Exploring emerging opportunities in South America.

Recent reforms and economic advances have spurred some U.S. associations to help members access the increasingly attractive markets of Brazil, Argentina, and Chile.

Despite some persisting perceptions, South America is no longer one big business risk. If shaky economies and developing governments make you somewhat queasy, steer clear of some sections of this continent. But don't scratch Brazil, Argentina, or Chile off your globalization route. In the past five years, they have made great strides toward economic stability. If the industry or profession that your association represents is among the many poised to profit from these developments, your members may soon be demanding services aimed at increasing exports to, and investments in, South America.

Businesses bursting into Brazil, Argentina, and Chile are doing so with good reasons. To cite a few:

* Brazil - One of the U.S. Department of Commerce's "Big Emerging Markets" (markets designated as having the greatest potential for U.S. export increases during the next two decades), this geographically huge BEM (3.3 million square miles) is home to 162 million people.

* Argentina - Another BEM, Argentina (population 34.7 million) is described by Commerce as the richest country in South America, one that "transformed its floundering economy into a vibrant market economy."

* Chile - Though small (population 14.3 million), Chile has a "prosperous, essentially free-market economy," according to the U.S. Central Intelligence Agency. Stability is seen in the CIA's report of gross domestic product growth: From 1991 through 1995, GDP averaged more than 6.5 percent annually. Allan Paro, a Rockville, Maryland-based international consultant, acknowledges that Chile's market may be too small for products dependent on big numbers; but, he says, "the country has made so many strides forward in its economy that it's in the market for everything."

If you still hold memories of fluctuating inflation and growth rates, it's time for a new look at South America. Consider the CIA's assessment of Brazil's economy in the latest edition of the agency's World Factbook: "Prior to the institution of a stabilization plan in mid-1994, stratospheric inflation rates had devastated the economy and discouraged foreign investment. Since then, tight monetary policy has apparently brought inflation under control - consumer prices increased by 23 percent in 1995, compared to more than 1,000 percent in 1994.

"At the same time," the World Factbook continues, "GDP growth slowed from 5.7 percent to 4.2 percent." Keep in mind, though, that the last line of this economic picture is rosy: "The increased stability of the Brazilian economy allowed it to weather the fallout from the Mexican peso crisis relatively well, with foreign funds flowing in during the second half of 1995."

Argentina also has turned itself around, according to another authoritative source. Mexico aside, this country was the hardest hit by the peso crisis, says Larry Gumbiner, regional economic officer at the U.S. State Department's Office of Brazilian and Southern Cone Affairs. But when considering the country's current state, he has a positive report: "Argentina is back on the growth path now."

Moving back to Brazil, Gumbiner underscores its tremendous importance to U.S. business: "It's a huge potential market," he says. "Anyone looking into South America must look at Brazil."

Lookers will find Brazil eager for their business. The country was highlighted in an eight-page special advertising section of the May 15 Wall Street Journal, featuring an interview with President Fernando Henrique Cardoso about Brazil's "hard-won economic success." Headlines in the section included "Foreign Investors Lured by Stability, Business Potential," "Sao Paulo: An Industrial Magnet," and "Market's Potential Drives Anto Makers to Invest."

MEMA following members' customers

Chris Bates didn't need to read that issue of The Wall Street Journal to size tip the need to set up shop in Sao Paulo. The vice president of international operations for the 700-member Motor and Equipment Manufacturers Association has observed the substantial amount of automotive investments in Brazil in recent years. Bates mentions that some anto companies - MEMA members' customers - have been there for decades, "but the general motivation for us to go now is that Brazil has gotten its economic house in much better condition over the past several years."

MEMA's Brazil office opened May 13 and is housed in a U.S. Commercial Service commercial center, which not only offers services but rents space. The office is a joint venture with the Specialty Equipment Market Association, Diamond Bar, California. MEMA is headquartered in Research Triangle Park, North Carolina, and has additional offices in Washington, D.C., where Bates is based, and Belgium, Japan, and Mexico.

