Internationalization of Brazilian multinationals: destination Angola

mapa angola 2During a recent trip to Angola, I had the opportunity to gather information to answer the following question: among the options of internationalization of Brazilian multinational companies, what would be the best markets in terms of business opportunities, geopolitics, international economics and cultural aspects?

This kind of discussion is common among internationalists who often assess the Latin America, the United States, the European Union and Asia as main markets for Brazil. However, in the case of the Angolan market, Brazilian companies have many competitive advantages against multinationals from other countries. Thus, Brazilian multinationals should consider Angola as a very important trading partner as its positioning strategy is unique  and difficult  to be copied by other companies.

Regarding its economic growth, Angola presents unprecedented dynamics as it has experienced a very rapid period of transformation, due to its average growth rate of over 10% in the last decade. This growth is mainly due to oil exports to China and it’s considered to be the 10th largest oil exporter in the world and the major supplier of oil to that Asian giant.

To guide the discussion on the opportunity of the internationalization of Brazilian companies, it is worth to use the CAGE model of assessment of differences between two countries. This model was developed by Professor  Pankaj Ghemawat and takes into account the cultural, administrative, geographic and economic “distance” between countries. Its use allows to compare the strategic advantages of various countries in relation to a specific market. According to the academic, the concept of “closeness” between two countries is based on the “distance” between them, considering: cultural (language, ethnicity, religion), administrative (colonial ties, trade blocs, political hostility), geographical (physical distance , geographical boundaries, time zone and climate), and economics (financial, human resources, infrastructure, information or knowledge). Table 1 presents the CAGE matrix between Angola and its major trading partners.

Country of origin of multinational company Cultural  Distance Administrative Distance Geographical Distance Economical Distance CAGE “Distance” to Angola 
China High High High Medium High
Portugal Low Low Medium Low Low
United States High High High High High
South Africa Low Medium Low Low Low
Brazil Low Low Medium Low Low
France High High Medium High High
UK High High Medium High High
Belgium High High Medium High High
Netherlands High High Medium High High
India High High High High High

Table 1: CAGE model applied to some countries in relation to Angola.

We note that Brazil has high proximity to Angola, along with Portugal (colonizing country) and South Africa (bordering regional economic power). However, when analyzing the main exporters to the Angolan market, we note that Brazil has very discreet role as a trading partner. Figure 1 shows the major exporting countries to Angola.

grafico pizza

When taking into account the proximity measured by the CAGE model and the economic importance of Brazil to Angola, we realize that this African country offers enormous opportunity for internationalization of Brazilian multinational companies because, despite the reasonable size of its economy and “proximity” with Angola, Brazil is only the 5th largest exporter to this Lusophone country. Table 2 shows this opportunity more intensely as it presents the suitability of Brazilian exports on imported products by Angola. This information suggests that Brazil exports more than 50% of this African country imported items, but the amount of these items is still very limited. For example, only 2.9% of  the market of iron and steel are supplied by Brazilian multinationals.

Imports Angola 2012

US$MM

Exports from Brazil to Angola

US$ MM

%

Machines and equipments

5.180

Máchines and equipments

70

1,3%

Cars and vehicles

1.580

Cars and vehicles

67

4,3%

Carnes e preparados

830

Carnes e preparados

352

42,4%

Iron and steel artifacts

1.900

Iron and steel artifacts

55

2,9%

Furniture

640

Furniture

60

9,4%

Others

9.370

Others

536

5,7%

Total

19.500

Total

1.140

5,8%

Table 2: Comparison of import schedule of Angola against the schedule of Brazilian exports to this country. Source: MRE, Government of Brazil, 2012.

Regarding the Service part of the economy, the scenario presented is similar. According to the document “Angola in Numbers 2012”, published by the National Statistics Institute (INE) of Angola, the country has the following needs in the fields of sanitation, infrastructure and education:

1. Sanitation: 58% of the population lacks access to clean water;
2. Infrastructure: bad condition of roads and limited housing supply (mainly due to the civil war that ravaged the country between 1975 and 2002);
3. Education: 94% of the population do not have a university degree and 20% of Angolans who are six years or older have never attended school.

mapa brasil angola

Some of the most important Brazilian multinational companies are precisely from infrastructure sectors (Odebrecht, Camargo Corrêa, Andrade Gutierrez, Votorantim, Gerdau and Tigre) food (BRF and JBS), private higher education (Kroton-Anhanguera, the 2nd largest group of private higher education in the world) and electrical equipment (WEG). These companies can leverage their unique competitive advantages in relation to multinationals from other countries and accelerate their internationalization processes by seeking a market that has lower barriers to brazilian companies compared to multinationals from other countries. Consequently, given the political stability in Angola, its vigorous growth and its market opportunities; Brazilian companies will intensify their internationalization processes to develop economic partnerships, extend their supply chains and open operating bases in this promising African country.

 I leave here a few questions for the more inquisitive readers

1.  What is your opinion on the CAGE tool? What would be its weak points?

2. What are the other countries still underserved by Brazilian multinational companies?

2 comentários sobre “Internationalization of Brazilian multinationals: destination Angola

  1. Nacionalista disse:

    One of the problems of the brazilian companies is underestimating and not valuing sufficiently the Angolan Labour Force which are relegated to second class and the same with Portuguese companies. Thus, long term investment will be affected because most qualified Angolans will sun brazilian companies for American ones, although the distance is lower in the CAGE Model.

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