Brazil’s boom is big business for Canada
As host of two international sporting events in the next four years, the infrastructure race is on
Brazil is a “perfect storm” of opportunity for Canadian companies. The country is in dire need of infrastructure upgrades and is hosting both the 2014 FIFA World Cup and the 2016 Summer Olympics. As well, an estimated 40 million people joined the ranks of the middle class between 2003 and 2011 and are looking to buy their first car or home. There was a point during that economic boom when Brazil couldn’t physically get their products out to sea quick enough to satisfy demand from abroad because they didn’t have the infrastructure, said Stuart Bergman, Export Development Canada’s assistant chief economist. The country didn’t have the capacity in terms of roads, railways or port facilities. That’s something the government is trying to remedy with its $ 965- billion US growth acceleration program.
Different levels of government have also pledged $ 11.3 billion US in preparations to host the World Cup in 2014 and another $ 14.4 billion has been budgeted to prepare for the Olympics.
But what makes Brazil an especially suitable market for Canadian and British Columbian goods and services are its similarities to Canada, believes Ray Castelli, CEO of Burnabybased Weatherhaven and a member of the Canada- Brazil CEO forum ( see story on facing page).
Canada and Brazil are very much alike, Castelli said. Both have a large portion of their population in the southern part of the country, natural resources in the north and a need to get the resources from the north to the south through sensitive environmental areas. In the case of Brazil, that area is the Amazon Basin.
Brazil is basically doing now what Canada did 50 or 60 years ago, Castelli said. And that means they will need the products and expertise Canadians have.
“It’s a perfect storm for us,” he said.
Weatherhaven is capitalizing on that. The company builds portable shelters geared for challenging climate and terrain. It sold its products originally to diamond drilling companies in Northern Canada, but now has expanded not only to Brazil, Peru and Chile but also elsewhere in the world.
Weatherhaven is not alone. The value of merchandise exports from British Columbia to Brazil jumped 60 per cent last year to $ 706.6 million, an increase of 250 per cent from the $ 201- million worth of goods B. C. exported to Brazil in 2007.
B. C. exports to Chile have grown even faster, doubling in 2011 to $ 184 million and up 137 per cent from 2007.
Yet Mexico, Canada’s fifthlargest export market, only imported $ 156- million worth of B. C. goods, a drop of 19 per cent from 2010 and down 20 per cent from 2007.
The importance of Brazil as a potential trading partner has not been lost on the federal government. Last summer, Prime Minister Stephen Harper brought a trade delegation, including Castelli, to Brazil. It was the first trade talks the two countries had had for years, said Castelli, after an acrimonious battle between Montreal- based Bombardier and Brazilian airplane maker Embraer went to the World Trade Organization a number of times, most recently in 2003, with each company claiming the other was unfairly subsidized by its home government. The WTO found both sides were at fault.
With Brazil now the world’s sixth- largest economy and expected to move up, Canada has a lot to gain by putting the dispute behind it.
Mexico one to watch
Mexico too is expected to become one of the world’s largest economies, despite ranking only 14th now ( Canada is 10th).
Both Mexico and Brazil have large populations. With 195 million people, Brazil is the fifth most- populated country in the world, behind only China, India, the United States and Indonesia. Mexico, with a population of 112 million ranks 11th.
Castelli, who speaks Portuguese, has been visiting Brazil for 20 years, since before he was with Weatherhaven. And things have evolved very rapidly.
“Maybe not at the pace China has but certainly very, very quickly,” he said.
With millions of people joining the middle class, that’s millions of people “who are now buying their first car, are now buying their first house — a similar story to China,” he said. “And you definitely see it in the street. The buildings are newer and you rarely see anyone begging on the street any more.”
That’s not to say there aren’t problems like slums, drugs and gangs.
“But it’s a major change from even 10 years ago,” Castelli said. “You walk down the street of Rio de Janeiro or you walk down the street of Sao Paulo, you could be walking in downtown Vancouver or downtown Toronto, you wouldn’t know the difference.”
Vancouver- based ACL Services Ltd. has been around for 25 years and very quickly became a global business. The company, which develops and sells auditing and compliance software, has customers in more than 150 countries.
But Latin America is its fastestgrowing market. The area is still a small part of the company’s business — about 15 per cent — so its fast growth is from a relatively small base.
“But it’s definitely growing quickly,” ACL’s vice- president of go to market, Ross Paul said.
As economies mature economically, more regulations tend to be put in place and that requires more oversight, Paul said. And ACL’s products are designed to help with that oversight, so companies and governments can analyze transactions quickly and find missing payments, unpaid taxes and other anomalies in their books.
“The great news for us is in a lot of what we traditionally call emerging markets — I like to call them developing markets now — they’re getting much more mature,” he said.
Both Weatherhaven and ACL entered the Latin American market following a natural path of progression.
In Weatherhaven’s case, it went with a B. C. mining client into Peru and expanded from there, first using local vendors and importing product ( which was expensive because of high duties) and then setting up its own local manufacturing facilities.
ACL’s product, on the other hand, tends to sell by word of mouth, with governments, accounting firms and other clients discussing it.
That gets ACL’s foot in the door, and they just need to make the final push to spread the word further.
“It’s amazing the footprint we already have [ in Latin America] especially in some of the bigger markets where we’ve pretty well sewn up the government and most of the major corporations are using our software,” Paul said.
“And as regulation rises and the economy continues to grow, we see the smaller companies growing into our tools.”
As a result, Latin America is a conscious focus for the company right now.
“We think there is a big opportunity to continue to grow at a higher rate than we’re going to in places that are more economically challenged, like Europe,” Paul said. “And we are going to continue to focus on it.”
Both companies stressed the importance of having a good local agent to break into the market.
Those partners have to have the right skills and the right connections, Paul said.
And it’s important to have a local face on the product, Castelli said. A customer in Peru, for example, wants to buy from a Peruvian company run by Peruvians who speak Spanish and who will be there tomorrow if something goes wrong. The same is true in Brazil and pretty much anywhere.
Breaking ground
Paul also credits the Canadian government with helping ACL.
“Local embassies allowed us to have zero- cost events in their facilities,” Paul said “And that lends credibility to a small vendor trying to break ground in a new market where you’ve essentially got the government rubber- stamping you as a viable partner.
“Most Canadian businesses may not expect that,” he said.
Both companies could have stayed in Canada and been successful, but not nearly as successful as they are now.
Sixty per cent of ACL’s business is outside North America.
Weatherhaven’s business in Brazil adds significantly to the company’s overall revenue.
“We’ve gone from zero probably three or four years ago to $ 10 million to $ 15 million a year in Brazil,” Castelli said.
That’s as much as the whole company was doing five or six years ago.
Now Weatherhaven brings in about $ 60 million a year and is aiming for $ 100 million.
“We’re still quite small, but the potential to grow is very, very large,” Castelli said.