At press time, Bates was in Brazil fact-finding, making contacts, and searching for the perfect person to staff the new office. He emphasized the critical need for MEMA's ongoing presence in the country. "We want to have good on-the-ground intelligence-gathering capability, because Brazil is a market that is going to grow and is going to change fairly dramatically over time as trade barriers are removed [under the terms of the new World Trade Organization.]"

MEMA has helped shape the terms of South American trade through involvement in the Uruguay Round. MEMA has also promoted trade for its U.S. members by working during the past year with its sister association in Brazil, SINDIPECAS, which is seeking joint ventures between its members and foreign suppliers.

Further entrenching itself in South America, MEMA recently joined the American Chamber of Commerce for Brazil, Sao Paulo. As testament to the hot market there, this chamber is one of the largest in the world in terms of membership; 2,200 corporations belong, 28 percent of which are American companies. One of the 85 full-time staffers, International Trade Manager Peter Stern, points out that this chamber's Web site gets about 37,000 hits a day. He adds, "I'm currently talking to 15-20 American companies per month; four years ago, 1 talked to maybe 2 or 3."

Chamber enthusiasm strong in Brazil

Ask Stern to cite a barrier to business in Brazil, and he notes the need "to navigate the Brazilian bureaucracy" when dealing with tariffs, taxes, and other areas. Not a big problem, though, in his eyes: "If you have a good legal firm, accounting firm, and customs broker behind you, these obstacles are not insurmountable."

Ask about the often-talked-about corruption in the country, and Stern replies, "There is some corruption, as can be found in any emerging market, but for legitimate companies, this is not an impediment."

PMA putting down roots in the region

To serve its 250 non-U.S. members, the Produce Marketing Association, Newark, Delaware, helps facilitate imports into the United States. To be fair to the 2,250 U.S. companies that belong to PMA, the association also engages in export-promotion activities. A recent step taken to fulfill both objectives was the hiring of part-time PMA representatives in Brazil and Argentina to recruit and help serve members in those countries and to help U.S members do business there. The program is working so nicely, says Nancy Tucker, CAE, vice president, international trade and development, that PMA will probably place an additional representative in Chile later this year.

Why place association representatives in this region? According to Tucker, Latin America is one of the two areas of main interest (the other is Asia) among PMA's global-minded U.S. members; "and certainly Brazil is one of the key countries," she adds.

Why this country? "Because they have started to relax some of their [previously difficult] entry requirements for fresh fruits and vegetables," Tucker- replies, "and now there's more discretionary, income there and more interest in trade."

Bringing together exporters and potential customers

Last year PMA took advantage of the U.S. government's agricultural export-promoting Market Access Program. MAP funding helped PMA bring six Brazilian supermarket executives (importers) to the association's annual convention. As they participated in events, they met PMA exporter members, and in the exposition the Brazilians had the chance to see the best produce, supplies, and equipment that U.S. exporters have to offer.

Members of the McLean, Virginiabased U.S. Apple Association, too, benefit from MAP funding - so much so that a representative testified in April before the House subcommittees overseeing this program. On behalf of USAA, a member presented the case for continued MAP funding, which helped support, among other activities, a trade mission to Brazil that helped open that market to U.S. apples.

Indirectly assisting supplier members. Other associations, while not focusing on export promotion, indirectly help the supplier segment of their memberships that is interested in South America through trade missions and conventions. One such organization is the Technical Association of the Pulp and Paper Industry, Atlanta. TAPPI's membership expansion into Brazil has brought numerous educational events to that country. U.S. member suppliers who participate have the opportunity to meet potential customers.

The situation is similar with the Urban Land Institute, Washington, D.C. As interest in South America increased on the part of its U.S. members - real estate and land-use professionals - the institute started sponsoring conferences in Miami that focused on professional practices and the emerging investment opportunities in Argentina, Brazil, and Chile. The most recent conference was followed by a study tour to those countries.

