AREA OVERVIEW
To understand the Latin American nonwoven needlepunch market, it is important to first understand a little about the area. Latin America includes all of South America, Central America and Mexico. The cultures vary dramatically throughout the area, from the predominant Indian influence of Mexico, to the heavy European influence of Argentina. The area has about 410,000,000 inhabitants, or about 1.5 times as many as the United States and Canada combined. Some projections put populations at double the U.S/Canada or 650,000,000 by the year 2025. Latin America now has more than twenty cities with populations of greater than 2,000,000; four of them being among the ten most populated in the world.

A majority of the populations are literate, an average of 88%, and the educational systems are expanding at an astounding rate. In Uruguay the national average completing secondary learning (high school) is the highest in the Americas.

Although Latin America has long been thought of as an area of poverty, unstable economies and political upheaval, the 1970's and 1980's has brought about rapid industrialization throughout the area, causing different dramatic effects on each nation.

One thing that nearly all of these countries did was impose trade restrictions on imports in order to protect their growing domestic industries. What was done initially as a protectionist measure, turned into a nightmare. As each of these countries progressed through their industrial revolutions at warp speed, a tremendous population of people with spendable income was created. For the first time, these people who never had money were now buying goods. With the protected markets, there was no competition to keep prices down or quality high. The consumers demanded imports.

This protectionism proved to be a double-edged sword in many other ways as well. Many companies had to import raw materials, thus having to pay costly import duties. The result, a low profit margin and no money for development or growth. Import duties in neighboring countries also hampered exports to those potential markets.

Many of the governments tried to subsidize these import duties in an effort to expand exports, but mounting national debts, corruption, and a general inexperience in business caused most of these efforts to be futile. In addition, the high taxation levied against the industries (in a trade off for protectism) forced most companies to bank outside of the country, and to try to show huge losses within their company. Many of these nations also had government owned industries, which further limited growth and reduced taxable income. Led by Chile and Colombia in the 1980's, the protectist tariffs began disappearing. This has caused various effects throughout Latin America, which will be discussed later within this paper.

Due to a vast supply of raw materials, and inexpensive labor, Brazil has moved into the economic forefront in South America. In 1989 Brazil had the eighth largest economy in the world, and is currently still in the top twenty. However, during the past three years the inflation rate has averaged about 10,000% per year and the country has been forced to issue new currency twice, the result of astronomical devaluation.

Argentina, by far the most developed nation in Latin America in the 1950's and 1960's, has watched its foothold in the region collapse as many of it's neighbors industrialized beyond Argentina's base while at the same time it failed to modernize it's production capabilities. Argentina's currency, the Austral, exchanged at .94 Australes to the Dollar in 1986. Now the exchange rate is 10,000 Australes to the Dollar. In 1988, the country experienced an inflation rate of nearly 5000%.

Conversely, Mexico has opened the "international business doors" and under the presidency of Carlos Salinas has held inflation to an all time low, about 15% annually. The devaluation of the Peso was less than 8% last year, compared to 100% in 1987.

Chile and Colombia have remained fairly strong through the past four years. Chile has had the model economy since 1985, when it opened it's doors to limited free trade throughout the world. This has brought in high technology in exchange for fruits and vegetables. Colombia was experiencing strong competition from Brazil and Central America in it's world renowned coffee market. In an effort to diversify the economy, the trade barriers were lifted and today it's national debt per capita is the lowest in North, Central or South America.

For all of these countries "Free Trade" has been and will continue to be a difficult process to adapt to, primarily due to the bad habits created by the previously closed economies. Obviously, when competition is not a factor, then quality, efficiency, and cost are not either.

NEEDLEPUNCH INDUSTRY
Foster Needle Company is aware of more than 160 needlepunch companies in Latin America, not including the half dozen or so in the Caribbean. The variety of processes and products are as diverse as the people. There are companies needling continuous filament spunbonds, using random velour and other structuring machines, needling ceramic and glass fibers, as well as using a wide variety of other types of modern web forming, impregnation, calendaring, and finishing technology.

Most of the companies are family owned, with the ownership taking a very active role in the company. Most owners are not only the CEO of the companies, but also the most technical person, with a large majority of them being educated here in the states, at schools like Clemson, Georgia Tech, N.C. State and the Philadelphia School of Textiles, to name a few.

