Talent and Human Capital for the Brazilian investment and business hub by BRAiN Brasil

Talent and human capital for the Brazilian investment and business hub september / 2011

Talents and human capital for an investment and business hub in Brazil

Preface Brazil’s situation in the world is unique right now: not only is the outlook for growth positive, it also has a significant demographic bonus to nurture and catalyze this growth. In other words, the expected growth of the Economically Active Population should be enough to meet the anticipated demand for professionals. The challenge this country faces is thus how to address the education & training and mobility1 gaps to transform this bonus into a competitive advantage to create an international investment and business hub. This document is BRAiN’s (Brasil Investimentos e Negócios – Brazil Investments and Business) third publication, and offers a deeper understanding of “talent and human capital”, one of the pillars of a hub’s attractiveness, as demonstrated in the report entitled “Attractiveness of Brazil as an international investment and business hub”, launched by BRAiN in June 2011. In addition to presenting a diagnostic of the current situation of the Brazilian talent pool, this report offers examples of successful public and private efforts of how education and training can be used to qualify a larger labor pool, and a proposed vision of how this can be applied to Brazil’s current situation. In preparing this material, BRAiN embarked on an extensive research and analysis effort supported by The Boston Consulting Group, which included interviews and workshops with experts and opinion leaders in government and the private sector. The conclusions of this study, including the suggestions made during the course of the entire effort, will create an agenda for the dialog BRAiN plans to engage in with public and private entities to ensure that Brazil continues to develop its talent pool to become even more attractive as an international investment and business hub.

Created in 2010, BRAiN aspires to ensure the creation of a multi-sector vision of Latin America as a regional business hub with strong ties between members. Brazil should play a preeminent role within this network of hubs. BRAiN plans to create a consensus and calls to action around this idea in all economic sectors. To achieve this, it currently has 13 members: ANBIMA, BM&FBOVESPA, FEBRABAN, Fecomercio, Banco Bradesco, Banco do Brasil, Banco Santander, Banco Votorantim, BTG Pactual, CETIP, Citibank, HSBC and Itaú-Unibanco. Please go to www.brainbrasil.org for more information about BRAiN and its vision.

Mobility includes both foreign professionals who come to Brazil and Brazilian professionals who move abroad to work

Talents and human capital for an investment and business hub in Brazil

Content Executive Summary Talent for a business hub

8 16

Demographics 22 Education and Training

Quantity of education

Quality of education

Alignment between education and the market

International dimension of education and training

Talent mobility

Brain gain

Brain drain

Conclusion 88

Talents and human capital for an investment and business hub in Brazil

Executive Summary The report entitled “Attractiveness of Brazil as an international investment and business hub”, which BRAiN launched in June 2011, required extensive research and data analysis, as well as numerous interviews and workshops with experts and opinion leaders in both the public and private sectors. The objective was to define and measure the attractiveness of Brazil as an investment and business hub. The result of this effort was a selection of seven pillars that constitute BRAiN’s vision of the essential pre-requisites for the creation and excellence of an attractive investment and business hub (see Exhibit 1), and an analysis of Brazil’s strengths and opportunities for improvement in each one of them. This document provides a more detailed focus and proposal for the “Talent and Human Capital” pillar. It is not by chance that BRAiN selected the talent pillar as a key focus. The theme deserves extra effort as it is essential for creating a hub, and is also a point of convergence for the interests of all players in this country. There is a general consensus that talents are the definers of a country’s economic growth – they are required for any business, but especially for those that one normally finds in investment and business hubs. Talents will be the main focus of the world’s business leaders next year. The Brazilian talent pool does not rate well when compared to other international talent pools – according to the Global Talent Index2 it is ranked 25th out of 30 countries, and 3rd out of 10 countries in Latin America. In addition, according to a survey published by HR consulting firm Manpower3, it is next to last on a list of employer difficulty in hiring staff by country. Creating a talent pool is based on three main elements: demographics, education and training and talent mobility (see Exhibit 2). A detailed analysis of these elements shows that Brazil is in different stages of evolution, and thus requires different types and amounts of effort in each one. Possible efforts and next steps were discussed and mapped during the course of numerous interviews and workshops conducted by BRAiN with its associates and experts on the topic, giving rise to the suggestions presented in this document.

2 Source: Heidrick & Struggles, Global Talent Index

Source: Manpower 2010 Talent Shortage Report

Talents and human capital for an investment and business hub in Brazil

Exhibit 1

A business and investment hub is supported by seven pillars

7. image of the Country

6. Connectivity

5. Financial infrastructure

4. Physical infrastructure

3. Talent and human capital

2. Institutional environment

1. Macroeconomic environment

Talents and human capital for an investment and business hub in Brazil

Exhibit 2

The Brazilian talent pool is made up of three elements: demographics, education and training and mobility

Components of the Brazilian talent pool

Demographics Demographics is the basis for creating a talent pool. It indicates the availability or not of a sufficiently large Economically Active Population to create the countryâ&#x20AC;&#x2122;s workforce

Provides the number of people required to create a talent pool

Trains people to perform different roles in the economy

Training and education transforms people into talent, and includes primary, technical and superior education, foreign languages and international experience

Training And education a. Quantity of education b. Quality of education c. Alignment between what education offers and what the market needs d. International character of education

Enables closing a nationâ&#x20AC;&#x2122;s temporary talent gaps Talent mobility refers to the import and export of professionals. mobility is a natural phenomenon and must be managed if it is to benefit the country

a. Brain gain

b. Brain drain

Talent mobility

Enables importing international expertise and expanding/ consolidating the training of domestic talents

Talents and human capital for an investment and business hub in Brazil

Along the demographic dimension, Brazil has a significant quantitative structural advantage: the demographic bonus. Estimates indicate that Brazil is currently the world’s largest economy that expects to have a surplus supply of manpower over the next ten years. All of the economies that are currently larger than Brazil (USA, China, Japan, Germany, France and the UK) expect that the demand for talent will outpace the growth of their Economically Active Populations. Having stated this advantage, we will move on to an analysis of the other two elements of the Brazilian talent pool: education and training and talent mobility. Although Brazil has made strides along both of these dimensions, major effort is still required to provide this country’s needs and overcome its shortcomings. We will start by analyzing education and training, which we have split into four sub-dimensions: the quantity and quality of education, its alignment with the market and the international dimension of education and training.

Quantity of education. Although the organization of the education system in Brazil came later than in other countries, it has made significant advances and primary education is essentially universal; however, at the secondary and superior level there is room to increase the number of matriculated students4: • In 2007, net matriculation in primary school, which is compulsory in Brazil, was 93%, above the global average of 88% and close to universal; • Gross matriculation in secondary school, which will be compulsory in 2016, was 77% in 2007, above the global average of 68% but still far from universal; • In 2007, the gross matriculation in higher education institutions in Brazil was 30%, below the global average of 38% and thus with room for significant improvement. Working sessions with BRAiN associates and education experts resulted in the following suggestions to address the gaps in the quantity of education in Brazil: • Expand technical education, making sure it is aligned with what the market needs. • Implement a system to manage meritocracy in Brazilian schools to fight school evasion; • Improve school management and the qualification of teachers and professors;

Source: UNESCO

• Increase the funding options available to students to increase the number of matriculations in institutes of higher education.

Talents and human capital for an investment and business hub in Brazil

Quality of education. The qualitative side of education in Brazil is more concerning - performance of primary and secondary school students is quite poor, and although Brazil has some of South America’s outstanding universities, most of its higher education institutions are classified as poor or average: • Although primary education in Brazil ranked 12th from the bottom in the 2009 international PISA5 test, it did have the third best improvement of the 65 countries surveyed since 2006; • Only five Brazilian universities are listed among the 600 best worldwide6. Working sessions with BRAiN associates and area experts resulted in the following suggestions to address the gaps in the quality of education in Brazil: • Increase funding for education as a whole; • Rationalize the allocation of funds with more emphasis on secondary school; • Increase and improve teacher compensation; • Improve teacher qualifications and improve their motivation; • Stricter monitoring of the quality of higher education; • Promote greater interaction of higher education institutions and the market.

Alignment between education and the market. The limited alignment between what education offers and what the market needs also weakens Brazil’s position in the talent and human capital pillar: • Brazil is the fifth worst of 58 countries in this regard, based on an IMD7 survey of executives; • Only 2% to 4% of the research conducted at Brazilian universities is co-authored by businesses, unlike the situation in the USA, Japan, Germany, the UK and South Korea, where businesses co-author 10% to 20%8 of all university research. Working sessions with BRAiN associates and area experts resulted in the following suggestions to address the gaps in the alignment between education and the market in Brazil: • Rationalize contracting requirements and use flexibility where appropriate; • Align competences with compensation levels and career opportunities; • Create medium and long term education agendas that are aligned with the competences the market demands;

5 Program for International Student Assessment: a test applied by the OECD to 15 year olds in 65 countries

Source: QS World University Rankings 2010

IMD World Competitiveness Yearbook

Source: Center for Science and Technology Studies- Leiden University (Netherlands) 8

Talents and human capital for an investment and business hub in Brazil

• Foster a closer relationship between academia and the workplace; • Fund academic research focused on company needs; • Structure a national certification system. International dimension of education and training. This country’s shortcomings in the teaching of foreign languages and international experience are well known: • According to an IMD8 survey, 43% of executives in Brazil believe that knowledge of foreign languages in Brazil is below market needs; • The number of Brazilian students that leave the country on exchange programs is less than 0.1 per thousand inhabitants, and the number of foreign students who come to Brazil on exchange programs is almost zero9. Working sessions with BRAiN associates and area experts resulted in the following suggestions to address the gaps in the international dimension of education and training in Brazil: • Increase the quantity and quality of foreign language teaching students receive during their basic education years; • Make extracurricular language courses universal; • Increase student exposure to foreign languages; • Expand the number of agreements between teaching institutions in Brazil and abroad to foster student exchange; • Increase the international experience of Brazilian students. A third dimension of a talent pool is talent mobility, especially important in a world that is increasingly global. If well managed, talent mobility can significantly benefit this country. Brazil does not suitably address any of the dimensions of talent mobility – brain gain, which is the arrival of foreign professionals in Brazil, and brain drain, which refers to Brazilian talents leaving the country to work abroad:

Source: Center for Science and Technology Studies- Leiden University (Netherlands)

Source: IMD World Competitiveness Online

• According to the executives surveyed, in terms of its attractiveness to foreign professionals, Brazil is ranked only 27th out of 58 countries. However, this is changing with this country’s economic performance, which has attracted numerous multinationals, and led to the growth of specific areas of R&D10;

10 Source: IMD World Competitiveness Yearbook, analyzing agreement with the following statement: Foreign highskilled people are attracted to your country’s business environment

Talents and human capital for an investment and business hub in Brazil

• Executives feel Brazil is one of the hardest countries for professionals to immigrate to, given the number of documents required, and the very bureaucratic and costly process involved in obtaining a visa11; • Brazil has no structured initiative to deal with its network of expatriates: in 2009 there were about 3 million Brazilian talents living abroad, almost 1.5% of the entire population12. Other developing nations such as Chile and India have initiatives to manage their diasporas. Working sessions with BRAiN associates and area experts resulted in the following suggestions to address the gaps in talent mobility in Brazil: • Map the competences this country lacks and disclose them worldwide; • Reduce immigration bureaucracy and make it more flexible in selected situations; • Put together a group of companies to jointly recruit foreign executives; • Create a tool and/or an entity to manage expatriates in a structured manner. Brazil has a solid basis for building a talent pool, but it needs to take important steps to consolidate its position in the human capital pillar, one of the pillars of an attractive business hub. These steps are mostly in the area of education and training and talent migration, and are perfectly feasible so long as all sectors of society are committed. The potential of the Brazilian talent pool will be even easier to attain if it is managed by a multisectoral body that takes on the responsibility of mapping the country’s talent pool and the current and future gaps so that the proper initiatives to close these gaps may be planned, as in the case of international references such as Australia and the UK, discussed further along in this report. Source: IMD World Competitiveness Yearbook 11

Source: Brazilian Ministry of Foreign Relations

BRAiN welcomes all representatives or members of society interested in participating in future strategic dialogs or in working groups created to enhance the Brazilian talent pool and consequently the attractiveness of Brazil as an investment and business hub; interested parties should contact BRAiN at contato@brainbrasil.org.

Talents and human capital for an investment and business hub in Brazil

Talents for a business hub

A business hub needs a number of activities that support the economic interaction of the various agents. By its very nature a hub requires that there be a structured and developed pool of talents with the required technical knowledge to perform all of the activities inherent to the businesses present, and that these may use as a source of manpower. Leading contemporary economists such as Paul Romer and Roberto Barro agree that the talent and human capital pillar is essential for a business hub. Harvard University economists such as Barro, for example, believe human capital is one of the three key elements of economic development, together with a nationâ&#x20AC;&#x2122;s economic governance and starting per capita income. The economic importance of a talent pool is also made evident by the effects that not having such a pool is causing in Brazil: the shortage of qualified manpower is a limiting factor for national growth, and there are numerous and repeated examples in the media of projects and activities that are delayed because qualified labor is simply not available. This situation is also starting to create a measure of inflationary pressure. The minutes of the first 2011 meeting of the Brazilian Central Bankâ&#x20AC;&#x2122;s (BACEN) Monetary Policy Committee (Copom) warns that the shortage of labor may drive up real salaries beyond this countryâ&#x20AC;&#x2122;s increase in productivity (see Box A).