The Screenprinting and Graphic Imaging Association International, Fairfax, Virginia, is currently at work on its second Latin American trade show, aimed at enhancing the skill level of SGIA's increasing number of members in that region. "We're basically a printers' organization," says President John Crawford, CAE. "Our main focus in any market is trying to make a screenprinting company a more knowledgeable, efficient, aggressive company that understands how new technology works. That indirectly affects our associate members, because they're going to have to supply the raw materials that the printers need. If the printer is more informed and technically skilled, he's going to buy more sophisticated equipment. He's probably also going to have a more successful business, which means he'll need to buy more ink, more paper, more printing presses, etcetera."

Catching up with the competition

Douglas Slothower's globalization goal at the National Potato Promotion Board is clear: "It's simply three words," says the president and chief executive officer. "Expand international markets."

Slothower can take this aggressive stance at the Denver-based organization because it is one of several commodity boards that were established by Congress as U.S. agencies with the express purpose of boosting exports. Board membership is mandatory; all 6,200 U.S. potato producers must pay an assessment to the National Potato Promotion Board.

Aggression is needed for the frozen potato market in South America, where the competition is tough. "We're newcomers," says Slothower, noting that the board first became involved in South America three years ago; "we are there to capture markets from the Europeans."

The main selling point used in this region by the board is that the U.S. potato processing industry is the most sophisticated in the world and uses the best raw materials. "Frequently that also means a higher price," Slothower acknowledges, "and so a lot of our effort is designed to talk about the quality, offset of the price."

Long haul for South America - minded exporters. Price is a particular problem for this industry with South America because of shipping costs, Slothower explains - especially to Brazil. "Most of the process-potato industry in the United States is located in the Pacific Northwest, so we have to overcome a relatively long and expensive freight haul to get there."

The industry has, indeed, been overcoming these costs and convincing South American importers to focus on quality and capturing business [TABULAR DATA OMITTED] from European competitors. Slothower reports that U.S. potato exports to South America grew from 3.8 million pounds in 1992 to 21.5 million in 1996. Exports to Chile alone grew from 220,000 pounds to 8.6 million during that time period.

Slothower anticipates that business will continue to grow, and he attributes gains in large part to programs sponsored by the potato board. Funds earmarked for South America go toward product promotions in restaurants there - things like cooperative advertising programs touting U.S. potato products. The board also brings South American trade teams to the United States to tour manufacturing facilities and potato growing areas. Training courses are held in South America to teach restaurant employees how to cook potatoes properly.

Slothower describes an additional export-promotion program, one rooted in what appears to be a passion of the potato industry: competition.

"We operate contests with restaurants in our Asian markets," he explains, "and we expect to be offering sales competitions in South America very soon." He notes that in the contests, restaurants aim to increase sales of U.S. potato products. "The top prize is a trip to Disney World, or some place like that, from anywhere in the world."

Exploring beyond the "ABC" countries

The potato board's programs have been transported beyond the most popular South American countries for exports - Argentina, Brazil, and Chile; the board and its members have also ventured into Venezuela and Peru. Slothower assesses these markets: "With Peru, it may be a long time before there is much of an opportunity for our growers, but Venezuela is a good market right now."

G. Philip Hughes, vice president of a Washington, D.C., international consulting firm, Manchester Trade, Ltd., shares the enthusiasm for Venezuela. Other countries deserving attention are Colombia and Bolivia, he says. Oil supports Venezuela's economic prominence, but petroleum riches are an important part of the picture in Colombia and Bolivia as well. (See sidebar, "Opportunities Worth Tracking for Members," for additional comments about these countries.)

