This sprawling city of concrete and steel, the largest in all the Americas as well as the southern hemisphere, not to mention being Brazil's business center, is also home to one of the most congested roads in the world. In comparison, Los Angeles residents live in traffic heaven. The situation is such that many senior executives are whisked to work by helicopter (many skyscraper rooftops in São Paulo double up as helipads.) Attending CONARH, Latin America's largest HR event where I moderated a workshop on HR system usage, since my expenses policy did not include helicopter commuting, I decided to stay near the Transamérica Expo convention center where the conference took place thus allowing me to spend more time with Latin America's HR movers and shakers.
And what a difference it makes to be talking with Brazilian heads of HR versus their Northern Hemisphere counterparts. Whereas in the "rich" world (I wonder how much longer we'll be able to call ourselves such a thing) the talk is depressingly about crisis, uncertainty and layoffs with European and American HR directors behaving like rabbits caught in the headlights, here you would think you are on a different planet.
Last month Brazil created 144,000 jobs, higher than the 114,000 jobs created in the US whose population is 30% bigger than Brazil. And, even bigger difference, those Brazilian jobs were net hires, whereas the US had job losses of 60,000. Small wonder that whereas the unemployment rate in Europe and the US has been hovering around 9-10%, in Brazil it is down to a historically low 6%. And when you realize that in the US only less than 30% of companies are planning on hiring, in Brazil the figure is an astonishing 80%.
On most economic indicators the United States has been trailing Brazil
for the past few years and will be doing so in the foreseeable future
These figures were borne out by all the HR leaders I met. I do not recall a single one of them saying that they would keep their workforce at the same level this year and next, let alone downsize: every one was busy adding capacity. And that is the unofficial theme at the conference: labor shortages. Retail, manufacturing, services, banking (HSBC is laying offs tens of thousands of employees in the "rich" world but hiring several thousand in Brazil), hotels (Rio de Janeiro is trying to squeeze thousands of new hotel rooms in the narrow strips between mountain and sea before the 2014 Soccer World Cup and 2016 Olympics), oil and gas. Every head of HR in every industry is wringing their hands that they cannot find all the people they need, and when they do they lose them to the competition. This Brazilian War for Talent inevitably creates other issues: turnover with its attendant salary rises.
Traditionally, salary rises in Brazil have been dictated by government and unions through across-the-board rises to take inflation into account. While this still exists, it has been dwarfed by market realities: with demand outpacing supply, many employees go the highest bidder with Brazilian CEOs drawing now the highest salaries in all the Americas. At the lower end of the spectrum, the strong growth of he economy as well as cash transfers by the government (Bolsa Familia program) and major infrastructure projects has meant that for several years now, every month has seen tens of thousands of Brazilian employees joining the formal workforce.
The upshot of this virtuous circle is that payroll vendors are having a boon. And when I say payroll vendors that is what the Brazilian HR market has traditionally been largely about: Payroll and HR admin, functions whose complexities local vendors have learned to manage for decades when it was a reserved market. And God knows what a complex domain Brazilian labor laws are. In my experience, Brazilian payroll is among the most complex in the world (in the same league as Italy for instance); the list of standard reports and documents to produce or track is huge: employee contract, medical document, signing and stamping several others such as an alphabet soup of CTPS, CPF (for tax purposes), the national ID card (RG), voter's card, a social program called PIS. Some can be validated via an algorithm in the software, others cannot. In a recent World Bank report it was calculated that on average Brazilian companies spend 2,600 hours per month just to comply with regulatory requirements.
The potential for HR electronic filing is huge since many processes such as CTPS registering for new hires are still manual ones (Brazilians have an amazing love for paper; whether it is settling your hotel account or pay a restaurant bill, you will be flabbergasted by the number of forms and receipts that change hands, are signed, checked, calculated on before the process is over.) Things are changing, though, as there are currently discussions to automate many processes ("click contracts" for e-labor contracts.) Time tracking, known in Portuguese as ponto eletrônico, was mandated by law meaning that almost 400,000 Brazilian companies will have to change this year both the hardware and software used to track when employees clock in and out (even for lunch) and create the relevant interfaces with HR systems of record.
When it comes to benefits, Brazilian companies are in a league of their own, with some benefits departments managed as full-fledged businesses. Mining giant Vale, for instance, has marketing executives in its benefits department whose role is to sell benefits and other plans to employee dependents. (In case you are curious, Vale uses PeopleSoft as its HR system of record.) Another interesting feature of the employee-employer relationship is that Brazilian companies oblige their employees to open an account in the bank of the employer's choice where their salaries are paid via direct deposit. This has the advantage of securing more decent banking fees for the employee, but it is obvious that when a company with tens of thousands of employees comes knocking on the door of, say, HSBC Brazil, they get good benefits themselves. (This cozy situation reminds me of Belgium where payroll services providers make a big part of their money by leveraging the time - and therefore interest paid- between the date when they receive funds from employers and the date when they pay salaries into employee accounts.)