PRODUCTS
Below are ten South American countries with their top three products with total output dedicated to that product:

NATURAL FIBER PADDING
Due to the abundance of natural fibers in the area, such as sisal, jute, tampico, tequilla, and animal hair the production of insulator pads has been a major portion of the needlepunch industry throughout Latin America. One company in particular actually lays out the sisal in six foot pieces in the machine and cross machine direction, then needles them together. The final product is then cut into squares and used as welcome mats throughout the world.

There are many uses for padding and waddings produced from natural fibers. The majority of the products are used in the furniture and mattress industry. Certain automotive applications are other outlets for needlepunched products made from natural fibers.

BLANKETS
Nearly every country in Latin America has at least one company making blankets. The raw material may range from waste fibers, to polyesters, to acrylic/acrylic/nylon blend. A majority of the products are napped, a process which loosens the fibers on the surface of the fabric, without causing a great loss in the physical properties.

A few companies are also working with random velour machines for making blankets. A random velour loom is a needlepunch machine which punches into a bristle brush conveyor rather than a perforated bedplate. This process creates a "fuzzy" surface in which the needle hole is very difficult to find and the surface is free of linearity as caused by standard structuring looms. The random velour fabric is made by taking the pre-needled base goods, and pattern printing it. It is then put through a random velour machine. The look and feel of the finish product is quite similar to that of a wool blanket.

REGENERATED FIBERS
The greatest percentage of needlepunch products in Latin America are made with regenerated fibers, more commonly known as waste fiber or shoddy. Many of the large textile firms have shoddy lines on their location to utilize their own garment clippings internally. However, the majority of shoddy needlepunchers utilize waste fabrics or fibers from other firms.

As stated earlier, a common application is blankets, however there are many other applications which are more prevalent. The automotive industry is utilizing more yardage of shoddy every year from Mexico, Brazil, Argentina, Venezuela and Colombia. Insulator pads, in mattress and furniture industries, is also a very large market. Especially in countries such as Argentina, Bolivia, Paraguay and Chile where there is a limited supply of natural fibers. In Argentina, where paper towels and paper wipes are nonexistent, a shoddy needlepunch product is widely used as a wiping cloth. In fact, more than half of the needlepunch factories in Argentina manufacture this product. A 100% bleached cotton is also used, but this product is generally exported to North America or Europe.

Another expanding market is carpet underlay. Although initially thought of as a "luxury item" for Latin America, this product is becoming more popular, and shows signs of substantial growth in the upcoming years.

AUTOMOTIVE
One of the areas that represent the largest growth to needlepunch manufacturers in Latin America is the automotive industry. As the graphs below show, the automotive industry in Latin America has grown over the past four years at a faster rate than the North American automotive industry. Mexico has doubled the number of cars produced in less than 5 years, with better than 60% percent being sold domestically, the balance for export to the U.S. and Canada.

The implications will be discussed later within this paper under the Free Trade section. Although Brazil and Mexico are the primary manufacturers in the automotive trade, there is assembly in Venezuela, Argentina, and Colombia.

The influences in the automotive trade in South America have been not only from North America, but also from the Far East and Europe. The result is the majority of automobiles produced contain much more needlepunch fabric than here in North America. Mexico also uses a considerable amount of needlepunch in automobile manufacturing.

One country where the European influence is most obvious is in Argentina. Needlepunch headliners which are very common in Europe, are widely used in this country and amount to about 300,000 square meters annually. The product is primarily a needlepunched three denier polyester fabric with a printed pattern. It is then laminated with a polyethylene heat sensitive film for molding.

As in North America, Mexico is also experimenting with needlepunch headliners. These will more than likely be incorporated in automobiles produced for domestic consumption.

In Brazil the Japanese influence can been seen with a high percentage (approximately 65%) of the automobiles manufactured with needlepunch floor covering. The needlepunch product is a 15-20 denier polypropylene which is pre-needled, then structured, then coated with a polyethylene powdered resin for laminating to the shoddy pad and molded into a finish product. Needlepunched floor covering is also used to a degree in all of the other Latin American auto products. Due to the difficulty of importing raw materials, more than 50% of the floor covering producers manufacture their own polypropylene staple.

