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January 1, 2012

The Latin America Connection

Steel Supply's southern offensive pays off.

Not many American manufacturers did well in 2009 in the depths of recession, and The Steel Supply Co. in Rolling Meadows, Illinois, was no exception. It didn't lay anybody off, says Vice President and General Manager David Sheer, but it did enforce a strict hiring freeze. Steel Supply also put a tight lid on overtime and relentlessly searched out and eliminated waste in its operations. Somehow, despite a 36% drop in sales, the company eked out a small profit that year.

But it didn't get there by just tightening up and holding on. The company, a supplier of steel shafting and tubing, was buoyed by an opportunistic turn in its business plan: exports to Latin America. By the time 2009 rolled around, Steel Supply had already carved a profitable niche for itself in the Spanish- and Portuguese-speaking nations to the south. And those customers held steady during the worst part of the recession.

“The Latin America connection was very helpful,” Sheer says. “They weren't as hard-hit as the domestic market was.”

Steel Supply had stumbled fortuitously into the Latin American market nine years earlier, when some Costa Rican manufacturers who attended the tri-annual International Manufacturing Technology Show in Chicago in 2000 asked Steel Supply's representatives about their products.

“They came on a visit after the show, and Adriana took them on a tour,” Sheer says, referring to Adriana Gomez, Mexican-born and fluent in Spanish, who started in accounting 13 years ago and worked her way up to national sales representative. “They were interested in our entire range of products.”

That's a pretty wide array, including chrome-plated tubing, stainless steel tubing, chrome-plated rods and a whole panoply of similar steel products in the widest possible range of hardness and tensile strength.

GETTING STARTED IN THE MARKET

“What we're selling to Latin America is the fluid power market,” Sheer says. “Hydraulic equipment, fork lifts, bulldozers, robotics. Our customers are making and repairing this type of equipment.” Or else the customers are Latin America-based distributors who, like the Costa Ricans, are themselves selling to the manufacturers of hydraulic equipment.

The Costa Ricans ordered a quantity of chrome-plated shafting and hydraulic cylinders, and they promised more orders in the future. Then, with no more marketing on the part of Steel Supply than a trademark on their Costa Rica-bound packaging, more orders started rolling in from all across Latin America, Sheer says.

“It just exploded from there,” he says. “From one account in Costa Rica to about 40 accounts all over the region.”

To date, the company has customers in most of the countries in Latin America, including Brazil, Chile, Colombia, Guatemala, Honduras, Mexico, Panama and Peru.

Any export-minded American company could do worse than looking to Latin America for new markets. While World Bank growth-rate figures for the United States and most of the Western European nations languish below 3.0%, economies in Latin America are registering as high as 7.5% (Brazil) and 9.2% (Argentina).

“Latin America, beset in the past by debt defaults, currency devaluations and the need for bailouts from rich countries, is experiencing robust economic growth that is the envy of it northern counterparts,” The New York Times reported in a June 2010 article. Growth for the entire region was about 6% during the 2010 rebound, according to the World Bank, though that pace is expected to slow to around 4.5% in 2011.

Steel Supply is not alone. Alert American steel manufacturers are continuing to take advantage of Latin American growth, exporting 1.1 million tons of steel in 2010 and nearly 800,000 tons through August 2011, according to the American Iron and Steel Institute. Though in recent years more steel and steel products have flowed north into the United States than south, “Latin America is the largest U.S. export market outside of the NAFTA (North American Free Trade) countries,” says Nancy Gravatt, the institute's vice president for communications.

A KEY EMPLOYEE MAKES IT HAPPEN

David Sheer and Adriana Gomez with steel packaged for shipment to Latin America.

Sheer gives much of the credit for the Latin America business to Adriana Gomez. It was Gomez who translated the company's website into Spanish, and it's Gomez who handles the orders from Spanish-speaking clients.

In a business where precision is paramount, Gomez has helped establish the company as a reliable supplier, despite the challenges of crossing borders and language barriers, Sheer says. Part of the challenge was establishing a Spanish nomenclature for The Steel Supply Company's products, words that sometimes vary from country to country.