Talents and human capital for an investment and business hub in Brazil

BOX A

In Brazil, the talent shortage is pressuring inflation

The shortage of manpower in Brazil is pressuring inflation. At the January 2011 meeting of the Brazilian Monetary Policy Committee (COPOM), the Central Bank (BACEN) called attention to the risk of higher inflation in Brazil because of the “very limited amount of spare inputs, in particular manpower”. “Under situations such as this an important risk is the possibility that nominal wages will be up at rates that are not compatible with increases in productivity”, says the document. The concern revealed in the minutes of the Copom meeting is reflected in the increases in wages seen as a result of this country’s manpower shortage. These in turn drive up costs and consumer prices. These same minutes go on to give another example: “The increase (in 2010) of the National Civil Construction Indicator (INCC) was 7.7%, quite a bit higher than the 2009 increase of 3.25%, largely due to a 10.41% increase in the cost of labor.” Along these same lines, according to DIEESE (the inter-union department of statistics and socioeconomic studies), 97% of the categories that negotiated wage increases in the first half of 2010 succeeded in securing increases higher than inflation. Wages are going up not only for technical and operating personnel, but across the board. According to a survey by Valor Econômico, a Brazilian newspaper, compensation paid to company directors in aggregate form went up 36% in 2010 compared to the previous year. This survey covered 189 traded companies and was published in April, 2011. The labor shortage is pressuring inflation not only in Brazil: the Central Bank of China has been issuing similar warnings since mid 2010. Source: Brazilian Central Bank, DIEESE, media survey, BCG analysis

Talent and human capital are at the top of executive agendas all over the world. According to PricewaterhouseCoopers’ (PwC) 2011 “Annual Global CEO Survey”, talent management strategies shall be the largest focus of change in the coming months (see Exhibit 3). Because it is based on service industries, a hub will have an even greater need for talent, as services in general need more and better qualified people: in Brazil, 67% of those employed in the service industry have at least the equivalent of a high school education, and 25% have university degrees. In other segments of the economy these percentages are only 43% and 9% respectively13. Despite its importance for creating a Brazilian hub, this country’s talent pool does not compare well with that of other nations. In fact, Brazil ranks only 25th out of a list of 30 countries in the Global Talent Index14 (see Exhibit 4), behind even countries such as

13 Data refers to total formally employed in Brazil at the end of 2009. Source: RAIS-CAGED

Source: Heidrick & Strugles, Global Talent Index 14

Talents and human capital for an investment and business hub in Brazil

Exhibit 3

Talents are on executive agendas the world over

Talents will be the focus of change in the coming months Global executive intention to change their organizations in the next 12 months - Ref.: 2011 17%

Talent management strategy

52%

31%

54%

23%

Risk management approach

23%

Investment decisions

23%

48%

28%

Organizational structure (including M&A)

25%

47%

27%

Corporate reputation and trust

Capital structure

36%

50%

41%

34%

22%

15%

No change Some change

Interaction with the Board of Directors

52%

34%

12%

Major change

% respondents Source: PwC Annual Survey of Global Business Leaders, press survey; BCG analysis

the Ukraine, Thailand, South Africa and Egypt, among others. In addition, according to a survey published by HR consulting firm Manpower15, it is next to last on a list of employer difficulty in hiring staff by country (see Exhibit 5), mostly because of gaps in education and training. If we look at the region, Brazilâ&#x20AC;&#x2122;s talent pool is ranked third out of 10 Latin American countries surveyed, behind Chile and Mexico16. Also, although Brazil is number one in demographics and the quality of its higher education, it lags behind in other areas of education and training, and in talent mobility.

Source: Manpower 2010 Talent Shortage Report

Source: Heidrick & Strugles, Latin American Talent Index

This report explores Brazilâ&#x20AC;&#x2122;s current talent and human capital situation, as well as the opportunities it has to strengthen its talent pool so that it may successfully create a business hub. We will address this by looking at the three dimensions that create a pool, each of which is discussed in detail in the chapters that follow: demographics, education and training and talent mobility (see Exhibit 2 on page 10).

Talents and human capital for an investment and business hub in Brazil

Exhibit 4

The Brazilian talent pool still ranks poorly compared to international benchmarks

Brazil is ranked 25th out of 30 countries in the 2012 Global Talent Index

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.

USA UK Canada Netherlands Sweden China Germany Australia France India Spain Malaysia South Korea Japan Poland

16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30.

Italy Ukraine Russia Mexico Greece Argentina Thailand South Africa Egypt

Brazil Turkey Saudi Arabia Nigeria Indonesia Iran

The main gaps in Brazil are talent training and talent mobility

Demographics

5th

Demographics (EAP1)

Talent education & training

23rd

Quality of the required schooling

26th

Quality of teaching in universities and business schools

Talent mobility

23rd Mobility and openness

of the local job market

24th

The ability to attract talent fromother countries

EAP: Economically Active Population. Note: in addition to the items above, the ranking also takes into account the “Quality of the environment to generate and develop talents”, where Brazil is ranked 19th, and the “Ability to attract foreign direct investment”, where Brazil is ranked 18th. / Source: 2012 Heidrik & Struggles Global Talent Index; BCG analysis

In this new era of major volatility and lean organizations, talents are becoming the new “it”, replacing capital as the competitive differential [...]. We are entering a new era – the “Human Era”. Jeff Joerres, CEO and Chairman of Manpower Inc.

Talents and human capital for an investment and business hub in Brazil

Exhibit 5

64% of businesses in Brazil have trouble finding professionals, and is ranked second from the bottom % companies with problems finding talent - 2010 JapAn

76%

braZil

64%

argentina

53%

SingapOrE

53%

PolAnD

51%

australia

45%

Hong Kong

44%

MExico

43%

PerU

42%

TaiwAn

41%

China

40%

PanamA

38%

Costa Rica

36%

Guatemala

36%

Rumania

35%

Colombia

35%

SWITZERLAND

35%

ItalY

Technicians1 Manual laborers2 Plant operators Administrative administrators Laborers Engineers Drivers Finance and accounting staff IT technicians Sales representatives

31%

Hungary

30%

NEW ZeAland

30%

GERMANY

29%

GREECE

29%

BELgiUM

27%

FranCE

23%

CanadA

21%

Czech Republic

19%

SWEDEN

18%

Netherlands

17%

India

16%

SOUTH Africa

16% 15%

USA

14% 11% 9%

IrEland 4%

Global average 31%

SPAIN

GREAT BRITAIN

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

36%

Austria

NORWAY

Functions ranked according to the shortage of talent in Brazil

1. Operators, maintenance technicians, engineers. 2. Electricians, plumbers, carpenters, etc. Note: Brazil is ranked 2nd out of 36 countries. / Source: Manpower 2010 Talent Shortage Report.

Talents and human capital for an investment and business hub in Brazil

Demographics Demographics is the raw base from which a qualified talent pool will be created. It is the availability or shortage of an Economically Active Population (EAP), which is the raw material of a country’s labor force. If we look at projections of economic growth and working age populations in developed nations we find that demographics will soon be a reason for concern. An HSBC17 survey shows that, although the economies in these countries will continue to grow, their working age populations will not. Thus if there is no increase in labor productivity, some countries may face a talent “blackout” (see Exhibit 6).

HSBC Report entitled “The World in 2050”

Exhibit 6

In developed nations, growth of the EAP will not keep up with the growth of their economies Economic growth is expected to be positive ...

...but the EAP grows only in developing nations

Developed nations1

Economic growth - % p.y. CAGR 2010-2040

CAGR 2010-2040

0.9%

-0.1%

2.6 2.0 1.2

1970s

Developing nations2

Population of working age (billion)

3.2

1980s

1990s

2000s

0.9

2010s

0.9

2020s

0.9

2030s

1.0

2040s

Economic growth - % p.y.

0.77

0.84

0.81

0.75

1990

2010

2030

2050

Population of working age (billion) CAGR 2010-2040

CAGR 2010-2040

0.5%

1.8% 0.8

0.8

1970s

1980s

1990s

1.2

2000s

1.6

1.8

1.9

3.70

4.48

5.14

2.53

2010s

2020s

2030s

2040s

1990

2010

2030

2050

1. USA, Japan, Germany, UK, France, Italy, Canada, Spain, Australia, Netherlands, Sweden, Switzerland, Belgium, Austria, Norway, Denmark, Greece, Finland, Ireland 2. China, India, Brazil, South Korea, Mexico, Argentina, Russia, Turkey, Indonesia, Saudi Arabia, Poland, Hong Kong, South Africa, Thailand, Israel, Singapore, Iran, Egypt, Venezuela, Malaysia, Colombia / Note: EAP = Economically Active Population / Source: HSBC’s “The World in 2050”, UN; BCG analysis

Talents and human capital for an investment and business hub in Brazil

This same study shows that, as a rule, developing nations do not share this problem, all of them are expected to have growing economies and sufficient people of working age to sustain this growth (see Exhibit 6).

Supply and demand in this analysis are purely quantitative and does not take into account manpower qualifications 18

Stimulating Economies through Fostering Talent Mobility

Given this, Brazil has a significant structural advantage in that it is the largest economy in the world whose EAP grows sufficiently to cover the expected increase in the demand for labor18. A study published in early 2010 by BCG and the World Economic Forum (WEF)19 (see Exhibit 7) reveals that in all economies larger than Brazil - the USA, China, Japan, Germany, France and the United Kingdom â&#x20AC;&#x201C; the demand for labor will outpace supply.

Exhibit 7

Brazil and India are the worldâ&#x20AC;&#x2122;s largest economies with a surplus EAP

Gap between labor supply and demand - 2010-2020 RUS -0.6% CAN -0.3%

GBR -1.1%

DEU -0.7%

SUE 0.3%

POL -2.6%

FRA -0.7% ESP 0.1%

USA -0.6%

ITA -1.3%

TUR -1.3%

MEX 0.4%

CHN -1.7%

EGY 2.0% IND 1.8%

BRA 1.6%

IDN -O.3%

ZAF 0.9%

Labor shortage

JAP -2.3%

Limited deficit or surplus

KOR -2.6%

Growing labor supply

AUS -1.2%

Average difference in the scenarios including and excluding the effects of the global economic crisis

Note: the data submitted is based on a quantitative vision and does not reflect qualitative factors (e.g.: qualification) / Source: Stimulating Economies through Fostering Talent Mobility, BCG & WEF; EIU Country Data; BCG analysis

Talents and human capital for an investment and business hub in Brazil

Awareness of the labor shortage has given rise to discussions all over the world. At the 2011 Davos Meeting, the World Economic Forum debated this theme for second consecutive year and published its second report on talent mobility as a means to handle the global labor shortage. Companies are also starting to consider strategies to resolve the difficulty they have to hire talent, increasing their international recruiting efforts and even going as far as stating they would consider moving to a new location in search of a larger or better qualified pool of workers (see Exhibit 8).

Exhibit 8

Businesses will mould their strategies around the search for talent

Companies are considering changing their strategies to solve the problem of labor shortage % companies that would consider moving to new areas in search for talent North America

Latin America1

EUROPE2

North America

Latin America1

32 6

AFRICA

Developed Asia4 PacIfic 3 RIM5

EUROPE2

22 11

AFRICA

25 16

Emerging ASIA3

38 9 19

% companies that would consider international recruiting

Emerging ASIA3 Developed Asia4 PacIfic RIM5

1. Includes Mexico 2. Includes Russia 3. China, India, Indonesia, Malaysia, Papua New Guinea, Philippines, Sri Lanka, Thailand, Vietnam. 4. Japan, Hong Kong, Singapore, South Korea, Taiwan. 5. Australia and New Zealand. Source: BCG People Advantage Report 2008, Global Talent Risk â&#x20AC;&#x201C; Seven Responses, WEF & BCG; BCG analysis

22 48 20 60 23 56 25 52 22 64 27 57 33 60

2007 2010 - 2015

Talents and human capital for an investment and business hub in Brazil

“We are entering an era of unprecedented talent shortage. If unaddressed, this will halt economic growth around the world and will fundamentally change how we handle labor challenges.” Jean Charest, Quebec Premier

Starting from a demographic base that is not only favorable but unusual among large economies, Brazil has the capacity to attract businesses and make its talents one of the differentials offered by its business hub. However, this means far more than just having enough people. It must make sure it has relevant strengths along the other two dimensions: education and training and mobility. If it does not, the Brazilian talent pool will continue to detract from this country’s attractiveness, depleting businesses in this country as people migrate to other nations in response to international recruiting efforts (see Exhibit 9).

Exhibit 9

The availability of qualified talents will determine how attracted businesses are to Brazil

Companies must migrate to locations where more labor is available

Brazil can attract businesses... With a developed talent pool, Brazil could attract businesses seeking locations where qualified labor is available

Based on people availability, Brazil could attract businesses or merely export talent – the difference lies in how it manages this availability

...or simply export talents However, if it does not have a well developed talent pool, Brazil will only enhance its role as an exporter of qualified labor

Talents must migrate from nations with excess labor to those where there is a shortage of labor

Talents and human capital for an investment and business hub in Brazil

Education and traininG To build an effective talent pool, a nationâ&#x20AC;&#x2122;s economically active population must be suitably educated and trained. Merely having enough people of working age is not sufficient to provide the manpower required for national growth, they must be properly educated and trained to meet the needs of the businesses that already operate here and others that the hub will attract. If one looks at the situation around the world, it becomes clear that there is a strong correlation between years of schooling and per capita income or, in other words, wellbeing and economic growth. Countries where on average the population has more years of schooling also have higher per capita incomes, good examples being the USA, Germany and New Zealand (see Exhibit 10).

Exhibit 10

Education is the basis of talent training and a determinant for a countryâ&#x20AC;&#x2122;s development National per capita income US$ thousand PPP in 2010

100

Qatar

Outliers - countries with low levels of education but large incomes are major crude oil exporters

KUWAIT BrunEi USA

Germany Equatorial Guinea

new zealand

BRAZIL

Source: Data used by the UN to calculate its Human Development Index; BCG analysis

14 Years of schooling, 2010 average

Talents and human capital for an investment and business hub in Brazil

The situation is no different in Brazil. In a survey launched in February 2011, Ipea20, Brazil’s Applied Economic Research Institute, illustrates the importance of educating and training talents by concluding that, in Brazil, investments in education deliver more economic results than any other social investment. A 1% of the GDP increase in the amount invested in education will result in a 1.85% increase in the economy, compared to 1.70% increase for the same amount invested in healthcare and 1.57% invested in aggregate demand. Investments in education also contribute more than other investments to increasing household income (see Exhibit 11).

20 “Social Policy Spending: drivers of growth with income distribution”, Ipea

Exhibit 11

In Brazil, investments in education generate the highest returns In Brazil, education contributes more to GDP growth than any other social investment...

... it is also the largest contributor to a higher household income in Brazil

Increase in GDP resulting from a 1% of the GDP increase in each type of spending

Increase in household income resulting from a 1% of the GDP increase in each type of spending 1.85%

Education

1.70%

Healthcare Aggregate demand

1.54%

Commodity exports

1.44%

Healthcare Aggregate demand

1.17%

Investments in civil construction

1.14%

1.57%

Investments in civil construction

1.67%

Education

1.40% Brazilian GDP multiplier (%)

Commodity exports

1.04% Brazilian household income multiplier (%)

Source: “Social Policy Spending: a lever of growth and income distribution”, an Ipea publication

Organized education in Brazil came rather late. It was not until 1930 that the Ministry of Education was created, making primary education compulsory (see Exhibit 12), something the USA and Europe had already done in the 19th Century. Starting in the thirties, the education of Brazil’s population grew quite fast, and even more so in recent decades. Between 1920 and the late 2000s the schooling rate went from 9% to 86%, the literacy rate from 30% to 90% and the number of children matriculated in primary and secondary school increased from one million to 42 million (see Exhibit 12).

