India and Latin America

nrj

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Why Indian MNCs like Infosys, Wipro, Godrej & others find great business opportunities in Latin America

Fourteen years ago, RPG Group arm KEC International saw enough opportunities in Latin America to set up a permanent office in Sao Paolo, Brazil. The intent was to export power transmission components from India to the fast-growing local market.

But four years later, things got so bad that KEC had to shut the office down. Ramesh Chandak, managing director and CEO says, "There were too many local players in the same segment and the import duty made us non-competitive in terms of pricing. We were registering nearly zero orders and had no choice but to pull out."

But the lessons learnt from that experience didn't go to waste. KEC realised the market was too big to ignore, and it had to change its strategy to take advantage of the opportunities. So in 2010, KEC acquired Texas-based SAE Towers for around Rs. 440 crore.

This not only unlocked the US market, but through SAE's factories in Mexico and Brazil, allowed KEC to re-enter Latin America. "Not only are local industries like engineering goods protected, acquiring a local player was the only way we could match the prices being offered by our Chinese competitors," says Chandak.

A year and half after KEC International made the acquisition, SAE Towers has Rs 77 crore worth of orders from the region (Mexico and Brazil combined). This may not sound like much. But Brazil's share of the regional business is expected to go from 36% to 55% in the next 5 years, while the US/Canada market's share will fall from 63% to 35%.

Why LatAm

KEC isn't the first Indian company to see that the axis is shifting slowly, but surely, towards Latin America. On paper it's a no-brainer. On most economic and infrastructure indices, Latin American countries are as good as or better than India.

Yet, the Latin America and Caribbean region accounts only for 4% of India's outward FDI flows in the last two decades and most of this has been directed to the financial off-shore centers of the British Virgin Islands and Cayman Islands.

"Productive investment in the region has been small in the past, but has been growing recently," says Osvaldo Rosales, Director of the International Trade and Integration Division, ECLAC (The Economic Commission for Latin America and the Caribbean).

Over the years, Indian firms have made some important investments in the exploitation of natural resources, followed by software and manufacturing to improve the efficiency of its production access the fast growing markets in the region.



The list is long and impressive: Hindalco, ONGC Videsh, Shree Renuka Sugars, Wipro, Mahindra & Mahindra, Godrej, Infosys, Torrent Pharma, Suzlon and many others.

"The sheer size of the domestic market and the richness of the soil in certain commodities - both below and above the ground - have put Brazil and also Chile, Colombia and Peru in the spotlight of the economic boom," says Giovanni Fiorentino, office head, co-founder and director of Bain & Company Brazil.

Godrej's goal of being an 'emerging market MNC' meant that Latin America was a key part of its global M&A playbook. Its three strategic acquisitions, Argentina's Issue Group and Argencos in 2010 and Chilean Cosmetica Nacionale in January this year, give it a decisive edge in the hair colour market in the region and allows it to reach out to other countries, including Uruguay, Peru, Colombia and Brazil.

Shashank Sinha, president, global business at Godrej Consumer Products (GCPL) says that what made the deal sweeter was the growth-orientation and relative maturity of these markets. "Both Argentina and Chile are open markets whose governments and authorities offer high level of co-operation to international investors, including Asian companies," he says.

Shree Renuka Sugars is a company that has a lot at stake in Brazil, having taken on major bebts to acquire two loss-making Brazilian sugar companies, from which it imports a major portion of its raw sugar requirements.

Managing director Narendra Murkumbi told CD in an earlier interview, "There is very high acceptance of foreign investment in Brazil. Apart from the language and the legal system there aren't any hassles in doing business there. About 40% of Brazil's sugar and Ethanol industry is foreign controlled. Thankfully there isn't any FIPB ( Foreign Investment Promotion Board) in Brazil."

For Indian IT majors like Wipro and Infosys, the initial advantage the region presented was proximity to the markets of North America. Wipro's first foray into the region was when it built a delivery centre in Monterrey, Mexico for a US client.

Infosys also set up its Monterrey centre in 2007 mainly to serve auto clients in the US or their regional subsidiaries. "Mexico was a global delivery centre for customers who needed support in Spanish. But over time, we saw the Brazilian market grow in size," says Ashok Vemuri, member of the board at Infosys.

