As a subsidiary of the world's top producer of diesel engines, it's no surprise that Cummins Brasil is leading the way in Brazil. Michael Sommers takes a look at how the company's vanguard approach and sustainable vision are allowing it to take advantage of the country's booming economy while having a positive impact upon the environment – and the future.
Cummins is celebrating its 40th year in Brazil in monumental style. In 2010, the world’s leading manufacturing of diesel engines had a record year. Globally, it experienced spectacular rates of growth (46 percent) as its output increased from 609,000 to 887,000 engines and revenues climbed 23 percent, from US$10.8 billion to US$ 13.2 billion. Mirroring the company’s global performance, Cummins Brasil saw revenues grow by 10 percent while production levels soared. Its output of 96,000 engines represented an increase of 57 percent over 2009 figures. At its current rhythm, it’s a cinch that the company will surpass 105,000 engines by the end of 2011. After all, Cummins is operating in one of the hottest markets on the planet.
A NEW ERA
“We’re living through a new era in Brazil right now,” declares Luis Chain Faraj, executive marketing and customer engineering manager of Cummins Brasil. “In the last couple of years we’ve been seeing not just the usual speculation, but real investment from companies who want to install themselves here permanently and contribute to Brazil’s ongoing sustainable growth.”
Spurred on by the 2014 World Cup, the 2016 Olympic Games, the exploration of Brazil’s pre-salt oil reserves, and major government spending on infrastructure, Faraj believes Brazil is poised to experience unprecedented levels of growth that will change the entire structure of the country. Roads, airports, ports and railroads will all need to be developed. Meanwhile, civil construction will continue to boom. One sure consequence of all this expansion is that there will be a big demand for the engines required to literally drive this progress; engines for trucks (which transports 60 percent of all cargo in Brazil), buses, and construction vehicles such as bulldozers – all of which are manufactured by Cummins.
Although the diesel engine market is an extremely competitive one – “There are at least a dozen foreign companies who have tried to enter the marketplace this year,” confesses Faraj – Cummins’s four decades in operation give it a major competitive advantage. Longevity has allowed the company to build a solid structure while accumulating experience and fostering relationships that have been invaluable in its gaining a leadership position in the Brazilian marketplace.
Interestingly, in 1971, when the U.S.-based Cummins first set up shop in Guarulhos, a satellite city on the outskirts of São Paulo, the company was not at all interested in servicing the domestic market. Initial activities focused on the production of engines for off-road vehicles used in construction (bulldozers, backhoes) and agriculture (tractors, combines, sprayers) as well for makers of energy generators, all of which were located overseas. It was only in 1986 that, driven by a new global vision in which the company’s subsidiaries were to focus on local markets, Cummins Brasil actually started supplying products to Brazilian manufacturers. This decision coincided with the company’s expansion into the automotive segment and resulted in the launching of its lines of C and B engines for trucks and buses.
“TWO GENERATIONS AHEAD”
Throughout the ’90s, Cummins consolidated its presence in the marketplace, but with the dawn of the new millennium, it moved into the vanguard, expanding into new markets and unleashing a series of cutting-edge products with an increasing emphasis on environmentalism and sustainability. In 2000, the company was the first in Brazil to launch a generation of pioneering electronic engines for Ford. That same year, in response to an energy crisis that left the country faced with crippling shortages, Cummins began manufacturing, selling, and renting generators.
By 2004, the company had gone one step further by becoming a full-fledged Independent Power Producer (IPP). Aside from providing efficient, clean, state-of-the art diesel and natural gas engine generator systems, it began supplying project management and financing. Since then, Cummins has always maintained a position far ahead of the pack when it comes to emissions standards.
“In 2003, when Brazil adopted Euro 3 emissions standards for electronic engines, Cummins understood that it would be interesting to apply these standards to niches not yet covered by the new legislation,” says Faraj. “Along with the electronic engines, we rolled out a new line of mechanical engines geared to lower powered, lower priced lightweight trucks. This was something that didn’t exist on the market, but we wanted clients with less disposable income to be able to afford new, sustainable technology.”
In the same pioneering vein, in 2006, the company began producing new engines for off-road vehicles, including tractors and combines, which would meet Tier 3 standards. Despite the fact that such standards aren’t in vigor for off-road vehicles in Brazil, the move made sense viewed the fact that many of Cummins’ clients export their products abroad. In 2007, the company took another major step forward when it inaugurated a new Emissions Solutions facility. More recently, it added a Filters division. Unsurprisingly, it is now the market share leader of emissions solutions for medium- and heavy-duty trucks.
Today, the company is actively engaged in pushing to get new standards adopted in Brazil. Luis Chain Faraj himself is personally involved in a project that aims to create legislation for the off-road segment. “When these emissions standards take effect, in 2015, we’ll be ready with new products that incorporate electronic technology and run on bio-fuels, which are very well developed in Brazil,” he confesses. “As it is, by law, engines must run on a combination of pure diesel and bio-diesel (the current ratio is 95 percent to 5 percent). However, we’re already producing engines that run on a ratio of 80 to 20 percent. In terms of sustainability, we’re always two generations ahead.”
KEYS TO SUCCESS
Based on market share, Cummins Brasil has certainly succeeded in staying ahead of the competition. The company is the Number One supplier of diesel engines to both the truck segment and the civil construction segment, with 37 and 35 percent of market share, respectively. It’s also a leader in the agricultural segment, where it has a 21 percent share of the harvester market, the marine segment (10 percent), and the mining segment (40 percent). Other markets such as oil/gas and rail are smaller in terms of sales volumes, but high in terms of profitability due to the added value component. Explains Faraj: “Along with the mining and marine segments, these industries rely on large equipment that requires high powered engines. Not only are the sales of products themselves important, but so are the post-sales service contracts.”
The company’s performance is all the more impressive when one considers that many of its competitors are manufacturers – such as Mercedes and Scania – that not only produce their own vehicles, but their own engines as well. “We’re different in that making engines is our core business and all our resources are focused on this,” points out Faraj. “Globally, we produce over 1 million engines every year. Our capacity allows us to produce great volumes and export them anywhere in the world at competitive prices.”
Cummins’ solid reputation and global clout, its large production scale and embrace of up-and-coming technologies are certainly impressive, but they are only part of the reason for the company’s success. Faraj credits the company’s leadership status to its focus on people. “Our motto is ‘We do what we say we do,’ and if we say it’s going to happen it does,” declares Faraj. “The reason we can make such a claim is because of the professionalism of our suppliers – and our employees.”
Faraj believes that what really distinguishes the Cummins workforce is its remarkable, and intentional, diversity. Not only do Cummins’ 1,900 employees hail from a wide variety of backgrounds, but with the aim of developing their talents, they’re also encouraged to do a wide variety of tasks. “Since I began here in 1988, I’ve worked in many different departments. If I want to, I can even work at Cummins China,” confesses Faraj. “By the same token, we have many people from around the world who come to work here in São Paulo. As a consequence, there is a constant exchange of ideas and experiences that keeps us very dynamic.”
“Technology is very important, but many of our competitors have good technology as well. The truth is that these days technology is a commodity. The reason we are a market leader is because of people,” stresses Faraj. “It’s people and how they operate that is the real key to running a successful business.”