EXPLORING GEOMEMBRANE EXPORTS TO BRAZIL AND CHILE

by

Jared Sauder

PROJECT SUBMITTED IN PARTIAL FULFILLMENT OF

THE REQUIREMENTS FOR THE DEGREE OF

MASTER OF BUSINESS ADMINISTRATION

In the Executive Program

of the
Faculty
of
Business Administration

© Jared Sauder 2014

SIMON FRASER UNIVERSITY
Spring 2014

All rights reserved. However, in accordance with the Copyright Act of Canada, this work
may be reproduced, without authorization, under the conditions for Fair Dealing.
Therefore, limited reproduction of this work for the purposes of private study, research,
criticism, review and news reporting is likely to be in accordance with the law,
particularly if cited appropriately.
Approval

Name: Jared Sauder

Degree: Master of Business Administration

Title of Project: EXPLORING GEOMEMBRANE EXPORTS TO BRAZIL

AND CHILE

Supervisory Committee:

___________________________________________
Daniela Patricia Blettner, Ph.D.
Senior Supervisor
Assistant Professor – Strategy / Technology and Operations

___________________________________________
Jan Simon, Ph.D.
Second Reader
Academic Chair, Executive Masters of Business
Administration

Date Approved: ___________________________________________

ii
Abstract

The research team was asked to analyze the feasibility of exporting geomembrane liners
produced in Vancouver, Canada to Brazil or Chile, markets for geomembranes and what factors
will be critical to success.

It is clear that markets exist in both countries in mining, oil & gas, landfills and water
treatment processes, however successful market entry will depend largely on the cultural aspects
of Brazil and Chile.

iii
Dedication

To Annette for your support throughout this project.

iv
Acknowledgements

James Whitfield, Jeff Jordan, Dafne Campos, Luis Barbim, Andreia Marqueti, Darvinder
Shergill, Ian Gilchrist, Ale Brown, Mike Givton, Daniela Blettner, Leyland Pitt, Mark Wexler,
Jan Simon, Guillermo Abdel Musik, Jim Wuest, Cameron Forster, Thomas Curley, Brian Fraser,
Thomas Rose, Mike Da Silva, Rob Rempel, Bina Bawa, Matthew Overbay & Daniel Shapiro.

v
Table of Contents

Approval ......................................................................................................................................... ii
Abstract ......................................................................................................................................... iii
Dedication.......................................................................................................................................iv
Acknowledgements ......................................................................................................................... v
Table of Contents...........................................................................................................................vi
Glossary ....................................................................................................................................... viii
1: Introduction ................................................................................................................................ 1
1.1 Background ............................................................................................................................. 1
1.1.1 Enviro Liner® characteristics .................................................................................... 1
1.1.2 Current strategic direction .......................................................................................... 1
1.2 Roadmap.................................................................................................................................. 2
2: Analysis ....................................................................................................................................... 3
2.1 Experiential ............................................................................................................................. 3
2.1.1 Brazil .......................................................................................................................... 3
2.1.2 Chile ........................................................................................................................... 4
2.2 Financial .................................................................................................................................. 5
2.2.1 Market size ................................................................................................................. 5
2.2.2 Taxes .......................................................................................................................... 5
2.2.3 Market prices .............................................................................................................. 5
2.2.4 Tariffs ......................................................................................................................... 6
2.3 Cultural .................................................................................................................................... 6
2.3.1 CAGE analysis ........................................................................................................... 6
2.3.2 Hofstede’s dimensions ............................................................................................... 6
2.3.3 Hall’s theory ............................................................................................................... 7
2.4 Strategic................................................................................................................................... 7
2.4.1 Business model canvas ............................................................................................... 7
2.4.2 Porter’s activity systems map ..................................................................................... 7
2.4.3 What not to do ............................................................................................................ 7
3: Conclusion................................................................................................................................... 8
3.1 Recommendation..................................................................................................................... 8
3.2 Next steps ................................................................................................................................ 8