A main attraction of Colombia is its excellent financial history. "Colombia has been the only recessionproof economy in Latin America," says Hughes. "Though Colombia's economy is now in a period of slower growth, the country did not experience the lost decade of the 1980s, when most of the economies of Latin America shrunk and staggered under a huge debt. Colombia's economy has had continuous growth for 30 years, and you can't just dismiss this record on account of the country's wellknown drug trade. The country has a well-managed, diversified economy with lots of legitimate commercial activity.

"Colombia is burdened by a series of problems that are daunting challenges to doing business there," Hughes continues, listing guerrilla violence and drug-related corruption. He adds, however, that "many companies are thriving around the problems - keeping people out of harm's way, not doing business in parts of the country where the guerrillas are rampant, or if they have to because that's where they have to go to drill for oil, for example, then making some extraordinary security arrangements."

Lastly, Bolivia - Hughes says that major privatization programs in this country may be of significant investment interest to U.S. industries.

The role for associations in all of South America's attractive markets is clear: helping members access the many opportunities. Obviously, the best ones await the early-enough explorers.

Resources

U.S. government departments

* U.S. Department of Commerce, Washington, D.C. For information about the National Trade Data Bank, which includes comprehensive reports about corm tries around the world, and other services of Commerce, call (800) USA-TRADE or go to www.stat-usa.gov/BEN/databases.html. Information about Argentina and Brazil can be found on the Commerce Department's Big Emerging Markets Web site at www.stat-nsa.gov/itabems.html.

* U.S. Department of State's Bureau of Inter-American Affairs, Washington, D.C. This bureau arranges economic and political briefings about Latin American countries. Call [phone].

U.S. chambers of commerce

* Association of American Chambers of Commerce in Latin America, Washington, D.C. Call [phone]; e-mail [e-mail]; or access AACCLA through www.uschamber.org.

* American Chamber of Commerce for Argentina, Buenos Aires. Call (011) (54) (1) 371-4500; or e-mail [e-mail].

* Brazil chambers. Sao Paulo - call (011) (55) (11) 246-9199; e-mail [e-mail]; or visit www.amcham.com.br. Rio de Janeiro - call (011) (55) (21) 203-2477; or e-mail [e-mail].

* Chile chamber, Santiago. Call (011) (56) (2) 208-4140; e-mail [e-mail]; or visit [e-mail].

U.S.-based foreign chambers of commerce

* Argentine-American Chamber of Commerce, New York City. Call [phone].

* Brazil chamber, Miami. Call [phone].

* Chile chamber, New York City. Call [phone].

U.S. embassies

* Argentina, Buenos Aires. Call (011) (54) (1) 777-4533.

* Brazil, Brasilia. Call (011) (55) (61) 321-7272.

* Chile, Santiago. Call (011) (56) (2) 232-2600.

U.S.-based foreign embassies

(all in Washington, D.C.; all telephone numbers)

* Argentina: [phone]

* Brazil: [phone]

* Chile: [phone]

Publications

* Business Latin America, a weekly newsletter analyzing economic, political, and business developments; and Business Reports for Latin America, a quarterly report covering regional infrastructure, investments, imports, and more. Get subscription information about either publication from The Economist Intelligence Unit, New York City, by calling [phone].

* Latin Trade, a monthly magazine that tracks trade and investments and business trends. For subscription information, call Freedom Communications, Inc., Miami, [phone].

* The World Factbook, a collection of country-by-country research by the Central Intelligence Agency. Access the 1996 edition at www.odci.gov/cia.

