BY CHRONICLE STAFF
Philip Verges is bullish on Latin America. Although he is hoping for strong growth in Asian markets like China, Latin America so far is the key revenue earner for NewMarket Technology (NMKT), the Texas-based system integration company Verges heads.
"We have more organic growth opportunities in South America than China to date," he said in a phone interview from Shanghai in China last week.
Last year, Latin America accounted for between $20 and $30 million in revenues, Verges says, declining to be more specific. However, that compares with $10 million in 2005. It also compares favorably with the company's total revenues of $50 million in 2005, which means Latin America is the top revenue source. NewMarket also operates in Eastern Europe in addition to its home market of the United States.
"Most of our business is coming from outside of the United States," he says.
The growth in Latin America and other emerging markets is partly due to the fact that they are growing faster than the U.S. economy and partly because the opportunities are greater, Verges points out.
Last year, Latin America's economies grew by 5.5 percent, while the U.S. economy only grew by 3.3 percent, according to the International Monetary Fund. This year, Latin America will likely grow by 4.9 percent, while the U.S. economy should expand by 2.2 percent, the IMF forecasts.
Latin America has helped NewMarket become one of the fastest-growing companies in the United States. The Texas company ranks fifth on the 2006 Technology Fast 500, a ranking from Deloitte of the 500 fastest growing technology, media, telecommunications and life sciences companies in North America. The rankings are based on percentage revenue growth over the five years period from 2001 to 2005. NewMarket boasts a whopping 31,633 percent growth in that period.
Brazil is the fastest-growing Latin American market and also the company's top market in the region. Other key markets include Venezuela and Chile. Through its Venezuela operations, NewMarket is also doing business in Colombia and Peru, while the Chile business is handled out of Brazil.
Despite the political uncertainty in Venezuela, including growing tensions with the United States, NewMarket continues to see steady growth there. "We remain optimistic on Venezuela," he says. "There is a good growth opportunity."
However, the company is "vigilant" on the political risk of doing business in the South America country, Verges says.
NewMarket is now preparing a major launch in Mexico through a partnership with a large Mexican company Verges declined to identify. The launch has significant potential to make Mexico the top market in Latin America, the NewMarket CEO says.
NewMarket's best-selling products in Latin America are brand name products from its partners like Oracle, SAP and Microsoft. "We are selling incumbent brand names," Verges says. "That gives us credibility. Since Latin America is new for us, our primary effort is establishing that integration platform."
NewMarket gains from Latin America leads generated by Oracle, SAP, Microsoft and other partners, he adds.
And that's a strategy that works better in a region like Latin America than a market like the United States, Verges says. "When we are competing around a brand name solution like Microsoft, we are often competing against [companies like] IBM," he says. "In the US, if I am competing against any of those companies, I might as well not compete. We compete in South America and we win. So can grow faster organically."
Verges also sees other advantages of doing business in Latin America compared to for example China, one of the fastest-growing economies in the world.
"China is a faster growth market and probably larger opportunity, but there are additional culture differences that make it more difficult to gain traction [there]," he says. "In Asia we have to hold hands [and there's a] longer courtship before we gain business. South America ...allows us to develop trust and comfort much faster."
NewMarket expects to benefit from the trade mission to Latin America it is organizing. The mission, scheduled for July, will include 10 small technology companies in the United States and is co-sponsored by USAID. Companies can apply to win a spot on the trip. NewMarket has organized several trade missions to Latin America (and Asia) before.
"I am very enthusiastic about the results of that trade mission," Verges says.
"Most of our M&A initiatives come from our trade missions."
However, despite the success in Latin America, NewMarket's entry also presents challenges compared to doing business in the United States. First of all, the legal regulations are different, which means that when NewMarket does an acquisition — a key strategy for its growth — it has to factor in the effects on its partners.
"The way we do acquisitions is different ... in South America," Verges says. "The M&A structure is always more complicated in order to accommodate ...the foreign business ownership laws and ...the sellers, usually private individuals [who] have personal income complications that have to be addressed in the structure of the acquisition so that they don’t have shockingly outrageous short-term or long-term capital gains impact."
This year, NewMarket expects another strong performance in Latin America. The company will see Latin American revenue growth of 50 percent or higher, Verges predicts. Much of the growth will come from Brazil.
However, if the Mexico operations get off the ground, revenues could grow as much as 100 percent, he says. "The dark horse is getting relations off the ground in Mexico," Verges says. "Once we [do that] that will easily outpace everything in Latin America."
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