SÃO PAULO, BRAZIL (April 7, 9:30 a.m. EDT) — Brazil is not a market that U.S. plastics processors have dived into headlong — it's more like they've stuck a toe in here and there.
The focus of businesses locating in Brazil often is different. Molders that go to China or Mexico frequently go with the idea of exporting back to North America, said Michael Sabbagh, executive vice president with Knoxville, Tenn.-based Moll Industries Inc.
“Brazil is an independent consumption and export market,” he said. “Those who went to Asia went to supply the U.S. market from Asia. Those who went to Brazil went to supply the South American market from Brazil.”
Moll purchased a stake in one Brazilian molder in 2001. Sabbagh declined to talk about investment figures, but company officials said in 2001 they planned to put $1 million into two molders. Thus far, though, Moll has invested in only one, Brasmolde IndÃºstria e Comercio Ltda., in Jundiaí. The investment included upgrading to accommodate molding of sensitive electronics equipment, and adding three injection presses, giving the company 22 machines.
Brazil now is Moll's only molding location outside the United States, after the company closed or sold off its European operations in bankruptcy. Brazil remains a small part of its business, but Sabbagh said the company wants it to grow.
Sabbagh said 2002 was a tough year for many firms in Brazil, but Moll is looking long term and is mindful of the ups and downs in the local economy.
“You have to be patient,” he said. “Sometimes in one year you can get back all your investment you've put in.”
Sabbagh, who held executive positions with Alcoa's packaging division in Latin America and Bericap GmbH before joining Moll in 2000, recommends getting into the market with a local partner. There are too many differences in labor laws, taxation and culture to plunge in without help, he said.
He said the Brazilian market lacks a lot of molders with strong technical capabilities, though, which creates opportunities for firms that have those skills, he said.
Brazil's market is protectionist, he said. Telecommunications, small appliances and consumer products molding largely have left the United States for Asia, but remain in Brazil because the country maintains high tariffs, Sabbagh said.
Plymouth, Mich.-based packaging firm Plastipak Packaging Inc. has been in the country for seven years. In that time, it has weathered currency devaluations and economic problems in the region, such as the meltdown in Argentina that reduced PET demand by 70 percent.
Brazil has about 175 million people, but only between 30 million and 40 million have the kind of disposable income to be “consumers as we would identify them,” said Frank Pollock, vice president of international marketing.
And the market for Plastipak is much more of a preform market, rather than a custom bottle manufacturing market, because roads make shipping harder and there are many small competitors molding for low-cost brands, he said.
Still, Plastipak is heavily invested, with two plants in the country. “It's a venture we continue to invest in and we see growth opportunities,” he said.