Talents and human capital for an investment and business hub in Brazil

Exhibit 12

Although its history is recent, education in Brazil has made great strides The history of education in Brazil is short, and has evolved significantly since 1930 Number of years of compulsory education

The OECD average of 10.4 years will be surpassed by Brazil in 2016

8 8

4 4 2

1970

1930

In Brazil, organized education came only late: Europe and the USA organized their educational systems in the 19th century

1998

2006 2010 2016

including 4 years of English

including 3 years of Spanish

The country has made major progress in schooling, literacy and the number of children and youth matriculated in schools1 % population

100 74

Literacy (15+ years)

Schooling (5 â&#x20AC;&#x201C; 10 years)2

44 30 21

1920

1930

1940

1950

1960

1970

1980

1990

2000

2010

# of matriculations (M)

Primary School

40 33

Secondary School Higher Education

20 7 3

1920

9 5

1 1

1930

1940

1950

1960

1970

1980

1990

2000

2010

1. Data for 1980 estimated as the average between 1970 and 1990 for data continuity purposes. Data for the 1990s actually refers to 1992. 2. Schooling refers to the number of students in a given age group as a percent of the total number of persons in the same age group. Source: MEC; Inep; IBGE; Ipea; Organization of Ibero-American State for Education; BCG analysis

Talents and human capital for an investment and business hub in Brazil

Brazil made advances in education in just a short period of time, and now its Economically Active Population (EAP) is at a higher level than other countries with a positive balance between labor supply and demand: 40% of the economically active population has at least a secondary school diploma, compared to 33% in Pakistan, 37% in Mexico, 29% in Indonesia and 9% in India (see Exhibit 13). However, if we compare ourselves to developed nations we find that Brazil still has a long way to go. In Hong Kong, Singapore, the UK and the USA 70%, 75%, 79% and 91% of the population respectively have at least a secondary school education (see Exhibit 13).

Exhibit 13

The level of education in Brazil is higher than in other countries with a surplus EPA International business hubs

Populations with excess EAP

% EAP by level of education - 2008

1% 14%

12%

11%

17%

9% 13%

9% 29%

38%

8% 11%

29%

45% 23%

35%

23% 46%

39%

17% 62%

52% 31%

Singapore

12%

33%

HONG KONG

Higher Education

Secondary School

USA

Primary school through 8th grade

17%

27% 19%

20%

22%

4% 5%

INDIA1

INDONESIA

Primary school through 4th grade

2% 15%

15%

12%

22%

26%

MEXICO

PAKISTAIN

Pre-school

1. Segmentation for India estimated based on the population breakdown in the 2001 census / Source: International Labor Organization, The Economist, Indiaâ&#x20AC;&#x2122;s 2001 Census; BCG analysis

Although behind important business hubs, numerous examples make it clear that Brazil can catch up with the proper, well managed effort. In the 1960s, the level of education of the Asian Tigers â&#x20AC;&#x201C; Singapore, Hong Kong, South Korea and Taiwan - was similar to the level in Brazil today, and now they are at a level equivalent to developed nations such as the USA and the UK, and may serve as benchmarks for the type of development and evolution the Brazilian education system must undergo in the coming years (see Exhibit 14).

18%

31% 9%

None

BRAZIL

Talents and human capital for an investment and business hub in Brazil

Exhibit 14

Growth in education in the Asian Tigers was important for their economic growth

Human capital was largely responsible for the growth of the Asian Tigers Average annual economic growth - 1960 to 1990 4.4%

South Korea

4.4%

1.7%

10.5% Financial capital

3.6%

Taiwan

3.6%

2.4%

9.6%

Productivity Human capital

-0.3%

Singapore

6.1%

3.0%

Hong Kong

-2

2.7%

2.3%

2.0%

8.5%

7.3%

Source: The Tyranny of the Numbers in The Economics of Development â&#x20AC;&#x201C; Perkins, Radelet, Snodgrass, Gillis, Roemer

The transformation of the South Korean education system is truly iconic and recognized the world over (see Exhibit 15). In the 1960s the percentage of its population that had completed secondary school was less than 10%21 of the total, and quite similar to Brazil today. South Korea started by focusing its efforts on secondary education, and by 1995 fully 40% of its population had a secondary education, while Brazil was still taking timid steps in this direction, with 10% of its population finishing secondary school. Investments in human capital, among other factors, allowed South Korea to increase its per capita income at annual rates of around 8.4% between 1960 and 2010, starting at a level lower than Brazil to arrive at a per capita income that today is more than double Brazilâ&#x20AC;&#x2122;s. Some of the changes that South Korea implemented played a key role in transforming education and contributing to its development, and Brazil has all of the necessary conditions to focus its efforts and replicate these achievements. Among these initiatives is primarily the concentration of resources focusing on primary education, stressing the importance of teachers in the learning process, reviewing wage policies and the time dedicated to students and, above all, making sure upper education is aligned with market needs. 21

Source: World Bank

Programme for International Student Assessment. Applied in 65 countries in 2009: OECD + guests. Source: OECD. 22

In recent decades Singapore followed a path similar to South Korea. Starting from underdeveloped education levels in the 1960s, Singapore is now among the top performers when it comes to education. Fully 80% of all students complete the minimum 16 years of schooling and the country is 4th ranked out of the 65 countries that apply the PISA test22.

Talents and human capital for an investment and business hub in Brazil

Exhibit 15

South Korea has shown that it is possible for a country to change its educational level, if the process is well managed Initially at similar levels, South Korea took a leap in education before Brazil and reaped significant economic fruits

The South Korean education revolution had the strong support of the government and structured initiatives

Schooling in Brazil and South Korea

Changes in education in South Korea focused on a few key points to ensure success

% of the population that completed secondary school

• Government investments focused on ensuring the quality of primary education, and were complemented by private investments in higher education

50 40.8

37.8

26.3

South Korea BRAZIL

20 10

• Higher education more aligned with market needs Aligned technical education Science and technology institutes were created

10.6

8.7

• The role of teachers was stressed Attractive compensation policies Full time job in a single school Emphasis on having time to work with students

4.2

1960

1970

1980

1990

2000

2010

Through 1995 schooling levels in Korea were about 4 times what they were in Brazil CAGR (1980-2010)

Per capita income (US$ PPP k)

KOR

2.6

8.4

17.2

29.6

8.4%

BRA

3.7

5.4

7.4

11.2

3.7%

1. Population older than 15 Source: World Bank; EIU; media survey; BCG analysis

Singapore’s advances are based on quantitative and qualitative improvements in education. Teacher preparation was particularly emphasized; talented young people were encouraged to pursue a career in teaching, teaching became a more prestigious profession, with wages competitive compared to what the market offered. Educators received intense training in pedagogical practices (a system analogous to a medical internship/residence). In addition, the use of technology became a priority and there was a shift in mindset in terms of how to manage schools, focusing on improving the quality of education, defining a vision and mission for the schools and instituting professional management, just as private enterprise does, so as to pursue performance improvements. Abu Dhabi is another example of a country that evolved its educational system by focusing on education and training aligned with market needs. Facing the need to diversify its economy, the Abu Dhabi government kicked off a comprehensive project to review its educational system, using best practices borrowed from other nations to map the country’s projected

Talents and human capital for an investment and business hub in Brazil

growth and that of specific industry sectors and its pool of qualified labor. This map resulted in a detailed investment and action plan for education. Initiatives, both public and those taken by business and other teaching institutions, are tracked every two weeks or every month during the implementation phase (see Exhibit 16). Some of the Abu Dhabi initiatives are: • Prioritization of a mixed education model, where schools are responsible for providing theory and businesses for providing practical and technical training in their own laboratories and/or through internships; • Research stipends in the areas considered a priority by the government, thus providing direction and focus for the country’s academic output; • An ample school certification and inspection system to ensure education of at least a minimum standard of quality; • Making the immigration bureaucracy more flexible for qualified professionals in the priority areas or in areas where the overall map pointed to more demand. Brazil starts from a solid basis and has the conditions required to advance in the education and training of professionals for its talent pool. The next sections will analyze the current status and next steps required to train people in Brazil, looking at the four main elements: the quantity and quality of education, its alignment with the market and the international character of education.

Exhibit 16

Abu Dhabi has shown that focused initiatives can improve the alignment between education and the market The Ministry of Education looked for options to address the shortage of specialized labor

Numerous initiatives were generated and about 35% of them have already been implemented

In an effort to diversify its economy, Abu Dhabi needed to solve its shortage of qualified labor in focus industries. Examples:

More than 20 restructuring initiatives were defined, focusing on clear objectives that included:

• Light manufacturing industry • Renewable energy • Water treatment (desalinization) • Medical services

• Ensuring education aligned with market needs • Increased employability of its citizens • Making technical education accessible • Develop skills to manage the system among the government entities involved

Lacking a cohesive system for technical education in the country, the government created a project to review and design technical education

The country has already implemented the first initiatives

• Broad benchmarking effort involving a number of countries

• The legal and institutional changes required to implement the new education model have been completed

FINLAND / INDONESIA / AUSTRALIA / DENMARK NETHERLANDS / Japan / Belgium / Austria / Germany Switzerland / USA / Ireland / France / Hungary CANADA / SINGAPORE / Norway / Sweden UK / MEXICO / SOUTH AFRICA / ARGENTINA EGYPT / Scotland / Czech Republic / TURKEY • Extensive involvement of businesses and educational institutions

• Businesses are already in contact with teaching institutions • The process to inspect and certify schools has been implemented, ensuring quality and offering students information about the options available to them Source: BCG analysis

Talents and human capital for an investment and business hub in Brazil

Quantity of Education An analysis of the quantity of education in a country is related to the level of schooling achieved by its population in general. This section focuses only on quantity, although it is recognized - and addressed further in this report - that the quality of education also plays a fundamental role in creating talents. Ensuring universal access to education is the first step in consolidating the education platform, based on which one may discuss qualitative improvements. Despite its relatively short history, education in Brazil has made important strides and the net primary school matriculation rate23 is 93%, which is higher than the global average and close to universal (see Exhibit 17). The very important achievement of close to universal primary education dates only from the last decade and is the result of government efforts to build schools. The big challenge now lies in reducing school abandonment and evasion rates24, currently around 5% and 14% respectively. Because of this, only 63% of all children complete primary education at the correct age25.

Excludes students held back and people not of school age

Abandonment means students who leave but return the next year. Evasion means students who leave and do not return to school

Source: “Todos pela Educação” Movement

Exhibit 17

Primary education in Brazil is almost universal and provides a solid basis for the country’s talent pool

Primary education in Brazil is almost universal Net matriculation among school aged children % in 2007

100

top 10: 99% Global average: 88%

JAPAN

MEXICO

CHILE

BRAZIL

Source: UNESCO; “Todos Pela Educação” movement; BCG analysis

Talents and human capital for an investment and business hub in Brazil

In response to these obstacles, automatic promotion or a cycle system was instituted as a means to fight school evasion in the initial years, which is when children are learning to read and write. Such systems have proven effective in other nations such as France and Japan, where they are applied to small classes where students are followed almost on a one-on-one basis, with after-school reinforcement activities, continued reviews and extremely qualified teachers. In Brazil, children have been automatically promoted without any of these advantages being in place, which defeated the purpose of the system and had a negative impact on the quality of education in general. In a survey of teachers in the state education system in São Paulo, 91.9% claim that students are promoted from one grade to the next without having learned the content taught. In addition, fully 91.2% of the respondents claim they are unhappy with the current system26.

26 “Revista de Educação” magazine # 13, APEOESP (State of São Paulo Union of Government School Teachers)

Gross matriculation in secondary school is 77%, higher than the global average but far from universal (see Exhibit 18). Secondary school in Brazil will become compulsory in 2016, which opens up the opportunity of offering these added years to all young people in Brazil. An increase in the matriculation rate requires that more schools be built and has provoked a qualitative discussion of the model to be implemented across the country, possibly linked to some form of technical education, which is the focus of the next section in this report.

Exhibit 18

Matriculation in secondary school is higher than the world average, but not

Brazil has room to increase the quantity of its primary education Gross matriculation among school aged children % in 2007

100 98 top 10: 94%

85 80

77 71

Global average: 68%

Source: UNESCO; BCG analysis

JAPAN

CHILE

BRAZIL

MÉXICO

Talents and human capital for an investment and business hub in Brazil

Matriculation in higher education in Brazil drops to 30%, lower than the global average of 38% (see Exhibit 19). Nevertheless, the good news is that the number of matriculations in higher education is growing faster than the population. These advances are primarily the result of growth in the number of private schools (see Exhibit 19). The public education network also grew over the period, fostered by programs such as REUNI, designed to expand the number of places available in federal schools, and the creation of institutions such as USP Leste. There has been a significant increase in the number of large groups investing in higher education in Brazil, which together with government programs to encourage stipends, such as PROUNI (Programa Universidade Para Todos or University Education for All Program), and the availability of student loans (FIES or Fundo de Financiamento ao Estudante do Ensino Superior) have promoted an increase in the number of matriculations in higher learning institutions in Brazil. In terms of courses offered, one of the pillars of expanding higher education is the availability of what are known as technology courses (similar to an associate degree in the USA). These are shorter than traditional courses, normally two or three years, and quite focused on the job market. The number of students matriculated in technology courses increased 26.1% between 2008 and 2009, while in traditional university courses growth was only 2.5%. In 2009, 11% of all students were matriculated in this type of course, which is expected to continue to expand its share27. The growth of higher education, in particular technology courses, is beneficial for Brazil as it ensures a greater alignment between education and what the market needs. This must continue, but without harming the quality of education28, as discussed in the next section.

