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GLOBALIZATION: From Feast to Famine?

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Export revenues for Hispanic companies surged in 2000, but the faltering economy may stall further growth in some sectors.

By Scott Williams, HISPANIC BUSINESS® magazine, Nov. 2001

Following three years of decline, revenues for the HISPANIC BUSINESS Top 50 Exporters rose sharply to more than $1 billion in 2000, a 70 percent increase over the 1999 total, in part because U.S. companies are tapping deeper into the Latin American market.

Nevertheless, the downturn in the U.S. economy and uncertainty in the aftermath of the September 11 terrorist attacks probably signal leaner times for exporters in 2001 and 2002.

“The numbers in 2000 are obviously high because the economy was doing well until the last quarter,” says Ana Eiras, a Latin America policy and economic analyst for the Heritage Foundation. “This is a completely different year. The recent terrorist attacks will hurt the economy. I’m almost certain we’ll go into a recession.”

Despite the grim outlook, many Hispanic companies thrived in 2000. Export revenues totaled $1,005,940,000, compared with $592,100,000 in 1999, according to HispanTelligence, the research division of Hispanic Business Inc.

Brightstar Corp. of Miami tops the list of Hispanic exporters, with export sales climbing 313 percent from $73.4 million in 1999 to $303 million in 2000. Chief Executive Officer R. Marcelo Claure attributes the company’s phenomenal growth to its establishment of distribution centers and offices in 13 Latin American countries.

“That allows us to sell on a local basis rather than the customer having to come to Miami,” Mr. Claure says. “They would rather buy from a wholesale distributor who is in their own country.”

Brightstar has become the largest wholesale distributor of wireless equipment throughout Latin America. The company is among several Miami firms to make the list, further cementing the city’s reputation as the gateway to Latin America.

“Latin America is still one of the most underdeveloped areas in the world, and it has tremendous potential,” says Mr. Claure, who expects Brightstar’s export sales to increase to more than $500 million this year. Miami provides executives easy access to Latin America, where people still base business dealings on relationships and face-to-face meetings, he says.

With Miami serving as a hub, Florida once again leads among states with companies on the HISPANIC BUSINESS Top 50 Exporters list. Seven of the top eight and 12 of the top 20 Hispanic exporters are based in Miami. Florida has 26 companies on the list, followed by California (11), Texas (5), and Virginia (2). Wisconsin, New Jersey, Illinois, Oklahoma, North Carolina, and Washington, D.C., each have one company on the list.

Miami’s dominance in exporting to Latin America can be partly attributed to its large Hispanic population. People from all over Latin America fly to Miami to shop at Hispanic-owned businesses, says Pedro R. Capo, chief operating officer for El Dorado Furniture, number 27 on this year’s list.

“Most people don’t speak the English language, so they like to go to Hispanic-owned businesses where they’re dealt with in Spanish,” affirms Mr. Capo, whose company reported $7.89 million in export revenues in 2000. “They feel like they’re in their own country because they can talk to anyone in their own language, and I think that has a lot to do with it.”

Mr. Capo says El Dorado’s year-to-date total sales and export sales are up about 22 percent over 2000 figures, with the company’s best quarter – the fourth, when many Latin American consumers travel to Miami for Christmas shopping – not yet finished.

Mr. Capo doubts the September 11 terrorist attacks will be a long-lasting detriment to his business, although sales dropped 20 percent to 30 percent in the two weeks following the attacks. He believes El Dorado’s Latin American customers are unlikely to be deterred.

The threat of terrorism, he observes, is a part of everyday life for many in Latin America, where militias guard commercial sites such as pharmacies and grocery stores. “For them to go out on the street and see a cop searching their bags … it’s very normal,” Mr. Capo says. “That doesn’t stop them from going on and doing their chores on a daily basis.”

Mr. Capo says one thing that could hurt the company’s export sales is a reduction in flights between Miami and Latin America. While the federal government and the airline industry are grappling with ways to make airline travel safer while keeping costs down, airlines have cut back on service to many areas following the September 11 events.

So far, El Dorado hasn’t experienced any new costs that can be attributed to the attacks, although Mr. Capo has observed a two- to three-day delay in receiving imports. Imports are now receiving more scrutiny than in the past, and that added attention has also slowed export procedures somewhat.

Lucia De Garcia, president and chief executive officer of Elan International in Newport Beach, California, number 30 on the Top 50 Exporters list, believes the import/export industry will be hit hard by the fallout from the terrorist attacks. But new opportunities also may appear. If markets in Asia and the Middle East become more difficult to reach, she says, other markets will be more attractive, and it only makes sense for the United States to look south. “It will be interesting to see how this will affect us in a good way,” comments Ms. De Garcia.

