Due to the financial crisis affecting the economies of the United States and Europe, Brazilian companies that export are seeking expansion of markets to emerging nations, as a way to compensate the demand in developed countries. This year, shipments of Brazilian products to developing nations have been rising constantly, among them those to the Arab world (5.4%) and Asia (11.2%), especially due to China.
Total foreign sales from Brazil dropped 23%, stunted mainly by the bad performance of business with the United States, Europe and other countries in Latin America.
“We are granting priority to these markets (emerging). We have removed the focus from the United States and Europe, as they are not going to buy products at this moment, and we are trying these (new) locations,” explained Karina Botelho, export manager at Formanova, a furniture factory that is headquartered in Palhoça, Santa Catarina. The company has been concentrating mainly in the Middle East and Africa.
The search for diversification of markets in times of crisis is generalized among exporters. The last Industrial Analysis – Foreign Trade, disclosed by the National Confederation of Industries (CNI) late last month, showed that 60% of the 1,307 companies approached plan to go after new destinations to mitigate the effects of the crisis in their foreign sales.
“Companies are seeking new markets, but not necessarily managing,” said the vice president at the Brazilian Foreign Trade Association (AEB), José Augusto de Castro. “Some emerging markets have managed to have even better performance, like China, India and some countries in the Middle East. It is an option, but everyone is going in that direction, so it is necessary to be competitive or to have a foot in the destinations,” said the executive manager at the Research Unit at the CNI, Renato da Fonseca.
“Everybody is having the same idea,” said Castro. “There are many successful cases but other companies are not managing,” added Fonseca.
In the evaluation of both experts, Brazil has two realities when talking about trade: exports of commodities, which are remaining relatively high due to the demand in large emerging economies, and that of industrialized products, which are suffering not just due to the crisis, but also due to the appreciation of the Brazilian real against the dollar, making products more expensive abroad, and also due to the high tax burden.
The search for new destinations in the current scenario is not an easy task. In the area of manufactured products, according to Castro, competition with Chinese products, which are cheaper, in a global market that is already retracted, makes business for Brazilian companies even more difficult.
“With the retracted demand, exporters have to offer prices,” he said. According to him, China has even been occupying space in traditional markets for Brazil, like those of South America.
According to Fonseca, apart from lowering costs to make prices more competitive, businessmen must research the market and adapt their products according to the needs of different clients.
That was what MGR, a factory in the marble and granite sector from Rio de Janeiro, did. According to the trade manager at the company, Ronan Moreira, even before the worsening of the crisis, in September last year, the company started feeling lower demand in the United States and started seeking other alternatives. “We preferred to move on rather than being caught by surprise,” he said.
The alternative, in the case of MGR, was the Arab market. In November last year, the company exhibited at the Big 5 Show, a fair in the building sector that takes place in Dubai, in the United Arab Emirates, and in January 2009, MGR participated in a mission to North Africa promoted by the Ministry of Development, Industry and Foreign Trade.
According to Moreira, the activity worked out and business in the region started turning up. Entry of the products in a new market, however, required extra effort by the company. “We had to bend, as demands (in the region) are a little different, and the material is different from that we sold to the US, and they are not buyers of ready products,” he said. Whereas in North America the company exported products ready for installation, in the Middle East the demand is for semi manufactured plates.
“The lower demand among traditional markets may be compensated by emerging nations, but the competition is tough and it is necessary to adapt,” said Moreira. Prices also had to be negotiated. “We, however, already have an export culture, which makes things easier. We have material, competitiveness and conditions to respond rapidly,” he said. An advantage, according to him, is that in some countries, especially in North Africa, there is little variety for products available, but there is, however, avidity for novelties.
In the same lines, the national cosmetics industry, which was already working hard in emerging nations, decided to further expand its focus on these markets. In the case of the Middle East, for example, the foreign trade analyst at the Brazilian Association of Toiletries, Perfumes & Cosmetics Industries (Abihpec), Silvana Gomes, said that the sector has not yet felt lower exports to the region, despite the crisis.
Exports of cosmetics, however, according to José Augusto de Castro, from AEB, are among those least suffering the economic turmoil. In fact, Silvana said that there was no impact on sales to traditional markets, especially Latin America. With regard to richer destinations, like Europe, the Brazilian industry operates in specific niches, like organic products, which continue presenting demand.
“But we cannot ignore what is taking place in the world,” said Silvana. “There is concern with exports and we are turning funds to markets that may be expanded,” he added. In this respect, the trade promotion project, which Abihpec is developing in partnership with the Brazilian Export and Investment Promotion Agency (Apex-Brasil), should advance in eight emerging destinations considered priority. “The focus changed a bit, and we are eyeing the United States and Europe a little less,” he said.
He pointed out, however, that this does not mean that the sector should abandon developed nations, as he believes in recovery in the short run. In the same line, Renato da Fonseca, from CNI, pointed out that the search for alternative markets should not supply the contact of traditional destinations. It would be ideal, according to him, for the company to have a diversified portfolio, and losses in a market may be compensated by other gains.
For those who have great business in developed nations, opportunities in the emerging markets do not compensate the losses, but they help. “These regions (the Middle East and North Africa) were not our strong point, but they have been generating very favorable results. Nothing that wonderful, after all, the crisis is global,” said Karina Botelho, from Formanova. “But it has been the solution,” he added. The company, which produces high-end furniture, saw shipments to the United States, Europe and Latin America drop, although there is still demand in the latter case.
If the crisis has made exporters seek new markets, on the contrary direction, importers are also seeking suppliers capable of offering products at a good price range, without, though, forgetting quality. Baumer, a São Paulo state medical and hospital equipment factory, has been identifying this phenomenon in practice.
“In times of crisis or in good times, (the field of) health does not suffer much. It is always a priority,” said the director of the international area at the company, Wagner Mazolli. However, according to him, emerging nations that usually buy from “great players” in the sector, headquartered in Europe and the United States, have started seeking alternatives, “countries like Brazil, which have technology and price.” “This represents an opportunity for expansion for Brazilian companies,” he said.
According to the executive, Baumer, which exports mainly orthopaedic implants and devices for sterilization, has been doing good business with clients that used to buy from the United States and Europe. “But prices (of North American and European products) have not changed, and the crisis only accelerated (this tendency of search for new suppliers),” he said.
Still, the US and European markets are very difficult for the Brazilian industry due to local competition. There companies only operate in very specific niches, like a line of prosthetics for patients with bone tumors.
“The tendency today is the South, South America, Africa, Southeast Asia and the Arab countries. There are great opportunities for those who have quality and price,” said Mazolli. The bet on emerging nations is so great that the company, which currently has 23% of revenues connected to exports, has as its target reaching the total of 40% by 2011, despite the crisis.