vi
4: Reflections ................................................................................................................................... 9
Appendix ....................................................................................................................................... 10
4.1 Figure 1 – The roadmap ........................................................................................................ 10
4.2 Figure 2 – Brazilian manufacturers ....................................................................................... 11
4.3 Figure 3 – Strategic barriers in Brazil ................................................................................... 11
4.4 Figure 4 – Resin supply in Brazil .......................................................................................... 12
4.5 Figure 5 – Mining market size .............................................................................................. 12
4.6 Figure 6 – Chile mining market growth ................................................................................ 13
4.7 Figure 7 – Brazil mining market growth ............................................................................... 13
4.8 Figure 8 – Oil & Gas market size .......................................................................................... 14
4.9 Figure 9 – Chile oil & gas market growth ............................................................................. 14
4.10 Figure 10 – Brazil oil & gas market growth .......................................................................... 15
4.11 Figure 11 - Taxes................................................................................................................... 15
4.12 Figure 12 – Geomembrane market prices ............................................................................. 16
4.13 Figure 13 – Geomembrane price comparison ....................................................................... 17
4.14 Figure 14 – Tariffs and potential sale margins ...................................................................... 17
4.15 Figure 15 – CAGE analysis ................................................................................................... 18
4.16 Figure 16 – Hofstede’s dimensions ....................................................................................... 18
4.17 Figure 17 – Hall’s theory ...................................................................................................... 19
4.18 Figure 18 – Business model canvas ...................................................................................... 19
4.19 Figure 19 – Porter’s activities systems map .......................................................................... 20
4.20 Figure 20 – What not to do.................................................................................................... 20
5: Works Consulted ...................................................................................................................... 21
6: Interviews.................................................................................................................................. 22
________________________________________________ ........................................................ 23

vii
Glossary

Geomembrane A synthetic liner or barrier used to contain liquid or gas.

Polyethylene A common type of plastic.

viii
1: Introduction

1.1 Background

1.1.1 Enviro Liner® characteristics

Enviro Liner® is a unique proprietary environmental liner material developed and

manufactured by Containment. Containment’s product development team designed the material
over a series of years that included hundreds of lab hours. As a result, Enviro Liner® exhibits
superior flexibility and chemical resistance properties as compared to competing materials; most
notably high density polyethylene (HDPE). Additional key attributes include a 12 year
installation base, up to 25 year product warranty, greater material flexibility and the ability to pre-
fabricate the liner prior to field installation.

The combination of the many unique attributes allows the Enviro Liner® product line to
compete in a variety of markets including mining, oil & gas and water & waste water. Enviro
Liner® is marketed as a premium liner material and has the greatest success when pre-fabrication
is an option and in environments were the flexible material properties can be leveraged. It should
be noted that Containment does not market or sell Enviro Liner® as a “me too” or commodity
product. This is an important distinction as high density polyethylene liners are generally
considered to be a substitutable commodity product.

1.1.2 Current strategic direction

The Containment Group Limited operates three business units; Flexible Packaging,
Construction Products and Environmental Containment and maintain offices in Canada and the
United States of America along with a joint venture in Australia. Enviro Liner® is primary
marketed and sold by the Environmental Containment business unit.

In December 2013 Containment began to develop a 24 month strategic game plan that
would commence on April 1, 2014. This plan outlined an aggressive revenue growth target of $60
million and Environmental Containment is expected to generate the majority of the growth. To
achieve this significant growth target the Environmental Containment business unit will need to
develop new market, potentially including Brazil and Chile.

1
1.2 Roadmap
The research team developed a roadmap the focused on four primary areas of analysis;
experiential, financial, cultural and strategic (figure 1). The analyses findings were combined to
form a recommendation.

The analyses roadmap was a critical tool that guided and focused the research efforts and
led to a well-supported recommendation. Analysis for both Brazil and Chile was completed for
each section of the roadmap.

2
2: Analysis

2.1 Experiential
Expert interviews were the primary source of existing market information in both Brazil
and Chile as the major geomembrane extrusion firms are all privately held firms. Through
interviews, the research team was able to determine the current geomembrane manufactures,
market share, suppliers, installers and developing geomembrane markets.

2.1.1 Brazil

There are currently four companies in Brazil that extrude geomembrane product;
NeoPlastic, Roma, Maccaferri and Nortene. NeoPlastic currently enjoys 30% of the
geomembrane market in Brazil while Nortene is the largest producer with 60% of the market
(figure 2).

Nortene has earned their market position by taking a vertically integrated approach to
their business model, as they are the only Brazilian manufactures that produces, sells, installs and
services geomembrane liners. To execute this strategy Nortene hires only business development
representatives that have engineering degrees, which allows them to effectively sell to owners and
engineers.

Vertical integration positions Nortene as the most reliable company to do business with
as they can offer superior quality control and after sale service. As quality control and reliability
are key requirements for the mining industry, Nortene dominates the sector with 90% market
share. As a result, Nortene has created a strategic barrier and only NeoPlastic is able to compete
with them (figure 3).

The business models of Nortene and Containment’s North American operations are
striking similar and the success of Nortene in their market affirms the effectiveness of a strategy
based on vertical integration.

The geomembrane manufactures procure resin, the raw material, from Braskem or Dow
(figure 4). Braskem is state owned and supplies 95% of the resin to all manufactures. This near

3
monopoly is unique to Brazil and the manufactures are forced to pay a premium for raw
materials.

