Ciser: Leading Fastener Manufacturer in Latin America

Interview with Carlos Rodolfo Schneider, President of Ciser

You are the national coordinator of “Brasil Eficiente”, a movement that, among other main issues, focuses on Brazil’s competitiveness. Where exactly do you stand regarding this matter?

We understand that Brazil needs to move forward in terms of its economic foundations and in terms of the country’s structural adjustments in order to eliminate the hindrances to Brazil’s systemic competitiveness – what is commonly called the “cost” of Brazil. This “cost” has been an impediment preventing more and more sectors, mainly in the manufacturing industry, of being able to compete in international markets, and in some cases, in the internal market. So much so, that the increase in consumption that we have seen in Brazil is not accompanied by a corresponding increase in Brazilian industrial production. This means that this gap in the demand is being supplied by imports. And this supply from imports is growing. It is obvious that the country cannot isolate itself; like all countries, Brazil needs to work as part of a world that is more and more globalized, and take its place within an international economy that intrinsically involves imports and exports. This is very sound reasoning, as we cannot all be good at everything.

But it is our understanding, and this is verified by studies made, for instance, by the World Bank, that the Brazilian industry’s role is diminishing faster than it should, speaking in general terms. And its role is diminishing because the curves that represent the contribution of each country’s transformation industries for that country’s GDP show that the losses in the industry’s participation take place at a certain level of per capita income. And that level is much higher than the one currently verified in Brazil, at a time when the country is already in decline…

This is already abnormal, isn’t it?

Yes, it is abnormal. Brazil is becoming more and more competitive in sectors connected with commodities, which is not a negative thing in itself. We must take advantage of the present worldwide demand for commodities. But the country has lost competitiveness in other sectors. The increase of the commodities’ contribution for our GDP has been achieved, in great part, at the expense of the participation of transformation industries that were developed throughout the years, as a result of great investments by the companies and by the State as well. So, as I have previously mentioned, some sectors of the manufacturing industry that are openly supported by the State are managing to be quite competitive. Other sectors, which do not benefit from this support, are having more difficulties.

So, Brazil needs to worry about its systemic competitiveness – we have some homework to do. And we understand that the best that we can do to increase Brazil’s competitiveness is a fiscal adjustment, which will affect taxes, public expenditure – with a special emphasis here for the matter of social welfare, which is a major point of unbalance for the country – and the fundamental issue, which, in our view, is the inefficiency of Brazil’s public authority. It needs to become more efficient – and I would like to make a mention here to President Dilma, who in her inaugural speech said that Brazil needs to “make more with less”, which is the very definition of efficiency. She has, in fact, shown she is truly concerned with efficiency, with these adjustments.

One of these adjustments, I would say, needs to be a change of focus in our development model; change a bit of the focus from consumption to investment – because if Brazil does not increase its investment rate and its fixed capital creation rate up to, at least 25%, instead of the current 18%, we will not be capable to grow consistently and at an adequate speed – we understand that the adequate rate is around 5% to 6% per year; this is the growth that Brazil needs if it wishes to hold its ground in the international economy. If we are not able to increase our investment rate, it will be very difficult for us to achieve this necessary growth. In fact, this has already happened, as we’ve seen this year and last year; it is our opinion that, more than to the international crisis, this is owed mainly to the lack of investment in the country.

On the other hand, the recent measures taken by the government are moving in this direction, to an increase in investment. The federal government has been stimulating private enterprises to invest more, has removed some of the tax burdens from the private sector in order to let them increase their investment and has tried to stimulate public-private partnerships in infrastructures.

So, I would say even a bit due to some pressure from society – and I include the “Brasil Eficiente” movement in that pressure, as we have frequently been in dialogue with the federal government, demonstrating to them the need for greater efficiency in public authority in order to be able to increase investments – Brazil is beginning to move in this direction, which we consider to be a healthy and necessary direction towards the restoration of competitiveness of our economy as a whole, and not only in specific sectors.

These issues you are describing, the problems with the cost of the administration, the tax policies, etc.; are they more severe in Brazil than anywhere else? Does Brazil stand out as particularly bureaucratic, or is this something that is common in other countries as well?

