MACHINERY MANUFACTURERS MULL VENTURES

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SO PAULO, BRAZIL — In the plastics machinery world, everyone agrees that Brazil, a developing country of 157 million people, the economic kingpin of South America, is a seductive target. But is it a place for machinery-building joint ventures?

Reaction was mixed at Brasilplast '97. Even officials of existing, high-profile manufacturing partnerships said Brazil remains an unpredictable place where the fleet-footed survive.

``Everybody is open to discuss joint ventures,'' said Jos Renato Saia, general manager of Johnson Controls Inc.'s blow molding machinery division in SÌo Paulo.

For machinery companies, Brazil presents a tempting target — 5,000 plastics processors, many with aging machines. Local manufacturing also means easier access to other South American countries through the Mercosur trade pact.

Through the Plano Real (or Real Plan,named for Brazil's currency, the real), Fernando Henrique Cardoso, first as finance minister, now as president, finally seems to have tamed Brazil's hot-headed inflation. That act alone brought on some 15 million new lower-income consumers.

For those people, 70 percent monthly inflation meant ``currency was like holding ice in your hand,'' said Jean Daniel Peter, president of Union Carbide Investimentos e Participacões S/C Ltda. Low inflation also means that buying on credit now is possible for the first time in years. Although interest is very high by U.S. standards, millions more Brazilians can buy microwave ovens, televisions and cars.

It all means plenty of business for Brazil's injection molders, blow molders and extrusion companies. Thanks to Brazil's other economic force — free-trade reforms started in 1990 — processors no longer are forced to buy only Brazilian-made equipment.

Tariffs on plastics machines are falling steadily, from 17 percent this year to 14 percent in 2001. But the cost of importing into Brazil includes much more, executives at Brasilplast noted. Tariffs, plus port fees, local taxes, freight and other special charges and red-tape hassles tack on 40-50 percent to the base price of an imported machine.

``There are something like 12 different taxes that these people have to pay in order to bring foreign machinery into Brazil,'' said Miguel Bonnin, manager of international marketing and sales at Conair Group, a Franklin, Pa., auxiliary equipment maker.

Even so, the decreased tariffs show dramatic progress, recalled Werner Vassel, managing director of Conair do Brasil. In 1974, Brazil totally closed its borders.

``From one day to the other there was zero [import] activity,'' he said.

If a molder wanted to import a $50,000 piece of equipment, the owner first had to deposit with a bank 100 percent of that amount — another $50,000 — before being able to buy the machine.

For some time, Vassel's company, Iteq, built Conair equipment in Brazil under a licensing agreement. He remains as a leader of Conair do Brasil, although the manufacturing operation has closed.

At Brasilplast '97, Conair officials were finishing up an agreement with Polimold Industrial SA of SÌo Bernardo do Campo to have Polimold handle Conair sales and service in Brazil. The two companies met during a South American trade mission sponsored last year by the Society of the Plastics Industry Inc.

Bonnin said Conair may consider assembly in Brazil again.

``That's one idea that's on the table, but it's just an idea,'' he said at the show.

Brasilplast, held March 17-22, was a busy time for Polimold. The company also was completing separate sales and service agreements with Cincinnati Milacron Inc.'s Plastics Machinery Group, based in Batavia, Ohio.

Richard Frank, Milacron's managing director for plastics machinery in South America, said his company connected with Polimold after Milacron bought D-M-E Co., a U.S. mold-base maker, in 1996.

Ruy Korbivcher, Polimold director, said Polimold began manufacturing D-M-E mold components in 1973. After the manufacturing agreement stopped in 1985, the company continued as D-M-E's Brazilian distributor, while making its own mold products. In 1996, Polimold began making D-M-E hot-runner components, he said.

Frank said importing companies cannot skimp on local service, including training for customers.

``In the past, we've been dealing with reps down here. We've had some success, but the barriers to entry, including taxes, are very high,'' he said.

Tariffs are lower for some Milacron products that have no Brazilian-made counterparts, such as coinjection and high-speed injection molding machines.

Frank said Milacron has no plans to assemble machines in Brazil. Officials need to get better market data and see how the Polimold agreement works out, he said.

Frank also said reforms may go further, making it easier to send in Milacron machines built in the United States and Germany.

``Brazil may in fact open itself even more,'' he said.

Milacron is expected to announce details of the Polimold deal soon.

Other companies have jumped in with Brazilian manufacturing, and they are big boosters. Recently, the most aggressive Brazilian player has been IrmÌos Semeraro Ltda., an injection molding machinery builder run by brothers Nelson and Francisco Semeraro.

Both Sandretto Group of Italy and U.S.-based Johnson Controls Inc. had almost no sales to Brazil before joining with Semeraro.

In 1989, Sandretto Group of Turin, Italy, licensed Semeraro to assemble its injection molding machines. Sandretto has sold about 400 machines in Brazil since then, both made by Semeraro and imported fully assembled from Italy, said Mario Manzo, sales and marketing director.

``You have to know the country. I lived in Brazil for three years before I joined Sandretto,'' Manzo said.

Local partners are critical.

``The problem is, in a country like Brazil, the rules can change every four years.''

Semeraro has been making Uniloy blow molding machines for Johnson Controls for two years.

``We're selling roughly 50 locally assembled machines'' a year, said William R. O'Day Jr., managing director for Latin American business development for the Plastics Machinery Division of JCI in Manchester, Mich.

Another 15 machines a year are imported from the United States and Italy, he said.

``It's working quite well,'' he said of the joint venture.

O'Day said Semeraro has contributed a great deal of technology to the partnership. At Brasilplast '97, Semeraro introduced a model called Suniloy, a word that combines names of both companies. Semeraro also developed a new MS blow molding controller using technology it has perfected on its injection molding machines.

Growing consumer demand for everything from cosmetics to motor oil makes Brazil an important blow molding market, O'Day said. One enormous potential market for high density polyethylene bottles is jugs for milk, which now is sold in multimaterial boxes and pouches.

O'Day is fairly optimistic that inflation will stay down, though five earlier inflation-fighting plans failed, he said.

Today there are two big differences: Access to imports will help dampen price hikes, and the Brazilian government has privatized big industries, such as steel, mining and petrochemicals.

Van Dorn Demag Corp., like Cincinnati Milacron, remains cautious about Brazilian manufacturing. Don Smith, international sales manager for the Strongsville, Ohio, company, said Van Dorn Demag has no near-term plans to build injection presses in Brazil.

``The machines that are being produced down here are certainly not being made in a low-cost, high-quality fashion,'' he said.

Smith said Van Dorn Demag was not active in South America until it set up a direct sales and service office two years ago, Demag Van Dorn Equipamentos Plsticos Ltda.

Willy Aldehoff, managing director of the SÌo Paulo operation, said Van Dorn Demag can produce better, less-expensive machines in Strongsville and Germany than it could in Brazil, because volumes are higher.

``We can guarantee this quality only through our experienced people at our three factories,'' Aldehoff said.

Aldehoff thinks Brazil's economy still is protectionist. But Peter, the Union Carbide head in SÌo Paulo, said very high interest rates in Brazil give an edge to foreign-made — and foreign-financed — machines.

``The Brazilian manufacturer today actually is facing, in many cases, unfair competition,'' said Peter, who also serves as president of SIRESP, Brazil's resin industry trade association.