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Trade’s Up

At $38.5 billion in 2000, Puerto Rico exports grew an average 8% during the last decade and will grow 20% this year. Who is exporting and how did they do it?

By Marialba Martinez

October 4, 2001
Copyright © 2001 CARIBBEAN BUSINESS. All Rights Reserved.

‘Do-it-yourself’ export: Approximately 90% of Puerto Rico’s exports are products made by the island’s multinational companies, such as pharmaceuticals, electric/electronics, and medical device manufacturing companies. The few local companies that have gotten into the act have chosen to bypass government export promotional support and go at it on their own.

Puerto Rico’s exports grew by more than 20% over last fiscal year (FY) 2001, according to the most recent projected figures of the Puerto Rico Planning Board.

For the fiscal year ended June 2001, total exports from the island reached $46.9 billion, up 21.7% from the $38.5 billion registered in FY 2000.

In the last decade, Puerto Rico’s export trade grew an astonishing 80%, from $21.3 billion in FY 1991 to $38.5 billion in FY 2000, the most recent year for which detailed statistics are available. Although the vast majority--$33.8 billion, or 88%--consists of interstate trade with the U.S. mainland, Puerto Rico’s export trade activity with foreign countries is also on the upswing with a 7% increase during FY 2000 to $4.6 billion from $4.3 billion in FY 1999.

Despite the tremendous overall growth of Puerto Rico exports in the last 10 years, the fact is that the vast majority of that trade consists of exports to the U.S. mainland by large multinational manufacturing subsidiaries, not local companies tapping export markets.

Local companies that actively export mostly bypass government export promotion initiatives, going at it on their own.

"If you take a look at Puerto Rico’s export statistics, you’ll see that 90% of our exported products come from the island’s multinational companies such as pharmaceuticals, electronic, and medical devices manufacturing corporations. Of the remaining 10%, about 3% is exported to the Dominican Republic, our biggest trading partner. This means that a very small percentage of Puerto Rico’s local industries are participating in the export process," says Carlos Rodriguez, president of Advanced Instruments (AI) and head of the Puerto Rico Manufacturers Association’s (PRMA) export committee.

An exporter’s odyssey

Advanced Instrument’s (AI) Rodriguez, whose Carolina-based company expanded to Mexico and the Dominican Republic during the 1990s, is a firm believer of exporting to foreign countries.

"Those who limit themselves to selling their products and services in Puerto Rico do alright. But the reality is, there is no way that one can [truly] expand a business without looking toward foreign trade," says Rodriguez.

AI is a perfect example of what careful planning and perseverance brings about in the export world. Between 1985 and 1992, Rodriguez and his wife Coral Parrilla worked hard to turn AI into an important quality control equipment distributor and service provider for Puerto Rico’s pharmaceutical industry.

"By 1992, more than 90% of our sales revenue came from Puerto Rico’s pharmaceutical industry, most of which operated under Internal Revenue Code Section 936. AI’s annual growth averaged 36%, having reached a 72% peak growth during our second year of operations.

"Yet, when the U.S. Congress began to discuss the uncertain future of Section 936 in 1993, our sales plunged 11%. That year we missed our 36% earnings forecast by 40%," recalls Rodriguez.

Rodriguez says this "jolt" in sales was what motivated him to look towards exporting AI’s services to foreign countries. With enough lead-time, Rodriguez reasoned he could prepare to successfully export the company’s services, once he identified the country where the majority of companies moved.

The problem was identifying the country.

"We figured that if there was a flight of pharmaceutical companies from Puerto Rico, it would take them between five to 10 years to decide where to move and prepare adequate facilities. This was the time to make our move. At the time, the countries most mentioned were Mexico, Ireland, and Singapore. But which to choose for our expansion?"

This is the point where Rodriguez’s odyssey, and that of many would be exporters, begins. In Puerto Rico, Rodriguez visited export-related agencies such as Promoexport, a public corporation formerly ascribed to the Department of Economic Development & Commerce and now under the Commerce Development Administration. The agency promotes foreign trade opportunities for Puerto Rico by organizing trade missions and reverted missions, in addition to preparing intelligence reports on foreign countries’ trade needs.

