By Diana Agudelo
The only thing the region's rulers agree on is the fact that they have to be agents of the neoliberal economy that was even adopted in Chile in the time of dictator Pinochet. That is, the governments of the region must be forces of change and their economies must have more gains than losses. Although the main problem in the region continues to be poverty, as more than 40 percent of the population continues to live in relative misery.
But it is the growth in commodity prices that has been mostly noticed the problem of the increase in the price of energy and metals, which has even led to a rise in the value of food, which means that inflation (an area in which the food industry has high influence) will remain high in Latin American countries that do not have currencies. Strong and the balance of payments in prices will be a weight that importers of all kinds of products must take into account for this year 2008 that begins.
To understand the compressor market in 2007, ACR LATINOAMÉRICA asked some of the main manufacturers in the region and with these conclusions we will be able to present the future trends in this important market.
Analysis at first glance
During the past two or three years Latin America has reached an economic stability that has allowed to place the compressor market in a constant growth with the possibility of doing something that was previously impossible for any company that wanted to enter the region and that was, the planning of a sales map.
The results were very good during 2007 and the trend is expected to continue, of course not at the levels of China or India but there are very positive signs that growth will continue in the region.
To approach our important issue, it should be borne in mind that the Latin market in the last twelve months has shown considerable interest in the use of compressors whose re-manufacturing quality meets the requirements established by the OEM (Original Equipment Manufacturer), moving away from the previously common practice of "buy cheap" which put at risk the quality and image of remanufactured products.
The main change that occurred, in relation to 2006, is the possibility of a mental transformation in buyers in the region, since for the most part it can be said that the Latin market today gives priority to quality, service, competitiveness and the support that recognized companies provide to the industry. This change has boosted sales in a positive way allowing manufacturers in the region to position themselves as an excellent option for the supply of compressors in the air conditioning and refrigeration industry in Latin markets. It is important to emphasize that for most suppliers of quality compressors, it is essential that our markets learn to protect their image, saving intelligently, always supplying the best and keeping up with the developments of the highly competitive industry that surrounds them.
The great challenge arises because in terms of energy saving and in line with air conditioning and refrigeration systems, definitely the conservation of the environment is a great reality and every time we see this future in an "immediate" term in which the openings of markets, the signing of free trade agreements are definitely a trigger for world terms and regulations to begin to have much more force and even to completely change the global landscape.
Finally, the economic growth of the countries, the construction boom, the development of agribusiness, the greater investments in large surface projects are tending a marked importance in the expansion of the business.
A region on the move
The importance of this sector forces us to rethink the region. Due to its heterogeneity it is often difficult to catalog the momentum of the industries in each of the countries, which is why below we will analyze some of the main countries in the region in terms of trends that are seen for the market in 2008 according to the behavior in 2007 and the needs that were presented.
The main markets in terms of size continue to be Brazil, Mexico, Argentina, Colombia, Venezuela and Chile.
Brazil: the large market of South America is quite developed in its manufacture and increasingly researches for an adequate use of resources. The almost fantastic growth that occurred during 2007 will continue in the new year. The eyes of all the various companies are increasingly looking at this country as the one with the greatest potential in the region.
When people have extra money, the first thing they do is start spending on a better quality of life for their families, this means greater comfort in their families, which in Brazil is directly related to air conditioning and the refrigeration market. All segments that have to do with compressors are growing at an enviable speed in this country. Compressor exports grew by 16.2 percent over 2006 and sold R$1.466 billion, up R$200 million over a twelve-month period.
Mexico: it has shown a high purchasing power, but the air conditioning market was really affected by the situation in the United States that does not seem to improve and that now has all the tints of a recession, so 2008 may represent more of the same. However, it is worth noting that Mexico is the country that most easily adopts new technologies in the region and is the country that has a more representative growth, if not by volume, by consistency.
Chile: the market for the refrigeration industry is the fastest growing in the southern cone country and last year was no exception, thanks to extensive development during 2007 supported by the salmon and fruit industries.
Argentina: after the crisis of 2001 the recovery of the economy restored confidence to investors in the country and they have returned to invest although with caution. The compressor businesses are doing well especially in areas intended for refrigeration for retail and commercial refrigeration manufacturers who are the ones who deliver the best result.
Venezuela: unfortunately it continues to be one of the countries in which the economy is still tied to politics, which may not be very good for investments that want to settle there or for future investments. However, the domestic economy continues to be one of the best, supported by the profits received by oil, but operates with limitations because it does not have very established rules that support it.
Colombia: shows positive results. The internal security problem has shown some improvements and investments are coming more and more. The potential is found, thanks to resources, good industrial base and human capital, shows everything for growth although a Free Trade Agreement with the United States is still in expectation to improve its interests.
Peru: has proven to be a moderate market, with one big exception, the refrigeration sector had an outstanding year. Major fishing companies are consolidating and investing in infrastructure. Many Chilean companies look to Peru with great interest. The air conditioning market grew as well.
Central America: Guatemala, Costa Rica and Panama stand out in this region. In the latter country, the new tax policies and the work that has been done in the canal have made the air conditioning sector grow. This will be the country with the highest growth in the central region.
Constant growth
As we reported last year in this same analysis of the region, some of the factors that during 2006 showed an improvement, continued during 2007, that same upward trend, will continue during 2008, thanks to users who seek quality in their products and who make direct approaches, in addition to the training of industry-educated contractors and their latest advances.
