The second wave in Brazilian industry

Amid concerns over deindustrialization of the country due to the rise in imports, Brazil receives record investments for local production of construction equipment

An apparently contradictory situation marks the current setting in the sector of construction equipment in Brazil. In view of the advancement of imports, which accounted for 29% of the machines purchased by contractors and equipment rental companies in 2011, sector associations have alerted authorities to the imminent risk of deindustrialization of the country.

The risk does exist and appears to be very close especially when one sees that importation has grown even in segments in which the country appears as an important producer and exporter, such as importations of hydraulic excavators (up 46%) and roller compactors (32%). A more detailed analysis, however, reveals that this movement was the result of opportunities created by the heating of demand for equipment in the domestic market and a favorable foreign exchange rate.

With a solid industry established since the 1970s, Brazil appears as a center of production of construction equipment, integrating the strategy of operating globally shared by manufacturers such as Caterpillar, Komatsu, Volvo, New Holland and Case Construction, among others. Due to the size of its consumer market, the country also joined in on the globalized operating strategy of the new competitors from the Far East, such as South Korean and Chinese manufacturers, who cannot do without local production to serve the needs of Brazilian and South American customers.

New plants
This movement is already driving the second wave of industrialization in the area of construction equipment, with a level of investment which is higher than the levels of the 1970s and 1980s. A quick look at the latest editions of M&T magazine reveals that the sector is receiving inflows of over R$ 3.6 billion (US$ 2.06 billion) for the  installation of production lines (see table on page 26).

Besides the main players from Asia, such as Hyundai, Doosan, Sany, XCMG and Zoomlion, the list of new plants includes significant western-world competitors who formerly did not place the Brazilian market among their priority areas, namely: John Deere, Manitowoc, Ausa and others. The list of investments includes production lines that are being installed and a few that have recently begun to work, but it does not consider large investments that were completed last year, such as the new Caterpillar plant and the expansion of JCB, among others.

“That’s why I believe that the level of importation should decrease over the next few years in view of the investments that are being announced by Asian players,” assesses Brian Nicholson, consultant to Sobratema. He considers that growth in importation is not just attributable to these competitors but also to the manufacturers that are already established in the country who adopt a strategy of ‘integrated production’, with local manufacturing of models of equipment for which there is greater demand and importation of less popular models.

Diversification of the industrial park
Within this scenario, a trend toward diversification of Brazil’s industrial park is worth noting. With the growing maturity of the market, which begins to demand models of equipment that were previously little consumed, Brazil tends to move away from being only a manufacturer of excavators in the 20 ton range and roller compactors in the 10 ton range. Compact machines and larger equipment, utilized in performing large infrastructure project work, tend to be added to the production programs of manufacturers in the medium term.

Brian Nicholson considers that the demand for aerial work platforms, which posted sales of 3,700 units in 2011 according to surveys conducted by Sobratema, would in itself justify local production. So far this trend has not materialized, but during M&T Expo 2012 JCB announced investments for the production of telehandlers in Brazil.

Along these same lines, expansion in the market for cranes has also contributed to the installation of new production lines in the country. Manitowoc, which has just opened a factory for the production of its RT models, and Chinese manufacturers Sany and XCMG, who intend to manufacture truck cranes, are arriving to compete with manufacturers that deal exclusively in the segment of wheeled cranes of up to 40 tons in capacity.