Hot Business with Chile

Hot Business with Chile
Washington State Has Increasing Ties With South America.
Washington And Chile Share Many Similar Industries

from the Seattle Post -Intelligencer
4/24/95 Business B4
By Imbert Mattheem, P-I Reporter

The development will happen with or without you, but this is a great opportunity for Washingtonians to come to Chile and help us. – Mario Hermosilla, Fundacion Chile

Santiago, Chile – Mario Hermosilla dares Washington’s timber companies to come to Chile.

"The forest products industry here will become very big," Hermosilla tells a visitor from Seattle. "The development will happen with or without you, but this is a great opportunity for Washingtonians to come to Chile and help us."

Hermosilla, forestry director for Fundacion Chile, a public-private organization charged with creating and nurturing new industries, may be preaching to the choir.

Drawn to Washington state’s industrial mirror image in the Southern Hemisphere, many Northwest investors have already discovered this Latin American land of opportunity, particularly in the timber industry.

In a joint venture with a New York based company, Trillium Corp. of Bellingham over the past two years has amassed 625,000 acres of native forest on Tierra del Fuego, an island at the southern tip of the South American continent that is shared by Chile and Argentina.

The two companies plan to spend hundreds of millions of dollars to selectively harvest the hardwood trees, build sawmills and operate plants to make furniture components.

Eleven hundred miles to the north, near Concepcion, Seattle-based Simpson Investment Co. owns Chile’s second largest pulp plant in a $585 million joint venture with a Chilean partner. The gigantic complex was built four.years ago.

"They (the Chileans) have a lot of people knocking on their door," says Robert Spich, a professor of management and international business at Western Washington University in Bellingham who regularly takes Northwest businesses to Chile.

Washington’s focus on Chile has grown in part because the country became the 18th member of the AsiaPacific Economic Cooperation forum last year and is poised to join the North American Free Trade Agreement with the United States, Canada and Mexico.

"Interest in Chile has intensified recently," agrees Paula Laschober, president of Washington State/Chile Partners of the Americas, a local inter-American social and economic development organization that has grown to 120 members since it was rounded a decade ago. Corporate members of the group represent a variety of industries, from equipment manufacturers and shipbuilders to fruit growers and service providers.

"The place is going like gangbusters," says Peter Schmidt, president of Marine Construction and Design Co., or MARCO, a Seattle-based shipbuilder whose shareholders own Astilleros Marco Chilena Ltda., a company that makes purse seiners at its yard in Iquique, a fishing town in northern Chile.

Marco Chilena, a member of Washington State/Chile Partners of the Americas, has been in Chile for 37 years. Since 1985, it has tripled its sales, building 170- to 210-foot-long boats for the Gulf of Arauco’s anchovy, sardine and jurel runs.

Chile remains a relatively small trading partner for Washington, importing mostly aircraft, industrial machinery, computer equipment, processed food products, electronics and other high-tech instruments. In 1994, with a market of 14 million consumers, Chile was the world’s 50th-largest buyer of goods made in Washington state, including aircraft. It ranked below South Africa (42nd) and New Zealand (22nd).

But Washington is becoming an increasingly important gateway for trade with Chile. In 1989, Chile ranked 55th out of Seattle’s 125 waterborne trading partners, with $1 million worth of nationwide imports and exports flowing through the Port of Seattle. That does not include aircraft. By 1993, the latest year for which such figures are available, Chile had jumped to 19th,with total two-way trade of $60 million, port spokesman Stuart Miner says. Chile ranked higher than Germany, France and the United Kingdom, and just behind the tormer Soviet Union.

During the same five-year period, Chile increased its log and lumber exports to Washington from $43,000 to $11.4 million. Other Chilean exports that come through the port are fruit, juice, vegetables, furniture and canned fish.

None of the figures give the whole picture of Washington’s business and investment activities in Chile because many products made in Chile by Washington-owned firms don’t make it back to the Northwest.

They are either consumed on the South American continent or shipped directly from Chile to more distant export markets.

