How a place like Brazil can be a job creator for the U.S.

By David Rohde
October 3, 2012

VITORIA DE SANTO ANTAO, Brazil – Last year, Kraft built a gleaming new factory on the outskirts of this town in northeastern Brazil. When I visited it last month, my heart sank.

The state-of-the art, $80 million facility seemed to be yet another example of the inevitable shift of jobs from a declining America to emerging powers like Brazil, China and India.

When I looked closer, though, it was clear that the globalized economy at work here is not a zero-sum game. There are opportunities for Americans as well. We simply need to let Europeans teach us how to seize them.

After decades of poverty, northeastern Brazil is one of the fastest-growing regions in the country. The birthplace of former President Luiz Inácio Lula da Silva, Pernambuco state is attracting hefty domestic and foreign investment.

The Brazilian government is constructing a new World Cup stadium here at a cost of $500 million, replete with hotels, shopping malls, apartment buildings and a university. State-run companies have hired 40,000 workers to construct one of the country’s largest refineries, port and shipyard complexes at a cost of $13 billion.

In a former sugarcane field, Fiat is building a $1.7 billion auto plant that will produce 200,000 cars a year in 2014. Chinese, South Korean, Filipino and Russian companies are here as well.

Last year, Kraft joined them. The Chicago-based conglomerate is the world’s second-largest food company. Over the years, it has purchased Cadbury, Toblerone and other rivals, but some analysts and investors – including Warren Buffett – have criticized it for trying to grow too quickly.

Kraft’s new factory here employs 700 Brazilians and churns out tens of thousands of tons of Tang, chocolate wafers and Oreo cookies for sale to northeastern Brazil’s growing middle class. If all goes as planned, expansions will triple the size of the factory and its workforce to 2,200 over the next five years. For now, this corner of Brazil is a winner in globalization.

Cities and towns across northeastern Brazil competed to be the site of the new Kraft plant. Each offered larger and larger concessions to the company. In the end, the town gave Kraft the land for the factory for free, and the state gave the company a 90 percent tax break. Kraft, like other multinationals, is a big winner in globalization as well.

A tour of the factory was filled with surprises and lessons. Andre Imianoski, a young, friendly and professional Brazilian engineer, told me this was Kraft’s first LEED environmentally certified facility in the world. There were solar panels from Spain, high-speed packaging equipment from Italy and German-made machinery that churned out tens of thousands of sweet-smelling, chocolate-covered wafers.

Ninety percent of the machinery in the factory was made in Europe, and there was little American-made equipment. European companies, it seemed, had adjusted to the loss of manufacturing by producing complex machinery for factories in emerging market nations.

After the tour, I learned that by far the largest foreign investors in Pernambuco were European companies, not American ones. Between 2004 and 2011, Kraft, Alcoa, Pepsi and four other American companies invested roughly $244 million in the state, according to Brazilian officials. During the same period, Fiat, Nestlé, Novartis and two dozen other European companies invested over $4 billion.

Doing business in Brazil is extremely frustrating, costly and time-consuming, according to Brazilian and American officials. Success requires patient, long-term investment. While European companies focused on the long term have flocked to the northeast, American managers focused on short-term profits and their companies’ daily stock price have focused on the saturated markets São Paolo and Rio de Janeiro. That is a lost opportunity for the United States.

“They’re missing out,” says Usha E. Pitts, the senior American diplomat in northeastern Brazil. “There is so much potential here for American companies that are in it for the long haul.”

Kraft deserves credit for its move here, but another step it is taking has been questioned by some analysts. Last year, its management decided to divide the multinational behemoth into two companies. A smaller entity called Kraft Foods Group will focus on the saturated North American grocery market and have $19 billion in annual revenues. (Read: low profits and limited rise in stock value.)

A new company called Mondelez – an invented name that marketers hope will connote “delicious world” to global consumers – will focus on emerging markets and have projected revenue of $36 billion a year. (Read: high profits and enormous growth in stock value.) Its star product is the Oreo, which is now the world’s top-selling cookie, generating $2.3 billion a year in revenue.

