Brazil’s Largest Contractor Looks at the Region

The construction firm saw $5 billion in gross revenues last year — a 42 percent increase over 2006. (The parent holding company, Odebrecht SA, which includes the petrochemical firm Braskem recorded $17.7 billion in gross revenues in 2007)

Although the company continues to have a strong presence in Brazil, its international divisions accounted for almost 70 percent of its revenues and a large portion of that is in other Latin American countries.

Marcelo Odebrecht, the 39-year-old grandson of the company’s founder, has run the construction arm since 2002. Before then, he was part of the team responsible for the structuring of Braskem in 2002.

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  • Odebrecht is privately held company that Marcelo Odebrecht describes as “family control, but with professional management.” The key to that is a highly decentralized system the company refers to as “planned delegation.”

    Marcelo Odebrecht sat down with ENR recently to discuss the state of construction in Latin America as well as his company’s philosophy and strategy over the next few years.

    What are the areas of opportunity for construction right now?

    Latin America and Africa are seeing the largest growth internationally in terms of infrastructure. In Europe and the US the amount of infrastructure is growing at about the same rate we have seen in the past. Asia has been growing for ten years but for Africa and Latin America the pickup has only been in the past five years.

    The infrastructure deficit in these places is enormous and they only now have the financial ability to address it. It’s being driven by the price of commodities. Most of the countries in Latin America and Africa have economies that are based on the export of commodities. As demand has pushed up prices there has been a lot more revenue available. It has made it possible to finance things they couldn’t before.

    Another factor has been the growing popularity of Public Private Partnerships (PPPs) but a lot of countries are financing their infrastructure development in other ways. There are countries like Venezuela where the infrastructure investment is based on direct government outlay. In Brazil I would say it is half and half between PPP and publicly financed works or those by state-owned companies like Petrobras which are making some huge investments.

    How would you describe this situation from the point of view of Odebrecht?

    The demand has grown so much we have almost had to stop looking for opportunities. Our challenge is now finding ways to cope with the demand. Up to as recently as three years ago our backlog stayed in the range of $3 billion to $4 billion. We are now talking about a backlog of more than $15 billion dollars.

    “Everyone’s backlog is growing at an incredible rate.”

    — Marcelo Odebrecht, construction head at Construtora Norberto Odebrecht

    For example, two years ago our investment in equipment was around $25 million per year now we are at more than $300 million per year. When we did the San Francisco project in Ecuador it was one of two TBMs we had in South America, today we have ten.

    So we have decided to stay and perform well in the places we already have a presence. We are not opening up new markets and seeking out new clients. We are focused on delivering the quality of work that the clients we already have need.

    What types of projects is Odebrecht involved in?

    Odebrecht is involved in every sector of infrastructure development — logistics, dams, roads, bridges. We are seeing more investment in cities; metros, subways, roadways. There are a lot of smaller projects in cities that we are involved in across the region.

    Mining and the petroleum sector are seeing huge infrastructure investments and there a lot of investment in water treatment and sewage as well. In fact, there is so much going on in that sector we opened a company specifically for this business. Then there is the energy sector. We feel some of the largest investments in the next few years it will be in energy, specifically dams, hydroelectric power dams.

    What is Odebrecht’s strategy to handle this situation?

    Odebrecht is very decentralized. The company in each country sets its own priorities and decisions. Things like technology and information, cash management and bond capability are handled at a corporate level but in terms of operational delegation the system is completely decentralized. A good example: our corporate expense is less than two percent of our total sales.

    Our philosophy is very much based on the quality of the relationship between the leaders and those that who are working under them. The key to handling this type of decentralization is having people who are very integrated to the culture of the company. Usually our people begin working with us just after the university and from that point we work to integrate them into our philosophy. It’s a process that takes ten years or so.

    Has that been effective?

    Decentralization works very well under normal conditions but it is more difficult during periods of high growth. The problem is that because there is so much growth that for the first time in our history we have to hire more people from outside the company who haven’t been integrated to our culture.

    To deal with that we have implemented a strategy of mixing our teams with people who have different amount of experience with the company. A few years ago we had a luxury of creating teams for projects that were made up 100 percent of people who were from within the company and would be fully what could be called “Odebrecht” who have been in our culture for ten to fifteen years.

    How long will this increased investment in infrastructure continue in Latin America?

    We feel this will last at least through the next five to ten years. There is no reason to believe that something big enough will happen over that period to destabilize things in the way we have seen in the past.

    The only thing that can completely change the situation is if there is a huge drop in commodity prices -- and I mean a HUGE drop. For example, we are not talking about something like oil dropping from $130 per barrel to $70; we are talking about from $130 to $50 or less. We expect that the commodities will fluctuate more or less but it would take a HUGE drop to really disrupt things.

    Will the recent economic problems in the US affect this?

    The major concern for us with the economic crisis in the US is in terms of bond capability. At the same time the demand for construction is increasing and everyone’s backlog is growing at an incredible rate we are seeing insurance companies decreasing their capability of supplying the market.

    What is your biggest concern about the situation?

    We are facing a lot of bottlenecks and costs are going up. To handle that you have to be selective and choose jobs where you can control the risk better. Nowadays, very few companies, including ourselves, will pick up a larger project in a lump sum contract. Most of the projects now are some kind of alliance or cost plus basis.

    Are you seeing more foreign firms looking for opportunities in the Latin America market?

    We haven’t seen a lot of foreign companies entering our market because, in the first place, the companies here are quite strong. What we have seen are outside companies, especially European companies, coming here to be investors. Good examples are the Italian and Spanish companies, that have had a growing presence in a few countries but they go in mostly as an investors.

    It’s very difficult for companies who are not familiar with Latin America to come in and start competing for these jobs. There are very few companies with the ability to handle jobs on the scale of a $10-billion hydroelectric power plan and there are even fewer that have the experience and resources in the region.

    Traditionally the problems of bureaucracy and corruption have been cited as major impediments to development. Is this still the case?

    Bureaucracy and corruption aren’t as big a problem as in the past. First of all, you have to get things done quickly. When corruption appears it tends to be where there are difficulties to get things done. What we have seen is when markets are more open, when there is more access to financing, the opportunity for corruption tends to evaporate.

    Are recent reform efforts the reason for the change?

    It’s partially the result of reforms but it’s also due to the improved strength in these economies. Each country has had to find their own way to deal with these problems but there have been various reforms by everyone. It’s not a situation of saying which one is better than the other. What seems clear is having better economic resources helps these governments in regards to reforms. The resources also helps increase the public support which is the key to making the reforms work.

    Our biggest problem as an industry is resources, resources, resources. Right now it is very difficult to predict the prices of the raw materials; cement, steel and even labor. The cost of labor is going up across the region both from demand and the increased training costs. In the last fifteen months we have hired more than 20,000 people. And that doesn’t include the contractors involved in these projects.