Proposal to address the gaps in the quantity of education in Brazil The quantitative education base in Brazil is large enough for the country to evolve and create a solid platform for its talent pool. Nevertheless, there are important next steps to ensure the country continues to stay on track. Working sessions with BRAiN associates and area experts resulted in the following suggestions to address the gaps in the quantity of education in Brazil: • Improve school qualification and management: the quality of the teaching institutions is important to capture student interest and retain them within the school system. Thus professional management of primary and secondary schools and better qualified teachers are levers to increase the quantity of education. For example programs such as the Federal Government’s PDDE (Programa de Dinheiro Direto na Escola or Cash Straight to the Schools Program) provides financial support and improved school management for schools that commit to the goals in the “All for Education” (Todos pela Educação) program; • Customize the type of education based on performance to fight student evasion: providing more flexible options for students to pursue their education would be an important item for student retention. Systems that offer tailored options for students with special needs as well as for gifted students are able to reduce school evasion and abandonment, and are in use in other countries such as the USA;

27 Higher Education Census – 2009 (MEC) 28 Unfortunately quality is not guaranteed in all courses. In 2009 , of the 4,449 technology courses listed in the Higher Education Census, only 38% had ever been assessed by the Ministry of Education

Talents and human capital for an investment and business hub in Brazil

Exhibit 19

Higher education is growing, but remains below the world average Matriculation rates in higher education are low in Brazil Total matriculation rate1 among the school age population in 2007 %

100

top 10: 79%

52 Global average: 38%

40 30

JAPAn CHILE

BRAZIL MEXICO

The number of people matriculated in colleges and universities is increasing, driven primarily by private schools # of matriculations in higher education in Brazil (million)

4,9

5,1

TACC (99-09)

4,5 3,9 3,0 2,4

3,8

3,3

3,6

1,1

1,2

1,4

2003

2005

2007

2009

2,8

9,4%

2,1 1,5

0,8

0,9

1999

2001

Public Schools

Private Schools

Over the same period the population in Brazil grew 1.3% per year

5,0%

1. Includes matriculated students that were held back and no longer of school age / Source: UNESCO; MEC; Inep; BCG analysis

Talents and human capital for an investment and business hub in Brazil

• Expand technical education, obtaining more aligned education with what the market needs: given the target of universal Secondary Education starting in 2016, technical education is a model that can provide quality and alignment with the market, and consequently employability. Current examples would be SENAI in industry and Senac in trade and services. Both the government, through its PRONATEC program (National Program to Provide Access to Technical Education and Employment) and private enterprise should continue to channel funds to this type of education. In addition, given the gaps in professional education, businesses themselves may invest in partnerships with teaching institutions. Business should value the graduates of technical schools, eliminating a cultural bias that tends to require bachelor degrees; • Implement management systems based on meritocracy to expand Brazilian schools: better quality schools could receive additional funds to enable expansion, which in turn would allow them to reach out to more students and increase retention rates; • Increasing the funding options to expand higher education, including technology courses: increasing the types of funding available for higher education is essential to allow the system to expand even while the government improves the funding it provides the primary and secondary levels. Both public and private enterprise may play an important role through focused policies; as an example, government may waive taxes for companies that fund the education and training of their employees, in a manner similar to PROUNI. It may also further disclose the existing university student loan programs such as FIES.

The good news is that the number of matriculations in higher education is growing faster than the population, primarily as a result of the growth in the number of private schools.

Talents and human capital for an investment and business hub in Brazil

Quality of education If Brazil has a strong quantitative base in education, the same does not apply for the quality of its education. It is only in recent years that, with primary education almost universal, attention shifted to the quality of education, rather than merely trying to increase the quantity. Primary education in Brazil has the 12th worst performance of the 65 countries that apply the PISA test, an international test designed to assess the quality of basic education29. With an average score of 401, Brazil is below the OECD average of 497, and the global average of 468 points (see Exhibit 20). An internal analysis of the situation in Brazil also reveals a situation that is critical: the average Prova Brasil/SAEB30 scores of students in the public school system are at the lower end of the expected range in the primary education years, and below the range in the secondary school years (see Exhibit 21). The Prova Brasil score measures student performance in Math and Portuguese, basic competences they are expected to develop at this stage and that are critical when they enter the workforce. The poor performance of Brazilian students not only makes it harder for graduates from this level to obtain jobs, but also makes it hard for businesses to find labor that is minimally qualified. One of the consequences of this mismatch is that businesses require university diplomas that, strictly speaking, should not be necessary for some activities, as revealed in number of statements (see Exhibit 22). The limited attention paid to the matter of quality of education during the period of school expansion is closely linked to poor student performance. Improving this performance requires that attention be paid to issues that impact the quality of the education offered in the classroom, and that adequate funds be channeled to ensure the necessary educational infrastructure.

29 Programme for International Student Assessment: a test periodically applied by the OECD to 15 year olds in 65 countries

Average scores in Math and Portuguese in tests applied to public school students in Brazil - SAEB (Basic Education Assessment) through 2005 and Prova Brasil between 2005 and 2009. Data refers to the final year in each cycle 30

2008 data, Source: IMD

One of the first issues that come to mind when one looks at the quality of teaching is the volume of funds spent on education, and how these funds are allocated. Brazil not only invests very little per inhabitant, it also focuses most of the funds on higher education rather than prioritizing primary and secondary education, the levels that truly require attention at this time (see Exhibit 23). In addition to poorly allocated funds, Brazil must face a core issue: the availability and training of its basic education teachers. Regarding the former, Brazil ranks poorly in both primary and secondary education. While the student teacher ratio in Brazilian primary schools is 23.0, in the USA, Argentina and the UK the ratio is 13.7, 15.5 and 18.3 respectively. In secondary school Brazil also lags behind, with a student teacher ratio of 17.2, compared to 12.1, 14.0 and 14.4 in Argentina, the UK and the USA respectively31.

Talents and human capital for an investment and business hub in Brazil

Exhibit 20

International tests show the poor performance of basic education in Brazil

Brazil performs poorly on the international PISA exam Rank

Average PISA score1 - 2009

china

577

hong kong

546

finland

544

singapore

543

SOUTH Korea

541

japAn

529

canadA

527

australia

519

germany

510

500

france

497

usA

496

russia

468

chile mexico

Total: 65

439 420

brazil

401

argentina

396

Despite its poor performance, Brazil had the third best improvement among the 65 participating countries

OECD average: 497

1. Programme for International Student Assessment – OECD applied to 65 countries in 2009 – OECD + guests – average scores in reading, Mathematics and Science Source: OECD, IMD; BCG analysis

Talents and human capital for an investment and business hub in Brazil

Exhibit 21

The national exams confirms that the quality of education in Brazil is critical

Brazil’s performance in primary and secondary education is poor Brazilian average1 in primary education

340 320

Expected averages: 201 a 325

300 280 260

Average

255

240

246

239

220

Primary education is performing at the lower edge of the expected range

0 1994

1996

1998

2000

2002

2004

2006

2008

2010

Brazilian secondary school average1

500

Expected averages: 326 a 500

400

300

Secondary school students are performing below expectations

286

272

Average

0 1994

1996

1998

2000

2002

2004

2006

2008

2010

1. Average scores in Mathematics and Portuguese. SAEB (Primary Education Assessment System) through 2005 and Prova Brazil between 2005 and 2009, applied to public schools. Data refers to the last year in each teaching cycle / Source: “A Ignorância custa um mundo” (Ignorance costs a world) by Gustavo Ioschpe; BCG analysis

Talents and human capital for an investment and business hub in Brazil

Exhibit 22

Gaps in basic secondary school skills make it hard for graduates to find jobs

The effects of not developing the proper primary school skills

“The poor quality of primary education makes it harder for companies to train workers for specific tasks. The main effect is lower productivity, as any manufacturing effort requires workers who can think logically and have relevant experience to lower costs and excesses in the manufacturing line. This has become very difficult because of poor worker qualification.” Executive Manager - CNI (Brazilian National Confederation of Industry)

“They [young secondary school graduates] don’t even meet the minimum required which is: good Portuguese, demeanor, patience and discipline, and even knowing how to ask questions, talk and criticize” Cristina Simões, Director, Id Consulting1

“Even non technical secondary school courses must equip students with the tools they’ll need in their professional lives.” Palma Filho – UNESP Professor

“52% of those interviewed by a special survey of the National Industry Federation believe the poor quality of primary education (grades 1 through 8) is one of the main problems they have in training their employees. The data shows that 99% of the companies queried believe they must invest in employee training, but 99% have problems qualifying them ” Você S.A. On-line

1. Agency that handles about 600 positions/month focusing on young people, offering three different types of jobs: “first job”, call-center and trainee positions Source: media survey; BCG analysis

Talents and human capital for an investment and business hub in Brazil

Exhibit 23

The poor quality of basic education may be related to limited, and poorly allocated investments The level of investment in Brazil is below international benchmarks Public spending on education per capita (US$ PPP thousand/year) - 2008

USA

JapAn

3.0

Mexico

2.2

francE

2.1

hong kong

2.0

singapORE

1.1

brazil

0.6

chile

0.6

china

1.7

germany

1.3

0.2

india 0.1

1.5

In addition, most of the investment in Brazil goes into higher education Concentration of spending on education by level - 20071 Primary

germany

south korea

japan

chile2

mexico

hong kong4 india5

31 28 44

21 19 20

Unlike Brazil, numerous successful countries focus their investment at the secondary level

16 11

singapore3

brazil

37 32

france

Higher

51 46

usA

Average

58 65 69

1. Percent total public spending per student at each level - includes public spending with private and public schools, the cost to manage education in the country and private subsidies paid to students or schools 2. Data for 2008 3. Data for 2010 4. Data for 2009 5. Data for 2006 / Source: OECD; EIU Country Data; World Bank; German Federal Statistics Office; BCG analysis

Talents and human capital for an investment and business hub in Brazil

Regarding the training primary school teachers receive the situation is also negative. Compared to other nations, Brazil requires very few years of education before a person may teach at that level. Right now 33% of primary school teachers in Brazil have at most a secondary school diploma. Meanwhile, most developed nations demand that primary school teachers have a university degree, in some cases requiring up to seven years of study (see Exhibit 24). This is particularly relevant as the qualifications of the students that graduate from the system can be no better than the qualifications of their teachers, something that Singapore found out when it reformulated its educational system. In other words, with rare exceptions it would not be reasonable to expect poorly qualified teachers to produce highly qualified students. To address the issue of the quality of the teachers and professors, the Ministry of Education has already implemented a number of initiatives: • In 2007 CAPES (Coordination for the Improvement of Higher Level Staff) launched its National Teacher/Professor Training system, which offers teachers courses at Federal Technological Education Institutes as well as distance higher education courses and programs offered by the Brazilian Open University (UAB), the latter focusing on teachers in the public system. • To improve the qualification of primary school teachers in city and state public schools, in 2009 the Ministry of Education created the National Teacher Training Program. Using the Freire Platform the program provides access to a university education for teachers with no university degree, or whose teaching credentials are in a discipline different from the one they teach. A third lever to improve the quality of education is the time students spend at school. Brazilian secondary students spend an average of 3.6 hours a day in school, whereas in the USA the school day averages 6.2 hours. Also, countries like Germany and Finland require that students stay in school all day for most of their basic education (see Exhibit 25). As Brazil moves into the demographic dividend phase and its school age population no longer grows, it may have an opportunity to use its schools full time. Econometric studies32 describe conditional correlations that suggest the importance of individual student variables such as gender, age, whether or not they have ever been held back and if they hold down jobs, on school performance. The number of years the mother went to school, whether or not there are books in the home and ambition are also important variables. This same study showed that school variables such as course load, or the number of hours children spend in school, and the availability of pre-school are quite important, while classroom size and computer availability have less of an influence on student performance.

“The Quality of Education in Brazil”, Naercio Aquino Menezes Filho - 2011 – SAEB data 2003 32

Brazil now has a major opportunity to advance the quality of the education it offers its population. The fact that primary school is almost universal, the number of school age youngsters is stable and the population is dependent should contribute to shifting the focus of the education discussion in Brazil from the quantitative to the qualitative over the course of the next few years. At the same time, ongoing public and private initiatives will continue to improve the quality of education in this country, and in fact should be multiplied:

Talents and human capital for an investment and business hub in Brazil

Exhibit 24

Gaps in the training of primary school teachers contributes to its poor quality

The training of primary school teachers in Brazil is quite poor Schooling of teachers in Chile and Brazil % primary school teachers with each level of qualificaiton1 - 2009 University and graduate Average Primary

68 91

33% of all primary school teachers in Brazil have at most a secondary school diploma

32 9

CHILE

BRAZIL

In 2012 the Ministry of Education will require a test for people interested in a career in teaching, but it is not yet clear if this will be compulsory

In developed nations the situation is very different Required schooling for teachers Number of years of university or college education required to become a teacher2

7 7

5 5 4 4

4 4

Promedio4 Primary Education Secondary Education

EUROPE

ASIA

NORTH AMERICA

4.1 5.6

2.5 3.8

4.0 4.0

USA

SGP

JPN

HKG

2 2

CHN3

FRA

FIN

spn

CHE

NOR

DNK

ITA

DEU

1. Qualification levels based on the ISCED – International Standard Classification of Education score – 2003 data 2. Data for 2001 3. In this case Primary School includes Junior Middle School (children 12 to 15). Equivalent to the second portion of primary school 4. Of the countries shown Source: Teachers Matter, Attracting, developing and retaining effective teachers - OECD (2005); Teachers and Educational Quality: Monitoring Global Needs for 2015 – UNESCO (2006)

Talents and human capital for an investment and business hub in Brazil

Exhibit 25

The time students spend in school is one of the factors that affects the quality of basic education

Most students in Brazil spend less than 4 hours a day in school Time Brazilian students spend in school - 2006 4.1 3.6

1.9

PRESCHOOL

primary

Average

Countries that offer higher quality education have more stringent requirements • Secondary school students in North America spend an average of 6.2 hours a day in school1 • The UK government recommends at least 5 hours a day at the secondary school level • South Korea requires a minimum number of hours at each level • Secondary School: 5.82 • Junior High (2nd part of basic ed.): 5.52 • Finland3 and Germany4 require students to stay in school full time for most of their basic education

A reduction in the school age population over the next decades will provide an opportunity to use schools full time

1. 15 to 19 year olds matriculated in school. 1. 2005 - 2009. 2. Calculated based on the number of hours required a year (1,190 and 1,122 respectively), and the number of school days in each country (205 per year). 3. Children 7 to 16 must be matriculated in school full time 4. Children 6 to 15 or 16 must be matriculated in school full time. Source: Korean Ministry of Education; Bureau of Labor Statistics – USA; Northern Hemisphere Trends in Education - CNI | SENAI; CPS-FGV; BCG analysis

