SAO PAULO, BRAZIL — Most foreign equipment makers cringed as Brazil's currency, the real, went into a free fall in January, but to Piovan SpA of Italy, it came as a pleasant surprise.
The reason? Piovan already had plans to build a factory near Sao Paulo to assemble auxiliary equipment. Now Piovan plans to take advantage of the cheap real. Since imports cost more, it makes more economic sense to manufacture there.
Given that combination, Piovan has put the factory in Osasco, Brazil, on a fast track, according to Ricardo Prado Santos, director of Piovan do Brasil Industria e Comercio Ltda.
``It's a long-term investment. [After the devaluation] we decided not to stop it. Instead we're speeding it up. Now it's cheaper to invest in Brazil. If you have the money, let's do it,'' Santos said at Brasilplast, held March 8-13 in Sao Paulo.
When the 20,000-square-foot factory — Piovan's first outside of Italy — opens this year, it will employ 28. Santos said the company expects to boost employment to 100 people in three years.
Brazil, Piovan's second-biggest market, accounts for 15 percent of the company's business.
Foreign investments bring much-needed hard currency into Brazil. In the mid-1990s, direct foreign investment trickled into Brazil at about $5 billion a year. Foreign investment exploded to $22 billion in 1998, although analysts think it will decline to $17 billion in 1999.
Much of the investments come from Brazil's automotive industry, which doubled production from 1993-97. Only one in nine Brazilians owns a car. In the past five years, automakers and their suppliers will have pumped $18 billion into the country.
Brazil's auto plants can make more than 2 million cars a year, although car sales slumped last year to 1.6 million units. Industry predictions are that 1999 production will run from 1.1 million to 1.3 million vehicles.
This month, the weak real hit Ford Motor Co.'s plant in Sao Bernardo do Campo, Brazil, and Ford suspended production for two weeks, blaming the high price of imported parts.
On the resin side, Dow Chemical Co. bought 50 percent of SÃŒo Paulo compounder Branco Industria e Comercio Ltda. late last year.
In the plastics machinery arena, European companies have been more active than U.S. firms in setting up manufacturing in Brazil. Piovan's factory will build feeders, dryers, drying hoppers, chillers and temperature controllers. Another Italian player, Sandretto Industrie SpA, has invested $6 million to retrofit a Sao Paulo-area plant where 70 workers will assemble injection molding machines.
Brazil's IrmÃŒos Semeraro Ltda. had assembled Sandretto machines under license at its own factory. Now Semeraro's role is to supply clamping and injection units and other major components to the Sandretto plant.
Daniel Ebel, a Brazilian manufacturers' representative, encourages his clients to manufacture in Brazil.
``My opinion is, who does it first will get a lot of advantage for the market,'' he said at Brasilplast, where his company, Rax Representacoes, exhibited.
One Rax company, Moretto P.A. srl of Italy, has a small factory in Louveira, Brazil, that makes material-handling systems. It plans to expand, Ebel said. Another firm with a local plant is AFS GmbH, a German supplier of equipment for corona treatment of plastic film.
Last year, German-based Krupp Kunststofftechnik GmbH bought the Battenfeld Pugliese Equipmentos Ltda. blow molding machinery factory in SÃŒo Paulo.
Canada's Husky Injection Molding Systems Ltd. spent $8 million to open a 25,000-square-foot technical center in Jundiai, 50 miles north of Sao Paulo.
Husky has tapped into the big Brazilian market for soft drinks. It builds injection molding machines and molds that make PET preforms. The Bolton, Ontario, company also has sold machines to car suppliers in Brazil.
Husky wants the center to boost the firm's Brazilian sales, from $30 million last year, to more than $50 million by 2002.
Husky felt the sting of Brazil's currency devaluation firsthand. In February, Husky announced it would have lower-than-expected profit the rest of the year and blamed global economic problems, including Brazil.
Husky's new technical center caused some speculation at Brasilplast that the company would manufacture there.
``That's not in our business plan. But it is a possibility, only,'' said Walfner Leitao, general manager of Husky do Brasil Sistemas de Injecao Ltda.
Leitao said Husky could fill a gap. ``It's not that there's a poor quality of machines made here in Brazil, but there are no domestic plants making high-tech machines here,'' he said.
At Sao Paulo-based real-estate firm Herzog Imobiliaria Ltda., Executive Director Eduardo Herzog said investments in new facilities have been put on hold. Herzog Imobili ria helps multinationals from several sectors locate industrial properties in Brazil.
``Foreign investors are watching what is happening, but should resume their original plans as of the second half of the year with the advantage that their investment money is now worth more,'' he said.
Mark Mulone, Latin America sales manager for the machinery supplier Krupp Werner & Pfleiderer Corp. in Ramsey, N.J., is confident Brazil will pay off.
``This is the time to plant, so that you are prepared to harvest when the market turns for the better,'' he said.