"I visited all the agencies usually called on by business owners thinking about exporting--Promoexport, the Economic Development Bank of Puerto Rico (EDB), and the Puerto Rico Industrial Development Co. (Pridco). The reality is that very little help was forthcoming.

"While Promoexport offered technical assistance in writing the marketing plan, I had to choose which country. The agency was not prepared to advise me on the benefits of one country over another as regarded my product. When I visited the EDB, I was told by one of its officers that it was barely granting an average of two financial loans [for such projects] per year.

"I quickly realized that most government officials I spoke to had little practical experience about foreign trade and foreign markets. Now I know that if you want to orient a potential exporter, you need to have experience in foreign trade transactions to be of any use. Even today, there are few people with this kind of experience in export related companies or agencies."

Eventually Rodriguez chose to trust the advice of a government agency employee who shared some presentation cards he’d kept from Puerto Rican businessmen living in Mexico.

"I called these business owners and asked a lot of questions, followed by several visits to Mexico. While what I saw was positive, I decided to join efforts in 1993 with one of my product lines’ suppliers for two years, traveling around Latin American to promote his product. When I was ready to open my own business in Mexico by 1994, my supplier, along with other companies, granted me distribution contracts."

Rodriguez’s wife, Coral, had continued operating the company in Puerto Rico, all the time training one of their managers to eventually become its local general manager. While Rodriguez admits he still does not have credit with a Mexican bank, he feels the venture will be successful in the long run.

"Depending on the country you export to, access to capital is never easy. If you are a multinational company with considerable income, one can depend on corporate economic support. But for a small or medium-size business like ours, you have no equity internationally. You must depend on the revenue generated by your principal company back home so you can finance the foreign subsidiary for a while," says Rodriguez.

To Rodriguez, the efforts--now going on eight years--are worth it. Last year, he decided that AI’s Mexico operation was stable enough to expand elsewhere in the Caribbean. He began by sending one of his employees, born in the Dominican Republic, to visit that country and offer equipment repairs to each company owning AI clients’ products. This led to developing business ties and important relations in what could become AI’s second international company in the near future.

From Mexico, Rodriguez is also managing business calls to Central America for several clients, as well as in the Dominican Republic. And, as a sure measure of how it’s going, he is already starting to ask himself, where is he going next?

Successful marketer; successful exporter?

Carla’s Sweets, founded by Carla Haussler, is one of the most recognized and retailed sweets products manufactured and packaged in Puerto Rico. Haussler is now preparing to begin exporting to the U.S. mainland next year.

The company makes 19 kinds of sweets, ranging from several varieties of typical Puerto Rican desserts such as meringues, mantecaditos, polvorones, and panatelas, plus the more contemporary brownies.

By the end of this year, Haussler will add 3,800 square feet to the bakery’s 5,000-square- foot space in a Pridco-owned industrial park located in Bayamon. This expansion will add 40 employees to her workforce of 45, plus the necessary equipment and machinery to expand her manufacturing process.

According to Haussler, "Our business projections indicate that with these space and equipment additions, we can increase Carla’s Sweets’ sales more than six times, escalating production from close to 600,000 annual units (a unit is a bag of product) to 3.8 million units within an 18-month period. The jump in sales revenue could go from $2 million to $7.2 million by mid-2003."

Haussler’s motivation to export her product to other countries comes from recognizing

that in order to expand, she needs to sell her products in other markets. She is anticipating the products’ local market saturation point.

"Several friends who work in the exporting industry suggested I think about expanding to markets outside Puerto Rico. I chose to begin with the U.S. because for me, exporting to the U.S. and to foreign markets are two different processes.

"I prefer to deal with the regulations that Puerto Rico has in common with the U.S. and make all the initial adjustments. After things run smoothly in the mainland market, I can decide which countries to export my products to," says Haussler.

