Corporations in Brazil Shed Stay-at-Home Tradition
By TODD BENSON
Published: December 10, 2004
nytimes.com
ÃO PAULO, Brazil, Dec. 7 - When Brazil began opening its economy in the early 1990's, companies worried that they would end up being pummeled on their own turf by deep-pocketed foreign rivals.
It appears that those fears were overblown. Not only are many of Brazil's biggest companies riding high at home by deftly using their knowledge of the nation's huge domestic market to fend off competition from abroad, they are also increasingly flexing their muscles on the international stage. Many of them are buying assets and building factories in foreign countries that just a decade ago seemed out of reach to many in Brazil's traditionally inward-looking corporate sector.
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Perhaps nowhere is this latter trend more apparent than in North America, where a growing number of Brazilian businesses are setting up shop and selling everything from cement and steel to airplanes and orange juice. For some of these companies, expanding into big consumer markets like Canada and the United States is crucial to continued growth, since they already have a dominant position at home. For some, it is a way to increase their revenue in dollars while also skirting trade barriers, like import tariffs and quotas. And for all these companies, expanding abroad offers access to cheap credit - a scarcity in Brazil, where interest rates are among the world's highest.
"If you compare a good Brazilian company to a company that is located in the U.S. or Europe, doing the same thing with the same operations and the same production facilities, then the Brazilian side probably has the advantage of having lower labor costs and maybe energy costs," said Peter Badura, general manager of Banco WestLB do Brasil, the Brazilian unit of the German bank WestLB. "But on the other side, the capital cost is killing them."
By buying assets in more developed economies like the United States, Mr. Badura added, Brazilian businesses are essentially "selling themselves as a non-Brazilian company, as a company that is generating cash flow that is not sensitive to the Brazilian government, to the Brazilian legal system or the Brazilian currency."
The need for affordable credit was cited last month by Grupo Votorantim, Brazil's largest diversified industrial conglomerate, when it announced it would buy two cement plants in the United States from Cemex of Mexico for $400 million. The acquisition will be the latest of several purchases by Votorantim's cement unit, Votorantim Cimentos, which has said it is actively pursuing new opportunities in "mature and stable markets like the United States" with hopes of doubling its operations outside Brazil by 2007.
Votorantim made its first foray into North America in 2001, buying the Toronto-based St. Mary's Cement Inc. for $680 million. Last year, it acquired a 50 percent stake in a Florida company, Suwannee American Cement. Over all, Votorantim Cimentos has 25 plants and more than 8,000 employees in Brazil and North America.
One of the first Brazilian companies to set its sights on the North American market was Grupo Gerdau, a family-run steel maker based in the country's southernmost state of Rio Grande do Sul. Gerdau, which got its start as a nail manufacturer in 1901 and is now Brazil's No. 1 producer of long-rolled steel, made its debut in the Northern Hemisphere in 1989, when it bought Courtice Steel of Ontario. A decade later, the group pushed into the United States, acquiring Ameristeel, a financially distressed steel company based in Florida.
Gerdau has recently moved aggressively to bolster its United States presence. Last month it completed the acquisition of the Minnesota-based North Star Steel, which it bought from Cargill Inc. for $266 million, adding four long-steel minimills and three wire rod processing plants, in five states. And in late October it announced plans to buy Gate City Steel and RJ Rebar, which are based in Indianapolis and together have seven concrete reinforcing steel operations in Alabama, Illinois, Indiana and Ohio. In all, the Toronto-based Gerdau Ameristeel Corporation now has 14 mills in Canada and the United States, and is North America's fourth-largest steel producer.
For Gerdau, which also has units in Argentina, Chile and Uruguay, expanding outside Brazil was a way to keep growing while also dancing around trade restrictions on steel imports, especially in the United States.
"We've always been big exporters here in Brazil," said Jorge Gerdau Johannpeter, the group's president. "But the American market had restrictions."
"So to achieve our objective of becoming a big player in the global steel industry," he added, "we decided we had to focus more on the United States."
Companhia Siderúrgica Nacional, a flat-steel producer based in Rio de Janeiro, has also taken aim at the North American steel market, buying Heartland Steel of Terre Haute, Ind., in 2001. And Companhia Vale do Rio Doce, the Brazilian mining giant known widely as C.V.R.D., has a 50 percent stake in California Steel Industries, the leading producer of flat-rolled steel in the western United States.
Last month, C.V.R.D., the world's largest producer and exporter of iron ore, a crucial ingredient in steel, was busy denying reports that it was in talks over Noranda, a big diversified mining group based in Toronto that has been on the block for some time. Such speculation died down while the Canadians negotiated exclusively with the China Minmetals Corporation, but resurfaced after Noranda said in mid-November that it was open to new bids.
C.V.R.D., however, has made no secret of its desire to keep expanding overseas. "Having operations abroad is an absolute necessity for our business," said Fábio Barbosa, C.V.R.D.'s chief financial officer, adding that "if there are opportunities out there that fit into our growth strategy and generate value for our shareholders, we will pursue them."
Trade barriers have encouraged some of Brazil's biggest orange juice companies to buy processing plants in the United States, a move that allows them to sidestep steep import duties on foreign orange juice. In 1996, Sucocítrico Cutrale, Brazil's largest citrus grower and juice processor, acquired a plant in Auburndale, Fla., from Coca-Cola's Minute Maid division. A year later, another Brazilian juice company, Citrosuco Paulista, bought a plant in Lake Wales, Fla. These companies now control enough of Florida's processing industry to influence prices for bulk juice from concentrate.
Another kind of restriction led to a recent decision by Empresa Brasileira de Aeronáutica, the Brazilian aircraft manufacturer known as Embraer, to build a factory on American soil. To be eligible for lucrative Pentagon and homeland security contracts in the United States, Embraer started in August to convert a defunct military base in Jacksonville, Fla., into an aircraft assembly operation.
The company was already part of the team l ed by the Lockheed Martin Corporation that won an $879 million Pentagon contract last summer for United States Army surveillance planes.
Under the partnership with Lockheed, Embraer will use the Jacksonville plant to build the aircraft that will be converted into surveillance planes under the Army's Aerial Common Sensor program.
Embraer says it hopes the plant will also snare homeland security and other specialized military business, like border and maritime patrolling.
"The fact that we've been considered a valued supplier for the American armed forces," said Maurício Botelho, Embraer's chief executive, "that is going to open a lot of other doors for us." |