I will answer by referring to the competitiveness ranking presented by the Institute for Management Development, in Switzerland, which shows that Brazil lost a few positions over a period of three years. We are currently in the 44th place, out of the 59 countries analyzed. It also shows that, among Brazil’s main problems, we find precisely the issue of the public authority efficiency, which puts Brazil in the 55th position, in this category. The IMD also shows that Brazil’s main challenges are to be able to increase the efficiency in public expenditures and to increase investment. These are precisely the focus points that guide the “Brasil Eficiente” movement. Other competitiveness rankings have also shown that Brazil needs to improve its framework conditions for competitiveness.

On the other hand, I want to highlight that, in this administration, there have been greater efforts than in the previous one. This gives us some hope that the nation understands which way we must go, and is placing its increasing efforts in alignment with this vector that must guide the country’s economic policies.

Can you give us a small presentation on the “Brasil Eficiente” movement, so that we can get a better idea of what it is about?

Of course. The “Brasil Eficiente” movement was created two years ago, as a result of this concern regarding the structural adjustments that the country needs, but as this is a very broad topic, we are not dealing with political reform, which is important, nor are we dealing with labor issues, like the updating of the labor law, which are also very important. We are, instead, focusing on the fiscal adjustment, as we understand it to be the element for which businessmen can contribute the most.

It began as a coordinated movement involving several business entities, and nowadays we are supported by the country’s most important corporations. However, it is not exclusively a businessmen movement, it is a society movement. We also have the support of non-business entities, like the Federal Council of Medicine, the Federal Council of the Brazilian Bar Association (OAB), the Economists Association, the Accountants Association and others. We have also spoken with labor entities, the workers, who must also be a part of this, and it is our goal that, once the organized civil society is sufficiently involved, we can get the involvement of the entire population as a whole. On this point, I would just like to say that the great difficulty in getting the population involved is the fact that the biggest tax burden in Brazil consists of indirect taxes, those already included in the price of goods and services; so the general population does not quite understand the taxes they are paying. We want to launch an information and enlightenment campaign, so the population understands that they are bearing a great percentage of taxes, and that by making the country more efficient, these taxes can be reduced, prices can go down, and salaries will consequently be raised.

Private enterprise can see their tax loads reduced – our movement proposes that within 10 years the tax load is reduced to 30% of the GDP, and that the investment rate is increased from 18% to 25%, also within 10 years. All of this must start with an increase of the public authority efficiency. So, instead of a reduction of the public expenditure, our movement proposes that the government’s current expenditures grow at a lower rate than that of the economy. More specifically, if the government’s expenditures grow at one third of the economy’s growth rate, we will then be able to reduce the tax load down to 30%, increase the investment rate to 25% and grow at a constant rate of 6% per year.

This is a movement that is above parties, it is not affiliated with any political party, nor could it be, obviously. It is supported by several leaders and opinion-makers, such as economists Paulo Rabello de Castro, Raul Velloso, Roberto Teixeira da Costa, Yoshiaki Nakano, Antônio Delfim Netto, Gustavo Loyola, legal experts Ives Gandra da Silva Martins and Gastão Toledo – I am just naming a few, but credit is due to many more.

We understand that the “Brasil Eficiente” movement is an appropriate platform for society to show the political class the direction that the nation of Brasil wants to follow. It became very clear to us that if society is not organized around one single proposal and one single movement, we will not be able to carry out these changes. Even more so taking into account the short term goals that prevail in the political sphere, and this happens not only in Brazil, but everywhere in the world. If this pressure towards a good direction does not exist, there will be few chances that we ever put these structural matters, which are usually the most difficult issues, at the top of the decision makers’ priority list.

Now let’s take your own company as an example; how has your company suffered from that lack of efficiency? What are the main challenges that you are faced with, both in that respect and in general? I would also like to know your strengths.

