São Paulosubway line is key job for Camargo Corr�a, but a fatal accident halted some work.
São Paulo, Brazil – In the past seven decades, Brazilian construction giant Camargo Corrêa has made its name building dams in its home country - almost 50 total. To better handle the future the company is looking to diversify into new fields including…flip-flop sandals.
Founded in 1939 by former road laborer Sebastiao Ferraz de Camargo Penteado, the firm became one of the largest in Brazil by focusing on infrastructure development – particularly large hydroelectric projects.
But in 1996 Camargo Corrêa began moving in different directions. It became a holding company and began a strategy of diversification, investing into various different markets including waste management, highway concessions, cement as well as a substantial stake in footwear and textiles.
One of the most interesting acquisitions has been São Paulo Alpargatas, a company that makes plastic sandals. The company produces 150 million pairs of their Havaianas brand sandals each year. Immensely popular in Brazil, they are also exported to 80 countries worldwide. Revenues in 2005 reached $636 million – up 20 percent from the year prior.
According to the company, in 1980 more than 80 percent of the firm’s portfolio was invested in infrastructure. Last year that had dropped to 25 percent and the growth of the company was fueled by it’s holdings in consumer goods.
As unorthodox as the strategy might seem, it has shown tangible rewards. Between 2001 and 2005, gross revenue for the company increased 62.2 percent to almost $4.3 billion. Despite that, construction and engineering remains the centerpiece of the firm, said Celso Ferreira de Oliveira, CEO of the infrastructure business division.
The construction arm of the company has $500 million in annual sales and employs more than 15,000 people internationally – almost half of the total workforce employed by the company. Currently there are more than two dozen ongoing projects one of the largest of which is the $450 million Porce II hydroelectric power plant in Colombia.
“In the past construction was the core business,” he said. “Today it is a core business but it remains at the heart of what we do.”
Camargo Corrêa made its mark in infrastructure projects in hydroelectric power (left) and cement production (above).
The key advantage of Camargo Corrêa’s strategy is that it applies a measure of security against the unpredictable economic and political situation in Brazil and the region as a whole. Camargo Corrêa’s recent growth has occurred during a relatively lackluster period for the Brazilian economy.
Between 2001-03 Brazil's economy grew, on average, only 1.1 percent per year due to a number of domestic and international shocks including a massive power crisis that stalled the hydroelectric construction sector.
Yet the situation has been far from dire. The tenure of president Luiz Inácio "Lula" da Silva – who was re-elected to a second four-year term last year – has been marked by relative political stability. A key campaign promise was to accelerate the country’s economic growth.
Regionally, though, the past decade has been economically positive. The 2001 economic collapse in Argentina is the last major financial crisis in the region and most countries have marked a period of unprecedented stability, if not growth.
“With economic stability now ensured, the country needs investments to cover its needs in infrastructure and to enhance the dynamics of the business environment,” wrote Raphael Antonio Nogueira de Freitas, chairman of the company’s board of directors, in the 2006 annual report.
U.S. companies, by contrast, tend to stick to businesses close to their core enterprise due to the low margins and the disapproval of the sureties market in taking other paths. The model being followed by Camargo Corrêa is much more in line with European firms who have been bolder about diversification.
“But the degree Camargo Correa has taken that is quite unusual,” said Hugh Rice, chairman of the board of directors of the U.S.-based engineering/construction management consultant FMI Corp.
It also stands in sharp contrast with the corporate strategy of the leading Brazilian construction firm, Odebrecht. The Salvador-based company is far better known outside of the South American continent because of a dramatically different business strategy the company chose in the 1980s – internationalization.
The Odebrecht Model
To withstand the cyclical economic trends of the region, Odebrecht began looking for jobs outside of Brazil and South America. Today the company has engineering and construction projects in eighteen countries and has become a world-leader in the field.
That is reflected in the fact Odebrecht was Brazil’s leading service exporter...