Although mining is currently the largest market for geomembrane liners, there are several
new and emerging markets to consider. Agricultural irrigation, water transportation, horizontal
cellars, river water transposition and landfills are all new markets that Containment should
consider as potential markets for Enviro Liner®.

Of these opportunities, the Sao Francisco river transposition project is the most
appealing. This is a government-funded project with estimated expenditures or $3.5 billion and
2,000 kilometres of canals lined with geomembrane. Enviro Liner® is an excellent material for
this project because of its flexibility and resistance to ultraviolet light.

Through interviews we also learned that Solmax, Canadian based company, is exploring
expansion in to Brazil, recently visited several job sites, and made an offer to purchase
NeoPlastic. This offer was rejected and Solmax is currently attempting to sell material through
agents to establish a market presence.

2.1.2 Chile

Temho, GSE and Polytex are the three geomembrane manufactures located in Chile and,
because of extensive free trade agreements, TDM Grupo, a Peru based manufacturer, also
services the Chilean market.

The research shows that Chile is a much different market than Brazil because of the
extensive free trade agreements that exist. This has created an open market and encourages
exports to Chile and as a result it is a highly competitive and price driven marketplace. HDPE is
the primary geomembrane material and mine owners in Chile typically pay some of the lowest
prices in North America.

Owners make buying decisions and the engineers have little influence on the liner
material. Once owners have a design in place it is used as the “boiler plate” for future work and
new innovative options are rarely considered.

4
2.2 Financial
The financial analysis assessed the overall market viability, including market size,
industry growth, pricing and taxes and tariffs.

2.2.1 Market size

The total mining market is $64.4 billion in Brazil and $53.7 billion in Chile (figure 5) and
they represent the two largest markets in South America. Industry growth is expected to be 10-
13% per year in Chile (figure 6) and 6.2% in Brazil (figure 7).

The Oil & Gas market is $127.8 billion in Brazil and $15.4 billion in Chile (figure 8).
Industry growth rates are 5.8% per year in Chile (figure 9) and 6.7% in Brazil (figure 10),
however the Brazilian Oil & Gas market is primarily off-shore which limits the need for
geomembrane liners.

2.2.2 Taxes

Brazil and Chile both have similar non-labour related taxes at 23.9% and 28.7%
respectively, however the labour tax situation is dramatically different with Brazil at 39.6% and
Chile at only 3.8% (figure 11).

The labour tax rate in Brazil increases the attractiveness of export as production costs
within the country will be high because of the labour tax. Conversely, Chile is less attractive
because of low labour tax and production costs.

2.2.3 Market prices

Verified market prices ranged from a low price of $0.99/lb in Chile to a high of $2.23/lb
in Brazil (figure 12). These prices corroborated the expert interview findings that Chile is a low
cost commodity market and that labour taxes in Brazil result in high production costs.

Although there is a range of prices for Canada, the US, Brazil and Chile, it is clear that
Chile has the lowest market price, followed by Canada and the US while Brazil is the highest by a
significant margin (figure 13).

The Brazil market price information also disproved the assumption that high import
tariffs would eliminate Brazil as a potential new market for Containment. The high in country
market price makes Brazil the more attractive new market to enter.

5
2.2.4 Tariffs

Although Brazil has an 18% import tax and Chile is a free trade zone, the analysis shows
that Containment can be commercially successful in both markets. This is possible because of the
high market price in Brazil, which offsets the import tax. Higher margins are also expected in
Brazil at $1.03/m² compared to Chile at $0.52/m² (figure 14).

2.3 Cultural
The cultural analysis is the most critical research piece, as these implications will
determine how successful market entry will be. The research team used a CAGE analysis,
Hofstede’s dimensions and Hall’s theory to illustrate the importance of the cultural aspects to
doing business in Brazil and Chile.

2.3.1 CAGE analysis

Canada, Australia, Brazil and Chile were analyzed using the CAGE (cultural,
administrative, geographic and economic) framework. Australia was included in the research as
Containment has established a successful export business there that is similar to the proposed
South American export strategy. The analysis clearly shows the significant differences between
entering Australia and South America (figure 15). Entering Brazil and Chile will pose significant
cultural challenges in terms of language, business practices, bureaucracy and currency.

2.3.2 Hofstede’s dimensions

Hofstede’s dimensions was used to reinforce the cultural differences between South and
North America. A key finding is the significant difference in Uncertainty Avoidance, which is the
way that cultures deal with and accept future uncertainty. Both Brazil and Chile have very high
levels of Uncertainty Avoidance and this is critical for Containment to understand prior to
entering these markets.

As Uncertainty Avoidance is high (figure 16), it is even more critical that Containment
establishes a South American presence to effectively market Enviro Liner® to new customers.