Kraft officials say the split will allow them to better manage the sprawling company and serve investors. I worry it is a Wall Street-inspired maneuver to inflate stock values that will cost American jobs. As part of the division, over 1,600 Kraft employees in the U.S. and Canada will lose their jobs.

“Perhaps, though, such serial deal making is sweetest for Kraft’s investment bankers,” Wall Street Journal columnist Spencer Jakab wrote in August.

Multinational corporations shifting their attention to emerging market countries is inevitable. Kraft manufacturing plants will never return to the United States. But that does not mean there are no opportunities here for patient Americans. European companies have shown the path. Exporting to the growing middle classes of Brazil, China and India is one way for the American economy to thrive again.

CORRECTION: This piece originally misstated that the stadium being built in Pernambuco is the largest new stadium for the World Cup. It is not.

8 comments

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What a shame Kraft will only produce sweet MUCK, unhealthy fastfoods.

As a national I believe people will stick to their roots and prefer local produce, made of manioc, rice or maize.

Posted by saciperere | Report as abusive

I read your article. At the end, I dont know how Kraft investment in Brazil creates jobs in America as the Article title said. In fact, at the conclusion, you mentioned the split of Kraft to capitalize on the growing market by shipping manufacturing there would produce more profits for the company and their investors at the expense of 1600 jobs lost. Seem like an old story with well-known result.

Posted by Freedom4A | Report as abusive

The author seems to forget that business is a jungle.

When a few business owners sit down at a kitchen table, anywhere in the world, whether they are owners of a mom-and-pop local real estate investment, or owners of a giant investment pool, the use their rational minds to figure out how to win the serious game of business for their own selfish interests, as investors.

And how could it be any other way? Life is a jungle, and business especially so.

They do not try to figure out how to help their country, but rather how to increase their own profits, and, indeed, survive. How could it be otherwise?

The European multinational companies the author of this article is so in awe of are not investing in Brazil to help European workers. In fact, it’s just the opposite. Their investment in Brazilian manufacturing directly harms European workers.

Corporate charters are the same in every town and every city the world over. They all say that this particular venture is for the benefit of the shareholders, and nobody else. America and England didn’t invent that idea. Just read Thucydides or any ancient Greek or Roman historian.

Multinational companies, no matter where they are legally based, from a legal and business perspective, have zero patriotic motives. That’s why so many American-based multinational corporations have sent so many of their manufacturing facilities overseas. That’s why they lobby for free trade, which directly destroys the American middle class, but yields the corporations huge profits.

The author of this article seems almost totally uneducated in the ways of business. Why would he write such an article?

And the headline, “How a place like Brazil could be a job creator for Americans,” is preposterous.

Posted by AdamSmith | Report as abusive

Both comments above are excellent. I am so glad people are at last waking up to what unfettered capitalism means for the average person (ie. not a senior exec or a shareholder). Contrary to decades of received wisdom it means you are going to get paid less and less, with less job security, less health cover and less pension provision. Corprotes are awash with money, and so are those that run them. That money comes from ripping off employees and consumers.

Posted by DMW1111 | Report as abusive

I found this article very interesting, and do not share the same sentiments as previous comments.

The author is right. He doesn’t forget that business is competative, or that companies are out to make a profit. That’s the point he’s making: American companies need to invest in Brazil otherwise they’ll lose out on the opportunity to other firms. If American businesses want to stay competative in the global economy, they need to continue to grow and expand into emerging markets.

The above responses fail to grasp that the growth of companies abroad, especially of American companies, is a good thing. The growth of Brazil benefits Americans as well.

As more companies expand into Brazil and create jobs there, more Brazilians can afford to travel to the U.S. and spend money here. And look at the numbers now: Brazilians spend more money in the U.S. than visitors from any other nation. In 2010, Brazilians spent $5.9 billion dollars in the United States.

Think about that.

The growth of Brazil’s middle class leads to more American jobs as new homes, stores, restaurants, and hotels are being constructed to accomodate the expanding number of tourists. This not only creates “average person” jobs (whatever that means DMW1111) like construction jobs, architects, engineers, bankers, lawyers, chefs, hotel managers – but it also creates a positive feedback loop.

