I happened to know the threats, I saw opportunities!

Rafael Araújo de Souza Coelho(*)

"A picture is more worthwhile than a thousand words" - this was exactly my feeling when visiting China. Despite reading and follow the press all its development in the last few years, having the opportunity to meet Chinese reality was very assertive.

China is a continent – this is an expression often used to refer to Brazil – but there is a more comprehensive there. Whether due to population and territorial size, or the cultural, linguistic variety, in addition to the unusual coexistence with the poles of Hong Kong and Macao, which are economically larger than many countries.

Workmanship is an important point – it is the main factor in determining the development. All factories that I have visited have their accommodations and dining hall. The workers, usually from rural areas, sleep and receive 3 meals a day in the company. They work 6 days a week, up to 11 hours a day. The government begins to charge the reduction of days for 8 hours a day in more developed regions – specially in office activities and in those where there is no payment for production. I could realise that this policy apparently is not universal. In most of the factories the workers are paid with a low fixed and a value per unit produced, and this limit of 8 hours is observed only in the office.

The cost of a worker that 5 years ago was around US$ 70/month – now evolved to US$ 120, including all charges, food and accommodation. Such value oscillates from region to region. There is apparently no bureaucracy in hiring or dismissing people. There is currently a competition for trained workmanship in more industrialized regions, and this is reflected in wage increases. Chineses usually work for periods of one year, almost on a boarding-school regime, and they return to their homes only during the Chinese New Year period – in this break, between 20 and 30% of them do not return to the original employment. This index has increased every year due to the offer of new jobs in different segments – there is already a dispute for qualified workforce.

Despite the fact that the water is cheaper than in Pernambuco, China faces big restrictions and shortage of water resources. Because of this the tanneries were removed from the list of the 2,000 priority industries of the country. It is estimated that in 2010, keeping the current growth rates it will be lacking drinkable water. For this reason the government is changing tax legislation, which encourages tan industry, it has closed and set limits of production for companies (some have permission to work only with 30% of capacity) or required relocation of tanneries to more remote areas of major cities. Thus, it attempts to contain water consumption and reduce effluents volume.

These factors above described can become a great competitive advantage to the tannery segment in Brazil. Our availability of raw materials (biggest commercial cattle in the world) and water give us natural conditions for having a comfortable position as products supplier with higher added value. Currently much of the Brazilian hide is exported in the wet blue stage – which requires from buyer a certain availability of water to process it until finished. Another possibility is to industrialize raw materials from other countries, specially the United States, which  currently are loaded on crude stage for processing in China or in South Korea. Thereunto, two factors are crucial: the change in tax structure and the ecological concern.

The tax simplification is an essential condition for a better integration of Brazil in an international context. The legal and tax complexity in the Brazilian case is a more important factor than productivity in determining the competitiveness of a company. This is a clear values reversal – rather than concern to a better production, we are concerned with understanding legal and accounting aspects of our companies. We spend more time worried about accounting, than about production. It is urgent to reconsider the systematic of the tax credits recovery and the draw back regime, the percentage of added value required to enable extend our horizons of export even with simple processing or even commercial activities.

Regarding the environmental factor, almost all Brazilian tannery have an excellent framework for effluent treatment. The excellence in interaction with the environment  qualify us to occupy a head space in leather segment worldwide. This is an essential condition for the operation of this industry anywhere in the world in a short term. The scarcity of natural resources and the environmental problems in other countries will be Brazilian industry allies. This trip was important to see the possibility of working this market with more elaborated products, semi-achieved and achieved – that is an immediate step.

Brazil needs to decide a new model of development. Although the Brazilian economy take steps towards development, there is the feeling that our rhythm is much lower than theirs. The adoption of tax benefits in the poorest regions of Brazil should be based mainly in labor relations, to achieve directly the main goal of the incentives granting which is the generation of jobs and income. One possibility is to adopt in regions such as Brazil northeast semi-arid the regime of labour cooperatives or the reduction of charges and the relaxation of hiring and layoffs, in order to attract labour-intensive companies and generate jobs where there is not. Brazil needs to undertake a wide range of reforms: education, fiscal, tax, labor, social security, aiming to bring us in the new global reality.  China is currently a country with more capitalist bias than Brazi. It is necessary to include more people in the market economy so they will aspire to better life, progress and prosperity conditions – the welfarism do not inspire people to desire growing, and it destroys the initiative and willingness to fight.

I know that incorporation of the Chinese model is impossible and it is not our goal, but we need to find our formula to move around faster. We all need to make a greater contribution – more dedication, inventiveness and mainly a lot of work.

(*) Director-superintendent of the Modern Tannery / Petrolina (PE)

 

Revista Courobusiness, Ed. 58 – Mai/Jun 2008