The after market floor covering products found throughout Latin America are almost entirely needlepunched. The quality of these products range from fair to good, and many are marketed here in the U.S. It is estimated that more than 1,000,000 square meters per year are exported to the U.S. and Canada automotive after market, for use in both floor covering and also automotive dashboard covers.

Needlepunched kick panels now popular in the North American automotive markets, is a growing market in Latin America, mostly in Mexico. The same holds true for package trays. These can be found in more expensive auto models in Brazil and Mexico.

As stated earlier, needlepunched shoddy applications are growing in the automotive market. Whether the cars are fully manufactured, or only assembled, the shoddy fabrics are generally needled in that country. From floor paddings, to trunk liner, to sound insulation, needled shoddy is widely used in automotive production throughout Latin America. Recently, however, the resinated pad (a non-needled shoddy pad with phenolic resin) is becoming more popular in Brazil and Mexico. As in the North American market, shoddy insulator pads are a basic component of the industry, and will be for some time to come.

Another product produced in Brazil largely for the automotive after market is the thermal/sound insulator which is mounted under the hood of the cars. Much like the Japanese automobiles, this item is generally not O.E.M. Therefore, one company has decided to market this product as a kit, specifically for the after market.

The product shown on the left is a needled fiberglass-polyester composite, molded and pre-cut to fit each style automobile. This company is also planning to market this type of product throughout Latin America, and possibly in North America.

The needlepunch vinyl substrate product is growing in popularity in Latin America as well. Due to the fact that the specifications for many of the GM, Ford and Chrysler products made in Mexico are generated in the U.S., then it stands to reason that many of the Mexican producers are required to purchase vinyl substrate from approved North American suppliers. Recently, a few companies in Mexico have attempted to gain approval to manufacture these for consumption in the Mexican market.

FLOOR COVERING/CARPET
Although volumes are not readily available, there are at least twice as many needlepunch floor covering producers in Latin America as there are tufters. Most commercial applications are needlepunched and nearly all entry mats are as well. This is primarily attributed to the low cost and the ease of manufacturing of the flat or structured type carpet compared to tufted. Brazil estimates more than 80% of the carpet produced within the country is needlepunched.

GEOTEXTILES
The geotextile market is a relatively new one in Latin America, but with the mountainous terrain, erosion and pollution problems, geotextiles could become the single largest growth market. Currently, Mexico, Brazil and others are spending tremendous sums of money on upgrading their infra-structure. From upgrading highways and airport runways, to controlling landfills, the usage of geotextiles is definitely on the rise. The primary problem is understanding the usage of the geotextiles, and the proper fabric specifications to match each application. In spite of this, many needlepunch companies are already producing both staple and continuous filament geotextiles for domestic use, as well as export to other countries in Latin America and North America. In 1991 five additional companies in Latin America have entered this growing industry, as well as one new producer in Mexico during 1992.

OTHER PRODUCTS
The range of other products produced is extremely wide. One rather interesting product is a "gold washing" material. This is a polyester needlepunch of 30 and 70 denier blend structured into a repeating four rib pattern, and then heavily resinated. It is installed on a stair-like structure. The gold is separated from the dirt and clay by washing the mined slurry down this flight of stairs covered with this needlepunch material. The gold builds up within the ribs whereas the sand and clay wash away.

Synthetic leather production is also on the rise. While there have been many companies in this field over the years, a new company has recently purchased modern equipment in Argentina. Through a joint venture with a German firm, as well as implementing technology from the Far East, this firm has begun to produce some very high quality synthetic leather products. The reputation for high quality leather products in Argentina, has made an easy market for this man-made substitute to be sold to unsuspecting tourists.

Needlepunch also has made a home in apparel interlinings, shoulder pads, machine shock absorbers, decorative felts, and scouring pads. Much like the North American market, the volume is not very large, but there is a certain degree of success in these smaller niche markets.

FUTURE TRENDS
One important area that is not present in any significant level is needlepunched filtration fabrics. Although there are companies making filtration, the percentage of this is extremely small compared to North America. One major drawback in the industrial revolution described earlier is the serious problem of pollution, which is affecting every major city in Latin America. This problem is now attracting an increased interest in the filtration market. This area could represent one of the largest growth areas through the year 2000.

