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Latin America’s top corporate executives are getting a reality check. After several years of booming growth, thanks in large part to their success in tapping burgeoning demand in emerging markets, top Latin executives are now feeling the knock-on effects of a recent slowdown in those markets as well as the persistent woes dogging Europe and North America. The slump in demand is forcing corporate leaders to pull in their horns, or at least recalculate their trajectory.

The two largest Latin American economies are both feeling the slowdown. The International Monetary Fund forecasts that Brazil, a darling of the emerging markets for the past five years, will grow by only 1.5 percent this year, against 2.7 percent last year and a galloping 7.5 percent in 2010. And the IMF says Mexico, which some investors have seen as an alternative to Brazil, will grow by 3.8 percent this year, faster than Brazil but virtually unchanged from Mexico’s 3.9 percent growth rate last year and down from 5.5 percent in 2010.

In general, Brazilian companies are reacting to the new international and domestic environment by reining in costs. Consider Brazil’s Vale. The mining conglomerate is one of the world’s largest producers of iron ore and copper, among other minerals, and it has benefited in recent years from surging Chinese demand for metals. But slower global growth has sent commodity prices tumbling, causing a 20.8 percent decline in Vale’s second-quarter operating revenues, to $12.15 billion, and a 58.7 percent plunge in earnings, to $2.7 billion.

For a company that had planned to ramp up its capital spending by nearly 17 percent this year, to $21 billion, that revenue hit has prompted a hardheaded rethink. In August the company canceled plans to invest $3 billion in a new potash mine in Saskatchewan, Canada. 

In October, Vale also put on hold the $1.3 billion development of the Zogota mine in Simandou, Guinea’s richest iron ore deposit. The mine was supposed to have started output by the end of this year. The company paid $2.5 billion for the concession in April 2010 but its plans were thrown into doubt, following the end of military rule in the country in November 2010, as the new civilian government decided to review the mining licenses that had already been granted.

“In this environment, it’s vital that we manage cash flows carefully,” says Luciano Siani, who replaced Tito Botelho Martins as CFO in July.

Such responsiveness is valued by investors. Vale’s chief executive, Murilo Pinto de Oliveira Ferreira, was voted the top chief executive in the Metals & Mining segment by both buy-side and sell-side analysts surveyed by Institutional Investor for its 2012 Latin America Executive Team, the magazine’s third annual ranking. Vale tied for 22nd among Most Honored companies in the rankings. Sweeping honors for best CEO, CFO, Investor Relations Professional and IR  Team were Cielo, a nonbank financial services company, and Klabin, a pulp and paper manufacturer.

In addition to reducing capital spending, Vale is taking steps to improve the efficiency of its supply chain to compete more effectively with rivals in Australia, especially BHP Billiton. To enhance its ability to meet demand from the Middle East and Asia, for example, the group is opening new plants and distribution centers in Oman and Malaysia, which are closer to its operations in those target regions than its existing facilities in Brazil.

The company’s new $1.36 billion distribution center and pelletizing plant at the Port of Sohar Industrial Complex in Oman, which has a maximum production capacity of 9 million metric tons of direct-reduction pellets per year, enables large amounts of raw iron ore to be stored for just-in-time delivery. It will serve as a hub for iron ore products in the Middle East, North Africa and Asia. Asia accounts for 50 percent of the group’s revenues, with a third coming from China alone.

To maximize the distribution center’s capacity, Vale entered into a partnership with Sohar Industrial Port Co. to build a 1.4-kilometer (.87-mile) deepwater terminal. This terminal will be one of the first ports in the world to receive very large ore carriers (VLOCs), huge ships able to carry up to 400,000 metric tons of iron ore.

The Oman distribution center and pelletizing plant, together with a floating transfer station in the Philippines’ Subic Bay, a distribution center and port being built in Malaysia and the VLOCs, are part of Vale’s strategy to increase its flexibility and competitiveness, even as it exerts tighter control over spending.

