per yearSource: Poli - USP

demandSource: IG Estagio e Trainee

Current scenario

80,000

,

South Korea

Ideal scenario

100,000

I di

Russia 32,000

60 000

Gap

400,000

250,000

China

India 60,000

000

000

000


20,

60,

40,

SASA’s global mobility issues

SASA’s global mobility issues

► Regarding last year:g g y► Legislative complexity: reaction, focus on compliance► Aggravating: head count shortage and unplanned inheritance► Result: inefficiencies, high costs, frustration

► Strategy versus execution: ► Lack of visibility about productive career► Inefficient policies and processes► Reactivity► Reactivity

► Challenge: global growth platform:► Methodology, communication, risk management► Methodology, communication, risk management► What makes great companies great? (peer to peer)?► Return: consistency, continuity, flexibility


Timeline: issues that impact the expatriation programsprograms

MERCOSUL Ibero-Americano Agreement*

ArgentinaBoliviaChil

Argentina

Transit marketCompetitiveness

Portugal Cape Verde Espain Japan

ChileEcuadorEl SalvadorSpainParaguayPortugalUruguay

ParaguayGermany*

FiscalizationsStakeholders

1965 1969 1970 1979 1982 1984 1991 1993 1997 2002 2009 2011 2012

Luxemburg Italy Grece ChileUruguayVenezuelaQuebec

Uruguay

20102005 2007200019901943

Belgium*

1969 1993 1997 2000

RN 74 Work authorization

Law 7,064 Reallocation of engineers

Decree law 5,452 — CLT

Law 4,749 13th salary

Law 8,036 FGTS

Law 8,212 Social security

Law 10,101 Profit sharing

IN 208 Tax residency

Law 11 962

IN 84 FGTS

IN 1,216DIRF

L tt New lawengineers Law 11,962 Labor contract

Law 11,638

Letter 3,280RMCCI

New law

* In process of ratification


Recommendations to the market: general rule is expatriate has no ownerrule is expatriate has no owner

HighMediumLow

Risks

High

HR Tributary/ legal

Mediu

Lum

Controls/finances

► Inherited responsibility► Underestimated responsibility

Low$

Operational complexity

► Reactivity

Low High


p p y

Recommendations to the market: HR responsibilitiesresponsibilities

Law 11,962 Stocks remuneration

HighMediumLow

Risks

, remuneration

High RH

Policies

FGTSChargeback

Mediu Chargeback

Lum

► Inefficiencies► Costs► Personal motivations

Low$

Operational complexity

► Personal motivations

Low High


p p y

Recommendations to the market: mapping and work on synergiesand work on synergies

L 11,962 Stocks HighMediumLow

Risks

RH Tributary /legal

,remuneration

Policies

High

FGTSChargeback

Mediu

Companies are failing on execution!

Controls/ finances

Chargeback

Lum

A

► Compliance► Estrategy

Low$

HighOperational complexity

► Estrategy► Governance and reputation

Low


p p y

It is not just a problem of small companies

► 18 special projectsOil and

Automaker

► Brazilian and foreigners, greatest ones► Southeast, South and Mid-west► Foreigners in Brazil and Brazilians abroad

Oil and gas

Energy

BanksIndustry*

► Attention points Construction

*(General industries/factoriesof benefit and production)

Unknownramifications

100%28%

25%

100%Pointed problems in execution,

14% 14%

Law

11,

962

IN 9

9

FGTS

Trea

ties

Vis

as

PSBen

efit

s

Pointed problems in execution, communication and controls

11%7%

4%


L I F T VB

Why does problems happen?

► Policies/processesp► Outdating► Lack of flexibility

Overload

► Reactive culture

► People Inefficiencies

► Head count► Continuity► Low innovation

Frustrations

► Low innovation

► Strategy versus execution► Focus on potentiality, lack of attention to the► Focus on potentiality, lack of attention to the

execution challenges► Neglected operational aspects Motivation and

perception of value


► Lack of visibility of the “production chain”

A situational exercise: indicators of what makes a great company greatmakes a great company great

► Global American Company, Fortune 500

FTE/Expatriate 0 30

0 120

10

90Preparation time (days,

expatriate)

0

0

6

6

2.5

3.5

Short-term cost(comparison with local, in x)

Long-term cost(local comparison)

0

0

100

10

80

9

(local comparison)

Training/hour/year

Specific policies

0

0

100

100

>2

>80

p p

Percentage of layoffs (%)

Acceptance of new


expatriations

Conclusion

► Growth perspectives for 2013► Effective systems for information exchange► Better communication between the different authorities

(fi l l b i d F d l P li )(fiscal, labor, pension and Federal Police)► Legislation complexity growth

T d f th iti t i li bilit f► Tendency of authorities to recognize applicability of international treaties


Conclusion

Where to improve?

► Policy revision► Constant review of internal procedures► Improvement of market practicesp p► Investment in skilled manpower► Constant legislation update


Questions
