Despite Hurdles, OC Exports Seen Surging
For Orange County exporters, Brazil is the China of Latin America. It’s as big and promising as it is onerous and intimidating.
With a return to economic growth and more open trade in Brazil, local exporters are projected to ship $259 million worth of goods to Latin America’s largest economy this year, a 34% jump from 2000, according to California State University, Fullerton. Next year, OC exports to Brazil are forecast to grow 24% to $322 million, or tenfold from 1998’s figure.
“Brazil is the lion’s share of our business in Latin America,” said Stu Foster, vice president of technology and discovery with Irvine medical device maker Edwards Lifesciences Corp. “It represents one of the largest markets for us in the world.”
But Brazil, like China, isn’t for the fainthearted. Regulations and tariffs are stiffer than in other Latin American countries. The government in Brasilia takes a big hand in economic affairs, though that’s changing. And while the country’s $1 trillion gross domestic product grew at a 4% clip last year, Brazil is coming off two years of declining or contracting growth.
“The economy in Brazil is terrible,it’s not the strong market it used to be,” said Chris Astillero, Latin American sales director with Fullerton-based Plasticolor Designs Inc., a maker of car floor mats and other products featuring Warner Bros. cartoon characters. “Brazil still hasn’t recovered from the Asian economic crisis while countries like Mexico have.”
Astillero said Plasticolor tried getting into Brazil three years ago, but only filled two or three orders before the country’s economy fell into recession. The strength of the U.S. dollar against the Brazilian real has made it tough to stay competitive there, he said.
Other OC companies say they have had better luck.
Officials at Irvine-based STM Wireless Inc., a maker of satellite and wireless communications systems, are gung-ho about Brazil. Back in 1994, the company helped install a networking system for the Bolsa de Valores do Rio de Janeiro, the country’s stock exchange.
STM now has several projects in Brazil and an office in Rio de Janeiro. The company also has made a foray into Brazil’s rural telephone sector with Embratel Participa & #231; & #337;es SA, which is owned by WorldCom Inc.
Out of STM’s $17.1 million in 2000 sales, Brazil accounted for 6%, or more than $1 million, according to Latin American sales director Joao Paulo Ribiero.
“We’re also going after other telecom companies there that want to increase their presence nationwide there,” Ribiero said. “The fastest way to do that in Brazil is via satellite, which is the kind of technology we have to offer.”
Star Trac, an Irvine maker of fitness equipment, sold about $2.7 million worth of gear in Brazil last year, a 4% chunk of its total 2000 revenue of $70 million, according to Latin American sales manager Michael Carranza.
“It’s our key market for South America,” Carranza said. “Brazilians are very into fitness.”
Heart-valve maker Edwards has had a unit in Brazil since 1993 employing about 200 people. The company’s Brazilian subsidiary has a plant in Sao Paulo that develops and makes products used in open-heart surgery, including some devices based on surgery techniques pioneered in Brazil.
“Brazil represents a great growth opportunity for any healthcare company,” Edwards’ Foster said. “People tend to forget how large Brazil is,it has over 170 million people and is very big geographically.”
But it’s been a tough ride for OC companies in Brazil. The country’s central bank has drastically devalued the Brazilian real in the past few years. That’s boosted Brazilian exports but hampered goods from OC and other parts of the U.S.
“That’s a bit of an inconvenience for us,” STM’s Ribiero said.
Most of STM’s contracts are signed in local currency. And the company has to get a certificate from Brazil’s central bank to transfer money back to its OC headquarters.
“If the central bank takes a long time and a devaluation occurs in the meantime,we take a big hit,” said Ribiero. “It’s happened to us before in Brazil.”
At one time the real was pegged to the U.S. dollar. Now it sits at around 45 cents and has fallen in value by 10% in the past three months.
“Devaluation does hurt our revenue, since a lot of our product materials are still sourced outside Brazil,” said Edwards’ Foster. “We’d like to see them have a stable currency, which would be a result of their economy becoming more predictable.”
Brazil is Edwards’ headquarters for all of its Latin American business. Foster said he expects higher growth for the company there compared to operations in more developed countries.
“I think the economy will rebound in the near future, although it’s hard to predict the political situation,” he said. “I personally feel better about the stability there now than five years ago.”
In the past few years, Brazil has undergone economic reforms that have tamed inflation and helped modernize the economy. Now the country is embroiled in a corruption scandal in which top leaders are accused of stealing billions.
Other OC companies say they have cautious plans to expand into Brazil.
Conexant Systems Inc. officials said the Newport Beach chip maker’s operations in Brazil are in the set-up stage, according to company spokeswoman Lisa Briggs.
Irvine-based computer security software and hardware company Rainbow Technologies Inc. plans to set up an office there and is linking up with Brazilian distributors.
“We see it as an important market,the fastest-growing technology market in Latin America,” said Rainbow spokesman Dan Chmielewski.
Irvine-based chip maker Microsemi Corp. has a distributor in Brazil, but does little business there, according to Manuel Lynch, vice president of business development and strategic marketing. He said he is skeptical about whether Brazil will be a major market for OC companies.
“For a while everyone was moving manufacturing operations there, and it was a great thing to do at the time,” he said. “But I think most of the contract manufacturers supporting OC companies are in places like the southeastern U.S., Eastern Europe and Mexico.” n
