Footloose capitalism

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Sep 11th 2008 | DONGGUAN
From The Economist print edition

China’s largest Brazilian community enjoys the benefits of globalisation


IN DONGGUAN, a city of some 7m people situated 90km (56 miles) north of Hong Kong, factories abound producing everything from furniture to car parts, helping to fuel China’s economic boom. But take a closer look and you may spot something rather less familiar: a thriving community of Brazilians, estimated to number 3,000, most of them working in the footwear industry.

They trace their roots to southern Brazil, which was the bustling centre of their country’s shoe-export business until the early 1990s, when a sharp reduction of Brazil’s trade barriers, an appreciating currency and pressure from cheap Chinese labour combined to cause exports to stagnate. In 2007 Brazil exported 177m pairs of shoes, 12% below the early-1990s peak of 201m. Many firms that survived moved north, to parts of the country where labour costs less. Meanwhile China powered ahead, with its share in world shoe exports, already the largest, doubling to two-thirds over the same period. Dongguan is now China’s footwear capital, exporting 600m pairs a year. And many more are made elsewhere in China on behalf of Dongguan firms.

Chinese firms undermined Brazilian producers at the cheaper end of the market, thanks to the abundance of cheap labour, but the know-how and craftsmanship needed to make fancier shoes were in shorter supply. This encouraged a slow trickle of skilled Brazilian production controllers and sewing technicians, some armed with advanced degrees in tanning, to cross the ocean to hawk their skills and knowledge to Chinese companies.

Ricardo Correa, the owner of Paramont Asia, which sold more than 35m pairs of ladies’ shoes last year, moved to China in 1995, prompted by the combination of price pressures in Brazil and a shortage of skills in China. His firm takes design specifications for shoes from its customers and then manages product development and quality control in factories in China (and now in India and Vietnam, too). Most of the resulting shoes are then shipped to America. Of Paramont’s 800 employees, 100 are Brazilian, and day-to-day business is conducted in English.

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Brazilians in other professions have followed the shoe specialists to provide supporting services, such as running restaurants or teaching their compatriots’ children in Portuguese. Dongguan’s Brazilian community is now China’s largest, twice the size of Shanghai’s and almost triple the size of that in Beijing. Brazil’s foreign-affairs ministry plans to open a consulate in the nearby provincial capital, Guangzhou, this year so that it can serve its citizens better. In the past two Brazilian presidential elections, a polling station was even set up in Dongguan—a novelty for local Chinese.

The Brazilians seem to have adapted well to life in China. They observe that crime rates are lower than at home, and they can earn higher salaries than local workers or their counterparts in Brazil. “The more I go back to Brazil the more I like China,” says Ari Filipini, another Brazilian who works at Paramont.

But the march of globalisation continues, and it is now putting pressure on Dongguan’s factories to cut costs. Some shoemakers are shutting factories and moving further inland or to cheaper parts of Asia. For firms like Paramont, which are already farming out production to distant factories, this is not yet a big problem. But the Brazilians moved once before, and they could always move again.