Wednesday, May 23, 2018
Business

Three Tampa Bay multinationals know when to exit — not just enter — foreign markets

Globalization's in vogue but some of Tampa Bay's top multinational corporations still chose to pull up stakes recently and exit certain foreign markets.

Reasons vary. Companies like St. Petersburg electronics manufacturer Jabil Circuit, with more than 100,000 employees, open or close assembly plants around the world with surgical precision. The fate of a Jabil plant depends on what kinds of tech products customers want and what expertise each plant boasts. And it matters whether it makes cost sense to produce a product in, say, Italy (where Jabil downsized) versus Mexico (where Jabil's expanding).

Tampa call center outsourcing firm Sykes Enterprises recently opted to exit Ireland and South Africa, and sell its operations in Spain. Why? Demand for certain overseas call center services changed amid a recent merger and during the severe recession.

And Clearwater's Tech Data Corp., a major IT distributor in 100 countries and Tampa Bay's biggest public company (by revenues), pulled a recent surprise when CEO Bob Dutkowsky decided to exit Brazil — despite its being one of the hotter "must be there" economies among up-and-coming nations.

Tech Data's departure from Brazil — at a cost, along with Colombia, of $28.3 million to write off two subsidiaries — could make a case study for business schools. The company has dropped hints for years that for all of Brazil's high growth and demand for technology products, the business climate remains frustrating.

Tech Data decided to enter Brazil in 1997, opening a Sao Paulo facility as the company's first direct investment in Latin America. The move was prompted, in part, by a customer facing a high piracy rate (reproducing illegal copies) of software products.

Even then, Tech Data clearly knew the challenge of the Brazilian market. Former CEO Steve Raymund said 15 years ago that about 70 percent of computer sales there came through illegal channels because protectionist economic policies kept legitimate imports out of the country.

At the time, Tech Data reasoned it needed a presence in Brazil in case the country liberalized its trade laws. That could have put the company at a disadvantage had it continued to serve Brazil from its Miami distribution site.

But by 2003, a Tech Data vice president complained of competing in Brazil where the country continued to impose high taxes on computer imports while tolerating a gray market of tech products sneaked in from nearby Paraguay to avoid import taxes.

"It's just very hard to deal against the appropriate and the inappropriate" in that market, Tech Data chief financial officer Jeff Howells explained earlier this year at an investor conference.

Earlier in fiscal 2011, a Brazilian appellate court ruled against Tech Data's Brazilian subsidiary regarding the imposition of certain taxes on payments abroad related to the licensing of commercial software products, commonly referred to as "CIDE" tax.

Translation? If you play by the written rules, it's easy to lose to those who don't.

Corrupt? Tech Data tries to avoid that word but it does describe Brazil's market.

As successful Tech Data, Sykes and Jabil can attest, leaving a foreign market can be as key to the bottom line as entering one.

Contact Robert Trigaux at [email protected]

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