Now, these people who make their living off Brazilian tourism can send their kids to college, buy more things they want to, and grow their companies (eventually expanding overseas) – thereby starting the cycle all over again.

So please don’t be closed minded and live in the past. Don’t try to hold on to the couple hundred manufacturing jobs you’ll lose when Kraft builds a plant overseas. They are probably low-wage jobs you don’t want anyway. Instead, understand that when American companies expand into emerging markets such as Brazil, this will result in more job growth in the U.S. down the road – for the “average American.”

Posted by successinameric | Report as abusive

I was struck by this particular piece of BS in an article filled to the brim with it:

(1) “it was clear that the globalized economy at work here is not a zero-sum game”. You are correct in stating the global economy is not a zero-sum game, because the US economy is currently TRILLIONS of dollars in debt to these countries you mentioned. How can that possibly be a zero-sum game? Globalization sounds more like a Ponzi scheme to me, where there are only a few winners and lots of losers.

(2) “There are opportunities for Americans as well.” This truly boggles my mind. I suppose, if you consider “Americans” to be only the 1% who are draining the US economy to increase their own wealth at the expense of the 99%, it could be a correct claim.
Apparently, Kraft thinks so.

Or are you saying that the much-vaunted mobility of what used to be the “real” American workforce (i.e. those not feeding off the carcass of the US economy, like wealthy bankers and their privileged investors), but the American middle class, or what is left of it, should show some ambition for a change and move down to Brazil (or China or India) and find new jobs?

Would the US government with its push for “retraining” as the only solution to US unemployment be willing to retrain workers to prepare them to work in the third world countries? Probably not.

On the other hand, why move to a third world country when the US is about to become one quite soon — thanks mainly to people like you.

The real “job creator for the US” economy is the COMPLETE REVERSAL OF THE FREE TRADE AND TAX POLICIES FOR THE PAST 30+ YEARS THAT HAVE ALLOWED THE US WEALTHY CLASS TO BECOME EVEN RICHER AT THE EXPENSE OF EVERYONE ELSE IN THE US.

Would you really call these people “Americans”?

I would call them a lot of other things (which cannot be put into my comment without it being censored), but they are NOT “Americans”.

Unless and until the 99% realize what the problem with the US economy really is — let me give you a subtle hint, “it’s the wealthy, stupid”.

And, most importantly, are willing to do something about it, our economic problems will worsen exponentially (e.g. we’re already down to “printing money” to survive and NONE of the 99% seem to think anything is wrong with that), the US economy will soon collapse into another Great Depression (probably worse, since as a nation we are a whole lot less independent than we were in the 1930s).

The most frightening thing for me was to realize the wealthy class (and their “puppet” government) thinks the American people are too stupid to understand what is really going on.

Even more frightening than that for me was to realize that they are absolutely correct.

Posted by Gordon2352 | Report as abusive

“Cities and towns across northeastern Brazil competed to be the site of the new Kraft plant. Each offered larger and larger concessions to the company. In the end, the town gave Kraft the land for the factory for free, and the state gave the company a 90 percent tax break. Kraft, like other multinationals, is a big winner in globalization as well.”

How does this not prove that the rich get richer and the poor get poorer? These so called American Companies are not patriotic, nor do they care about American employment. It’s profit without nationality. These companies will “only bring jobs back” to the US if you can compete with what Brazil offers, i.e, cheap labor and little to no taxes. Lets revisit this story when those tax credits expire and see if good old Kraft is still there or we see a new article entitled “How a place like Zimbabwe can be a job creator for Brazil”.

The simple fact is that the US is turning into the corporate headquarters of the world. US laborers are done for. I wonder if Kraft of Brazil’s tax information is figured in to the American tax % the company supposedly pays.

Posted by LysanderTucker | Report as abusive

It seems as though only 1 out of the 7 people above paid attention in Eco 101 (freedom of enterprise, freedom of choice, competition, self-interest, profit motive, globalization, free markets) resources being reallocated in order to maximize efficiency.

Posted by Anonymous | Report as abusive