Rockwell: 'We are moving to have redundant, alternative value chains'

Bnamericas Published: Friday, October 07, 2022
Rockwell: 'We are moving to have redundant, alternative value chains'

The energy transition, the redistribution of production processes, and long-term industrial and strategic public policies are the main elements shaping the business of Rockwell Automation in Latin America.

A key global industrial automation player, the company focuses on the oil and gas, food, mining, auto industry and pulp and paper sectors at the regional level. The Wisconsin-based company’s global strategic plan involves a goal to reach US$1bn of annual revenues by 2026. 

In this interview, Gustavo Zecharies, Rockwell Automation’s Latin America VP, talks about the demand for automation, as well as the impacts of supply chain woes and economic headwinds.

BNamericas: How well are Rockwell's operations in Latin America? What have been the general impacts of industrial digitization in a challenging macroeconomic scenario?

Zecharies: We are coming out of a couple of years marked by various situations. The first thing was the pandemic, that has changed our way of thinking. Not just the way we work, but the way our clients work. This first brought a lot of business opportunities on our side, because there is a renaissance in the need for our clients to digitize their operations.

This is something that we have been 'evangelizing' about for years within our community of clients. A need for customers to connect remotely, to see their assets running, to be able to move up to levels of control where they are less dependent on variations in manpower and headcount.

So that has definitely brought, of course, with all the negative things that a pandemic brings, a new level of prioritization on the part of the clients with things that we see as important for the evolution of the industry in general.

Second, the situation we have with the supply chain. Rockwell, like all companies in our segment, uses chipsets and uses the entire capacity of the global supply chain to be able to distribute products. And I am not going to deny that it has been a negative element for our company.

All technical companies have had to rethink their value chain in order to reach customers efficiently. This has enormously increased the stress of our work, project, product delivery teams and which has been something that has marked us.

But we are convinced that this is going to make us, when we come out of this crisis, much stronger. We are going to have redundant, alternative value chains. Things we didn't have before.

BNamericas: And the macroeconomic headwinds?

Zecharies: Several governments have changed in the region. And as you know, globally, we have a democratic process that tends to change quite radically between governments on the right and governments on the left. 

Governments in Latin America have a much greater hand over the economy and over the industrial development of countries than in North America.

The government changes and from one day to the next we work only with oil or not, we work or not with hydrogen, etc. There are things that radically change in governments that have demanded us to greatly streamline and adapt our focus.

In other words, I can't have a five-year plan for what type of industry I'll be working with because things here change much more quickly.

So those three points, the supply chain, COVID-19 and the macro geopolitical changes that we have in the region have made these years very ... interesting.

That said, we have grown very well in recent years. I'd say that this year we are going to end up with 17% growth in our sales, year-over-year. This is the second year where we have had double-digit growth in the region.

We have a five-year growth plan that we started two years ago, and that requires us to double our business by 2026, so we can reach US$1bn in sales in our group by then. Just on automation. And we have supported this with five-year strategic growth plans per country.

BNamericas: When do you expect supply chain normalization? Is it possible to make such a prediction?

Zecharies: It is very likely that, with the interest rates and inflation that we see throughout the world, consumption will drop. There's no other way.

So a drop in demand will somewhat accommodate the huge backlogs that exist globally and this will return to a supply-demand balance that will more or less get us out of this crisis. But it sure isn't what we want.

In the event that there is no recession, that interest and inflation have no effect on demand, it will probably take a year and a half, two years, for that to settle. 

If there were to be a recession, in about 12 months from now we would return to a supply-demand balance.

In Latin America, this has a different impact. If we study all global recessions, Latin America tends to fall into recession one year after one breaks out in North America and Europe.

Because we have the effect that commodities we sell here in the region tend to lose their value a year after a recession starts on the other side. So I see 2023 as still optimistic about what is going to happen here in Latin America. This is one of two effects.

BNamericas: What is the other one?

Zecharies: The second effect is that given the difficulties we have in bringing manufactured products from China, all global companies are thinking about creating alternative sources of distribution. Chips, labor, everything.

Latin America tends to be on the side of the friends from a political point of view. Mexico, Brazil, Colombia have established trade agreements with the US.

So it is very likely that we will see the long-awaited effect of reshoring, or friend-shoring, or nearshoring. Companies are going to think about bringing their manufacturing capacity [here] instead of doing it in India and China, which today are more aligned with Russia, for example. They are going to start thinking about Mexico, Brazil, Colombia. About Puerto Rico, Argentina, Chile.

Because here there is the time zone, we have capable people, manufacturing capacity, and labor that is less expensive than in North America.

So I think that the long-awaited promise of nearshoring will begin to be realized over the next few years and this would also have a positive impact in Latin America.

