Mattress manufacturer Kingsdown recently joined dozens of other North Carolina companies vying for a slice of the Brazilian retail market, a move that holds promise despite the current political and economic turbulence there.
Kingsdown, based in Mebane, worked with Brazilian bedding producer Euroflex to create a high-end line of custom mattresses called the Kingsdown Vintage Collection. Euroflex now manufactures the line in Brazil and sells it in 20 of its stores in Rio de Janeiro.
Kingsdown, a 109-year-old company with deep roots in North Carolina, has spent the past year pushing its products into Asia, Europe, Australia and the Middle East. Nearly 20 percent of its profits come from exports. Its partnership with Brazil is its first foray into the South American market.
“Imported brands are experiencing a fair amount of growth in Brazil, and if you look at Rio and compare it to the rest of the country, there is significantly more per-capita income,” said Kingsdown President and CEO Frank Hood. “We saw that Brazil was a great place to expand the footprint of Kingsdown in a smart way.”
Kingsdown generally prefers to export domestically manufactured products, but it opted to establish a licensing partnership in Brazil because Euroflex had already carved a niche in the market. Kingsdown provided the company with the technology to manufacture its product and the marketing materials to effectively sell it.
“If they do what they say they’re going to do, we’ll see a positive bottom line,” Hood said. “More than anything, it will result in great brand recognition for a company that’s growing all across the world.”
Manufacturing the products in Brazil may help Kingsdown gain an edge on other imported brands. Though Brazil’s tariff rates have fallen considerably during the past decade, it still maintains relatively high rates and imposes large taxes on certain imports.
Lord Corp., a Cary-based manufacturer of adhesive and motion control technologies for industrial vehicles, has operated in Brazil for more than 40 years. It exports some of its products to Brazil and manufactures others there.
“Local manufacturing brings a competitive advantage because finished goods usually have a much higher tariff,” said Julio Perez, director of Latin America for Lord Corp. “Tariffs for raw materials are much lower.”
Burgeoning N.C. trade partner
Fueled by foreign investments and domestic incentives, Brazil’s GDP has more than doubled since 2005. The Brazilian government has bolstered the country’s infrastructure in preparation for the 2014 World Cup and the 2016 Olympics, and its economy became the world’s seventh wealthiest in 2012. Its burgeoning middle class has sent many U.S. companies running to catch the wave of prosperity.
Brazil is now North Carolina’s ninth-largest trading partner. The state’s exports to Brazil jumped from $590 million in 2008 to $780 million in 2012, an increase largely driven by industrial machinery, electrical machinery, aerospace parts and TV equipment.
Lord Corp.’s sales in Brazil have seen double-digit year-over-year growth for the past 10 years, Perez said. Last year, Lord Corp. began construction on a large chemical plant in Brazil to accommodate its rapid expansion.
“There has been a lot of change in the Brazilian economy, making it more attractive for foreign investment,” Perez said. “It’s a much more open economy now, and it keeps changing. They’re trying to make Brazil more open and more competitive to global business.”
Brazil’s slowed growth
But Brazil has lost a bit of its economic momentum in recent years. The growth of its GDP slowed from 7.5 percent to 2.7 percent in 2011 and sank to less than 1 percent in 2012, according to data from the World Bank. The inflation rate has swelled to 6.5 percent, and protests demanding changes in government spending have erupted throughout the country in recent months.
“It is to be hoped that the widespread social protests have shocked the government into relieving the economic system of its rigidities,” said Diana Negroponte, a senior fellow with the Brookings Institution’s Latin America Initiative. “Reforms that ease the licensing requirements in finance, export controls, marketing and sales would help significantly all exporters to Brazil, as well as manufacturers within Brazil.”
Hood said he doesn’t anticipate the rising inflation rate to affect sales of the new products.
“Brazil is a country in flux, but given the way our product lines are priced, the people that would be able to afford a purchase like that would probably be able to afford it regardless of the inflation rate,” he said. “I think there is probably more elasticity in that (income) range than if you cast a net broadly across the whole country. Wealth is in the major epicenters, and Rio is among them.”