Betting on Brazil

Brazil is, by most ways of counting, one of the world’s largest economies. In 2010, the country’s GDP was around $2,172bn, ranking it as one of the world’s top ten largest economies by GDP. Last year, it achieved growth of 7.5%, making it the world’s 30th fastest growing economy. With the exception of China, India and Turkey, few of the economies above it in the growth charts are of a comparable size. In 2009, as the financial crisis hit economies around the world, Brazil’s only slipped by 0.6%. In 2008, it had achieved growth of 5.2%.

Growth in the country has been boosted in recent years by the government’s PAC stimulus programmes, and by the building needed for the 2016 Olympics. There are more fundamental reasons to expect sustained growth in the country, however.

Like many emerging economies Brazil has a young population; a quarter of Brazilians are under 14. While it is more heavily urbanised than some comparable economies — 87% of its population lived in cities in 2010, compared to 47% in China — its cities are still expected to grow at a rate of 1.1% over the next five years. Within its cities, the government has committed to improving the quality of housing available.

At the same time, the country is rich in natural resources. The country has large reserves of natural gas in the offshore Campos and Santos basins, but making the most of these will require substantial investment in infrastructure.

The country’s growth, its need to build new housing and new oil and gas infrastructure make it an exciting market for crane manufacturers. Added to that, tariffs on foreign rivals to local products and the country’s position at the centre of the continent, close to other booming economies and crane consumers, make it an ideal spot for foreign investors.

Manitowoc Cranes started sending National Crane boom truck crane kits to the country five years ago. This year, it began work on a new factory in Passo Fundo, in the southern state of Rio Grande do Sul, which will be used to build Grove rough terrains. The new plant is part of a global plan to manufacture close to the customer.

Larry Weyers, executive vice president for the Americas, explains, “We once had all our engineering in the US. But, with our Chinese crawler [the MLC100], we’ve engineered the crane there. We want to be as close to the customer as possible. The crane we’ve produced is what the customer was looking for.

“As India grows as fast as it is, people are looking to build in the country, but at a quality level. With our Pune factory, we’re building three models of rough terrains and two tower cranes.

“We’d studied building plants in Mexico, or in Chile, or in Brazil. We looked at available labour and skill levels, the local supply chain and ports.

“If it were just the Olympics, we would not build in Brazil. There will be stadiums to be built, hotels to be built, but that then goes. But long term, there’s oil and gas and refineries that will need the rough terrains we will be building in Brazil.

“It’s not just refineries; it’s very diverse. There’s a mixed customer base. Some, like Tomé, own general construction equipment companies. But others, like in the US, are dedicated crane companies. It’s becoming more like the US mix: some rental, some owned and operated; some bare rental, and some operated.

“In Brazil, we’re incentivised to build there; the import duties are less than if you build elsewhere.

“In the longer term, with the factory in Rio Grande do Sul, you’re south enough to take cranes easily round to Chile. In Brazil, it’s not just what works in that country, but asking, ‘Does it work in Chile? Does it work in Argentina?’

“The supply base for components like hydraulic cylinders and drives is in the south of Brazil. John Deere has set up a tractor plant there, for example.

“We’ve broken ground and will be building this year. We will begin manufacturing next year.

“Since 2006 we’ve been bringing crane kits in to South America. We’d been thinking of South America as a lot of North Americans do, thinking of it like a stepchild. But Brazil, border to border, is as big as the USA, and we’ve said we want to be number one or two in emerging markets.

“People think that as Brazil is an emerging market, customers want less. But some customers here are as big as those in the US. They look at the quality of the products.

“Some customers will try Chinese products. They’re cheap cranes. Other customers are willing to pay the price for technical support and diagnostics.”

Manitowoc is focusing on quality with the Passo Fundo plant. That affected the choice of location, and the design of the plant.

“Passo Fundo has Brazil’s number one public engineering school and trade school for welding. We got 350 résumés for 14 jobs in engineering and purchasing. We’re starting with 300 people.

“We’ve got the government of Rio Grande do Sul excited. It’s a high technical level of manufacturing. We’re going to be working closely with the university and the welding school, we’ll have intern programmes. We’re very happy so far, we’re very pleased with the availability and skill level of labour.

“The RT 890s that we are building there use a formed boom with a narrow cross section. It’s not the simplest product to build, and needs state of the art machines.

“We will bring in some kits, cabs and controls, but when we are happy with the product we will weld, paint, assemble and test in Brazil. We will use the same design in Brazil, in Italy and in Shady Grove, other than the engine.

“We’re using a flexible manufacturing system. Once it is set up, we can produce three or four times as much, if needed. That flexibility depends on where you are establishing the paint lines: the welding and sub-weldment lines are affected by how you position the paint lines.

“Once you’re there in the market, the customer can say what weight they need, what axle spacing, once you have the core mass, you can build a specific crane for the market. Passo Fundo allows us to build new models, but we’re not interested in shipping them to the US, we want to design specifically for the market.”