Business Week International International Business: BRAZIL
GE TURNS ON THE JUICE IN BRAZIL (int'l edition)
Brazil has a problem. With its economy zipping ahead at a 5% annual rate for the third straight year, the country is in danger of running short of electricity. But for Kurt J. Meier, So Paulo-based chairman of GE South America, that spells opportunity. The dearth of investment in power generation in Brazil and other South American countries over the past two decades, he says, makes that sector potentially GE's "biggest business" in the region in coming years.
Despite its financial problems (page 19), Brazil is undergoing an industrial revival, and multinational heavyweights such as General Electric Co. are moving to grab pieces of the action. So far, U.S. and European auto makers have attracted most of the attention, with plans totaling $8 billion to double the country's vehicle output by 2000. Now, GE, which already has 12 Brazilian divisions with annual sales of $600 million, is out to play an even bigger role. Meier sees Brazil offering "plenty of opportunity for double-digit growth in consumer, industrial, and infrastructure markets."
Starting from scratch in power generation in Brazil, GE is staking big claims. On Mar. 23, the company signed an agreement with Rio Grande do Sul, a southern industrial state, to draw up proposals to build 10 coal-fired power plants worth $3.5 billion, probably in consortiums with other companies. That follows a similar accord last December with neighboring Santa Catarina state for six plants worth $2.1 billion.
Yet GE faces some major hurdles. One of the biggest is the lack of a regulatory framework for privately owned electric utilities. Most utilities have been state-run until now. But GE is confident that action to break such roadblocks will be forced by looming power shortages. "In another two years, you're going to start seeing blackouts," says Alexander Bialer, director of business development for GE Brasil. "People will talk and talk until there is a blackout. Then everybody understands, and everything happens."
Of course, GE's rivals also see the opportunities. "We are facing very strong competition from Westinghouse, Siemens, ABB," Meier says. "All the major players are very entrenched in South America." But none is more deeply entrenched than GE, which started manufacturing in Brazil in 1921. Its versatility makes it a candidate for a major role in the overhaul of Brazil's infrastructure after years of under-investment. With a locomotive plant near So Paulo, in a joint venture with a local partner, GE should have an edge in bidding to refurbish Brazil's national railway fleet, a $400 million project that Japan's Export-Import Bank has offered to finance. GE is likewise eyeing the chance to sell compressors and turbines for a 3,400-kilometer gas pipeline that Brazil and Bolivia have agreed to build. "Infrastructure is the backbone of our business," says Meier.
"BIG GAP." Brazil's industrial revival--led by steel and autos--also bodes well for sales of GE industrial equipment. "It's a snowball," Bialer says. Thus, GE expects a 30% rise in sales of electric motors in Brazil this year.
In appliances, GE still has what Meier calls "a big gap" in Brazil, Latin America's biggest market. While competitor Whirlpool Corp. manufactures in Brazil through an affiliate and accounts for half the country's sales, GE only imports appliances in small volume. That's why a decision on an appliance-plant investment is high on GE's priority list. Other GE businesses in Brazil range from GE Capital Corp., which leases aircraft and containers, to engineering plastics and switch gear. In Argentina, a partner with Brazil in the Mercosur trade bloc, GE doubled sales in the past two years, to $200 million; in Chile, sales total $100 million.
Brazil, though, is "the locomotive of South America," says Meier. "If Brazil moves in the right direction, the rest [of the continent] will just fall into line." If that happens, GE has a lot to gain.
GE'S GROWING STAKE IN BRAZIL
1994 sales: $600 million*
MAJOR EXISTING BUSINESSES
-- Locomotives & motors
-- Lighting products
-- Electric distribution & controls
-- Engineering plastics
-- Aircraft-engine overhaul
-- Financial services
PROSPECTIVE NEW VENTURES
-- Power-generating plants
DATA: GENERAL ELECTRIC CO.
*Includes joint venturesBy Ian Katz in So Paulo