George Archer wraps up the key opportunities and challenges for UK manufacturers exporting to Latin America.
Surveying the continent
Giving a brief overview of Latin America as an export destination for UK goods Anthony Shepherd, director of market research firm, Shepherd International observes: “The largest market, Brazil, speaks Portuguese and has protectionist tendencies. The others are Spanish-speaking, and usually dominated by an American and more recently, a Chinese product culture.”
According to Mr Shepherd, this deters the diffident business, but determined UK manufacturers are making inroads. To make advances in South American markets they tend to invest in sales specialists with indigenous language skills to train local distributors. The UK-based CAD/ CAM software producer Delcam provides a strong exemplar for this approach.
Pedro Léon, business development director for Delcam in Latin America talks about the company’s view of the South American market, pinpointing those countries that are enjoying buoyant economic times and those which are stagnant or inaccessible – Venezuela being one example.
“For us, and I think a lot of other manufacturers, Brazil and Mexico are the biggest opportunities,” shares Mr Léon. “However, after 22-years of working for Delcam in this role, my experience tells me that placing your resellers in one place is not the best way to go about business on the continent.”
Adopting a focused and localised approach to business is working well for Delcam. They have networks of resellers in countries across the continent. Léon explains: “As much as we can, we try to develop local operations. Many manufacturers decide to place operations in Brazil and Mexico. In my opinion this is a mistake – they become immersed in the markets there and this ends up becoming a disadvantage to them.”
The breadth of manufacturing sub sectors found in Latin America is far reaching, which means Delcam can rely on a network of industries as well as markets if disaster strikes. The effect on the automotive supply chain after the Japanese Tsunami was devastating, but Delcam is able to avoid damage to their business through a confident sectoral spread as well as a geographic one.
Latin America is a long way off and getting products to market safely and cost effectively can be as much of a challenge as establishing a strong local reputation and brand awareness. Hellmann Worldwide Logistics is a freight company with extensive operations in Latin America. Matthew Marriott, commercial director of
Hellmann Worldwide Logistics UK outlines the main difficulties of exporting there: “In terms of getting products to the continent by ocean freight or air freight, the main issues are primarily translation, legislation and infrastructure,” he states. “Each South American country has its own set of entry regulations and requirements to consider – meaning that the paperwork often differs from nation to nation,” he explains.
Possessing local knowledge of the different aspects of documentation to consider, including export customs, letters of credit, certificates of origin, and bills of landing is vital according to Mr Marriott.
However, having endured the trade fallout from the financial crises of 2008, export figures to South America have since recovered, testifying to the allure of the lucrative markets the region holds. November 2011 figures showing a 10% increase in European container exports to the continent.
Shipment consolidation has had an important part to play in enabling this resurgence. Individual consignments are now combined for effective use of container space and this cuts costs for both manufacturers and logistics providers. Hellmann offers consolidated shipment space in both 20ft and 40ft container vessels.
Market hotspots: business commentary on some of South America’s hottest opportunities.
Delcam – Pedro Léon, business development director for Delcam, Latin America offers his opinion of Mexico as an export destination for UK manufacturers: “It is the most buoyant market – many companies in the country are investing huge amounts and as a result the manufacturing sector is growing fast.”
“Nissan and Volkswagen are two big automotive companies that we sell to in Mexico and they are investing huge amounts in new facilities there. For Delcam it’s a market where we are doing extremely well, mainly because of a taxation system that is not too complex compared to other Latin American countries, particularly Brazil.
RKM Enterprises – Based in High Wycombe, RKM Enterprises is a manufacturer of specialised eco-friendly cleaning products. It first exported to Mexico in late 2011 and exports have grown since then.
Company proprietor Nagendra Bhattacharya comments: “The Overseas Market Introduction Service report identified potential customers and distributors for our silver cleaning range and, crucially, advised that we rebrand and re-label our products to modernise their image for the Mexican market.
“Having seen the demand for our products in Mexico, we are now investigating the potential in other Latin American markets with help from UKTI.” Bhattacharya concludes.
Delcam – Brazil is, by all accounts a very difficult country for native companies to make a profit in, according to Delcam’s Léon: “The cost of steel produced in Brazil is more than importing it! This is shocking, and it makes it very difficult for companies there,” he says.
In addition Léon says that the Brazilian government’s approach to business policy and regulation is volatile. Furthermore, complex tax system and high interest rates compared to other emerging economies make it hard for companies to dedicate time to actually trying to improve their manufacturing processes and operations. The Brazilian government takes isolated measures that don’t go far enough to actually change things, according to Léon.
As well as taxation, Mr Léon says that labour laws, power shortages and the hoops investors have to jump through are detrimental to business growth in Brazil. The cost of energy is also relatively high compared to other countries, and supply is unstable, with regular power cuts in urban centres.
Shepherd International – Anthony Shepherd talks about Brazil and the growing export market for British manufacturers: “Take Brazil’s BRIC economy, the world’s 8th largest. Purchases from Britain at £2.3bn have doubled since 2007, and this is despite punitive duties and bureaucratic hurdles.
“In 2011 Brazil spent £429m on UK machinery, £384m on British cars, £269m on our pharmaceuticals and £108m on our drink. It likes our plastic products too, spending over £50m,” he adds.
HGL Dynamics – HGL Dynamics manufactures niche products for the aerospace and automotive industry. Andy Law, director of technology at HGL Dynamics gives his view of the market prospects in Brazil. “Forecasts are that in the next 20 years Brazil will need to purchase more than 1,000 airplanes valued at $100 billion, and with the assistance of UKTI, we began evaluating the market, narrowing the search for potential agents ideally located either in the hubs of Sao Paulo or Rio de Janeiro.
“For the Aerospace sector, we reached an agreement with AirMod Consulting, an established Brazilian Aerospace Cluster member company based in the San José dos Campos technology region,” continues Mr Law.
“Brazil isn’t the easiest market in which to do business, and it can take quite a long time to break into,” Law sums up. “Having patience and being persistent will eventually pay off, and we have great hopes for a successful future in the country.”
Colombia is a sophisticated £300m market for UK exports. The country’s guns, bombs, and drugs reputation is clearing as FARC rebels become less active.
Colombia’s legitimate exports to Britain include flowers and coffee. During 2011, UK exporters sold Colombia £28m of precision and medical instruments, £23m of drinks, £19m of vehicles, £11m plastics and £9m of toiletries.
In the same year, exports of £5m in UK flat glass and paper towels worth £3m landed in the Columbia and Colombian food retailer Congrupo recently purchased British breakfast cereal production machines from Baker Perkins in Peterborough.
Baker Parkins – Baker Perkins manufacturers biscuit production machinery. Managing director Jon Cowz says: “We have a long history of exporting to various countries in South America, and have found it a beneficial place to do business.”
“These days, it’s harder to get value for money. In a lot of countries, particularly Brazil, there are real problems with getting businesses to make profit, so they often cannot afford to import the machinery we offer. Labour costs are actually higher in Brazil than in Mexico or China, which is a definite turn-off for us.”