Unlike other Spanish-speaking countries in the region, Brazil is predominantly Portuguese-speaking, and so Infosys set up a separate centre there in 2009 for local clients.

"There are many similarities between the way things work here and in Latin America," Vemuri says, "They are very competency sensitive, a lot of business is relationship-driven and each country in the region aspires to play in the global market."

Indian IT services firms have led the charge in Latin America, with majors like TCS, Infosys, Wipro and HCL present in the region. Manoj Punja, Chief Sales and Operations, Latin America and Focus Countries, Wipro Technologies says that the LatAm IT services market is estimated at US$85.8 billion by 2013, at a five-year CAGR of over 10%. Of these, Brazil and Mexico have the largest end-user spending on IT services in the region.

The Brazilian Challenge

With nearly 20% of its population migrating from low income group to the middle class over the last two decades, Brazil, which enjoys a per-capita GDP of almost $13,000 (to India's $1,527) is the largest market in the region.

Unfortunately, Indian firms haven't fully realised this market, because the engagement between India and Brazil has largely been at the government level thus far, says Rakesh Vaidyanathan, founder, BRICS institute "The larger capitalist agenda has been left out," he says.

With a slew of Indian companies, following in the wake of the Chinese, things are gradually changing. But Brazil has its own complexities.

One example is unionisation. Under Brazilian law, workers are required to be affiliated to unions, which are known to be powerful and aggressive Workers at General Motors' plant in Sao Paulo struck work last September, asking for a 17% increase in wages.

There have been similar incidents at financial institutions, infrastructure projects and in the oil sector - notably, Brazil's largest oil workers union filing suit demanding cancellation of licenses given to Chevron and its drilling company, for an oil spill last November.

"Doing business in Brazil is not that easy," says Fiorentino. He points to Brazil's somewhat cumbersome fiscal model, infrastructure bottlenecks, high energy costs, high social security charges on labour, high cost of capital and the bureaucracy involved in opening a company as key challenges.

For Infosys, dealing with the Pessoa Juridica (PJ) contract labour system was a learning experience. PJs are professionals with skills not core to the employer (such as IT contractors working for a bank). They cost less to hire, as companies don't have to worry about employee benefits. The second form of contract employees are CLTs (Consolidacao das Leis de Trabalho).

CLTs are fulltime employees (like software engineers working for a software firm), and their cost-toc o m p a n y tends to be about 37% higher than PJs. IT companies cannot engage software engineers as PJs as their skills are core to the organisation.

They need to be engaged only as CLTs, which increases the cost to the company and hence the rate cards. "This was a new experience for us, as we had never encountered such a model before," Vemuri says, "But we managed to convince clients that our size, scale and expertise would give them better value in the end."

Mahindra & Mahindra saw great opportunities in South and Central America for its SUV and Pickup business. But while it exports completely built units from India to Chile and other countries, it has set up an assembly operation in Brazil.

"In non-Mercosur and Andean pact countries, duties are lower and completely built units can be exported from India. But in Brazil, setting up an assembly plant was more logical, because it attracts lower duties and is also viable because of its size," says Ruzbeh Irani, chief executive - international operations, automotive & farm equipment sectors and member of the group executive board, Mahindra & Mahindra. South and Central America contributed to 27% of M&M's automobile exports business in FY12.

Friends with benefits

As Indian and Latin American companies explore opportunities, there's a lot they can learn from each other. KEC's Chandak says, "We are duplicating some aspects of SAE's economical design and production practices in India. For example, they have figured out ways to modify machines to reduce the number of people who operate it. Similarly, there are aspects of technical know-how and shopfloor practices we've shared with them."

But to work together, Vaidyanathan says that Indian companies that see Latin America as a potential goldmine, instead of a side-agenda to the US market, have done well.

"Doing business with firms in rich countries is not a panacea. For example, Tata paid a huge premium for Corus, which they're still recovering from. The more obvious choice should have been someone like (Brazilian steelmaker) Usiminas."

ECLAC's Rosales sees potential to expand joint ventures between Indian and Latin American companies, some of which have already taken place in areas like bus manufacturing (between Marcopolo and Tata), steel (between Gerdau and Kalyani Group) and oil (between Petrobras and Oil and National Gas Corporation, ONGC).

"India could also play a significant role to help Latin American firms enter regional value chains in Asia," he says. Going ahead, Brazil is expected to remain the country of choice for Indian firms. However, one must do one's homework well.