Washington’s growing links with Chile reflect a nationwide trend. Foreign investment in the country has more than doubled in two years, from $995 million in 1992 to $2.1 billion last year, with three of every four investors coming from the United States, according to ChiJe’s central bank.

Some of Chile’s largest foreign investors include Exxon, Dole Food Co. and Phelps Dodge Corp., the world’s second-largest copper producer, based in Douglas, Ariz.

The flow of capital to South America’s most successful economy has grown for several reasons, investors and economists say. Land prices, wage rates and the cost of environmental compliance continue to rise in Washington and elsewhere in the United States. For some industries, such as forest products, access to resources has become very tight.

"Northwest pulp is expensive," says Ricardo Wainer, manager at Celulosa del Pacifico, Simpson’s joint-venture pulp mill near the town of Mininco. "Although transportation. and energy costs are higher here (in Chile), the cost of labor and wood is lower."

Investors also see a much less restrictive business environment and a much more abundant resource base in Chile, which has an ideal climate for growing fish, fruit and trees.

The growth of investments is encouraged by Chile’s current political stability. The country has a civilian government that adheres to the export-oriented economic model of Augusto Pinochet’s 17 year military dictatorship.

Tom Kehler, an American entrepreneur who sold his stake in a flesh-cut flower business in Colombia when terrorism by narcotics cartels erupted there in the 1980s, says Chile’s government tends to stay out of the way. With his Colombian partners, Kehler reinvested the money in a salmon farm in southern Chile.

"We are neither supported nor harassed," he says.

Kehler also is in a joint venture with several partners from the Seattle area to cultivate cranberries on a 125-acre farm near Frutillar in southern Chile.

"I saw this was a good place to do business," says Kehler.

Many connections between Washington and Chile have emerged because the two economies nurture similar industries. In some cases, Washington entrepreneurs helped create those industries.

Jon Lindbergh’s name, for instance, pops up in a lot of local conversations about Chile.

The North Bend businessman has been credited with helping introduce salmon farming techniques to Chile and is now among Kehler’s partners in the Frutillar cranberry farm.

"We brought coho and chinook to the Chiloe (Island) area in the mid-1970s," Lindbergh says about Domsea Farms, a Washington company he helped found in the 1960s.

Later, Lindbergh and fish producers from other parts of the world introduced Atlantic salmon, which now dominate Chile’s farmed-fish exports.

"Because of the opposite seasons, Atlantic salmon reared in the Southern Hemisphere can be harvested at a time when there is a shortage of large farmed salmon in the Northern Hemisphere," he says.

Because of the creation of the farmed salmon industry in Chile, Washington companies still supply salmon eggs to the country, Lindbergh says.

The drawback of a burgeoning farmed salmon industry in Chile, however, is its competition with salmon farms in Washington state, Lindbergh says. "They’re a big factor in the world market. We end up feeling that here."

Today, Lindbergh may be contributing to the creation of yet another Chilean export success. He wants to try his luck with cranberries, a crop whose demand in the United States is fed by the popularity of bottled fruit juice drinks.

"The outlook is very promising," Lindbergh says.

Most Washington entrepreneurs enjoy dealing with their counterparts in Chile, who tend to be well-educated, punctual and reliable. The country has relatively little corruption, they say.

But doing business in Chile does have some disadvantages. The cost of shipping products to North America or other major markets in the Northern Hemisphere is high, and although environmental laws are far looser than in the United States, new pollution restrictions are adding to the cost of doing business.

Celulosa del Pacifico, for example, spent $50 million on equipment to treat its waste water and control its gas emissions, Wainer says.

And private companies, which face an abundance of red tape in Chile, also occasionally run into competition from the government, says Schmidt. Marco Chilena’s bids for boat contracts are frequently undercut by a state-of-the art drydock in Talcahuano owned by the Chilean navy, which has aggressively jumped into the market for commercial fishing boats, he says.

"It’s a quirky thing. It’s not a concerted effort," Schmidt says about government competition, which technically is banned under the country’s new constitution. "Basically, the government is easy to deal with, very cooperative and very free-enterprise minded."

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