The geotextile market is difficult to forecast, as it is contingent on dollars spent by each independent government.

The automotive markets will continue to grow. It is projected that the Mexican auto manufacturers will double capacity again in the next six years. Many other needlepunched markets could also increase dramatically pending approval of free trade agreements. With these pending agreements, it will be more financially advantageous to buy from the local trade group, rather than import from Japan, North America or Europe. Currently, countries without manufacturing or assembly look worldwide for automobiles.

Each of these "growth markets" require a degree of technical expertise, quality and specialized equipment. None of this coincides with the reputation of Latin American manufacturing. However, their reputations could not be any further from the truth. It is very surprising to learn that approximately 70 new needle looms have been sold into Latin America since 1986. The use of recent technological improvements such as bi-component fibers, microfibers, lubrication techniques, computerized weight/speed controls and needle developments such as Star Blades, Pinch Blades, High Density Barb configurations, and fine gauge fork needles are becoming more common. In addition, many facilities have already incorporated SPC or ISO 9000 programs, and many others have targeted adoption of one of these programs in the next three years.

This recent push for quality, modernization, and technology is bringing about rapid changes, and opening many overseas markets previously not available to Latin American firms. One example is a company in Colombia which exports needlepunch products to over 20 countries, including the U.S., Canada, and three countries in Europe.

Technology is still one area where the most improvement can be made. At this time many companies are involved in open exchanges of information with North American, European, and Japanese firms. Joint venture programs are also on the rise. In addition, many companies have budgeted money for technical conferences, seminars, trade shows, or are bringing in consultants to assist them.

Latin American companies rely heavily on relationships with their vendors/suppliers. For those companies who can not attend trade shows, or seminars, the supplier is looked to for latest market development, future trends, and general guidance.

REGIONAL COMMON MARKETS AND FREE-TRADE AREAS EMERGE
Throughout Latin America, the notion of creating free-trade areas and regional customs unions is becoming an increasingly popular means of fostering economic growth.

NORTH AMERICAN FREE-TRADE AGREEMENT (NAFTA)
Perhaps the most important development of l99l was the initiation of affirmative steps by the United States, Canada, and Mexico to consummate NAFTA. It would create one of the most attractive investment regions in the world, having a combined population of about 360 million and a gross national product of about $6 trillion. Despite criticism by environmental groups and labor advocates in the United States and Canada, negotiations between trade representatives of these three countries have been successful, and an agreement is expected to be reached in l992.

SOUTHERN CONE COMMON MARKET (MERCOSUR)
Another important agreement that has not been given as much media attention is the Treaty of Asuncion. This treaty was entered into March 26, 1991, by Argentina, Brazil, Uruguay, and Paraguay to establish a framework for the creation of a southern cone common market by December 31, 1994. Like the European Economic Community, the objective of the Treaty of Asuncion is to create a customs union (commonly referred to as Mercosur) whereby all the members will have unified tariffs and nontariff barriers on goods and services from nonmember countries. In addition, the members are expected to adopt a unified economic policy, to the extent necessary to promote the free flow of labor, goods, and services among the four countries.

By integrating their economies, the Brazilian, Argentine, Paraguayan, and Uruguayan governments expect to enhance intraregional trade and create a more attractive business environment for both domestic and foreign investors. With a combined population of approximately 190 million and a total GDP of about $415 billion, the countries are likely to accomplish this objective. In particular, Mercosur will enable businesses to better use the competitive advantages of the four countries. Thus, businesses that require a highly qualified labor force may find it advantageous to centralize their operations in Argentina or Uruguay. Enterprises in the high-tech industry may, on the other hand, find Brazil to be more attractive. Similarly, companies concerned with high energy costs may find attractive investment opportunities in Paraguay and Brazil. Also, firms in the Brazilian automotive, chemical, petrochemical and electronics industries will benefit.

The attractiveness of a southern cone common market is augmented by the possibility of a free-trade zone among the Mercosur countries and the United States. Under the "Four-Plus-One Agreement," the members of Mercosur and the United States have established a framework for future negotiations to eliminate all trade and non-trade barriers to free trade among the five countries. This agreement is the first the United States has signed with a regional bloc in the Western Hemisphere.