Articles

* "Remapping South America," by Michael Reid, The Economist, October 12, 1996

* "Troubles Ahead in Emerging Markets," by Jeffrey E. Garten, Harvard Business Review, May-June 1997

* "Upside Down: What We Miss by Ignoring South America's Transformation," by Robert G. Kaiser, The Washington Post, December 15, 1996

* "Western Hemisphere Trade Agreements," U.S. Commerce Department magazine Business America, August 1996

RELATED ARTICLE: Opportunities Worth Tracking for Members

South America is certainly a work in progress - a status that presents new opportunities each day for associations with members trying to tap markets in the region. Widespread privatization efforts, regulatory reforms, and interest in infrastructure improvements are offering enormous possibilities for involvement by U.S. businesses, says G. Philip Hughes. Before joining Manchester Trade, Ltd., Hughes served the U.S. government in multiple roles, including ambassador to Barbados and the Eastern Caribbean and director for Latin American Affairs on the National Security Council. He also was managing director for Washington operations of the Council of the Americas, New York City. Here are some of Hughes's examples of investment opportunities that associations can play an important role in tracking and communicating to members. In addition, he urges associations to keep members abreast of the proliferating trade agreements within Latin America.

Infrastructure improvements and privatization. Countries in South America are focusing on telecommunication, electric power generation, transportation, water systems, and waste collection, to name a few critical areas, says Hughes. Major infrastructure contracts are being offered as privatization of previously state-controlled industries spreads. For example, Hughes was recently contacted by the Colombian government about a desire by the city of Bogota to find contractors to repair and maintain its major thoroughfares. "U.S. companies in construction and the construction equipment sector could find that a very attractive opportunity to bid on," he says. In such cases, associations can acquire and pass on to members notice of bids and information on bidding procedures.

"There are lots of opportunities of this sort," Hughes reports. "Now, for the first time in decades, it's possible for American companies to again buy oil concessions in Venezuela and develop them.... There are tremendous opportunities in financial services as countries privatize their pension plans. Argentina, Colombia, and Uruguay have already done so, and Bolivia is about to begin." And the list goes on.

Secondary benefits of infrastructure improvements should not be overlooked. Every time a highway is repaired and a telephone system is modernized in South America, no matter who is responsible for the work, doing business in the region becomes easier for everyone.

Regulatory reforms. As governments privatize industries, government agencies that have been operators of companies are now transforming themselves into regulators, Hughes points out. "Associations can help their members chart those changes in regulatory structures," he notes. "Associations might even play a helpful role in foreign capitals, communicating to them what we've learned in the United States about ways to establish effective regulations and regulatory structures."

Trade agreements. The regional trade agreement MERCOSUR (Southern Cone Common Market) is considered the most significant of the many in the Western Hemisphere. Some agreements link Latin American countries with the United States, others do not. The agreements may benefit exporters to the region, or they may pose a challenge for U.S. trade. Associations can do their members a great service, Hughes contends, by keeping track of these agreements and analyzing their implications. These agreements can change the terms of trade that companies face in particular markets, he notes. At the same time, the agreements can create opportunities through new transportation channels.

Excellent starting points for learning about these agreements are two articles listed in the "Resources" sidebar: "Remapping South America," an Economist study of MERCOSUR, and "Western Hemisphere Trade Agreements," an outline of 24 agreements that appeared in a Commerce publication.

RELATED ARTICLE: Clinton and Commerce Are Convinced

If following the federal government's cue is your association's style, you'll soon be headed south. President Clinton's strong interest in relations with Latin America, including incorporating Chile into the North American Free Trade Agreement, led him to the region in early May. Close on Clinton's heels, the Commerce Department led a trade mission to Brazil, Argentina, and Chile.

Just before embarking on this trip, Commerce Secretary William Daley delivered an address at the Association of American Chambers of Commerce in Latin America, Washington, D.C., during its April 30 event, "Forecast on Latin America: Seizing the Opportunities." He noted that "Latin American markets are among the fastest growing in the world. . . . Latin America will need the kinds of goods and services in which the United States is most competitive."

Daley acknowledged the Clinton administration's "continued support for trade liberalizing agreements in the region" and desire to create a hemispherewide free-trade zone by 2005 through the Free Trade Area of the Americas. "Forward movement on FTAA is essential," he advocated, noting its importance to U.S. competitiveness, in light of the many other countries already involved in Latin American markets. (Message to U.S. industry: Get moving, before the already-theres take over.)