Well, the “cost of Brazil”, which I have mentioned before, which is the main concern of the Brazilian economy and one of the major concerns for Brazilian industry, has certainly been an obstacle to the companies’ competitiveness. Obviously, stability in regulations is something that facilitates the search for solutions to problems. Those solutions also include internationalization. So, if the “cost of Brazil” indicates that I am not competitive in a particular aspect, I will try to get production from somewhere else, from a different country. In Asia, for instance. And that is part of a strategy; I would say that this is done by companies all around the world – European, American, even Chinese companies have production centers in other locations. What we need to assess, and here I would like to mention the macroeconomic issue again, is the industrie’s contribution for the GDP. The transformation industry in Brazil is currently contributing with 15% of the GDP. In Germany, it contributes around 25%.

But Germany is one of the rare cases in Europe, isn’t it?

Yes, I know, but in Brazil it should still be 25%-30%; in China it is 45%, in India it is above 30%. So, in Brazil, industry is shrinking before its time.

In any case, we have to try to come up with strategies that allow companies to compete in a global market. I don’t necessarily need to have all my production in Brazil; sometimes that doesn’t even make sense. But, I still want to have production in Brazil and I want to be competitive in Brazil. So, besides this political work that we have been conducting to restore Brazil’s systemic competitiveness in the manufacturing industry, we are establishing policies that allow the company to be competitive at a global scale. This involves defining what should be manufactured in Brazil, for several reasons: to be competitive; to have agility in distribution and logistics in Brazil; to be able to develop the technology to cater to Brazilian customers; being close to the customer every day… This will be difficult to achieve with foreign production. On the other hand, I will manufacture elsewhere what I cannot manufacture adequately here.

So this is part of our strategy discussion, which is an ongoing one, and it has led us to seek production in other countries. Currently we have production centers in China, for items with less added value, but we are also investing in Brazil, in the manufacturing of products with a higher added value. As an example, we have just recently installed an industrial unit here, in a partnership with an American company called Fastenal, which is one of the biggest American companies in this sector, to manufacture fasteners and parts for the oil and gas industry, and also for wind powered electricity generation. These are parts that require a higher level of technology, that require machining operations, etc.

Is this production plant already in operation? And will it be supplying the Brazilian market, or foreign markets?

It is currently on the tryout stage. Initially, this production will target the Brazilian market, to supply the growing investments in the field of oil and gas we have been seeing lately, but at a later stage, we will study the supply of foreign markets as well.

We have another production unit that is also relatively recent – it was established about 3 years ago – which supplies components for vehicle manufacturers – this new regulation landmark for the automotive market, which encourages local production of components and parts for the automotive industry, will undoubtedly be beneficial for us – so we have this production center in Minas Gerais, to manufacture fasteners and auto parts.

We are constantly looking for new opportunities and new products. We intend to have around 20% of our revenue coming from products developed in the last three years; we are working towards this goal, always trying to aggregate new technology into the products.

We are now implementing, here in Brazil, a nanotechnological surface protection treatment for fasteners, which is a first in the country’s industry.

It would seem that your strategic decisions aim to elevate the quality level of the final products and always use cutting edge technology. Are you looking for other joint ventures like the one you have with the American company?

Certainly, we have been talking to several companies that possess technologies and processes that we might be interested in, and who might want to open production centers in Brazil. We are currently negotiating with several groups.

In which countries are you looking for those companies?

We are negotiating with companies from Europe, the United States and Asia.

How can a company initiate a contact with your company regarding a joint venture?

Well, they would only have to email us, stating their wish to talk with us. So far, we have been in conversation with several companies.

So, regarding joint ventures, you are looking to expand these possibilities, correct?

Yes, we are always looking out for possible partnerships that will allow us to speed up the process of improving our production matrix and that will allow us to move into new markets. We understand that our sector must also go through a process of consolidation, even more so considering that both sides of our supply chain are going through this process; we cannot stay behind, we must prepare for this new situation in which we have customers and suppliers who are more and more structured. This forces us to be on the lookout for any possibility of strengthening our position within our supply chain.

By moving further down the supply chain, or merging with other suppliers?