In 2002, Carla’s Sweets will export to cities in Florida with large Hispanic populations, plus Chicago, New York, and Atlanta. In order to comply with U.S. Food & Drug Administration (FDA) regulations, Haussler had to look for a new bag to pack her products in and chose local packaging guru Carlos Casellas, president of Flexible Packaging.

"Flexible Packaging came up with a cellophane bag which is similar to the bag we use in Puerto Rico. Since we do not add preservatives, the new bags will allow the product to remain fresh for as long as two months. The bag we use is an important matter for us since part of Carla’s Sweets’ marketing appeal is the bag that make the sweets look like a gift," says Haussler.

In 1994, Haussler began Carla’s Sweets from her home. She, with the help of her immediate family, planned & designed the marketing, distribution, and publicity strategies for her products. Today, Carla’s Sweets are found in hundreds of small and medium-size retail stores and shopping malls in Puerto Rico.

In 2000, Haussler took advantage of innovative technology and launched a Carla’s Sweets website. Customers accessing the site through the Internet can place and pay for orders that are sent by overnight air delivery.

Using the government’s exporting know-how

While Rodriguez’ experiences were shared by some business owners interviewed by CARIBBEAN BUSINESS, other successful exporters claim to have benefited from government export entities’ assistance.

Bayamon-based B&B Manufacturing Corp.’s Orlando Burguera had gone through several company start-ups when he decide to participate in a Promoexport trade mission to Nicaragua in ***.

"I had previously visited Nicaragua on my own, looking for prospective clients for my automotive wiring & cable business. I knocked on many doors but came back with my hands empty," says Burguera.

"Six months later, I went back to Nicaragua as part of a Promoexport trade mission. One of the companies I was interested in the first time was so interested in our product that it sent a car to pick me up. I closed the deal.

"Business owners in Puerto Rico believe the government has to give them everything. What the government should be is a facilitator. Puerto Rico’s businesses can offer quality products; we deal in U.S. currency, and speak Spanish & English," adds Burguera. "This helps us compete worldwide. The company that wants to survive in this rapidly changing global age must expand to other countries."

A word from the expert

Edmundo Rodriguez, president of Puerto Rico’s largest customs broker Nestor Reyes Inc. (NRI), worries about the island’s export market and its ability to catch up with on-going global initiatives.

"The export market to many is still one of speculation and risk. There are few companies in Puerto Rico who really understand that it could be a natural market for their products or services. Too many times, business owners concentrate on selling to the easier regional market, the one close to home, because it takes less effort to develop vs. doing a successful export program," says NRI’s Rodriguez.

Some of the elements that affected corporate export decision-making this year were the rising costs of petroleum, last year’s political elections, the stock market drop, and the U.S. economic slowdown. According to Rodriguez, in Puerto Rico the change in political administration has been by far one of the most predominant factors in what he calls "a diluted export market."

And with the geopolitical fear factor escalated by the events of Sept. 11, those who may have been toying with the idea are likely to sit on the sidelines longer.

Customs brokers are needed in the trade industry to clear goods transported by cargo companies. They coordinate permits for goods brought into or out of a country, usually after submitting a copy of the cargo carrier’s manifest to Customs authorities.

Most recently, alliances have been cropping up among these three groups. For example, NRI is associated with freight consolidator Puerto Rico Freight Systems Inc. and Prexco, a warehouse and distribution company. Selling a total logistics service package is now name of the game.

In Puerto Rico, the government agencies must deal with the situations that delay its customs agencies in order to improve the service provided. And the major problem facing the customs area is a lack of enough inspectors.

NRI’s Rodriguez is passionate about this situation.

"It takes at least three days to release imported materials in Puerto Rico, compared to a process-while-you-wait program in Miami’s customs agency of just several hours. If cruise ships are in port or the Dominican Republic ferry arrives, inspectors’ priorities are to clear those passengers so they can leave the vessels.

"The government wants to bring in more cruise ships and increase tourism in the island and develop more free trade zones…but under the present system, something has to give," says NRI’s Rodriguez.

This Caribbean Business article appears courtesy of Casiano Communications.
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