Talents and human capital for an investment and business hub in Brazil

• The government also increased the number of required years of schooling in Brazil. In 2006 education became compulsory for children between the ages of 6 and 14, and in 2016 pre-school and secondary school will also be compulsory; • In 2007 the Ministry of Education launched the Education Development Plan (PDE), which aims to promote integration between literacy, primary, higher, professional and technological education. Already the PDE has more than 40 programs focusing on all education cycles; • Together with the PDE, the Ministry also created IDEB, the Basic Education Development Index to measure the quality of the basic education offered by the country’s school network, calculated by crossing data from the annual school census and data on school evasion and approval rates. • In 2011, the government launched PRONATEC (National Program to Foster Access to Technical School). The objective of the program is to expand the supply and improve the quality of professional education in Brazil by implementing a number of projects and activities such as stipends to enable people on unemployment insurance to get training. The objective of this project is to train at least 8 million students by 2014, and expand the national network of technical schools; • Fundeb, the fund to maintain and develop basic education and value education professionals, is a federal government initiative that aims to ensure a minimum investment in education for each child through secondary school; • Prova Brasil measures the performance of the country’s public school and the results are used to guide improvement efforts; • The “Todos Pela Educação” (Everyone for Education) movement encourages and monitors the country’s progress towards its education targets; • Non government institutions, such as the Ayrton Senna Institute, have private support to improve the quality of public primary education in Brazil. In the specific case of secondary education, the fact that it will become compulsory in 2016 opened up discussions on the best model to be universally applied. The government could be responsible for most of the increase in the number of matriculations, as the gap in education is among lower income youth. For this, public education may use as a basis a secondary education model that has shown itself to be successful in terms of quality and its ability to prepare young people for the job market: secondary education integrated with technical or vocational training, such as the courses offered by SENAI, Senac and Centro Paula Souza (an autarchy of the government of the State of São Paulo). The great advantage of a technical education at the secondary level is that it prepares young people for the workforce, thus making them more employable. Numerous countries have a structured system of technical education that encourages interactions with business, which in turn facilitates the inclusion of graduates in the workforce33: • In Sweden, students enrolled in professional secondary schools spend 15% of their time in on-the-job training;

33 Source: Trends in Professional Education and Training in the Northern Hemisphere – CNI | SENAI

Talents and human capital for an investment and business hub in Brazil

• In the UK, on-the-job training was instituted in 1994 and has already trained 1 million students; • In Finland, students have the option of combining secondary school with on-the-job courses. In Brazil, the employability of the graduates of technical secondary schools underscores the success of this model. Graduates have incomes 12.9% higher than those that have only a traditional secondary degree, and are 48% more likely to find employment34. In fact, a survey by the Ministry of Education shows that 72% of the graduates of federal technical schools are currently employed. There is room to expand this type of education in Brazil. The number of students who simultaneously enroll in secondary and technical schools is very small, only some 4.3% of the students nation-wide, and 5% in the state of Sao Paulo35. According to Almério Araújo from the Paula Souza Center, “in other countries the number of technical school openings may be as large as 30% of the number of spaces in secondary school.” Among higher education institutions, this nation’s colleges and universities, quality may be split into two major baskets. Brazil has a small number of very sought after universities offering quality education, most of them public. The graduates of such schools are the elite of the Brazilian talent pool, and some of these schools are recognized worldwide. Of the top ten schools in Latin America in 2010, three were Brazilian, and Brazil has five universities listed among the world’s best (see Exhibit 26). In the second basket are the majority of the colleges and universities in Brazil, mostly private and most offering poorer quality education. An analysis of the tool used to assess the quality of the nation’s colleges and universities, the “General Course Index”36, provides further evidence of this. Only 13% of the higher education courses are in the lower two levels, while 50% are somewhere in the middle and 38% are ranked at the top of the quality spectrum (see Exhibit 27). The poorest quality schools are the ones that have been experiencing faster growth, driven by the low monthly fees they charge students. Increasing the number of courses available in the country has advantages, especially as many of them are accessible to the lower income segments of the population, but colleges and universities must be monitored lest quantity hinder quality, which would detract from any positive impact. Assessing higher education is something recent in Brazil, but it is extremely important. In 1996 the National Course Exam was created, formerly known as the “Provão”. In 2004 this exam was overhauled and the National Higher Education Assessment System was created, based on ENADE37. Some improvements are still necessary to ensure the assessment system is adequate. Results are disclosed only slowly38, and the interface to access information is not user friendly, making it harder for students and the market to use this tool as an indicator of course quality. In addition, some of the assessment criteria are not well matched to the courses. For example, the number of professors with Ph.D.s is not necessarily a good quality indicator for courses that require that professors have practical experience.

34 Source: a study by Marcelo Neri at Fundação Getúlio Vargas, conducted on behalf of Instituto Votorantim (2010) 35 Source: Statement by Almério Araújo, Centro Paula Souza – April 2011, via a media survey 36 2008 General Course Index – disclosed by MEC 37 National Student Performance Exam 38 The 2009 ENADE results took over a year to be published

Talents and human capital for an investment and business hub in Brazil

Exhibit 26

In Latin America, Brazilian higher education stands out

Three Brazilian universities are among the to 10 in Latin America... Ranking of the best universities in Latin America U.S.News & World Report - 2010

MEXICO 1 Universidad Nacional Autónoma de México (UNAM) BRAZIL 2 Universidade de São Paulo BRAZIL 3 Universidade Estadual de Campinas ARGENTINA 4 Universidad de Buenos Aires CHILE 5 Pontificia Universidad Catolica de Chile ARGENTINA 6 Universidad Austral CHILE 7 Universidad de Chile BRASIL 8 Universidade Federal do Rio de Janeiro MEXICO 9 Tecnológico de Monterrey (ITESM) ARGENTINA 10 Universidad ORT Uruguay

... but the Country does not fare well in global league tables Brazil is ranked 27th out of 56 nations with the largest numbers of universities included among the worlds top 600 Ranking among the best universities in the world QS World University Rankings - 2010

253 Universidade de São Paulo 292 Universidade Estadual de Campinas (Unicamp) 381 Universidade Federal do Rio de Janeiro 501-550 Pontifícia Universidade Católica do Rio de Janeiro 551-600 Universidade Estadual Paulista “Júlio de Mesquita Filho” Source: World’s Best Universities in U.S.News & World Report’s, QS World University Rankings 2010; BCG analysis

Talents and human capital for an investment and business hub in Brazil

Exhibit 27

The differences in the quality of higher education in Brazil are huge Breakdown of schools and universities by General Course Index score1 - % in 2008

50%

38%

13%

Nota

Only 13% of Brazil’s colleges and universities are rated in the lower levels...

... while fully 38% are in the top levels

1. General Course Index, includes only schools assessed in 2008 - bottom score is 5 and top score is 1 / Source: MEC; BCG Analysis

Lastly, there is room to create additional systems to assess the quality of education in this country to complement the government’s assessments, these would likely provide a better indication of the quality of education vis-à-vis market needs. Regarding graduate school, regulation in some areas is still rather ineffective, such as in the case of MBA courses. Currently the minimum number of course hours required (360) is below what schools in other countries require, and even this number of hours is not always completed39. In addition, as courses of this type are classified as non degree or lato sensu, they are not subject to the same requirements as degree granting courses (stricto sensu) - specifically authorization and recognition by the Ministry of Education. The better quality courses now differentiate themselves by obtaining international certification - AMBA40, AACSB41, EFMD42 and the like, something very few schools are able to do.

39 Results of a Datafolha survey published in Folha de S. Paulo, a Brazilian newspaper, on October 17, 2010 showing that 14% of the students interviewed claim they are enrolled in courses that require fewer than 350 course hours 40

Association of MBAs

Association to Advance Collegiate Schools of Business 41

42 European Foundation for Management Development

Talents and human capital for an investment and business hub in Brazil

Proposal to address the gaps in the quality of education in Brazil Brazil has a window of opportunity to increase the quality of the education and training it provides its citizens. It has a solid quantitative base, a track record that includes a number of successful initiatives, and its economy is in a stage that demands more and more qualified persons. The time has come to take the critical next steps towards quality education to build a strong talent pool. This includes initiatives to increase investments in education, better training for teachers and professors, and improved colleges and universities. Working sessions with BRAiN associates and area experts resulted in the following suggestions to address the gaps in the quality of education in Brazil: • Increase funding for education as a whole. Government options to expand the funds dedicated to education in Brazil include reducing payroll and/or income tax for businesses that fund worker education and training. Also, an additional source of funds would be to require that students pay for public higher education. Australia, for example, recovers some of its investment in education from students themselves after the fact, in proportion to their wages (see Box B). • Rationalize the allocation of resources with a greater effort on secondary school, privileging government programs aimed at increasing the number of places in schools and offer stipends, such as the PROUNI and PRONATEC programs. The private sector also has an important role in corroborating its vision of the importance of secondary education, making this clear as it values the hiring and career development of the professionals involved. • Increase and improve teacher compensation, channeling funds and restructuring the civil servant compensation system. Thus one can define a minimum increase in the base wage and offer additional, performance based compensation, and also pay secondary school educators better. The government could also offer stipends for people wishing to pursue university degrees in education. Private enterprise, on its part, could develop social responsibility programs to provide additional, performance based teacher compensation. • Improve the qualifications of the country’s teachers and motivate them by using a system based on meritocracy when it comes to defining compensation and career development. Private enterprise can also contribute by providing specific teacher training and disseminating a culture where teachers are valued.

Talents and human capital for an investment and business hub in Brazil

• Monitor the quality of higher education, in particular non academic graduate courses, thus ensuring a measure of quality. In order to monitor the quality of the business schools it is essential that academic business courses and MBAs be subject to the requirements to open a course and also to periodic evaluations. Private initiative may monitor these changes, using the results in their recruiting processes and even offering some courses a seal of quality. • Foster a relationship between the market and colleges and universities, so that the curricula offered reflect what the market actually needs. The easiest way to do this is to review the school curricula from time to time, preferably once each year.

BOX B

Public higher education in Australia

Since it was created in 1989, the Higher Education Contribution Scheme (HECS) has become an integral part of Australia’s upper education system. By transferring a significant portion of the cost of higher education to the students themselves, the system has enabled the continuous expansion and improvement of education in Australia. Students in public universities are not charged while they are students. These amounts are accumulated in the form of a debt that they will pay only after graduation. The debt is amortized through Income Taxes charged only when the wages received after graduation reach a specified minimum. The amortized share will vary depending on the income of the recent graduate, and varies between 4 and 8%. Thus people who earn less than $ 30,000 pay nothing, and those receiving more than $ 60,0001 a year pay a tax in the higher bracket. The system has the advantage of offering greater security to the loan taker, reducing risk aversion as payment of the loan is based on income after graduation, so people feel they are protected against fluctuations in income. Because it is better suited to what students need, this type of credit model has low default rates. Other countries have adopted education credit models similar to Australia’s and, although there are variations, they all have in common the repayment of the loan based on the income received after graduation. 1. Australian Dollars; Source: Australian Parliament online library – The Higher Education Contribution Scheme; Jacques Schwartzman – Higher education in Brazil; BCG analysis

Talents and human capital for an investment and business hub in Brazil

“Today, almost 100% of all school-age children in Brazil are enrolled in public or private school. Now we must improve the quality of education. Results do not appear overnight, but already we see signs that Brazil is climbing up the ranks.” Luiz Carlos Trabuco Cappi, CEO of Banco Bradesco

Alignment between education and the market An education that is aligned with what the market needs ensures that talents are educated and trained to offer the skills the market needs and, ultimately, those the nation needs to grow. This alignment results from a combination of quality education and a continuous dialog between business and academia, so that the former may map their needs and help the latter shape their teaching and training activities. Education in Brazil is not well aligned with the market, according to an IMD43 survey of executives (see Exhibit 28), Brazil is the 5th worst of 58 nations in this regard. An illustration of the extent of this misalignment is the Brazilian Bar Exam (OAB) approval rate - fewer than 25% of the people who graduate from law school pass the exam in Rio de Janeiro and São Paulo, compared to 76% in New York and 46% in Paris, both with similar bar exams (see Exhibit 28). Licenses and certification are important mechanisms to align education and what the market needs. They provide employers with the assurance that the certified or licensed professional is minimally qualified to perform a specific activity or job, and increases the amount of information available to the market as a whole. Licenses are required for some professionals, whereas certification, though not legally required, is often demanded by the market. Certification normally requires that the interested party sit for an exam offered by an industry association or the vendors of a specific product or services. Licenses and certification are often valid for a finite period of time and must be renewed from time to time. 43

IMD World Competitiveness Yearbook

American National Standards Institute

45 Examples include: Chartered Accountant and Certified Public Accountant in accounting; Chartered Financial Analyst and Certified Financial Planner in finance; Chartered Member of the Institute of Logistics and Transport in transportation and logistics; Project Management Professional from the Project Management Institute for project management 46

Financial Services Authority

The certification system in the USA is a model example. It is controlled nationally by the ANSI44, which regulates and defines the requirements for certifying bodies. The ANSI guarantees that tests reflect knowledge of the industry and certifications are granted for a finite amount of time. All sorts of professional areas used certifications in the USA, for example accounting, finance, transportation and logistics and project management45. Licensing is the responsibility of the state and regulated activities may vary from state to state. The UK’s model of financial certification is another successful example. Financial advisors must be approved and receive one of two certificates that attest to the minimum level of qualification required by that country’s financial services authority (FSA46) before they actually work in this capacity: a Certificate in Financial Planning or a Certificate

Talents and human capital for an investment and business hub in Brazil

Exhibit 28

The alignment between education and market needs in Brazil is poor

The alignment of education with the market in Brazil is the 5th worst in the world Alignment between higher education and the market - score of 0 (lowest) to 10 (highest)