BNamericas: But aren’t there limits like the incomplete verticalization of manufacturing chains in Latin America?

Zecharies: Yes and no. I believe the difficulty is not a problem of capacity but of the political will of governments to put in place all the means for the plants to come. 

In other words, we have to become attractive to foreign investment. It is something that is on the agenda of all governments. And [we need] an inter-American trade plan between the different countries.

It is very likely that, if Brazil wants to trade with Paraguay, it will actually have an easier time doing so with the US or Canada than with its neighboring market.

I think we must think better about inter-American free trade agreements. So that I can, for example, think of chipsets, have the electronic part in Paraguay, the mechanical part in Brazil, finish the product in Colombia and take it to the US. We are years away from this to happen, but I believe the beginning of this process is now.

BNamericas: How do you evaluate polarizing events like the elections in Colombia, Chile’s constitutional process and Brazil’s elections, which also often generate profound change?

Zecharies: In general, we see in Latin America the balance between protectionism and openness. This pendulum tends to complicate things a bit in the long run. 

Of course, you have to encourage the local economy and industry. But we must also be aware that the local industry is greatly influenced by the competition and the capacities general industries get to establish in the countries.

As long as there are governments that understand that foreign investment brings capacity, brings local competitiveness, and that have laws to protect national industry, as long as this balance is kept, I think things will go very well.

Now when enormous taxes are imposed on everything that is imported in terms of sub-parts, that ends up affecting the local economy. But there are other aspects too.

BNamericas: Which ones?

Zecharies: Many countries are committed to educating their people, the so-called orange economy. To export not brains, but services with local capacity. 

Colombia does this very well. Uruguay presents itself very well there too, Costa Rica presents itself very well. They promote themselves as countries that want to export intellectual capacity.

I think we should be proud of the education that we see here throughout Latin America, especially the education on the technical part, and our governments should capitalize on that capacity.

But returning to the question, of course, new governments bring a lot of change from the point of view of taxes and public opinion and all this. But this happens more than anything on the political side. On the industrial side, in automation, things generally remain in a certain center, despite some impacts on costs, taxes.

Now, those political changes have an effect on the adoption of new industries, as I mentioned before.

For example, to talk about Brazil, there is a great movement to explore new areas in everything that fits sustainability. Brazil is one of the countries in which I have seen more adoption of the possibility of making green hydrogen and being able to export it.

Depending a little on the political tendency of the countries, there is more investment in things that are a little more progressive and there are others where a little more traditional industry is preserved and protected. Oil exploration, pulp and paper, etc.

Perhaps one industry gets to be supplanted by another in due time, but the capacity, the amount of activity remains constant regardless of the political trend of the countries.

BNamericas: What are your main markets and segments? Have you seen any change, a new segment standing out?

Zecharies: The food and beverage industry, the entire oil and gas part, the mining part, pulp & paper, the automotive industry. Those are the usual suspects, where we [are] very present.

But what we are beginning to see on the horizon is above all the part of sustainability. We see many companies today in the oil sector that are beginning to establish alternatives to be able to create energy. I think this is going to mark a bit how we are going to move.

And with this we are going to see electric cars. With electric cars, we are going to need lithium and copper, which also brings the need not only to make electric motors for cars but also to bring the entire electrical network to your home so that you can correctly charge your electric car in the future.

This is going to create and change the copper industry, the motor industry, a whole transformation that is going to employ a lot of people and is going to give us a lot of opportunities so that we can carry our activities into something a little more sustainable. I think we'll see enormous opportunities with that.

BNamericas: And in terms of countries?

Zecharies: There is a bit of everything. Today, for example, countries like Ecuador are surfacing as a place that opens a little to the markets, that establishes new policies and that generates new investments.

Countries like Puerto Rico in everything related to the development of pharmaceuticals, which is another country that is carrying out a lot of development from an industrial point of view.

So I would tell you that there is great diversity throughout the region. I cannot set a trend that tells you this is going to happen in this or that country specifically. 

There is a status quo in Mexico, probably a change in Brazil. We must wait to see the new government in Argentina as well. 

We continue in Chile with great demand for everything that Chile does, all the mining part. We're probably going to spend our whole lives and we're still going to continue consuming copper.

BNamericas: How prominently figure investments in Latin America in the 2026 plan?

Zecharies: The numbers are things we try to keep confidential. But more than investments, what we see is a diversification of our activities.

We are going to have to work, for example, on government connections to understand precisely the investment we are going to have. If we know that, say, Peru wants to invest in energy transformation, the fact that we have that knowledge will allow us to react and better position ourselves where we will make these investments. 

Another point is the issue of education, the orange economy, as I mentioned.

With industry 4.0, 5.0, we're going to have to transform numerous people who were previously working on the manufacturing to service, programming, and the design side of these kinds of capabilities.

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