Brazil-based Klabin is also trying to drive costs down. It started this process at the start of last year, when the external environment was better, and that foresight has been rewarded by investors, who have sent its share price up 112 percent during the past 12 months.

The move followed the appointment of Fabio Schvartsman as CEO in February 2011.

Schvartsman, voted the best CEO in the Pulp & Paper segment by both buy-side and sell-side analysts, had spent most of his career at Brazilian conglomerate Ultrapar Participações, where he was most recently CFO. At Klabin he initiated a cost containment process called Matrix, developed by the Institute for Managerial Development (INDG), a Brazilian management consultancy, that places top managers in charge of specific items such as energy, labor and technology.

“It’s a very simple process that enabled us to create a ladder line of control,” says Schvartsman, who notes that the process will remain in place for the foreseeable future and that it has allowed Klabin to reduce costs by hundreds of millions of reais a year.

During the first half of this year, Klabin’s earnings before interest, taxes, depreciation and amortization climbed 35 percent, to 593 million reais ($291.3 million) from 439.3 million reais, as its profit margin expanded to 27 percent from 20 percent last year on the strength of declining unit costs.

But Klabin isn’t just cutting costs: It plans to invest $3.5 billion, the most in its history, in the construction over the next two years of a pulp mill, called the Puma Project, close to the group’s 250,000-hectare (965.3-square-mile) forest plantation in Parana state. The mill will be the first in the country to produce both long-fiber and short-fiber pulp. Because both types of fiber are needed for paper production, the group will have a competitive advantage when it markets the pulp.

Cielo, the largest Brazilian credit and debit card operator, is yet another group that has decided to reduce operating costs in light of the challenging economic environment in Brazil this year. Like Klabin, it has used INDG to help institute cost control measures. Also like Klabin, Cielo is making new investments and as a result saw its domestic market share grow to 61.1 percent in the second quarter of this year from 56.9 percent in the fourth quarter of 2010.

Cielo has little choice but to reinvest in the business, as it is facing new competition in its home market of Brazil after losing its government monopoly on Visa card processing in July 2010. To fend off competition from its main rival, Redecard, and take share from it for MasterCard and Diners Club transactions, Cielo used $670 million of the $4.13 billion it had raised through a June 2009 IPO, at that time the biggest ever in Brazil, to acquire Merchant e-Solutions, or MeS, of Redwood City, California. MeS, which has a full-service payment platform for financial institutions and merchants, processes more than $14 billion per year in domestic and international payments for more than 65,000 merchants. The acquisition increases the number of Cielo’s merchants by less than 6 percent, to 1.2 million, but enhances Cielo’s ability to attract more, says CEO Rômulo de Mello Dias, voted the top chief executive in the nonbank financial services segment by both sell-side and buy-side analysts.

“MeS has state-of-the-art e-solutions for merchants,” says Mello Dias. “It shows that we are committed to growing our business in the long term.”

In particular, he notes, MeS’s technology should help Cielo secure its domination of online payment processing. The company already has 90 percent of that market, but e-commerce accounts for only 7 percent of sales in Brazil today. That is expected to rise to 20 percent by 2020.

The top executives of another Brazilian company that ranks highly in II’s survey are also adjusting to slower growth by seeking to expand market share.

Localiza Rent a Car, which is headquartered in Belo Horizonte, Brazil, and is the largest car rental company in Latin America, has seen its revenues this year decline by 13 percent, reflecting the slowdown in the domestic economy. Last year, its retail division saw its annual revenues increase by 25 percent while its fleet rental division rose by 21 percent. The retail division normally grows at five to six times Brazilian economic growth, but the country’s GDP grew a mere 0.4 percent in the third quarter from the second.

Yet CEO José Salim Mattar Jr., voted top chief executive in the Transportation segment by sell-side analysts surveyed by II, vows to accelerate the company’s growth by driving smaller competitors out of business. Localiza currently has a 37.5 percent share of the car and fleet rental market in Brazil and operates out of 253 distribution centers there. Going forward, the company plans to open 20 company-owned and another 20 franchised distribution centers per year for the foreseeable future.

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