Doing Business : Chilean Firm Carves Niche in North : A small manufacturer targets areas that North American and Japanese producers often skip. The strategy holds promise for others.


Don't try to tell Tomas Munzer that a small manufacturer from a developing country will be hard-pressed to compete in the global marketplace.

He's done it--by carving out a niche in the United States for his company's baking pans, strainers and graters. In the process, he and others like him here are demonstrating a promising strategy for building up the industrial sector of a small economy such as Chile's.

The strategy even has a name, "niche marketing." The idea is to identify and cater to relatively small, often specialized market areas that are neglected by bigger producers in the huge North American, European and Japanese economies. Such niches often are ideal for Latin American industrialists, who can benefit from low-cost labor and the flexibility of small-scale operations.

Munzer's family company, Virutex Ilko, has 400 employees. He is general manager and his mother is chairman of the board. The business was started by Munzer's father, a German immigrant, to make house-cleaning materials such as steel wool and scrubbing pads.

The expanded factory has become Chile's leading producer of non-electric kitchenware, but it began selling its wares abroad just seven years ago.

"We started as you often start when you're new, knocking on doors," said Munzer, 33. He and other company executives attended trade fairs in the United States, made the rounds of wholesalers and sent out thousands of brochures and samples.

Now Virutex has eight wholesale clients in the United States--housewares companies such as Norproof of Washington state, Rowoco of New York state, Phoenixware of Arizona and Scandicraft of Los Angeles. The Chilean company sells them a wide variety of baking equipment, can openers, strainers and graters, which are marketed around the country under the wholesalers' custom brand names.

"We now have our niche up there, and we are trying to expand it with new products as well as more volume," Munzer said.

About a third of Virutex Ilko's exports go to the United States. Currently, 15% of the company's sales are in exports, and Munzer said his goal is 30%.

By serving high-demand markets such as the United States and Canada, he said, Virutex Ilko has learned to increase its efficiency and product quality, becoming even more competitive on the Chilean market. Much of the company's technology and industrial machinery comes from Europe.

Chile is the world's leading exporter of copper and fish meal. Since the 1970s, it has also ranked high worldwide in cellulose, fruits, gold and some other minerals.

Exports exceeding $8 billion a year account for 40% of Chile's gross national product. (Exports represent 35% of South Korea's GNP, 15% of Japan's and 9% of the United States' output.)

Industrial products of the kind that fit market niches in the North make up less than 10% of Chilean exports, according to Eduardo Moyano, director of the government export-promotion agency ProChile. He said that these "nontraditional" exports are rapidly growing in importance, however.

For example, he said, textile and clothing exports amounted to $80 million in 1990, up from $2 million in 1985.

Moyano says the Chilean economy resembles those of Denmark, Norway and Sweden in earlier stages of their development. Chile has developed thriving primary sectors such as fisheries, mining, timber and agriculture, and the economy seems to be moving into a second phase that emphasizes value added through manufacturing and engineering.

"We expect that in a second phase of development, exports in those areas will show very dynamic growth," Moyano said.

Millions of dollars are being invested in the manufacture of furniture for export, a more promising use for Chile's timber resources than cellulose. Chile also has begun to export its engineering expertise in mining and some capital goods for fishing, forestry and agricultural industry.

ProChile helps Chilean exporters by providing market studies, organizing buyer visits to Chile and commercial missions abroad, advertising in specialized magazines, and subsidizing Chilean participation in trade fairs and exhibitions. The agency has 35 commercial attaches overseas, including one in Los Angeles.

Several nongovernmental organizations in Chile also are active in promoting the nation's goods. One of them, Promoexpo-Chile, displays the products of 180 member companies in a permanent exhibition hall in Santiago, so that visiting brokers and buyers can save time finding what they want. Maximo Sotta, general manager of Promoexpo, said that Chilean manufacturers are avid for new markets abroad.

"For the past 10 years, our policy for expansion has been oriented toward exports," Sotta said. "There is a mentality that everyone wants to export."

Rose Marie Gei, general manager of the Assn. of Manufacturing Exporters (Asexma), said because Chilean manufacturers are small by U.S. and European standards, they naturally seek market niches abroad.

"In a way, they all do," Gei said. "It isn't that they have read a theory and say, 'I am going to make a niche.' No, they just do it."

Many do it successfully. In 1985, 36 members of Asexma exported $34.5 million in goods. In 1990, 130 members earned $200 million from their exports.

In Asexma, manufacturers of similar products group together in committees that work cooperatively to find and fill export market niches.

Some Chilean exporters deal directly with wholesalers or retailers overseas. Others work through brokers or trading companies both abroad and in Chile. A few are in joint ventures, or are multinationals with their own marketing organizations abroad.

Kodak's subsidiary in Chile has invested in a factory to make furniture, which is being marketed by the Kodak organization in the United States.

Roberto Murphy de la Cerda, 36, thought he had found a niche for canned peaches in the United States. As a division commercial manager for Corpora, a big Chilean food company, Murphy increased its U.S. sales of peaches to 120,000 boxes in 1989 from 7,000 four-gallon boxes in 1986.

But last year, shipping costs from Chile rose sharply while prices and demand dropped in the U.S. market for peaches in gallon-sized "service pack" cans. Corpora was no longer able to compete with American peaches and subsidized exports from Greece, and it shipped only 22,000 boxes of canned peaches to the United States last year.

Meanwhile, Corpora has found a niche for precision-sliced specialty fruits in Japan, where its sales have risen to 64,000 boxes in 1990 from 1,000 boxes in 1987.

Some Japanese trading companies want peaches in slices that weigh exactly 15 grams each. Others want hand-sliced peaches and pears packed together. Murphy said Corpora can meet such special needs at competitive prices.

"It is a very exacting market, very oriented toward quality, and that is exactly what we can offer," he said.

"The U.S. producers say, 'No, that's not for me.' We say, 'Yes, that's what we want.' " A niche.

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