Mr. Claure believes federal government measures to decrease trade barriers – like those lifted by the North American Free Trade Agreement – will help increase exports and improve the U.S. trade balance. According to the U.S. Census Bureau, the United States last year had a negative trade balance of $436 billion, including a $14 billion negative balance with Central and South America. Mexico is responsible for the largest portion of that balance ($24.6 billion) and is both the largest Latin American importer of U.S. goods ($111.3 billion) and the largest exporter to the United States ($135.9 billion).

Some countries impose import duties of as much as 40 percent on incoming goods, making U.S. products prohibitively expensive, according to Mr. Claure. Still, he expects his company to record more than $500 million in sales this year, largely because of Brightstar’s strategic partnership with Motorola. The pact, signed in 2000, allows Brightstar to act as a Motorola logistics and distribution center.

Mr. Claure attributes a large part of his company’s rapid growth to the phenomenal popularity of cell phones in Latin America, even in poor economies. Lengthy delays – as much as a year in some areas – coupled with costs as high as $2,000 for the installation of telephone lines have made cell phones an attractive alternative for those who need basic phone service at home or at work.

Distribution of wireless equipment is not the only sector that appears immune to recession.

According to Jim English, chief financial officer for Lopez Foods Inc. of Oklahoma City, the company’s prospects are closely tied to those of McDonald’s. More than 90 percent of Lopez Foods’ sales come from the fast-food giant. Lopez Foods, purchased by CEO John Lopez in 1991, reported a 14 percent increase in export sales between 1999 and 2000, much of it attributed to McDonald’s expansion overseas.

Exports account for about 3 percent of the company’s revenues. Lopez Foods products are exported to Mexico and Puerto Rico, and the company has a plant in Guatemala. Its largest foreign destination, however, is Hong Kong, which imports sausage patties.

Mr. English does not anticipate a drop in business because of the terrorist attacks in the United States. “I don’t think it really affects the food business much at all, because people have to eat,” he says. “Sometimes companies like McDonald’s do better in bad times.”

Companies that are known to place a high premium on food safety and quality give customers a feeling of security about what they’re consuming, according to Mr. English, and grocery stores, fast-food outlets, and bargain stores such as Wal-Mart generally hold up well in difficult times.

The health-care industry also is generally immune to economic downturns, says Carlos M. de Cespedes, chief executive officer and chairman of Pharmed Group Corp., number 2 on the Top 50 Exporters list. Pharmed, formed in the early 1980s to supply antibiotics and other medical supplies to Latin American physicians, reported export sales of $64 million last year, a 68 percent increase from $38 million the year before.

Mr. de Cespedes calls the health-care industry “recession proof,” pointing out that his business would do well even in the case of war. “As sad as it sounds, it might even be better,” he says. Hospitals from Florida to Brazil stay busy regardless of prevailing economic conditions, he adds.

To provide better customer service, Pharmed has set up offices and warehouses in Panama, Costa Rica, Brazil, and Puerto Rico, and that has led to changes in buyers’ expectations, he says. Pharmed, which keeps $11 million in inventory in its Miami warehouse, can fill an order in two to three days rather than the three to eight weeks needed by major U.S. competitors.

Improved service and the introduction of a new olive oil–based nutritional supplement known as Oleomed have led the company to record sales, says Mr. de Cespedes, who predicts this year’s sales will top $100 million. He says cash management remains a barrier to increased export sales for Pharmed, since the privately owned company doesn’t always buy in the quantities it would like. Johnson & Johnson, a major supplier for Pharmed, demands payment for its products within 30 days, while Pharmed considers itself fortunate to receive its payments within 45 days.

“I’m in the middle and getting stretched from both sides,” Mr. de Cespedes complains. “Managing that in a growth stretch like we’ve had in the last two years is not a piece of cake.”

Top 50 Exporter Methodology

Research Supervisor J. Tabin Cosio and Research Assistant Michael Caplinger gathered data for the Top 50 Exporter directory from the HISPANIC BUSINESS Company Profile form, which appeared in the magazine’s December 2000 issue. Company Profile forms also were mailed to more than 14,000 Hispanic-owned companies in the United States.

Companies included among the Top 50 must show at least 51 percent ownership by Hispanic U.S. citizens and must have headquarters in one of the 50 states or Washington, D.C. Companies must submit revenue figures and indicate what percentage of total revenues come from foreign customers. Nonprofit organizations, advertising and public relations agencies, and companies based in Puerto Rico are not eligible.

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