I would say by strengthening our current position, and working from there upwards, towards the market. Further down in our supply chain there are very large economic groups, such as steel mills; that is not in our priorities. From our position, all the way to the market, we look for partnerships that allow us to strengthen our position, always assessing the trend that we understand to be the right one for the consolidation of our sector.

That is quite interesting, because that could be a call out to companies that might be interested. Do you intend to attract Brazilian companies or foreign ones?

It can be a call out, but I would say that it is more directed at foreign companies, due to the fact that we are the market leaders in Brazil. Of course we also look for national companies, but there are greater chances of agreements with foreign companies, which will also allow us to move into new markets. We can add technology, new management skills, new product lines and we can also add new markets. So, I would say there is greater potential in foreign companies, although we would not cast aside some Brazilian companies – those who operate in a formal situation, of course; unfortunately there are still companies involved in informal operations in Brazil. So, any companies that follow the principles by which our company guides itself are certainly eligible candidates that we will consider for possible collaborations.

Are you focusing on any specific market or country?

I would say that the current scenario of instability in the developed world must be taken into account at this point. We know that this instability will not endure permanently; it is part of an economic cycle. Europe will surely recover soon, and so will the United States, but I would say that, at this moment, even though there is a slight decrease in China’s growth, Asia still has the biggest growth potential in the next few years. Latin America also has quite a high potential for growth, and of course we cannot ignore Africa, where so much needs to be done. So, basically, we will not be discarding any possibilities; we will analyze the best opportunities, wherever they are.

Which are the greatest assets, the greatest added value that Ciser has to offer, in terms of being able to compete in the world market?

Well, I would say we have a strong brand; the company is over 50 years old – actually, our company is 131 years old, but, in this market segment, we have nearly 55 years. So our brand is quite well established, we have been leading the market for some time and we operate in the totality of the national market. Our company is also known for its sound values, which facilitates identification with other companies with similar values. I would say that most of the companies that have expanded have done so due to their sound values, so this allows for a faster empathy with companies that have sustainable business possibilities.

We have adequate industrial facilities, even though we are currently developing projects for a new production unit, and we will be moving out of this plant, whose location in the middle of the city is becoming too cumbersome. We are working in the preparations for the move, which should take place in the next two to three years. We also have a very modern unit in Minas Gerais, which manufactures parts for the automotive industry and we have invested quite a lot in innovation; we have a technological innovation department and we have created an award for technical innovation in our segment; this is the only award in our sector in Brazil. It stimulates students from universities all over Brazil to become interested in our segment, and we have often been pleasantly surprised with many in-depth works developed in Brazilian universities, which were encouraged by this initiative. Some of these works are in fact being assessed as to their possibility of becoming an economic opportunity, which would benefit the students.

We have foolproof financial stability; our company is highly capitalized, which also gives us confidence for the future – we are not dependent on loans or funding to grow – and we only seek out funding when it is interesting from a financial point of view, not from an economic point of view.

I would say we have a great deal to offer, but we also have a lot to learn from other partners, other companies that have certainly built their story on attributes that can generate equally good results in an eventual partnership.

Is there any other topic that you would like to comment on?

Well, maybe, just as a closing statement, and regarding my earlier remarks on the state of the country, which were rather critical: I did it deliberately, because businessmen tend, by nature, to be optimistic and that, sometimes, conceals the necessity for adjustments. So I would like to say that this critical position we take aims to stimulate corrective actions regarding these systemic difficulties that Brazil is undergoing. The “Brasil Eficiente” movement, with which we are directly involved, is working very hard to correct these problems, and other countries have these difficulties as well; I am certain that these efforts are also being done in those countries. I believe Brazil will be able to recover or increase its competitiveness at a speed that is directly proportional to the intensity of such efforts, and we want Brazil’s competitiveness to grow quickly.

I also want to say that we are optimistic regarding the efforts, the commitments already made by the federal government, especially the will expressed by the President of the Republic, but on the other hand, we understand that structural changes like these can only take place when there is a coordination of interests. This is always a very complex thing to achieve, but I am glad to say that, based on the recent indications of commitment we have been receiving, we are optimistic regarding the future of the country.