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motorcycle, above the market average. some segments, including the large vehicles required by Mr Rosa aims to gain 14% of the motorcycle market the sector. by 2020, equivalent to 600,000 units. A small number of units are expected to be exported to Colombia and Incentives for domestic production elsewhere in Latin America. n Chinese heavy machinery makers have incentives to set up production in Brazil: BNDES credit: The development bank’s Finame scheme provides financing to buyers of heavy machin- Mie ach n ry: , ery, but only if the products in question meet a set level of local production. Finame clients pay monthly inter- XCMG and est of less than 1%, compared to the 1.3-1.4% typically LiuGong lead available from commercial lenders. the pack Chinese exports of construction machinery to oosted by the strong Real, Brazilian companies Brazil are looking for imported capital goods to help Total Share of Brazil’s total imports them meet increased demand and reduce costs. 600 30 BIn 2010, was the biggest exporter of ma- 500 25 chines to Brazil by weight. By value, it overtook Germany 400 20 as the second-biggest seller. $m 300 15

One growth area is construction machinery, such as %

diggers. Around 70,000 machines were sold in Brazil 200 10 last year, and Sobratema, a consultancy, forecasts annu- al growth of around 10%, as infrastructure and property 100 5 projects continue. In this segment, Chinese exports to 0 0 2004 2005 2006 2007 2008 2009 2010 Brazil totalled $550m (R$993m, £352m, €404m) in 2010, Source: Abimaq nine times more than in 2006. Some of this trade is done either by western compa- nies with production in Brazil, or by low-key Chinese Top exporters of machinery to Brazil companies. However, a significant proportion is by Share of Brazil’s machinery imports by value branded Chinese producers with a presence in Brazil. Current top five countries only These companies include Yuchai (CDC:NYSE), Around 70,000 construction US China Germany machines were sold in (1157:HKG), XCMG (000425:SZ) and Japan Italy Brazil last year Sany (600031:SHA) – all among the top ten 35 Chinese heavy machinery companies – as well 30 as LiuGong (000528:SZ), XGMA (600815:SHA) and others. 25 They are competing with established western players 20 such as Caterpillar (CAT:NYSE), JCB, Case New Holland % (CNH:NYSE) and Japan’s Komatsu (6301:TYO). 15 Sany reported sales in Brazil of R$51m last year. It has 10 revised down its sales forecast for 2011, from R$250m to 5 R$200m, due to challenges in organising its after-sales 0 service. XCMG is also targeting sales of $200m this year. 2004 2005 2006 2007 2008 2009 2010 Overall market share figures are not available, but Source: Abimaq Chinese companies report having made inroads into individual sectors. Sany says it has around 20% of the Sany’s sales in Brazil market for cranes, and is aiming for over 50%. It is also planning to sell drilling rigs in Brazil, after a previous 200 failed attempt. XCMG, which reports sales of over 1,000 units since arriving in 2008, says it has 9% of the market 150 for compactors and 10% for loaders. LiuGong says it has sold nearly 2,000 machines since 100 200 R$m arriving in 2009, and that it accounts for 7% of wheel- sales. Zoomlion reported sales of $400m in Brazil 50 last year. It holds around 12% of the market in concrete- 51 15 making machines, according to its distributor Brasil 0 2009 2010 2011* Máquinas, with sales of R$50m last year. However, Chi- *Forecast nese companies are currently not in a position to supply Source: Company BRAZIL CONFIDENTIAL consumer BRAZIL Brazil-China: SEPTEMBER 29 – the consumer experiment 20 OCTOBER 13 2011