Bulgaria Croatia

2 3

slovenia

Peru

BRAzIL

Mexico

china

south korea

russia

Low bar exam (OAB) approval rates are an example of this misalignment Brazil is the 5th worst out of a group of 58 countries

argentina

japan

Bar exam approval rate

76%

46%

chile

france

hong kong

india

23% 16%

new YORK1

germany

USA

australia

canada

singapore

PAriS2

RIO DE JANEIRO3

São paulO3

1. New York in 2010 2. Data estimated using a specialized website. 3. Arithmetic average of the approval rate in the 3 2009 Bar Exams - prior to 2009 the OAB bar exam in São Paulo was different from the rest of the country Source: OAB; MEC; IMD; NYC Bar Exam; Global Talent Risk – Seven Responses - BCG & WEF; media survey; BCG analysis

for Financial Advisers. Only three UK entities are authorized to grant certification47. In June 2010 the FSA increased the minimum qualification required of consultants, and advisors have until 2012 to re-qualify under penalty of not having their license renewed and thus no longer being able to act as financial advisors. Brazil could improve quite a bit in the area of certification and licensing. There is no central system and regulation is industry based, although in some areas certificates

47 Chartered Insurance Institute, IFS School of Finance and Institute of Financial Planning

Talents and human capital for an investment and business hub in Brazil

are required. In the area of information technology, for instance, professionals must often provide certificates to work with specific systems and applications, but they are not a legal requirement. In the financial industry, the required certifications are issued by ANBIMA48 and CVM49; while APIMEC50 issues non compulsory certificates. Attorneys are only licensed to practice after they pass the bar exam (OAB). Despite the poor alignment between education and the workplace, Brazil is starting to move in the right direction and there have been several successful initiatives on the part of government, industry associations and private enterprise. Efforts like these must be expanded to solve a nation-wide problem. • In 2007, a program entitled “Brasil Profissionalizado” (Brazil Professionalized) was created to combine secondary school and practical knowledge. This initiative transfers federal government funds to the state to invest in infrastructure, better management, pedagogical practices and teacher training for its technical schools. • SENAI, which is part of the National Federation of Industries system (CNI), owns the largest professional training complex in Latin America. It currently trains more than 2 million professionals who go into manufacturing industry each year, and serves over 96 thousand companies; • Senac, a reference in professional education in Brazil, is managed by the National Federation of Trade (CNC) and its affiliates, offers courses in 15 different areas linked to trade and services; • The Paula Souza Center, which runs the technical schools in the state of São Paulo (Etecs and Fatecs) offered courses that are aligned with market needs as it continuously interacts with private enterprise to define the curricular grid, build laboratories and infrastructure and train its teaching staff; • Many unions offer courses to enhance the employability of their members, such as the Caxias do Sul Metalworkers Union, which offers free courses to fill the most common knowledge gaps among its members; • The Brazilian Bank Federation, FEBRABAN, maintains technical and professional schools51 that prepare talents to work in member banks; • Totvs, a Brazilian service and technology company, has partnered with over 60 colleges and universities in Brazil and supports classes that are related to its business. This provides it with preferred access to talents and enables it to align their training and skills with what the business needs. International initiatives also provide good examples Brazil could follow to increase the alignment between education and the market. All are based on a closer relationship between at least two of the three main players that define talent education and training – the government, academia and the market.

47 Chartered Insurance Institute, IFS School of Finance and Institute of Financial Planning 48 Brazilian Association of Financial and Capital Market Entities 49 Securities and Exchange Commission 50 Association of Capital Market Analysts and Investment Professionals 51 The four types of schools operated by FEBRABAN are: professional training schools (200 courses in 23 areas of knowledge), leadership training, finance for strategic audiences and a school of financial citizenship

Talents and human capital for an investment and business hub in Brazil

• In Argentina, Pampa Energia S.A. sponsors an electrical engineering school at ITBA to train the talents it needs; • Indian technology company Infosys operates a joint training system with universities to develop talents in technology. Worldwide the program has more than 395 affiliated colleges and has trained over 100 thousand people in India alone. The program is expanding globally and is already present in China, Mexico and Malaysia; • In Germany, Joblinge is a public-private initiative that helps people who graduate from primary and secondary school transition to the job market. It provides career orientation, training and internships that may lead to jobs with partner companies; • The South African Network of Skills Abroad (SANSA) brings South African expatriates back to train the country’s talents based on what the market requires. Businesses also have an important role to play in fostering alignment. They can adapt their hiring requirements to what the position really needs, in this way valuing technical and technological degrees, rather than focusing only on the currently over-valued bachelor’s degree. Such changes are already taking place, as shown by the percentage of companies that have made their requirements more flexible at the operational and technical level, as well as at the tactical and strategic level (see Exhibit 29).

Exhibit 29

Companies have been making their hiring requirements more flexible, given the scarcity of professionals on the market

More flexible requirements - operational and technical % total respondents

83%

More flexible requirements tactical and strategic % total respondents

56%

53%

46%

28%

50%

28% 17% 6%

Experience in the area

Technical Skills

Technical Course

Personal Competences

Graduate Degree

Note: study of 130 large Brazilian companies according to the BNDES (total revenues US$ 350B), in all 5 regions of the country Source: Fundação Dom Cabral (March 2011)

Fluent Languages

Experience Personal in the area Competences

University Degree

Talents and human capital for an investment and business hub in Brazil

As an example of this type of flexibility, when faced with problems to staff its branches, Banco Santander do Brasil decided to selectively make its hiring standards more flexible, eliminating the requirement of a university degree for some positions, increasing the number of interns and/or minor apprentices52, and requiring foreign languages only in specific local cases. While basic Math and Portuguese tests continue to be applied, personal values, expectations, career and profiles are not more important. The institution continues to offer a range of training options for those it hires. 52 Minor Apprentice Program: a Federal Government program that benefits professionals 14 to 24 years of age enrolled in public school or any of the National Learning Services (Sesi, SENAI, Senac etc.). They are offered a special contract lasting at most two years, and work no more than 6 hours a day. Businesses must have apprentice openings equivalent to 5% to 15% of their total headcount

In addition to the gap between what education in Brazil offers and what the market expects, there is a feeling that a similar misalignment exists between business and academic research. According to a survey of executives, Brazil is ranked 45th out of 58 countries when it comes to the transfer of knowledge between universities and businesses53. The small number of joint academia/business publications merely corroborates this perception. Only 2% to 4% of the research conducted at Brazilian universities is co-authored by businesses, unlike the situation in the USA, Japan, Germany, the UK and South Korea, where businesses co-author 10% to 20% of university research (see Exhibit 30).

Exhibit 30

In Brazil there is little integration between academic research

Interaction between academic research and businesses - 2010 Publications co-authored by businesses and academia as a % of all research

BRAZIL1 sINGAPORE2 SOUTH AFRICA3 germany4 SOUTH KOREA

UK6 JAPAN7 USA8

2% 4%

10%

20%

10%

20%

10%

20%

10%

20%

10%

20%

1. Includes Unicamp, UFMG, UFRJ, UFRGS and USP. 2. Includes Nanyang and National Univ. Sing. 3. Includes Cape Town and Witwatersrand. 4. Includes Fried. Alex., Humboldt, Tech Dresden, Tech Munchen and Univ. Saarlandes. 5. Includes Korea Inst., Korea Univ., Pohang Univ., Seoul Natl. Univ. and Yonsei Univ. 6. Includes Bath, Manchester, Reading, Sheffield and Southampton. 7. Includes Chiba, Gifu, Hiroshima, Hokkaido and Kagoshima. 8. Includes Harvard, Johns Hopkins, Northeastern, Univ. of Alabama and Univ. of Massach. Note: percent calculated based on total research projects published on Science Web by the 500 universities with the largest number of registered publications. Source: Center for Science and Technology Studies - Leiden University (Netherlands)

Talents and human capital for an investment and business hub in Brazil

Fortunately, there are numerous initiatives in Brazil showing that collaboration between business and academia in Brazil is not only possible; if well managed it is also profitable: • In order to bring together academia and private enterprise in the area of scientific research, in 2007 Federal Law # 11.487 was signed, offering tax incentives to foster partnerships between companies and public research institutions such as the public universities. Tax waivers are inversely proportional to the company’s ownership rights – thus the greater the amount of taxes waived, the smaller will be the company’s share of the fruits of the research, and the larger will be the share of the institute where it is conducted; • The Casimiro Montenegro Filho Foundation intermediates technology training and development programs between companies such as Embraer, IBM and Vale, and ITA, the Aeronautical Institute of Technology; • FUSP is the University of São Paulo Support Foundation, created in 1992. It intermediates the interaction of researchers and outside players such as Vale, Braskem and Eletropaulo; • The Fluid Dynamics Group at the University of São Paulo Polytechnic School (Escola Politécnica) is doing research together with private enterprise. The outcome will support mechanical, naval and aeronautical engineering projects at companies such as Petrobras, Voith-Siemens and Embraer; • The University of Brasília and the Bank of Brasília are in the advanced stages of a research agreement that will focus on themes such as portfolio management, risk management and third party contract management. The government also recognizes the importance of more interaction between business and academia. Along this line, the FINEP Industry Funds54 are currently the most important public instruments used to fund research and innovation55 in Brazil. The so-called Yellow and Green (Verde e Amarelo) Fund in particular has called for partnerships between research institutes and private enterprise, focusing primarily on lines of research that meet the needs of business. In 2010 the Fund had BRL 120 million, of which only BRL 70 million were invested, showing there is still much room for growth.

Proposal to close the gaps in the alignment between education and the market in Brazil Although numerous initiatives are already underway in Brazil, international examples show that there is a long way to go to improve the alignment between what the schools offer and what the market needs, from adjusting the demands of the market through cooperation with academia and improved means to formalize and regulate

53 Source: IMD World Competitiveness Yearbook 54 A study and project funding agency established in 1967, a government entity linked to the Ministry of Science and Technology. Its mission isto foster Brazilian development through Science, Technology and Innovation 55 Funds come from contributions on the results of exploring natural resources belong into the Federal government, some of the IPI from specific sectors and Contributions to Intervene in the Economic Domain (CIDE)

Talents and human capital for an investment and business hub in Brazil

professions. Working sessions with BRAiN associates and area experts resulted in the following suggestions to address the gaps in the alignment of education in Brazil: • Rationalize contracting requirements and use flexibility where appropriate; This is an initiative that private enterprise can take, assuming there is quality education and that the curricula of technical schools is aligned with the needs of the businesses it seeks to serve. Companies should review their true needs, selectively waiving the need for a university degree and foreign languages, for example. In addition, they should also value professionals with “calibrated” qualifications as described in the following item. • Align compensation and career opportunities with the competences required, rather than merely with a university education, thus providing opportunities that offer suitable recognition. Private enterprise has the important role of stimulating the sector

“Industry funds [...]have enabled thousands of new projects at Brazilian Science and Technology Institutes. These are designed not only to create knowledge, but also to transfer this knowledge to businesses. Because of these joint projects businesses have increased more in technological innovation [...]” FINEP website – What are Industry Funds

Talents and human capital for an investment and business hub in Brazil

as a whole, and valuing competences. This can be done by adequately calibrating compensation and career growth against the individual’s competences, and not necessarily a university degree. • Create a medium and long term education agenda that is aligned with the competences the market demands. Create a public or private project to manage the demand for professionals on the part of those industry sectors that are more important to make Brazil a business hub. The government could also consider including criteria that demonstrate market alignment, such as graduate employability, in its assessments of the quality of this nation’s institutes of higher education. • Promote a closer relationship between businesses and academia. Spot initiatives such as the technical schools managed by the Paula Souza Center have made important contributions to align the education of this nation’s talents and the needs of its economy, with relatively little effort. This type of partnership benefits academia with contributions in the form of content and teacher training, and businesses benefit from access to people trained according to their needs. Another similar and successful initiative is the partnership between FEBRABAN and the Fatecs, which train technologists to provide them with specific skills to work in the financial industry. It is important to continue to encourage and expand this type of partnership. In addition, the dialog between the market and academia should be systematic, perhaps through industry associations to create extension courses that focus on vocational competences, for example. • Fund academic research focused on what businesses need. This could be a joint public and private initiative. Partnerships between private initiative and entities such as the CNPq (Brazil’s National Scientific and Technological Development Council), CAPES (Coordination for the Improvement of Higher Level Staff) and FAPESP (the state of São Paulo Foundation to Support Research) to fund stipends could further drive research in this country and make research more aligned with Brazil’s requirements for economic growth. • Create a national certification system, similar to what is available in other countries like the USA. It is up to private enterprise to map the areas where it feels certification is most required, and organize a central system, possibly based on the dynamics of international best practices such as the systems found in the UK, Germany and Portugal. Government support is also key to ensure active involvement in national certification issues, such as regulation.

Talents and human capital for an investment and business hub in Brazil

International dimension of education The international dimension of talent education and training includes language education, in particular English and Spanish, as well as international academic experience, both essential for developing an international business hub. In a 2010 world survey by GlobalEnglish, 74% of the 26 thousand respondents said that English is required for work, and 55% of them use English on a daily basis in their professional activities56. The teaching of foreign languages has improved substantially in recent years, and is a compulsory component of basic education. In fact, since 1998 all students get 4 years of English and, since 2010, 3 years of Spanish also. The state of Rio de Janeiro increased the number of compulsory years of English language study from four to eight, in preparation for the 2014 Fifa World Cup and 2016 Olympic Games. The National Secondary School Exam – ENEM, has included a foreign language test since 2010. At the university level, although languages are not compulsory, many colleges and universities have agreements with language schools to make it easier for their students to study languages, and matriculations in language schools grow at a fast rate. In addition, it is worth mentioning that a lot of the literature students use in university comes from abroad, reinforcing the need to learn languages. In recent years the number of language schools and the number of matriculations has growth significantly. The number of matriculated students in Alumni, a language school, increased from 8 thousand in 2007 to 65 thousand in 2011. Initiatives to make English more popular among recent graduates have also been driven by the upcoming World Cup and Olympic Games. Also with these events in mind the Union of Independent Professionals in São Paulo has started to teach English to its members (e.g.: taxi drivers). However, language teaching must expand even further. Despite its progress, foreign language teaching in Brazil still lags behind what the market needs. Brazil is one of the worst ranked countries when it comes to the alignment between language education and market needs; 43% of this country’s executives are unhappy with the foreign language skills of Brazilian workers (see Exhibit 31).