6
2.3.3 Hall’s theory

Hall’s theory was used to emphasise the importance of relationships in Brazil and Chile.
In order for Containment to effectively expand in to these markets close attention will need to be
paid to building relationships and de-emphasizing efficiency (figure 17).

2.4 Strategic
The strategic analysis focused on Containment’s current business model in North
America and identifying which elements can be used to establish business in Brazil and Chile.

2.4.1 Business model canvas

Customer relationships and sales channels are both elements that can be leveraged in
South America with the challenge being product education (figure 18).

2.4.2 Porter’s activity systems map

Marketing and education, production of geomembrane and strategic alliances are all key
elements of the activity systems map that can be leveraged in South America by Containment.
Marketing and education, along with new alliances will be key (figure 19).

2.4.3 What not to do

Solmax provided a good example of what not to do when entering Brazil. Through expert
interviews, the research team learned that Solmax made an offer to purchase NeoPlastic, however
they did not carefully consider the cultural implications and attempted to rush in to the sale. This
resulted in a rejection of the offer by NeoPlastic (figure 20).

7
3: Conclusion
The research was clear that there are export opportunities in Brazil and Chile, but
understanding the cultural dynamics is critical to a successful implementation.

3.1 Recommendation
Pursue an export strategy to Brazil and Chile as export costs are low, product demand is
high and both markets are predicted to see continued growth.

Establish a micro-office in Sao Paulo, Brazil that will also service Chile. Begin
establishing relationships with the key influencers in both countries. Hire two direct Containment
employees that can develop face-to-face relationships with the potential customers.

3.2 Next steps

• Schedule a two week visit to Brazil and Chile in 2014:

– Visit one mining facility and one landfill in each country.

– Visit two to three influencing engineering firms in each country.

– Visit two experienced installers in each country

• Rent an office in Sao Paulo and contract experienced industry sales representatives so
that Containment can start taking part in bidding process and get acquainted with country
projects.

• Translate the website into Brazilian Portuguese and Spanish.

• Explore geotextile segment for roads, highways, subways projects.

• Explore the agricultural segment for geomembrane and films.

8
4: Reflections

Being a part of a cross cultural research team was both challenging and rewarding.
Communications across several time zones and language barriers made it difficult, at times, to
make progress and careful considerations for each other needed to be made in order to maintain
harmony and respect.

It was clear that having native speakers for the country you are researching is a huge
benefit as exemplified by the quality of our Brazilian research.

Each team member has strengths and weakness and strong team leadership is required to
ensure high productivity.

It is also important to allow each team member to express their own thoughts and ideas
and not impose your own perceptions on them. The result is a much more balanced piece of
research and more defendable recommendations.

9
Appendix

4.1 Figure 1 – The roadmap

10
4.2 Figure 2 – Brazilian manufacturers

4.3 Figure 3 – Strategic barriers in Brazil

11
4.4 Figure 4 – Resin supply in Brazil

4.5 Figure 5 – Mining market size

12
4.6 Figure 6 – Chile mining market growth

4.7 Figure 7 – Brazil mining market growth

13
4.8 Figure 8 – Oil & Gas market size

4.9 Figure 9 – Chile oil & gas market growth

14
4.10 Figure 10 – Brazil oil & gas market growth

4.11 Figure 11 - Taxes

15
4.12 Figure 12 – Geomembrane market prices

16
4.13 Figure 13 – Geomembrane price comparison

Price/lb (USD)
$2.50

$2.00

$1.50

$1.00
Price/lb (USD)

$0.50

$0.00

4.14 Figure 14 – Tariffs and potential sale margins

17
4.15 Figure 15 – CAGE analysis

4.16 Figure 16 – Hofstede’s dimensions

18
4.17 Figure 17 – Hall’s theory

4.18 Figure 18 – Business model canvas

19
4.19 Figure 19 – Porter’s activities systems map

4.20 Figure 20 – What not to do

20
5: Works Consulted
Bank, World. Economy Profile: Chile. Washington, D.C.: World Bank, 2013.
Marketline. Comapny Profile Braskem SA. Marketline, 2013.
Marketline. Construction & Engineering in Brazil. London: Marketline, 2013.
Marketline. Metals & Mining in Brazil. Marketline, 2012.
Marketline. Metals & Mining in Chile. London: Marketline, 2012.
Marketline. Oil & Gas in Brazil. London: marketline, 2012.
Marketline. Oil & Gas in Chile. London: Market Line, 2013.
Marketline. Water Utilities in Brazil. London: Marketline, 2013.
Protti-Alvarez, Francinia. “Braskem to boost LLDPE, renews green PE distribution agreement.”
IHS Chemical Week, 21 October 2013: 1.

21
6: Interviews
Nicky Arujoe

Mike Da Silva

Brian Fraser

Thomas Rose

Rob Rempel

22
________________________________________________

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