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Mexican revolution: looking for diversification--and profits--Mexicans are heading into Brazil.

In search of opportunities to expand, Mexican companies have set their sights on Brazil, where in recent years they have begun to invest heavily. Mexican investments in Brazil jumped to close to US$2 billion a year in 2005 from $132 million in 2000, according to the Brazilian globalization think-tank Sobeet. Annual direct investments by Mexicans in Brazil during those years shot up by a factor of fifteen.

"Mexico wants to diversify its investments, much of which are concentrated in the United States, and Brazil is the largest and most significant market for investment in Latin America," says Edmyr Piereck, vice-president of the Brazilian-Mexican Chamber of Commerce. "The strength of the Mexican economy right now is driving this trend."

Since the end of the 1990s, Mexican companies have put $8 billion into acquisitions and expansion of their businesses in Brazil, according to the Association of Mexican Enterprises in Brazil, a body that was created two years ago to help businesses coming to Brazil from Mexico.

One of the first to take the plunge was the Mexican billionaire Carlos Slim Helu, head of Mexican telecom giant Telmex, taking control of Brazilian telecommunications company Embratel, the operator of Claro-brand cell phones and an investor in the cable TV company Net. Currently, more than 50 Mexican companies have a presence in Brazil, in areas as varied as telecommunications, beverages, foods, hotels, entertainment, auto parts, and personal care products, among others.

"Mexican companies are advancing in a natural way: First they begin by exporting to Brazil, and then when they see the potential to advance they become transnational companies," says Ernesto Silva, director and president of Coca-Cola FEMSA, Coke's bottler in Brazil. The company belongs to the Mexican brewer and bottler FEMSA, one of the largest soft drink producers in Latin America, with annual sales of $9.93 billion. The company has invested $1.50 billion in Brazil since 2003, when it acquired Panamco, the old Coca-Cola bottling company in Brazil. This year, it bought Kaiser Brewery, a brand that has 8.7% of the Brazilian beer market. "FEMSA is going to continue investing in Brazil and this could mean new acquisitions in the future," says Silva, who is also responsible for the company's Mercosul operations and was recently elected president of the Mexican trade association in Brazil.

Like many CEOs of Mexican companies present in Brazil, the president of FEMSA Brazil is Mexican. Silva says, however, that he sees the position as a matter of creating working unit, then passing it on to local management. "It is easier for someone who knows the culture of the company to develop a third culture," he says. When Silva left Argentina, for instance, an Argentine was put in charge of the local FEMSA operation. Many Mexican companies in Brazil, he adds, now have Brazilian CEOs.

This is the case with the disposable diaper producer Mabesa Brazil, whose president, Julio Bibas, is a Brazilian who spent two years in Mexico. "The Mexican and Brazilian markets are very similar at the social level and in terms of consumer habits, but the maturity of the Mexican market is much greater," Bibas says. The Mexican group Mabesa came to Brazil in 1997, acquiring the rights to make its disposable products for infant and adult hygiene under the brand name Cremer. But it was in 2001 that the company made its grand slam by buying competitor Drypers. Mabesa has invested $45 million in Brazil, where it commands 12% of its market and is No. 3. (Procter & Gamble is No. 1.) The company posted $80 million in 2005 sales and its target is to double by 2010 current annual production of 720 million diapers.

Mexican companies in Brazil do not thrive on acquisitions alone. Jugos del Valle arrived in 1997 importing its ready-to-drink juices from Mexico, a market that until then didn't exist in Brazil. The company created the habit among Brazilians and today leads the segment with 24% of the volume consumed in the country. In 1999 the company opened a factory in which it has invested $60 million to date.

Promising. In 2005 Jugos del Valle produced 90 million liters of fruit juice and had sales of $105 million in Mexico. "The Brazilian market is very promising; the per capita consumption of juice here is hardly two liters per year, compared to nine liters in Mexico and 30 liters in the United States," says Roberta Morelli, marketing director for Del Valle. "There is still much room to grow."

Luis Afonso Lima, the director of Sobeet, says watch for more Mexican investment in Brazil. "In different sectors, such as telecommunications, investments will continue in the coming years," he says. The speed of investment, though, is likely to slow, he says. "One of the reasons is high interest rates in the USA, which reduces the need to search for high returns in other countries," Lima says.

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Title Annotation:COMPANIES
Author:Pfeifer, Margarida
Publication:Latin Trade
Date:Aug 1, 2006
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