High tariffs are constricting exports to Latin America, state-run phone companies provide poor communications and corruption scandals taint corporate reputations.
Despite all this, the overall outlook for trade with Latin America is excellent, say U.S. computer industry executives who expect to expand trade at double-digit rates.
IBM Corp. officials expect to increase Latin American revenues, now $3 billion, by up to 20 percent over the next five to 10 years, said Elena Fernandez, spokeswoman for the 9,000-person Latin American unit of IBM Corp., based in Mount Pleasant, N.Y.
Plano, Texas-based Electronic Data Systems' revenues from Latin America are growing roughly 35 percent every year, said Ulrich Hansen, president of the company's 2,500-person Latin American division.
Digital Equipment Corp.'s Latin American revenues have grown 40 percent in the last two years, said Sheryl Waksman, marketing director for the Latin American division, based in Deerfield Beach, Fla.
"South America is starting to emerge as one of the fastest growing areas in the world," because of a growing number of young workers and trade liberalization, said Debra Waggoner, vice president for international issues at the Washington-based American Electronics Association.
U.S. government data shows that U.S. companies won $20.6 billion in high-tech sales - including computers, software and systems integration work - from the southernmost five countries of Latin America during 1995, said Waggoner. These countries - Brazil, Argentina, Chile, Uruguay and Paraguay - are members of the Mercosur trade bloc.
U.S. companies are also investing heavily in Latin America. In 1995, companies sent $68.9 billion to Latin America, matching the $68.1 billion sent to Asian countries such as Thailand and Malaysia, but excluding China and Japan, she said.
Despite its rapid growth, Latin America provides only 2.1 percent of the worldwide market for computers and software, according to data from the Mountain View, Calif., division of International Data Corp. In contrast, Asia - including Japan and China - provides 24 percent of the market, the United States provides 42 percent and Europe contributes 27 percent.
A Land of Opportunity
But there's much money to be made, even in such a small slice of the global market. In 1996, U.S. shipments of personal computers to Latin America rose 21 percent to 2.78 million, according to IDC statistics. The bulk of infotech exports - 48.2 percent - went to Brazil, followed by Mexico (16.8 percent), Argentina (11.7 percent), Columbia (6.8 percent) and Chile (5.2 percent), according to IDC data.
EDS has built its Latin American business with systems integration work for local banks and manufacturers, said Hansen. For example, EDS networked Banco Real in Sao Paulo, Brazil, a consortium of 45 banks in Argentina, and the local divisions of American companies, he said.
IBM sells personal computers, software, services and a variety of point-of-sale equipment, including specialized cash registers that print three receipts - one each for the store, the customer and the government tax collector, said Fernandez.
Even small businesses get into the act. The 12-person Trade Compass Inc., based in Washington, does a brisk business on the World Wide Web selling information and matching online buyers and sellers in the United States and Latin America, said Wayne McFadden, Trade Compass' business development manager.
Crossing the Border
U.S. companies still face a daunting variety of barriers in Latin America.
Although the recent Singapore agreement will help cut local Asian and European infotech tariffs over the next several years, Latin American countries have not dropped their tariff barriers. There are also other barriers, such as complex tax regulations and curbs on the export of profits, which also deter U.S. investment, said Hansen.
Any economic dislocations could prompt governments to boost trade barriers again, Hansen said. "I would expect them to be lagging and dragging their feet," perhaps delaying tariff-elimination until 2007, he said.
One route around this tariff problem is local manufacturing facilities able to take advantage of lower tariff barriers between the five Mercosur countries. For example, both IBM and Compaq Computer Corp. have factories in Brazil manufacturing workstations and servers. Digital is also considering plans for a manufacturing plant in the Mercosur bloc, said Waksman.
To win sales in Latin America, U.S. companies must hire Latin American marketing people to build local relationships, said Waksman. For example, 90 percent of Digital's Latin American staff - and 100 percent of its senior executives - are from Latin America, she said.
Another problem is competition from European and Japanese rivals, said Waggoner. Raytheon Corp., Lexington, Mass., asked the U.S. government for support when it found itself in fierce competition with Thomson-CSF, a Paris-based electronics company partly owned by the French government.
Raytheon won the $1.2 billion contract to build a radar network throughout Brazil, but then stumbled on another barrier to trade - corruption in government contracts. The result was painful controversy, but Raytheon spokesman Barry French said the contract will be approved. IBM found itself in a similar pickle when one of its agents in Argentina was accused of bribing government officials to win a large computer
Corruption is "one of the main obstacles [to business.... Thus] we do not do business with governments," said Hansen.
Poor phone service is another problem, especially for systems integrators, said company officials. Without reliable phone networks, companies can't network computers, said Jones. But there's a cure in the works. Many Latin American countries, especially Chile and Brazil, have ambitious efforts to privatize and upgrade their communications infrastructures. For example, Brazil will invest $7.5 billion in 1997 and $50 billion over the next several years upgrading the country's communications, said Fernando Figueredo, a spokesman for Lucent Technologies Inc., Murray Hill, N.J.
Phone companies are also getting into the act by partnering with or buying local phone companies. For example, Brazilian officials plan in 1997 to sell licenses to operate 12 cellular services. Those deregulatory moves offer a promising future for the phone companies, said Manuel Wernicky, a spokesman for MCI. For example, Brazil is expected to deregulate its state-run phone company by 2000, allowing MCI and other companies into a vast, 160 million-person market where there are only seven phone lines for every 100 citizens, he said.
It remains to be seen whether today's rosy outlook will be more justified than previous bursts of optimism - or whether these hopeful dreams will be dragged down again by a reincarnation of tangled trade rules, costly tariffs and economic slowdowns.