“You have to know the type of material they're looking for, the unique name for it,” Gomez says. Thus, chrome AOD tube (that is tubing that has gone through an argon-oxygen decarburization process to turn alloy steel into stainless steel) is known in most Latin American countries as barra por fuera con cromo, though there can be slight variations depending on the nationality of the customer.

The other part of the challenge is getting the order exactly right. That inevitably involves multiple phone calls and e-mail messages, Gomez says. The Spanish-speaking customers tend to be demanding to a fault, she adds. They're very impatient, and “want an answer or a quote in 15 minutes, not in two days,” she says. At the same time, though, they value relationships that are more than purely businesslike. “The personal relationship is very important. They like dealing with someone they know.”

One longtime customer is Aguilar Mexicana, a hydraulic components distributor with six locations in Mexico, including Mexico City and Monterrey. Alfredo Ramos, the company's purchasing manager, says The Steel Supply Company has been its American supplier for the past 10 years. “The service is good, the deliveries are on time, and the prices are at the going rate,” he said. “If I call or send an order, they respond the same day.”

THE SHIPPING CHALLENGE

Ramos says that most of his deliveries come through Nuevo Laredo, across the border from Laredo, Texas, by truck. The smaller ones come on flat-bed trailers; the bigger ones in standard 48-foot containers. Depending on the size, the deliveries are either transferred there to a Mexican trucking company or picked up by one of Aguilar's own delivery trucks. The Steel Supply Company's packages are always “immaculately put together” to protect the products, Ramos adds.

In the beginning, the idiosyncrasies of delivering steel products to Latin America required a radical change in perspective for the Midwestern administrators of a metals service center. While American companies like Steel Supply use heavy-duty lifting equipment, many of those tasks are performed in Latin America with manual labor. “We had a substantial customer which literally positioned a truck on the border at Brownsville, Texas, and unloaded our truck by hand,” Sheer says. “I don't know how they did it. Some of those bars weighed a thousand pounds.”

Steel Supply, however, quickly adapted to the market by developing a packaging system that was more labor-friendly. “They love our packaging,” Sheer says. Packers use a cardboard sleeve for each shaft and shrink wrap to protect the ends of each piece of tubing. The cardboard-encased items are placed in wooden crates—made with heat-treated, bug-free pine wood—which are banded with metal straps and blocked to avoid damage during the trucking phase. Each package contains coding to identify its contents. And packages can be constructed, on request, in smaller sizes to accommodate the demands of manual labor.

WHAT EVERYONE IS TALKING ABOUT

So how did Steel Supply's Latin American business grow without a marketing campaign or country-based sales reps? Word of mouth, Sheer contends. With international trade shows bringing people together and country-to-country sales linking companies in the region, The Steel Supply Company's name got around. Then Gomez's Spanish-language website, and the affable Gomez herself, reeled the new customers in.

Clearly, the paradigm has changed since companies like Sheer's kept overhead costs down by limiting their business to a 150-mile radius from the home plant. “That was true many years ago,” Sheer says. “But we're all expanding now. The majority of our business may still be in the Midwest, but we're also in all 50 states and 21 foreign countries.”

It's a tough, exacting, ultra-competitive business, and Sheer has his share of concerns for the future.

For example, one of the demands of operating a steel supply company in the current post-recessionary economy is keeping products in stock. “There's a tremendous amount of pressure now to get the material in here,” Sheer says. “When you're in the business of selling inventory, if you don't have inventory you don't have anything to sell.” With steel mills afraid of overstocking with product that might not move, lead times for deliveries have extended from one to two months in 2009 to seven to 10 months now, Sheer says. “Everybody's being cautious on the economy.”

And he wonders, understandably, whether Latin America—and suppliers like Steel Supply—will continue to thrive. “Over the last 20 years the region has experienced a silent economic revolution that has provided a shield against external shocks, and those reforms are still in place,” says Augusto de la Torre, the World Bank's chief economist for Latin America. Among other reforms, many Latin American countries have instituted fiscal policies to control deficits and keep a tight rein on inflation.

But a deep-seated global recession could change all of that, he adds. “Not even the best immune system in the world could withstand these kinds of attacks,” he says.

Still, Sheer remains optimistic. “I think 2012 is going to be a good year, and we're right on track.” Latin America? “It's just going to get bigger.”