As Brazil gains importance in the global automotive industry, the country is increasingly a consideration for component suppliers — even if few West Michigan companies have made the move there just yet.

A large part of the draw of Brazil has been the scale and growth rate of its domestic automotive market. As the largest country in South America, it has anchored the region for foreign automakers for more than 50 years.

Since 2001, it has drawn attention by being anointed one of the BRIC group of countries — initially Brazil, Russia, India, and China, and additionally South Africa — identified by Goldman Sachs as a set of emerging economic powerhouses.

For major automakers grinding their way along in mature markets such as the U.S. and Japan, the opportunity to ride a growth wave in emerging markets is alluring.

Brazil is currently the fourth-largest automotive market after China, the U.S. and Japan, and the seventh-largest manufacturer of vehicles in the world. Light vehicle OEMs with assembly plants there include all the prominent players and newcomers continue to arrive. Hyundai began production at its first plant in 2012, completing its BRIC presence. Luxury car models are next up: BMW has announced a passenger car plant to go online in 2014, with Jaguar Land Rover, Audi and Mercedes-Benz following suit.

It is not just the carrot of opportunity that attracts these companies, however. Brazil also wields a stick in the form of high import taxes — which increased by 30 percent in 2011, with some exceptions — and other measures to encourage local production and protect the domestic industry.

While national governments and trade organizations like the European Union argue that this violates World Trade Organization rules, the automakers make the best of it, and they encourage their suppliers to localize production in the region to support them as well. News reports in 2011, for example, said that Hyundai Motor would be accompanied to the market by eight of its key parts suppliers.

The downside of investment in Brazil is a set of conditions that are less than ideal, referred to in Portuguese as “Custo Brasil,” the higher cost of doing business in the country. It is summed up by the international bank group Rabobank as attributable to the complicated tax system, inefficient bureaucracy, inadequate infrastructure that creates higher logistics costs, and low educational attainment that make it difficult to find skilled employees.

Rabobank analysts hold out some hope for improvement in the infrastructure and education system, but the issues of tax policy and red tape are more intractable.

The opportunity that Brazil represents might be interesting, but very few automotive suppliers in West Michigan have found it compelling.

One that has gone this far south is Autocam Corp., a Kentwood-based maker of precision metal components with about 1,500 employees worldwide. Autocam caught the Brazil wave early by acquiring two existing companies in 1997. Autocam was exporting sizable quantities of fuel injection parts to GM in Brazil and facing import duties approaching 40 percent unless it localized production. General Motors suggested the two affiliated Brazilian companies as a potential solution, and the rest is history.

With the existing companies as a base and several strong customer relationships to support the investment, Autocam has been successful in navigating the business setting. More recently in 2011, Autocam Medical turned the location to its advantage too by becoming the first American company to achieve government certification as a contract manufacturer of machined components for medical use in Brazil.

Another local company with a presence in Brazil is Grand Rapids-based Burke E. Porter Machinery Co. (BEPCO), a supplier of vehicle test equipment. Because its equipment sales are usually linked to new construction, expansion, or major renovation of assembly facilities, BEPCO has been proactive in targeting growing automakers and geographic regions. Its customers expect a high degree of service, so having a support office in South America is important. The complexity of the business environment is something BEPCO is accustomed to from its experience exporting equipment around the world since 1977.

For other companies, the cost versus benefit analysis has not yet swung in favor of Brazil, but there might come a time when a customer is sufficiently “persuasive.” For companies that are fully motivated, the move may be worthwhile.

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