“The globalization of English” Report – GlobalEnglish

International experience is another key element for creating a talent pool for the Brazilian business hub. A large number of Brazilian colleges and universities have agreements with partner schools for international exchange, and the number of

Talents and human capital for an investment and business hub in Brazil

Exhibit 31

Language education in Brazil does not meet the needs of the market

Language teaching in Brazil has little relationship with what the market needs Alignment between foreign language teaching and market requirements - score of 0 (lowest) to 10 (highest)

mexico

3.1

japan

3.1

brazil

3.1

chile

3.2

3.7

...and is below what it needs according to 43% of the executives

russia

3.7

How satisfied Brazilian executives are with the foreign language skills of Brazilian workers

france

3.8

usa

4.5

china

4.6

south korea

5.2

argentina

5.2

6.9

india

7.0

singapore

Below the needs

Meets the needs

9% Exceeds the needs of business

Source: EIU, HSBC, IMD World Competitiveness Yearbook, media survey; interviews; BCG analysis

5.5

germany

canada

48%

5.0

hong kong

australia

43%

7.2 8.1 Overall average: 4.9

Talents and human capital for an investment and business hub in Brazil

“Languages are a major obstacle to match candidates and jobs – today all important businesses want their managers to speak English, and that’s not so easy to do” brazilian headhunter

foreign students in Brazil has increased, although it is still smaller than the number of Brazilian students abroad, and very small compared to the number of foreign students in other countries (see Exhibit 32). Two examples of Brazilian universities that offer their students an international dimension to their education are Fundação Getúlio Vargas (FGV) and the University of São Paulo (USP). EAESP, the Fundação Getúlio Vargas (FGV) São Paulo School of Business, is a pioneer among business schools in partnering with international teaching institutions to provide

Exhibit 32

The international dimension of education and training in Brazil is still limited compared to other countries

International student mobility Inbound and outbound students - per thousand school age (secondary and superior) inhabitants - 2007

37.1 Primarily student exporters

Primarily student importers

26.8 Inbound Outbound

12.7 8.8 5.8 2.5

1.7

1.1

MEXICO

N/A

ARGENTINA

1.1

BRAZIL1

N/A

INDIA1

0.5

CHINA

0.0

CHILE

0.6

JAPAn

0.0

usa

0.2

FRANcE

2.5 1.9

UK Number of People inbound/outbound (thousand)

3.8 1.1

351 24

247 54

610 51

126 54

8 6

42 424

8 157

1 22

N/A 8

N/A 25

1. Data refers to 2006 / Source: Unesco, IMD World Competitiveness Yearbook media survey; interviews; BCG analysis

Talents and human capital for an investment and business hub in Brazil

exchange options for its students. It signed its first international agreement in 1972, with Ecole des Hautes Etudes Commerciales, in France. Today the school offers a number of programs to give its students an international experience, in particular exchange programs with 95 schools all over the world, dual diploma agreements, an international vacation program and ONE MBA, which is a global MBA where students participate in international projects and visit businesses in other countries as well as other participating schools. The number of participating students has increased, from 162 in 2006 to 301 in 2010. The University of São Paulo Polytechnic School (Escola Politécnica) also offers a diversified international program, which it started over a decade ago. It has 61 partner institutions outside Brazil, most of them in Europe. It also offers a dual diploma and accepts credits from some schools abroad. Politécnica also offers international opportunities at the graduate level, mostly focused on “sandwich Ph.D.” programs57. Despite the large number of opportunities, it is sometimes unable to fill all of its exchange opportunities. According to the school, Brazil’s image abroad and the greater appeal of countries such as the USA limit the interest of students in coming to Brazil, and the lack of funding makes it harder to send more Brazilian students abroad. Nevertheless, stipends for foreign students in Brazil are one of this country’s most traditional types of cooperation. CNAT, the National Technical Support Commission, was created in 1950 to provide stipends for cooperation between Brazil and other countries. In addition to scientific research, the other key dimensions of this type of program are the development of teachers and professors for other Portuguese speaking nations such as East Timor. The Scientific Training Program, Profor, offers individual stipends to students from Angola, Cape Verde and Mozambique. The agreement between Brazil’s CNPq (National Science and Technology Development Council) and the TWAS (Third World Academy of Sciences) benefits young students and researchers from developing nations who get a Ph.D. or complete a post doctoral program at Brazilian natural science institutes and return to their country of origin to pursue their professional and academic career. A program with the Latin American Physics Center (Claf), headquartered at the Brazilian Center for Research in Physics (CBPF) receives students and researchers from member nations (Argentina, Bolivia, Chile, Colombia, Costa Rica, Cuba, Ecuador, Mexico, Nicaragua, Peru, Paraguay, Uruguay and Venezuela). Here again Brazil can look to successful international examples for inspiration to foster the internationalization of its students. Examples are: • Erasmus, The European Commission’s international higher education exchange program, links 90% of the colleges and universities in 31 nations, and has actually

57 A sandwich Ph.D. is a degree completed almost entirely at another school in Brazil or abroad

Talents and human capital for an investment and business hub in Brazil

become a social network due to its size – 2 million people by 2010, and a target of 3 million by 2012 (see Box C); • The South Korean government offers stipends to foreigners interested in going to school in that country, in an effort to make its school and society more international. 600 students took advantage of this opportunity in 2010; • The government of Singapore offers tax incentives to companies that send their employees abroad to study, and pay for their expenses if the students return to Singapore; In fact, numerous initiatives to expand the international component of education and foster student mobility are already underway, such as: Universia, an Ibero-American

BOX C

Erasmus – an example of a regional exchange network

Erasmus (EuRopean Community Action Scheme for the Mobility of University Students) is a European higher education exchange network and part of the European Commission’s Lifelong Learning Program. With a budget of some 7 billion for the 2007 – 2013 period, the objective of the Lifelong Learning Program is to sponsor the exchange of students, professors and other education professionals between schools in the region. Erasmus gives students mobility by fostering connection and cooperation between member universities, ensuring that students are properly treated at the schools they visit, and that the originating schools recognize the exchange credits. Erasmus also supports participants in preparatory language courses for exchange programs and internship opportunities in the participating education networks. Erasmus has an annual budget of some 450 million, and has offered exchange programs for more than 2 million students and 250 professors of higher education since 1987. It has become so large it has acquired the status and function of a social network. The target is to reach three million students by 2012. Right now it has a network of over 4 thousand colleges and universities in 33 European countries, or 90% of the region’s institutes of higher education. Source: European Commission Education and Training; BCG analysis

Talents and human capital for an investment and business hub in Brazil

university placement network sponsored by Banco Santander. It acts primarily on international mobility, making Brazilian students aware of opportunities all over the world, and bringing universities closer together: • The Minerva Institute (iMinerva) is a recent initiative of the University of Sao Paulo Polytechnic School alumnae and supported by the school. Its main objectives are networking, employment for school graduates and funding for exchange programs. Interested companies pay a fee to access the database of graduates who participated in exchange programs. Fees are used to fund the exchange of other students; • AIESEC is the world’s largest international student platform. Its main purpose is to sponsor the exchange of students in the countries where it has a presence, including Brazil, where it has 33 offices; In July 2011 the Brazilian government launched a program entitled Ciência sem Fronteiras (Borderless Science), which will grant some 100 thousand stipends for study abroad, including training for experts and engineered employed in private enterprise. Twenty five thousand of these stipends are joint efforts with private enterprise.

Proposal to fill the gaps in the international dimension of education and training Brazil has made progress towards making the training and education of its talents more international, both in terms of foreign languages as well as international experience. Nevertheless, there is still a lot of room for progress in this dimension. Working sessions with BRAiN associates and area experts resulted in the following suggestions to address the gaps in the international dimension of education and training in Brazil: • Increase the quantity and quality of foreign language teaching at the primary level: the government may review the effectiveness of the methods currently used in primary and secondary teaching, ensuring that the teaching of foreign languages is adequate, in particular English and Spanish. To help in this task private enterprise may analyze and understand the experience of countries that obtain high scores in foreign languages, such as Argentina and Chile, and propose methods to reformulate foreign language education to support the government. • Make extracurricular language courses universal: ensure access to language courses not only at the technical and higher education level, but for the population as a whole. The state of São Paulo has Language Study Centers that offer students in

Talents and human capital for an investment and business hub in Brazil

state schools the possibility of learning a second foreign language, other than English (offered by the schools), an initiative that could be expanded and followed by other states. Another option is for the government to offer scholarships to private language schools, partnering with private enterprise. However, government administration can also encourage low cost options to complement language education, such as â&#x20AC;&#x153;Poliglotaâ&#x20AC;? (a course created by the USP Polytechnic School Student Union), or reduce the import tax on certain teaching materials and self learning courses.

Talents and human capital for an investment and business hub in Brazil

â&#x20AC;˘ Increase student exposure to foreign languages: especially English and Spanish, increasing their use and making students more interested in learning these languages. The government can encourage the inclusion of lectures in foreign languages in the school curricula for interested students, as happens already at ESPM, the advertising and marketing school. Private enterprise can use stipend system to encourage contact with foreign students, or even the production of research in English or Spanish. The private sector can also sponsor online learning, leveraging the technology available to link Brazilian and foreign students in discussions of relevant themes. â&#x20AC;˘ Expand the international experience of Brazilian students: this would be particularly relevant within Latin America, creating a regional exchange network along the lines of Erasmus in Europe. This will require measures to reduce the bureaucracy required for exchange students entering or leaving the country, and the recognition of equivalent credits and diplomas. In addition, the government and private enterprise may expand the number of stipends offered to Brazilian students interested in studying abroad, and include stipends for foreign students interested in studying in Brazil. Successful initiatives such as iMinerva should be expanded. Partnering with international schools to create MBA modules administered in Brazil is another way to attract foreign students and increase the interaction between Brazilian and foreign students.

Talents and human capital for an investment and business hub in Brazil

Talent mobility

The third element that goes into creating a Brazilian talent pool is talent mobility – the coming of foreign professionals to Brazil, and the leaving of Brazilian talents to work abroad. All over the world there are more than 195 million expatriates, and mobility is expected to increase as the world becomes more global and the world’s leading economies experience a shortage of talents (see Exhibit 33). Despite a reduction in mobility during the global financial crisis, as countries steppedup their protectionist measures, working abroad is increasingly seen as a natural step in the career of professionals the world over. Both movements, known as brain gain when talents come, and brain drain when talents leave, offer the nation pros and cons but if well managed, the balance can be quite positive.

Brain gain Importing foreign workers was the basis of Brazil’s economy from colonial times through the World Wars, when the legislation created quotas for foreign immigrants. Estimates show that in 1900 immigrants made up 7% of Brazil’s population and were responsible for about 60% of the manufacturing facilities in São Paulo. The theme of international professionals coming to Brazil to work is normally accompanied by a preconceived and negative idea that these people are taking away jobs that rightfully belong to Brazilians. However, if well managed, brain gain can be used to bring people with qualifications that will not exist in Brazil in the short term or, in other words, to cover temporary gaps in supply. The arrival of foreign workers also has advantages in terms of increasing the amount of technical knowledge on new topics and issues of internationalization, and also contributes to improving the image of this country abroad.

Talents and human capital for an investment and business hub in Brazil

Exhibit 33

International talent mobility should increase in future % companies considering international recruiting

Emerging ASIA1

22 64 33

PacIfic RIM2 LATIN AMERICA3

60 20 60 27

Developed ÁSIA4

EUROPE5

AFRICA

NORTH AMERICA Global Average

2007 2010-2015

57 23 56 25 52 22 48 +131%

25 57

1. China, India, Indonesia, Malaysia, Papua New Guinea, Philippines, Sri Lanka, Thailand, Vietnam. 2. Australia and New Zealand. 3. Includes Mexico 4. Japan, Hong Kong, Singapore, South Korea, Taiwan. 5. Includes Russia Source: BCG People Advantage Report 2008, Global Talent Risk – Seven Responses, WEF & BCG; BCG analysis

A study58 of the benefits of immigration in industrial cities shows that a larger percentage of qualified immigrants among city residents benefits the native population, making it easier to find jobs and increasing wages compared to cities with a smaller percentage of immigrants. 58 High-Skill Immigration to Industrial Cities: Who Benefits? (Hall, Graefe & Jong – 2010) 59

Source: World Intellectual Property Organization

International examples also show that the entry of talents can benefit the economy. Foreign professionals are responsible for most of the patent applications of many leading USA companies – 65% at Merck, 64% at GE and 60% at Cisco59.

Talents and human capital for an investment and business hub in Brazil

Brazil is still not aligned with international practices to attract talent. The country lacks any structural initiative to attract foreign professionals, and Brazilian legislation and its immigration procedures are designed to protect the nation’s workforce. Laws, the demand for many documents and slow and costly processes for visas make it hard for foreign workers to come to Brazil. This problem is reflected in the perceptions of executive surveyed by the IMD: Brazil scores 5.0 on a scale of 0 to 10, while Argentina, Singapore, Chile, Hong Kong and France score between 6.5 and 7.0 (see Exhibit 34). The problems foreigners experience also reflect this situation. It can take up to eight months and cost around BRL 15 thousand to get a work visa. Despite the lack of any structured initiatives, the attractiveness of Brazil to international talent has increased as its economy gains international importance, more multinationals enter Brazil and opportunities arise for specific groups such as researchers and scientists. Brazil is not, however, seen as an attractive country for talents (see Exhibit 35). Brazil has also made progress in reducing the rigidity of the visa process for foreign workers. Although timid and spread out, such moves contribute to making this a more welcoming country for foreign talents. • In 2010 the law changed to allow foreign professionals to enter the country for one year, for training at the branches or headquarters of their employers abroad; • In 2011 the law changed to authorize the entry of foreign students for professional exchange programs lasting up to a year, so long as a number of requirements are fulfilled – students must be no more than a year from graduating, there must be reciprocity with the country of origin and the student may not replace domestic labor; • The number of work visas issued by Brazil is on the rise: in the first half of 2011 the Ministry of Labor issued 13 thousand temporary work visas, 12.7% more than in the same period of 2010. A total of 56 thousand work visas were issued in 2010, 30.5% more than in 2009; • The MDIC60 has intermediated between industry associations abroad and companies in Brazil regarding the supply of foreign workers for this country; Labor associations are considering accepting more liberal legislation regarding the entrance of foreign workers, given similar moves on the part of other countries, such as in the case of Confea61, which is considering waiving the requirement that Argentine diplomas be translated for approval in Brazil, so long as there is reciprocity62: • Brazil, and reciprocally other Latin American countries, has a simpler process for immigrants from within the region, although not as liberal as the European Union.