Agribusiness and minerals are two areas where Indians can add value. However, Fiorentino says there is formidable competition in engineering, construction and banking in Brazil, while sectors like oil and gas and automotive have local content requirements or require large upfront investments.
 

nrj

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India Decides to Invest in the Oil Potential of the Falklands

Britain and Argentina have been feuding over the sovereignty of the Falkland Islands for 180 years, and 1982 fought a brief but vicious war over them.

Much has changed in the past three decades – Argentina has increasingly lined up fellow Latin American nations to support their claim to Las Malvinas, and in the past two years, intrepid British oil exploration companies have surveyed Falkland waters and found promising signs of hydrocarbon deposits.

Now, an outside player has decided to take the plunge on what might be there under the stormy southern Atlantic waters and invest – India.

Should the on-going Falklands offshore oil exploration prove successful, Argentina's diplomatic problems may well involve wrangles with one of the BRIC nations, targeted by many economists as the rising fiscal grouping of the 21st century.

India's Oil and Natural Gas Corp Videsh Ltd. (OVL) is now in talks to buy 25 percent of two exploration blocs in the Falklands' offshore waters from UK-listed Falkland Oil and Gas Ltd. (FOGL), according to the Falklands newspaper "Penguin News."

The blocks are located in the south and east Falkland basins in water depths ranging from 1,640 feet to 1.24 miles of water, with resources estimated that of 15 prospects identified, possible reserves of up to 15 billion barrels of oil, according to a source close to the negotiations, speaking on condition of anonymity.

FOGL plans to drill one exploration well (Loligo) in Phase-1 in its Falkland Northern License Area, while in its Falklands Southern License Area, it has committed to drill one well by December 2015.

OVL is a wholly-owned subsidiary of Oil and Natural Gas Corporation Ltd, (ONGC), the flagship national oil company of India, which has operations in several Latin American countries including Brazil, Colombia, Cuba and Venezuela.

The costs are estimated to be $68 million, along with OVL making a cash payment of $40 million.

And if the OVL venture is successful, the company has big plans. If the Loligo well discovers significant natural gas deposits, then OVL is considering constructing a liquefied natural gas (LNG) terminal on the Falklands with an annual capacity of about 7 million tons for exports, while if lesser amounts are found, a floating liquefied natural gas (LNG) storage project would be developed.

Cutting to the chase, OVL's involvement in exploiting the Falklands' potential hydrocarbon resources has greatly complicated Argentina's negotiating position with Britain over the islands, as what was previously a strictly bilateral dispute has now widened to include one of the rising BRIC powers.

So, what is Argentina to do to dissuade India from pursuing its Falklands explorations?

Buenos Aires can hardly play the bilateral trade card. In 2010 bilateral Argentinean-Indian trade reached $2 billion, a near three-fold increase over the 2009 figure of $648 million.

An impressive figure, but a mere drop in the bucket in India's total 2010 exports of $235 billion for fiscal 2010-11, according to Indian Commerce Secretary Rahul Khullar.

Reacting to the government statistics, Federation of Indian Export Organizations president Ramu S. Deora said that Indian exports were likely to reach the $500 billion-mark by 2014-15, noting, "The economic integration of India with the rest of the world has resulted in such exponential growth in India's exports."

A situation that hardly leaves Argentina with much threat power in New Delhi over the potential loss of its markets.

That said, according to Argentinean Minister of Industry Debora Giorgi, India is the second largest Asian investor in Argentina, after China, with 13 companies in the country that have invested $1.1 billion and generated some 9,000 jobs.

But, Indian-British trade is another matter – in 2011, bilateral Indian-British trade exceeded $21 billion, more than ten times India's trade with Argentina.

As Argentina considers this latest affront to its sovereignty, it would seem that Delhi's markets have apparently spoken.

Rubbing historical salt in the wound, in 1986 India bought the British aircraft carrier HMS Hermes, Britain's flagship during the 1982 Falklands War with Argentina, for roughly $90 million. Argentina can only hope that the former HMS Hermes, rechristened INS Viraat, won't yet appear again in Argentinean waters to enforce OVL's contracts.

http://www.fxstreet.com/fundamental/market-view/whats-going-on-in-the-oil-market/2012/05/17/#
 

ani82v

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Bollywood is quite popular in Chile

 
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nrj

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India to work closely with Latin American, Caribbean states

India set in motion the process of integrating with the far-off but rich in mineral and hydrocarbons states of the Community of Latin American and Caribbean States (CELAC) by holding the first Foreign Minister-level talks with the organisation's troika of Chile, Venezuela and Cuba here on Tuesday.