As in Spain, health and safety is a big issue in Brazil with a higher rate of workplace accidents than in the US. An HR manager for Petrobras, the Brazilian oil giant (whose IPO last year became, at $67bn, the world's largest) told me an anecdote about the accident rate on their platforms (2 or 3 major accidents per week!) He had a hard time when visiting one of their oil rigs to talk employees out of organizing a churrasco or barbecue, knowing Brazilians' love for grilled meat. Having accurate statistics and providing training are key to bringing the accident rate down to more manageable levels. (Another issue they have in the oil and gas industry is, of course, labor shortages, especially of technical staff.)
Faced with such complexities, but also due to the fact that for a long time Brazil operated as a closed economy and to a certain extent this continent-sized country still feels quite unique (it is the only country in the Americas to have its own language) it is small wonder that the HR software market has traditionally been the preserve of local vendors. The major ones are:
- Totus: Brazil's answer to SAP, it has more revenues than many US software companies (should hit US$1 billion this year) and is even expanding abroad (Mexico and Portugal);
- LG Sistemas (the largest HR vendor with a customer list which is a roll call of the best-known Brazilian companies, many global multinationals interfacing SAP HR to LG's flagship FPW payroll);
- Senior (Vetorh product line) with a strong loyal customer base.
As mentioned earlier, the booming nature of the Brazilian economy is making recruiting an HR leader's daily headache. You might think that this is par for the course for emerging economies. Actually labor shortages are more acute in Brazil with 64% of employees reporting difficulty in filling vacancies versus only 40% in China and 16% in India, according to a Manpower survey. This situation is compounded by the fact that, because Brazilian employees tend to be loyal to their companies, luring them away can only be done by offering them higher salaries, which some are happy to take because companies are happy to offer them.
These developments have led the traditional payroll-cum-HR admin market to give way to an emerging talent management market segment. Salary cost escalation means that if you cannot continue to compete on salary alone, you will have to offer your employees something else to base their loyalty on. Enter career-development plans to give Brazilian employees a stake in both their company and their own professional life. Many HR managers who have been working on competency models have embraced whole-heartedly the various aspects of talent management, launching career-management and competency programs in their companies. Brazilians, who are among the most social and communicative people on earth, have taken to social media enthusiastically (with Orkut rivaling Facebook) showing that it is just a matter of time before tens of millions of consumers of social, mobile HR appear on the map.
The issue is that HR vendors are still slow in providing the relevant tools for that. (For Portuguese readers, I wrote an article on this issue last January and it was published by a Brazilian HR portal) Brazilian vendors, although beefing up their talent management functionality, are still caught in a payroll-HR admin time warp. Strong web-based vendors are yet to emerge. What about global vendors? you might wonder.
Global vendors SAP, Oracle, PeopleSoft, and ADP tend to be used by subsidiaries of (mainly US) multinationals, although the burgeoning number of Brazilian multinationals is also going with these vendors (note that they still tend to favor LG or Totus for their payroll, in spite of SAP having a Brazilian payroll.) Talent vendors such as Taleo or SuccessFactors have a token presence, usually through a local partner, and, like their ERP competitors, are happy to just work on extending the contract to local subsidiaries. At the conference I did not see a single representative from the global vendors, which makes you wonder about their business expansion plans. Considering the current economic climate in the the US and Europe, how can HR technology vendors ignore such a large, growing market as Brazil? With the Brazilian currency, the real, relentlessly appreciating versus the dollar (when I first came to Brazil seven years ago US$1 was worth over R$3, now it has come down to R$1.5, having lost half its value) this means that every customer in Brazil can now add significantly to a global vendor's bottom line. And starting in October, payroll taxes on certain industries such as software, will come down 20% (a move our deficit-ridden "rich" countries can only dream of.)
Every light is blinking green, an inviting green. The land of the four S's (samba, soccer, sun and sex) has every potential to add a four S (software) to its suit. What are global vendors waiting for? For a long time Brazil was known as the country of the future. It has finally become the country of the present, and it is a global vendor's market to lose.
(Ahmed Limam keeps a second home in Rio de Janeiro from where he monitors the Latin American market and provides consulting/advisory services in the region)