Service industries: Consultants cluster and prosper

São Paulo is rapidly emerging as the centre for Brazil’s service industries, drawing in consultants of all stripes.

Lawyers accountants marketing, PR and branding consultants, IT specialists and headhunters are finding profitable niches. They are also encountering fewer bureaucratic hurdles in starting operations than they expected.

Consultancies have been growing significantly faster than Brazil’s gross domestic product, with annual growth of 10-20 per cent, says Ivan Clark, partner at PwC. Financial service providers and insurance consultants are particularly in demand, he notes.

The establishment of new businesses in Brazil and São Paulo has tended to come in waves, adds Fatima Zorzato, country manager at Russell Reynolds.

Since 1997, there has been a wave of privatisations, launches of dotcom companies, expansion of the petrochemical and later ethanol-sugar industries and the arrival of consumer companies.

Today the city is becoming a cluster centre for high-tech industries, such as telecoms, IT, software, and outsourcing, she notes. Each wave brings in new service providers.

In many cases, those providers initially follow an international client to Brazil.

That was the case with McKinney Rogers, a UK consultant, says Damian McKinney, the chief executive. The company officially opened its São Paulo office, its first in Latin America, in mid-October to help Walmart with its expansion.

Shearman & Sterling, a US law firm, also opened a local office to meet client demand.

Having been content to serve Brazil out of New York since the 1980s, the law firm decided to act in 2004, after Brazil resolved its sovereign debt problems and the market opened up for Brazilian companies to finance themselves in international markets, says Andrew Béla Jánszky, partner in the São Paulo office.

“It is much less than optimal to serve clients from 5,000 miles away. You end up missing an enormous number of opportunities,” says Mr Jánszky.

He sees the move as vindicated as the Brazilian economy has thrived.

Many such firms see São Paulo as a natural beachhead for a larger conquest of Latin America.

Service companies focusing on South America used to have their headquarters in Miami. In the 1990s, they moved to Mexico. More recently, they have been moving to Brazil, notes Ms Zorzata.

Similarly, consumer companies were traditionally located in Miami and Buenos Aires. São Paulo has supplanted both.

McKinney Rogers and Shearman & Sterling both recognise the importance of having an office in the region. “It’s a bunch closer to Buenos Aires. It’s pretty much impossible to go for one day to BA from New York City,” says Mr Jánszky.

Once the plunge has been taken, most find the notorious tax and bureaucracy burden of São Paulo lighter than expected. The tax system is complex and setting up a business more time-consuming than in many parts of the world, but overall not much more difficult than many other cities.

“It was more difficult to get started in Amsterdam,” says Mr McKinney. More¬over, there is a genuine sense of optimism and an openness with other businessmen to talk and help, he notes.

It is not as difficult to establish a company in São Paulo as it is made out to be, agrees Mr Jánszky. While taxation may be high, rents and salaries are cheaper than in developed countries, he adds.

Moreover, a large outsourcing industry has grown up to meet the need for non-essential services, from cleaning to IT, he notes. That reduces the high costs of hiring and paying hefty Brazilian social contributions.

Once established, the Brazilian office can quickly turn into a significant source of profits for established service companies.

Russell Reynolds’s São Paulo office is one of its most profitable in the world, notes Ms Zorzata, who recently gave a presentation to senior management on why that is.

She believes foreign companies that enjoy the most success are those that take their time entering the market, hire local managers and are prepared to listen to lots of advice.

There are some common pitfalls in starting up. Many Brazilian professional bodies exclude workers without Brazilian qualifications. That has meant a three- or four-year retraining for many overseas accountants, notes Mr Clark.

Moreover, weaknesses in the Brazilian education system mean large firms need to spend heavily on training to bring employees up to scratch. Hiring Brazilians can often feel like running an intern programme, says Mr Clark.

Managers of service companies concur that Brazil is an ever more important part of their global business. Moreover, it is an excellent training ground for staff from elsewhere.

“I have seen junior staff come over to Brazil who were totally green; without any street sense. After two or three years here, they walk out totally different people,” says Mr Clark.

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