News Column

Abroad Appeal

July/August 2005, HISPANIC BUSINESS Magazine

Keith Rosenblum

phone packing

When it came to goods and services sent out of the United States last year – from cell phones to pork rinds – the numbers that came in were very good. Foreign sales for the Hispanic Business Top 50 Exporters grew 6.2 percent to $1.8 billion. That increase is better than the hike in total U.S. exports for the year, which rose 3.9 percent to $714 billion.

Cellular telephone wholesaler Brightstar Corp. of Miami leads the Top 50 directory by a wide margin. The company's sales abroad last year reached $1.2 billion, more than double the year before, with exports representing almost three-quarters of its sales.

After Brightstar's cellular phones, food figures as a major product category for the Top 50 Exporters. For example, second-ranked Quirch Foods of Miami shipped $80 million worth of meat, seafood, and poultry to Puerto Rico last year.

Geographically, more than half (27 companies) of the Top 50 Exporters come from Florida. Texas and California have five each on the list, and no other state has more than two. The Florida skew derives from the fact that with only a handful of exceptions, the Top 50 Exporters concentrate on trade with Latin America and the Caribbean. While Texas has a geographical advantage for Mexican trade, and California for the Pacific Rim, Florida offers the best transportation and communication infrastructure for the whole of Latin America. Total U.S. exports reached a record $1.9 trillion in FY2004.

Privately held Brightstar operates in 18 countries, employs more than 900 people, and continues to expand globally. Earlier this year, the company announced a new distribution pact with Kyocera Wireless to distribute product lines in India; a logistics and services deal with Hawaiian Telecom; and an alliance with Firefly Mobile to handle its mobile phones and line of accessories in North and South America and the Caribbean.

But it is the company's finances that recently have attracted the most attention. In early 2004, the company raised $61 million in gross proceeds through a private placement of securities using investors including Falcon Investment Advisors, Prudential Capital Group, Grandview Capital Management, and Ramius Capital Group. But plans for an initial public offering, announced in August 2004 and co-managed by Citigroup and Lehman Brothers, were shelved two months later with the company citing only "market conditions and certain other factors."

Sally Lange, a Brightstar vice-president, declined to elaborate on the withdrawal.

Brightstar's borrowing costs may have been so low that a loan was preferable to going public at that moment, suggests Philip Remek, an analyst with Guzman & Co. of Miami. It is also possible that the costs of an IPO may have been prohibitive at the time. "This is a field with lots of changes and consolidating going on," Mr. Remek says. "In an unstable marketplace, there can be any number of reasons not to go through with an IPO."

Some exporters on the list are cashing in on the increasing foreign appetites for meat and dairy products from the United States. Miami-based Northwestern Meat saw sales of $19.7 million to Guatemala, Honduras, and El Salvador as its exports rose 4.4 percent, representing more than 10 percent of its total sales. "We have been dealing with Australia, New Zealand, Uruguay, and countries throughout Central America," says Elpidio Nuñez, president. "If you stick by your commitments and ride out the short-term problems, business inevitably increases."

Ruiz Food Products, the number 22 company, has grown its total sales at a 20 percent annual rate for a decade. Last year it more than doubled the dollar value of its exports to $8.7 million. Still, that figure – based mainly on exports to Canada and Mexico – represents only 3 percent of the company's overall sales.

"In the United States, there's a tradition and culture of buying frozen food. That is just emerging in Latin America," says CEO Fred Ruiz. "As that culture spreads, we are going to be right there in the freezer bins."
The humble pork rind was responsible for a 20 percent growth in exports to $11.25 million at Chicago-based Evans Food Group, which now controls 35 percent of the world market. Today, its Mac's line ranks second only in brand recognition to Frito Lay's Baken-ets.

The company, ranked 16th on the Hispanic Business list of exporters, received just under 12 percent of its total income in 2004 from exports, including markets throughout Latin America, Europe, and the Orient, says CEO Alejandro Silva. Its Patriots Choice brand is sold on U.S. military bases abroad and at home. "Our military has lots of Hispanics and Afro-Americans," Mr. Silva says. "These are our prime customers."

The company has two plants in Mexico and three plants in the United States, as well as a joint venture in St. Louis. A second joint venture in Denmark took its licks last year due to currency fluctuations when the value of the euro jumped from 85 cents to $1.26. "It made us less competitive and took away from our profits – temporarily," says Mr. Silva. "But these things balance out. We found off-setting profits elsewhere."

The company dates to the late 1970s when Mr. Silva and two partners opened a pork rind facility in Mexico. That country's poor economy forced the group to look north. One of the founders stayed in Saltillo to downsize a plant; one went to Mexico City; and Mr. Silva moved to Los Angeles to look for opportunities in the United States. Eventually, Mr. Silva moved to Sioux City, Iowa, and then Chicago, before taking over a plant in 1985 that eventually became Evans Food Products.

The company's success in the export arena, Mr. Silva says, comes from knowing how to adapt. That includes knowing when to challenge the Goliath of the snack industry, Frito Lay, and when to join it. In certain markets where it has little chance of developing its own distribution system, Evans sells directly to the multinational.

Being adaptable also means knowing how to cope with harsh rules on imports. For example, when Evans found Colombian laws hostile to imports, it set up its own company (since disbanded) to import rinds. Adaptability also means understanding the peculiar palates of Europeans. The Danes "have been eating rinds forever," Mr. Silva reports. Norwegians, Spaniards, Italians, and "some Germans" also happily munch away, he says, while the French "don't touch them."

Adapting in a much brisker fashion has been the only way another member of the top exporter list, Fruit Pros of San Diego, could survive. The company, ranked 12th, rose to prominence by exporting produce to Mexico and Central America. But dizzying changes in the Mexican retailing market have changed the company's paradigm, says CEO Carlos Velarde.

What was once a flow chart full of intermediaries involved in produce export to Mexico has vanished as Wal-Mart and a handful of Mexican supermarket chains have told producers to "shape up or ship out," according to Mr. Velarde. "They have completely restructured the business," he says. "They control it from start to finish. They've overwhelmed the neighborhood grocery stores and street markets. Everywhere we look in the industry, people are being displaced."

What does that mean to Fruit Pros, whose exports in 2004 accounted for 95 percent of its income? Fortunately, Mr. Velarde says, Mexico continues to be a country "obsessed with fresh produce." The company will focus on some of its traditional but volatile niches, such as export of plums, apricots, peaches, nectarines, and apples and bank on its experience at navigating the tricky waters of governmental regulations.

"Knowing the ins and outs of USDA and SAGARPA [Mexico's Secretary of Agriculture] is an expertise in and of itself – and we know that part well," Mr. Velarde says.

But that expertise may come at a cost: According to Mr. Velarde, the company lost "seven or eight truckloads of apricots" last year because mandatory fumigation at the Mexico port of entry killed the shipment.

"We recognize that we are going to be service providers for these monsters [a not-so-delicate reference to Mexico's mega-retailers]and that is where we are investing," he says. "Someone still needs to bring the produce, cross the border, and get it to market. We can have a truck picking up produce on Monday in Fresno, be in Nogales [Arizona] the next morning, and be ready for sale on Thursday morning in Guadalajara. If we can do this efficiently, we should be able to survive."



Source: HISPANIC BUSINESS Magazine


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