REVIVAL OF THE CENTRAL AMERICAN COMMON MARKET
Countries in the Central American region have recently renewed their commitment to create a successful common market that would operate to eliminate trade barriers within the region and to create a more competitive trade bloc. By combining their economies into a common market, the member countries would form a market with a population of 30 million and a GDP of $28 billion with which the United States and other nations would more readily conduct trade negotiations.

ANDEAN PACT COUNTRIES TO FORM A FREE TRADE AREA
In what has been described as perhaps the most important agreement entered into by the Andean Pact countries in the group's 22 years of existence, the presidents of the five member countries agreed to form a free-trade zone and a customs union among the member countries in December 1991. Under the agreement, effective January 1, 1992, Colombia, Bolivia, and Venezuela will create a free-trade zone. Ecuador and Peru will join six months later. A common external tariff on goods from nonmember countries ranging from 5% to 20% became effective January 1992.

The presidents of the Andean Pact countries have also indicated they would like to enter into similar agreements with the Mercosur countries, Mexico, and Chile.

During the course of the past year, the Latin American countries have undertaken significant steps toward the integration of their medium and small-sized markets into regional trade blocs. The governments of these countries expect to create an attractive investment environment for foreign investors by allowing the investors to sell their products to larger markets without having to establish operations in every country. As such, governments throughout Latin America have made an attempt to allow investors to avail themselves of the efficiencies associated with larger economies of scale and, thus, to obtain a better rate of return on their investments.

¹ While the Central American Market has not yet come into effect, a series of bilateral and multilateral agreements have emerged.
² Mexico, Venezuela and Colombia have also announced their intention to create a trilateral free-trade zone.
³ Prospects for negotiation of a free-trade agreement with the Mercosur countries seem positive.
⁴ Prospects for negotiation of a free-trade agreement seem positive.

CHALLENGE
The question is then can the North American needlepunch producers/suppliers effectively participate in these markets, and should they? The answer to both of these questions is a resounding YES. In fact, there are currently many North American needlepunch companies marketing, exchanging information, or starting joint ventures throughout Latin America.

There are numerous ways to export into these areas, via direct marketing, sales agents, distributors, import/export houses, or joint ventures. Direct marketing can prove to show the highest profitability, but can be difficult due to language and cultural obstacles, as well as the high cost of communications and market service.

One of the more common methods of entering a new market is through sales agents. With this method a company is generally dealing with an individual from the target country who is familiar with the firm's products. An example might be a company trying to export geotextiles working with an agent already marketing asphalt supplies or heavy equipment in the target country. These people generally work on a flat sales commission. One of the big advantages with this approach is that the North American company is marketing the goods virtually direct, with someone in that country for follow-up. In addition, the North American company can send technical delegates to visit customers directly, which helps build the relationship.

Another approach could be working with distributors. This is common practice with the apparel trade. The distributor purchases roll goods, adds a profit and resells them in the target market. This process is very safe, but it generally keeps the producer away from the end-user, which makes technical service virtually impossible.

Some business can be obtained through import/export houses, but the business is rarely consistent, and more often than not this involves dealing with a company that is schooled in sourcing and shipping, not in nonwovens.

Many companies have seen the potential in Latin America and have decided to form joint ventures, or partnerships with Latin American companies. One major U.S. automotive fabric supplier has recently formed such an operation in Mexico to produce the same quality fabrics for the cars being made there.

Regardless of which market is selected, one unfortunate reputation must be overcome. While the consumers of Latin America favor "Made in the USA" labels, the business community feels that U.S. industries dump substandard and off-quality goods in their marketplace. North America still has the big brother image, and while many countries and companies look here for technical expertise and guidance, it is now done cautiously.

CONCLUSION
Latin America will continue to grow and develop. They will overcome the learning curve as they adjust to open markets. With the ratification of the pending free trade agreements the future is very positive, and the expansion of the needlepunch market in Latin America will continue.

North American needlepunch producers/suppliers should begin to approach these areas now, before European and Japanese competitors can establish relationships. The Latin American companies are starved for real technical expertise, in both the roll goods producers and the end users area. Any company which can enter this market with high quality products and technical service, should be profitable with this venture in the long run.