Growth is the magnet that is causing U.S. manufacturers to expand their operations in Brazil. Now the world's seventh-largest economy, Brazil's GDP in 2010 grew at a 7.5% rate. Over the next two years, the Organization for Economic Cooperation and Development predicts, growth will continue at a healthy 4% rate. A burgeoning middle class is generating growing demand for automobiles, televisions, computers and other products that a generation ago were out of reach for many Brazilians.
Palladium Energy is one of the U.S. firms benefiting from the Brazilian domestic market. The company produces lithium-ion battery packs and power adapters for cellphones and other electronic devices. Approximately 50% of its business is in Brazil, where it has been producing components for global customers for 20 years.
"We love the Brazilian market," says Art Salyer, Palladium's CEO. "Every single product that we make in Brazil stays in Brazil. The middle class continues to grow exponentially. The need for cellphones and higher-end electronic devices is skyrocketing. It is a very dynamic country."
At its factory in Manaus, a rural area in northern Brazil where the government is encouraging development, Palladium employs anywhere from 800 to 1,200 employees. Salyer says with unit volumes increasing 25% to 35% a year, he expect employment to rise closer to 1,500 in 2012.
"Assembling a lithium-ion battery is a fairly complicated task. Putting together a power adapter with 100 or so electronic parts is very complicated," notes Salyer. "These are high-tech, clean jobs and all of the product goes into the Brazilian economy."
Palladium pays close attention to Brazilian requirements for domestic content production and for what types of components may be imported as subassemblies or only as individual components. Failure to comply with these requirements can result in the levying of very expensive duties. Salyer says the company's representatives in Brasilia have been meeting with government officials to determine what content requirements will be imposed in the coming year on tablet PCs.
"On top of that, 90% of components come from Asia -- China, Japan, Korea," Salyer points out. "It requires enormous logistical planning to bring hundreds of parts across the ocean, through customs process and meet varying customer requirements. Supply chain challenges are what we are really good at."
Fueling a Growth Economy
Recent discoveries of massive oil reserves off the Brazilian coastline offer opportunities for a variety of U.S. companies. Estimates put these reserves as high as 80 billion barrels of oil and thrust Brazil into the top 10 nations in terms of oil reserves.
In October, the Commerce Department sponsored a U.S. pavilion at the first Offshore Technologies Conference in Rio de Janeiro. More than 80 U.S. firms exhibited their products and services as part of an effort to tie into the oil and gas industry in Brazil.
Brazil's growth requires continuing infrastructure improvements and that also is benefiting U.S. manufacturers. For example, in October, Deere & Co. announced that it plans to build two factories in Indaiatuba, Sao Paulo. Deere will build one factory to manufacture backhoe loaders and partner with Hitachi Construction Machinery on a second facility to produce excavators. The investment will total $180 million.
Marc Ragazzi, a vice president and operations manager for property insurer FM Global based in Sao Paulo, points out that as U.S. companies build some of the most modern factories in the world in Brazil, they want the same levels of property protection that they employ in the states. That has helped FM Global's business in Brazil double in the last three years. Summing up how a lot of U.S. businessmen view Brazil, Ragazzi observes, "It's been pretty exciting."