Reduced political risk: Brazil’s machinery- much less of a priority than Russia and Africa. However, makers association, Abimaq, has called for higher tariffs it sold 300 units in Brazil last year, largely of its SD13 on imports. Currently, the tariff is 14%, but in practice (13.7 tonnes) and its SR18M-2 Vibratory Roller it is around 7-8%, because imports are under-declared, (18 tonnes). Its sales targets are 800 units and 1,600 units says Mario Bernardini, an economic advisor at for 2011 and 2012 respectively. It plans to set up an office “In Brazil, there was no Abimaq. Under global agreements, Brazil could in Brazil by the end of this year and says a manufactur- strong local brand. And raise tariffs up to 35%, although it would have ing plant would be a logical next step. n Americans and Japanese to act together with other Mercosul countries. companies did not pay Chinese importers argue that the government attention to the market.” may be reluctant to raise costs in the construc- Zhang Zhenghu, head of Gree Electronic tion sector, amid major infrastructure projects. Computers: Appliances in Brazil Transport and logistics: Freight is a significant part of costs on heavy machinery; moreover, Lenovo seeks many machines are too large for containers and must be shipped above deck. organic growth Customer service: “Clients value local factories, for now because they are used to having local factories,” says the director of one machinery-maker considering a plant in ositivo (POSI3:SAO), is the market leader, with Brazil. Like carmakers, Chinese machinery companies are around 14.4% share, and sales of 2.0m PC units keen for customers to see them as committed to Brazil. in 2010. Yet its margins have shrunk amid com- Ppetition and falling prices and it reported a 1Q11 Sany starts with CKD loss of R$33.7m ($18.7m, £11.9m, €13.7m), followed by a The first mover has been Sany, part of the Hunan-based small profit in the second quarter. group, which reported Rmb50bn ($7.8bn, £5bn, €5.7bn) Lenovo (0992:HKG), China’s top computer maker, in sales last year and which has service centres in over which bought IBM’s (IBM:NYSE) PC business in 2004, 50 countries. It became the firstC hinese machinery has long seen Positivo as its gateway to the Brazilian producer to open a plant in Brazil, when it opened a market. It pushed hard to buy the company between CKD operation (i.e. using all imported parts) at São José 2008 and 2010, unsuccessfully, yet there is the possibil- dos Campos in 2010, assembling and truck ity that Positivo’s poor finances lead to a sale. Xia Li, cranes. It now plans a factory on a 560,000 sq metre site Lenovo’s head in Brazil, said it will be “very interesting in Jacarei, São Paulo, which it says is likely to use some to see what [Positivo] does” now. domestically-produced parts. Projected investment is Currently, Latin America is Lenovo’s weakest region R$340m and production is set to begin by 2013. by market share: the company estimates it has 4.5% of -based XCMG – which has sold in Brazil since sales on the continent in FY11, compared to 10.2% glob- 2004 – is investing $200m in Minas Gerais. Its factory ally. In Brazil, it estimates it has 1.9% of the consumer is scheduled to open by the end of 2012, producing market and 3.1% of the total market. That is a possible 5,000 units annually, including compactors, cranes and lacuna, for a company which depends on foreign mar- wheel-loaders. XCMG says that domestic production is kets for more than half of its sales. unlikely to yield significant cost savings, but will im- The company’s aim is not to innovate but to catch prove the company’s image and after-sales service. The up: “We are not pioneers so we get to accelerate,” says company is also considering offering clients financing Mr Li, who calls the country a “hyper-growth” market, from next year. and Lenovo’s top emerging market priority. So far, Mr Other machinery companies are likely to follow into Li argues, Lenovo has laid the basis – good products and domestic production. LiuGong, which in 2009 claimed service – and penetrated the less-sophisticated market to have become the first heavy machinery company to of government computers. set up a plant outside of China (in ), says it is car- Lenovo is forecasting sales in Brazil of 600,000 units rying out “advanced studies” about a factory in Brazil. this year. It aims to gain an additional 1-2% of the con- The factory, which would likely produce wheel-loaders, sumer market each year, reaching 10% by 2017. Once it would initially be CKD, with a “plan for gradual domes- has 10% of the market, Mr Li says, it will seek to increase tication” to allow its clients to access Finame funding, its margins. Unlike other Chinese brands, its products says Fernando Mascarenhas, president of LiuGong Latin are frequently more expensive than its competitors, America. Like XCMG, LiuGong uses parts from multi- such as Positivo. national suppliers such as (CMI:NYSE) and So far, leading retailers have declined to stock Kawasaki (7012:TYO), which are present in Brazil. Lenovo products, arguing that the brand is insuffi- Zoomlion is considering a factory to build concrete- ciently well-known in Brazil. In response, the company makers, truck cranes and other products. Unlike other launched its first large brand campaign in July 2011, Chinese ventures, the factory is likely to be a joint with a budget of $4m for the fiscal year, with the slogan venture with BMC, according to the latter. “For Those Who Do”. It aims to increase the number of For , a bulldozer specialist, Brazil has been consumer chains stocking Lenovo products by the