Economic stability played a fundamental role since it opened up opportunities for all companies to plan and invest, as well as a conception of globalization that allows them to be in all markets if they are willing to set up infrastructure.
Historically, Latin America always goes further back when it comes to introducing new technologies to the market and this is because it is expected that the technology will become cheaper and that there is enough confidence in it. We can see it first-hand with refrigerants, CO2 installations and variable speed compressors. Europe is generally the place to look when talking about new technologies.
But in the last year it was possible to appreciate that the region has become more open to change, since there is no need to wait ten years, as in past times, which shows that the market is maturing. Compressor manufacturing companies are the ones that have an obligation to introduce new technologies, teaching people and showing the benefits of progress.
Even with these considerations, we must bear in mind that Latin American growth is above growth in other regions. The development and investment in refrigeration and air conditioning systems in the region exceeds the estimates made last year. This behavior will continue in the region for at least a few years, according to the economic projections of each of our countries. So the opportunities will be ready for everyone, you have to prepare to maintain sustained growth in the face of difficulties.
There is no immediate threat from Chinese products in the commercial refrigeration market. In the part of compressors in both hermetic and semi-hermetic, a minimum of quality and efficiencies is required that until now we do not see it present in the Latin American market. In the case of the air conditioning market, it has been greatly affected by these Asian products, where they compete in prices with manufacturers in the region.
The main challenge is the development of refrigerant options to meet environmental requirements and the improvement of technologies to lower energy consumption. Additionally, it must compete in a market of constant increase in raw materials and with an increasingly vertiginous increase in demand.
Germán Flórez of National Compressor Exchange shares with us that the most requested product with the highest demand during the past year was the compressor for commercial and industrial refrigeration and adds that "the Latin American market is gradually directing its interest in products that not only meet price competitiveness requirements, but also of quality of remanufacturing, at the same time, the industry is going through a stage of technological innovation, which by itself demands the quality of the manufacturer, supplier and contractor carrying out the installation. Seminars, educational pamphlets, technical support and direct marketing are some of the most common strategies in today's market."
Julio Molinari, Vice President of Danfoss Regrigeration & Air-conditioning for Latin America, adds that the solutions that are most in demand in his company are compressors for commercial refrigeration, in their versions of friction tight, reciprocating, scrolling, CO2 and variable speed. He also adds that "growth strategies are not very different from conventional ones, since local presence and constant service are required in the first instance for the entire product portfolio."
To conclude, Flórez affirms that "it is important that Latin American markets know how to identify and can establish clear relationships with manufacturers of products imported into the markets of each region. It is essential that the focus on quality and technological innovation is not lost; that's the only way to improve your service, image, product and grow your business."
Trends in the region
At the regional level, currently the production of compressors is just beginning to see the importance of ecological compressors, that is, to establish standards that comply in all countries. At the level of commercial refrigeration there is no definitive trend, but options that each manufacturer of compressors and refrigerants recommend and manufacture, with an environmental orientation. But it is pertinent the analysis and above all the power to channel it according to the market. In the case of industrial refrigeration the problem may be better because we are already starting to work with ammonia.
There are endemic trends of each country or subregion that exists in the Ibero-American continent, but it can be said that most manufacturers are taking into account environmental change and are making a very high investment in this development. In the short term there are already options such as CO2 and R 410A in semi-hermetic and hermetic domestic compressors.
The markets where there is a large investment in several of our countries are mainly based on the expansion and creation of new supermarkets, milk cooling systems after milking, air conditioning, improvement of the cold chain in food and beverages, flower crops and finally industrial refrigeration with ammonia, etc.
Definitely Latin America has shown a great concentration of new and old players, today we have fewer companies, but larger ones that offer great products. The time when there was exclusivity is over and companies must begin to differentiate themselves from others in service and new technologies. In their quest to deliver a better service they try to increase their product portfolio to become more attractive to customers.
Keep in mind that companies are growing a lot and question their own flow of capital to have different tools, unfortunately the Latin American capital market does not provide many opportunities.
There is also a broader capacity in the region to be part of globalization, so customers look to alternatives in other parts of the world and the competition must be so open that it covers the novelties of the whole world, not only that of a country and the subregion but from all parts of the planet.
Considering that the Latino market is highly importing, given the low local production of technology doing business in the region has improved considerably. "There are no overwhelming regulations but the bureaucracy is very large. Countries like Brazil and Mexico that protect local industry are more difficult, but Chile and Venezuela are much easier. In general terms, it is essential to be in the country to understand local regulations and what customers must suffer to adapt to them", concludes Julio Molinari of Danfoss.
Latin America, for the most part, enjoys a number of advantages that allow the entry and technological update available in industrialized countries. Taking into account that the innovative capacity of each country depends on its commercialization and friction with more technologically developed countries and that in addition to that, it is subject to an interrelated set of investments, domestic, foreign, policies and dedication of resources that sustain the production and access to new technologies. Free trade agreements and openings are today the door to such updates, and should not be limited to a particular product or industry. Technological innovation would boost Latin countries at the forefront of industrial marketing and updating, being of total benefit to the industry and commerce of these markets.
*Germán Flórez of National Compressor Exchange and Julio Molinari, Vice President of Danfoss Regrigeration & Air-conditioning for Latin America, collaborated in the preparation of this article.
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