60 Ministry of Development, Industry and Trade 61 Federal Engineering, Architecture and Agronomy Council 62 Translation can cost BRL 15,000 and will be waived if Argentina is also more open to Brazilians

Talents and human capital for an investment and business hub in Brazil

Exhibit 34

The Brazilian immigration process for foreign professionals is complex

It is difficult/complex for foreigners to enter the country Ease of entry for immigrant workers1 (score of 1 through 10)

Argentina

7.0

Singapore

6.8

chile

6.8

hong kong

6.7

france

6.6

canada

6.4

australia

6.2

germany

6.2

mexico

6.1

india

5.9

china

5.8

5.1

brazil

5.0

japan

4.4

uSa

4.4

south korea russia

3.7 3.2

1. IMD World Competitiveness Yearbook Source: High-Skill Immigration to Industrial Cities: Who Benefits? (Hall, Graefe and Jong â&#x20AC;&#x201C; 2010); IMD; media survey; BCG analysis

Talents and human capital for an investment and business hub in Brazil

Exhibit 35

Despite recent progress, Brazil is still not very attractive to foreign talents

Brazil has become more attractive to foreigners...

...but professionals do not find Brazil attractive

Because of the opportunities its economy offers International graduate and undergraduate schools recruit in the country because of the opportunities the growing Brazilian economy offers

Because of the multinationals that have come to Brazil Numerous multinationals are expanding their presence in Brazil and bringing in foreign workers

Attractiveness to talent1 (score of 1 through 10)

Rank

switzerland

9.1

Singapore

8.1

usa

8.1

hong kong

7.8

Australia

7.4

uk Because it is attractive for specific groups There are specific opportunities for international researchers

â&#x20AC;&#x153;An emerging research power: Brazil is becoming a more attractive destination for scientific and academic research.â&#x20AC;? The Economist and BBC Brasil

7.2

Chile

6.8

4 7 8 9

france

6.1

india

5.9

china

5.8

russia

5.4

brazil

5.1

germany

4.9

korea

1. IMD World Competitiveness Yearbook, analysing agreement with the following statement: Foreign high-skilled people are attracted to your countryâ&#x20AC;&#x2122;s business environment. Total of 58 countries included in the survey / Source: IMD, HSBC, EIU, The Economist, BBC Brasil, media survey; BCG analysis

4.6

29 33

japan

4.1

mexico

4.1

argentina

3.6

Despite recent advances, Brazil is still 27th out of 58 countries when it comes to attracting talents

Talents and human capital for an investment and business hub in Brazil

Brazil must be more proactive in light of the opportunity to import foreign talent to make up its pool. It could selectively waive requirements to take advantage of the opportunity to fill some of this county’s gaps, without replacing any domestic worker. Numerous other countries use brain gain as a tool to complement their domestic talent pools. • Canada uses a system of scores to issue work visas, and has made it easier for foreign students to upgrade their visas to permanent status. Quebec in particular has initiatives to attract and integrate international talents into the local job market, and has an agreement to facilitate the transit of professionals with France; • Singapore has simplified its process to obtain work visas for talents that have skills that are strategic to the nation, and has retained headhunters to search foreign universities for the talents it needs; • An initiative by the Danish government mapped the economic sectors with a shortage of talents and created an official organization to connect Danish companies and international talents – Work in Denmark is available online and has a service center in New Delhi, India; • The countries that make up the European Union contribute to creating a regional talent pool by harmonizing information about professional qualifications and experience, and offer the European Job Mobility Portal to bring together professionals and companies across the region. It also has a fast track for highly qualified workers from outside the region that already have a firm job offer; • The UK simplified its visa policy by adopting a points system that balances immigrant specialization and the needs of the country; • Australia also has an immigration system that is based on the qualifications of interested parties and the needs of the nation (see Box D).

Talents and human capital for an investment and business hub in Brazil

BOX D

Selective flexibilization of immigration in Australia

Australia is an example of a country that uses the system to grant visas to foreign talents as a tool to complement its domestic talent pool. Working with Australian companies, the government constantly updates a list of the professions the country needs, and uses that to make the visa granting process more flexible for professionals who meet the criteria and the requirements of the Australian labor market. The list of professionals the country needs is actively disclosed by the Australian government online and at international fairs and events, in order to attract the professionals it needs. Visas may be sponsored, meaning it is linked to a specific employer in Australia, or independent. However, in either case the visa depends on a score that is based on education and experience, and the needs of the country at the time it analyzes the immigration application. In this way the country is able to ensure it receives the professionals it needs, and controls the entry of professionals in categories where there is sufficient domestic manpower. In addition to offering visa opportunities for foreign professionals, Australia also offers visa opportunities for investors and entrepreneurs, both with the option of becoming a permanent resident, and to foreign students educated in Australia who desire to live and work in that country. In this case the government also provides help to find jobs and a permanent residence. Source: BCG & WEF â&#x20AC;&#x153;Stimulating Economies Though Fostering Talent Mobilityâ&#x20AC;?; BCG analysis

Talents and human capital for an investment and business hub in Brazil

Proposal to fill the brain gain gap in Brazil To use brain gain as a tool to strengthen its talent pool, Brazil must facilitate the entry process and work on the country’s attractiveness. Working sessions with BRAiN associates and area experts resulted in the following suggestions to address the gaps in Brazil’s brain gain: • Map the competences this country lacks and disclose them worldwide. Here the government can play a very important role, as shown by the examples of other nations. Brazil’s current and future demand for talent must be mapped, and the opportunities available disclosed in a structured manner. This initiative, aligned with more flexible entry processes, could fill short term demand and provide the resources companies need. Private enterprise also has an important role to play in this map, talking to the public sector and signaling the areas with the greatest needs. In addition, businesses in specific sectors may, through their industry associations, create pilot projects to map their current and future needs and serve as an example for a more extensive mapping of the economy as a whole. • Reduce immigration bureaucracy and make it more flexible in selected situations: make the rules for immigration by qualified professionals interested in entering the country more flexible, and reduce the bureaucracy and the documents required to obtain a visa. Policies such as the points systems used by some nations, or prequalifying companies are feasible alternatives that the government could implement. In addition, an initial agreement within Latin America would be an option for the phased implementation of this process. It is important that private enterprise support the government in this change, for example by offering examples of international best practices and pointing to the main problems, or even developing a reformulation proposal. • Put together a group of companies to jointly recruit foreign executives. Since international recruiting is not a tool Brazilian companies normally use, private enterprise could create groups of companies with shared interests to deploy this type of recruiting. This would enable sharing know how and economies of scale, and even the joint disclosure of opportunities to professionals abroad.

Brain drain The loss of talents that migrate abroad to work is known as brain drain and reduces the talents available to the country. To an extent, this is unavoidable, especially as companies intensify their international recruiting efforts (see Exhibit 8 on page 24). In 200963 the Brazilian brain drain amounted to 3 million persons, or 1.6% of its population, a relatively small number compared to India for example, with its 30 million expatriates, or 2.5% of the country’s population (see Exhibit 36).

63 Source: Brazilian Ministry of Foreign Relations

Talents and human capital for an investment and business hub in Brazil

Exhibit 36

The Brazilian brain drain has reached 3 million professionals, or 1.6% of its population In 2009 there were 3 million Brazilian expatriates... Brazilian expatriates (thousand people in 2009)

north America 1,325

ASIA 290

EUROPe 816 MIDDLE EAST 32

CENTRAL AMERICA 5 AFRICA 37 south America 514

OCEANIA 23

...this number is still small compared to other nations Diaspora by country of origin (million persons)

% population

30 3

BRAZIL

INDIA

2.5% 1.6%

Source: Brazilian Ministry of Foreign Relations; BCG People Advantage Report 2008; media survey; BCG analysis

Despite significant and growing numbers of Brazilian expatriates, the country has no organized mechanism to manage its brain drain to reduce its size and capture its benefits. Three levers can be used to achieve this: â&#x20AC;˘ The development of the national economy and the transformation of Brazil into an international business hub will create opportunities for talents in the country and reduce the relative attractiveness of the opportunities available abroad. Expanding the opportunities Brazil offers its talents to prevent brain drain is a natural development in Brazil, given its current status in the world economy;

Talents and human capital for an investment and business hub in Brazil

• Incentives for talents to return to Brazil, with initiatives to attract Brazilian expatriates. This would not only increase the size of its talent pool, but also its quality by adding knowledge and international experience. Brazilian companies have tried to lure Brazilians back to the country, but there are no structured country-wide efforts for this; • Creating a structured network of expatriates would enable managing the diaspora and increasing the potential for repatriation, adding resources and knowledge to the country. It would also provide a tool to get the Brazilian community abroad to promote this country’s image. Today Brazil has no such tool. Unlike the timid efforts Brazil has made in these levers, there are examples of countries with well defined guidelines and specific efforts to manage their diaspora and bring back their talents: • China has a program to support the return of its expatriates, offering them preferred treatment in employment centers as well as associations that help them re-integrate into Chinese society; • The Indian Diaspora, an organization created by the Indian government, is a network of expatriates that fosters a connection between expatriates and between these people and their country of origin. India is also creating a strategic plan to bring back some of its expatriates. For this, the Prime Minister has the support of major corporate leaders, including Indra Nooyi, the CEO of Pepsico, and Vikram Pandit, the CEO of Citibank; • South Korea has long standing initiatives that include funding expatriate visits to the country from time to time, programs for universities to hire expatriates for limited periods and university reinforcements to make them more attractive to expatriates; • ChileGlobal is a network of Chilean expatriates that captures contributions from Chileans residing abroad to sponsor local development through investment and knowledge; • The South African Network of Skills Abroad exists to transfer expatriate knowledge back to South Africa through contributions to research and training.

Talents and human capital for an investment and business hub in Brazil

Proposal to fill the brain drain gap in Brazil The economic and social situation in Brazil is very good, whereas other parts of the world are not growing as fast or doing as well. This has slowed down Brazil’s brain drain. Nevertheless, given that some brain drain is inevitable, Brazil should take advantage of its expatriate network to enrich its talent pool and improve/disclose its image as an investment and business hub. Working sessions with BRAiN associates and area experts resulted in the following suggestions to address the gaps in this area in Brazil: • Create a tool to manage expatriates in a structured manner. A Brazilian expatriate network could bring numerous benefits, such as knowledge transfer, attracting investments and promoting this country’s image abroad. Therefore, regardless of where the initiative comes from, both the public and private sectors have enormous contributions to make. The government can support this mechanism by linking expatriates into a network, via government bodies (e.g.: CAPES, FAPESP) and using its consulates to contact these persons and distribute information about the country to the expatriate community. Private initiative may disclose and complement this network through its contacts in multinational corporations and industry associations, and invest to promote and enable the initiative.

“Global talent mobility is becoming as critical as the mobility of goods and capital” Global Talent Risk – Seven Responses – Report by the World Economic Forum and BCG

Talents and human capital for an investment and business hub in Brazil

Conclusion A domestic talent pool that is strong, qualified and attractive is essential for developing an international investment and business hub. It is also necessary for the very economic development of the nation, and to attract investors and businesses that view the talent pool as one of the country’s competitive advantages. Brazil starts from a solid platform on which to build its talent pool. It has a clear demographic strength, the hardest element to change, and has made steady progress in the other two elements – education and training and talent mobility. These are where the largest gaps to develop Brazil’s talents lie. The chapters in this report make suggestions of how to fill the gaps identified and strengthen the Brazilian talent pool as a whole. In addition to the public and private initiatives that must continue, another model to implement the suggestions in this document may be adopted: create a multisector strategic entity to coordinate efforts, one that includes key players from the government, academia and the market. Other countries use similar resources to manage their talent pools, such as: • The UK Sector Skills Councils (SSCs), independent organizations sponsored by the government and led by private enterprise, created to develop a training system focused on employer requirements. SSCs exist for 22 industry sectors, or 90% of the UK economy, and have played an important leadership role with initiatives such as: • Working with employers to determine future training needs; • Developing training; • Defining minimum occupational standards; • Creating learning systems; • Encouraging more investment in training; • Providing useful information for the long-term planning of the labor market.

Talents and human capital for an investment and business hub in Brazil

• In Australia, the government develops national education and immigration strategies based on market needs through its Skills Australia organization. The main role of this body is to advise the Ministry of Higher Education, Training, Employment and Labor Relations regarding the country’s current and future need for manpower and skills. It does this by: • Analyzing current and emerging needs for competences in various sectors; • Ample distribution of information to enable employers, businesses and workers to make decisions regarding training and contracting; • Recommendations to the government on current competences and future needs to help make decisions regarding incentives for skill building and overhauls of the education system; • Relationships with the relevant government bodies to advise them on the current and future demand for competences, facilitating the alignment of priorities. Implementing the suggestions made and achieving a vision of a strong and attractive talent pool for the Brazilian hub (see Box E) thus depends on efforts made by each and every player – government, academia and the market – and the coordination of strategic actions between them, so as to transform Brazil’s potential into reality. You who realize the importance of creating a talent pool that is strong and attractive to create an international investment and business hub in Brazil and Latin America are invited to participate in BRAiN’s initiatives. Visit our site and find out how you can be part of the process: www.brainbrasil.org

Talents and human capital for an investment and business hub in Brazil

BOX E

A future vision for the Brazilian talent pool

A coordinated talent pool • A Brazilian talent pool that is planned, managed and tracked by a public-private organization in charge of monitoring the talents the country needs and what must be done to provide them • The government, academia and the market are aligned and meet semi-annually to monitor the performance of the country’s talent pool and planning the initiatives required to develop it Demographics • Brazil is currently the world’s largest economy with a large enough Economically Active Population to provide the labor required for growth and to attract investments and business to the country and region Education and training • The country offers universal primary and secondary school, with a significant share of secondary school integrated with technical courses in the areas the country requires to develop. These are defined and periodically reviewed by the public-private organization responsible for the overall system • Matriculation in higher education in Brazil above the world average • Excellent quality education at all levels, with average PISA scores at the same level as OECD nations • Secondary and superior education aligned with what the market needs, with constant interactions with employers; curriculum grids are adjusted and teachers and professors trained in the most advanced techniques and concepts • Universal language teaching throughout the lifetime of the student, with reinforcement classes dedicated to those who have already graduated • Frequent international exchange programs at the secondary and superior level, with Brazilian students going abroad and foreign students coming to Brazil; a strong regional network of Latin American students Talent mobility • Imported talents used as a tool to strengthen the Brazilian pool and to add new knowledge or fill specific gaps • A quick and efficient process for work visas and immigration documents • A strong network to manage expatriates and contribute to country growth

Talents and human capital for an investment and business hub in Brazil