As the current chair of CELAC, Chile's Foreign Minister Alfredo Charme noted at a joint media interaction after the meeting, "This is the first time that we have an international presentation to another country and that country is India." The intention behind closer collaboration is both political and trade related — the CELAC countries share common positions with India on U.N. reforms, the international financial crisis, climate change and international terrorism. And trade with India is just one-tenth that with China, which means both sides need to improve on their existing trade agreements, he added.

Formed less than a year ago, the process of grouping 33 countries of Latin America and the Caribbean minus the U.S. and Canada has been a decade-long endeavour aimed at evolving as an alternative to the Washington-headquartered Organisation of American States (OAS), which many of these nations believe is too much in America's shadow. CELAC also keeps out territories controlled by the former colonial powers such as the U.K., France and the Netherlands.

Joint committees

The meeting saw both sides agreeing to set up joint committees in half-a-dozen sectors, including trade, agriculture and energy security. The joint statement issued at the end of the interaction will be put forward to the CELAC heads of government when they hold their next high-level meeting on the sidelines of the U.N. General Assembly next month in New York.

Among the welter of good intentions expressed by both sides, a seemingly tangible outcome was their concurrence on eliminating middle men in commodity trade and India's offer to help CELAC members locate and estimate their mineral resources by using remote sensing satellites.

On the bilateral level, India and Chile have agreed to expand the limited trade agreement from 178 products to 1,100, which, as Mr. Charme noted, "covers almost all the goods that are exchanged between both countries." At the same time, both sides will continue negotiations for a free trade agreement "which we believe we can obtain in a few weeks" [after the pact on 1,100 tariff lines is completed.

http://m.thehindu.com/news/national/article3739272.ece/

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India's trade with Latin America may touch $50 billion by 2014

India's trade with Latin American countries is expected to touch USD 50 billion by 2014 on account of healthy economic growth in both the regions, PHD chamber said today.

In a function at PHD chamber, ambassadors of countries including Chile, Colombia and Mexico sought investment from India and deliberated on trade and business opportunities in their countries for Indian businessmen.

"Huge potential exists in both the regions," PHD Chamber of Commerce and Industry Senior Vice President Suman Jyoti Khaitan said in a statement.

The Latin American region's trade with India was significantly low until the beginning of the past decade. With positive initiatives by the governments from both sides, the trade multiplied, Khaitan said.

He said both India and the Latin American countries are facing similar challenges in sectors like infrastructure, technology and skill development.

http://m.economictimes.com/news/eco...h-50-billion-by-2014/articleshow/15479868.cms

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Argentina seeks investments from Indian companies

AMRITSAR: Argentina today invited Indian companies to set up investment projects there and said various sectors like automotives, mining, oil and gas exploration are some of the key areas for entering into collaboration. "Argentina is a perfect investment platform for Indian companies keen to tap opportunities in the growing market due to its strategic location advantage and immense connectivity," said Ambassador of the Argentine Republic, Raul Ignacio Gustavino here, while addressing a PHD Chamber seminar today. In 2012-13, the bilateral trade between the two countries was estimated at $1.8 billion. Argentina expects its trade with India to grow more than two- times to about $4 billion in next five years. India's exports to Argentina comprise organic chemicals, vehicles and auto parts, lubricants, machinery, sound and image devices and fabrics, among others. India's imports from Argentina include products such as soybean oil, sunflower oil, leather, wool and ferro alloys. However, the two economies must further trade and investment opportunities through exchange of delegations, seminars and meetings, said Guastavino. While interacting with industrialists, Guastavino said sectors like IT, automotives, mining, oil and gas exploration, technological goods, research, renewable energy and agri- business are the key areas for collaboration and partnership with counterparts in Argentina. Also speaking at the event, PHD Chamber Director Dalip Sharma said, "The future prospects for trade and investment between India and Argentine Republic are significant.


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Argentina seeks investments from Indian companies - The Economic Times
 

Hindustani78

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