APPAREL

By JONATHAN KARP
Staff Reporter of THE WALL STREET JOURNAL

Tiny Firm Exporting Fatigues
Holds Key to Brazilian Future

DIVINOPOLIS, Brazil -- Before the war in Iraq, few people in this textile hub had any idea what was being hauled by the truckload from a former tobacco warehouse here. Then it emerged, to the dismay of some, that a fast-growing upstart company named Peeky was making military uniforms for the U.S. The biggest revelation, though, is that the company is exporting anything at all. In fact, Peeky is entirely devoted to exports, unlike most of the 2,000 other garment makers in this central Brazilian city -- and at a time when inward-looking Brazil needs the dollars that exports bring to stabilize its massive debt. Run by the ambitious 42-year-old entrepreneur Luis Carlos Faria, Peeky -- incorporated in the U.S. but with its production base in Brazil -- is generating jobs and setting an example for small companies. If they follow it, Brazil could become a trading powerhouse. "I want to introduce companies that never dreamed about exporting to the reality, the possibilities," says Mr. Faria. Contracts with a U.S. distributor, including some Army sales, and with the militaries of Guatemala, the Dominican Republic and Chile will quadruple Peeky's revenue to $4.1 million this year. Mr. Faria expects 2004 sales of around $10 million -- more if deals with South Africa, Russia and France come through. "Small companies are the answer," he says.
Brazil faces a formidable test in establishing its trade credentials, a priority for its president, Luiz Inacio Lula da Silva. Thanks to a depreciating currency last year, which makes exports less expensive, and to weak domestic demand, Brazil now is amassing a trade surplus, easing financial pressure on the government. With the currency rebounding smartly, two questions arise: Are Brazilian products still competitive? And can an export culture take root among entrepreneurs? As in many countries, big corporations dominate Brazil's main exports: minerals, farm products, airplanes and steel. The new leftist government is wheeling out credit and incentives for smaller producers crucial to export industries such as textiles, footwear and leather goods. Overall, companies with fewer than 500 employees account for 30% of Brazil's exports by value, down from 35% in 1997. Cities like Divinopolis, in Minas Gerais state, could help reverse that trend. In a study three years ago, consulting firm McKinsey & Co. identified Divinopolis as a potential engine for clothing-industry growth. Yet exports still aren't a priority. Waldemar Raimundo Manoel, president of the local garment makers' association, says that of the metropolitan area's 2,000 or so clothing factories, 900 of which are officially registered, fewer than a handful export. "The culture doesn't exist yet," he says. Mr. Faria believes that instead of demanding a reduction in taxes that erode labor and production cost advantages, Brazilian entrepreneurs need to cultivate a mindset that focuses on foreign-market demands for style, quality and quick, reliable delivery. For its part, the government needs to remove mind-boggling bureaucratic hurdles, as Mr. Faria learned in trying to help Divinopolis entrepreneurs. In one case, a women's fashion manufacturer had a contract from Portugal but couldn't ship because state-owned Banco do Brasil SA delayed processing her export-account application. Mr. Faria agreed to facilitate the deal through a Peeky account. The next hitch came when Banco do Brasil insisted that the documentation be filed in English, even though the deal was between two Portuguese-speaking countries. It's a different story for Mr. Faria, who has 25 years of experience exporting everything from pig iron to shoes. For Peeky's "Borderline-Special Force" brand of battle-dress uniforms and accessories, production was 20,000 pieces a month in 2002, Peeky's first full year of operation, and will rise to more than 50,000 pieces a month this year. Half the output, made by 11 subcontractors, goes to the U.S., where the products are marketed by Bell/Ranger Outdoor Apparel, of Augusta, Ga. Most items are sold to civilian retailers, not the U.S. armed forces. But all fatigues and military jackets are made to Pentagon specifications, giving Peeky market credibility -- and, in a country that lambasted the U.S. for waging war on Iraq, sometimes an undeserved taint, Mr. Faria says. A street banner signed by Divinopolis's city council reads: "For peace! Against Bush's war!" Every seamstress interviewed at two factories producing for Peeky opposed the war, but justified the job as a legitimate livelihood. Export-quality fatigues are "harder to make than jeans," adds 21-year-old Fatima dos Santos, savoring her first job in four years, "but thank God we have work." Mr. Faria says that he isn't happy about the invasion of Iraq, and he dismisses any suggestion that it fueled Peeky's sales boom. "We're in business, not politics," he says. "If there is a market opportunity, we go for it, but we're not involved in the war." Mr. Faria is cut from a different cloth than his hometown peers, who prefer Divinopolis's proven formula: jeans and polo shirts for the vast Brazilian market. He stumbled onto the idea of army fatigues after trying women's fashion (too fickle) and men's jeans (too common). Waiting to meet a garment importer in Richmond, Va., Mr. Faria struck up a conversation with another salesman, who mentioned battle dress uniforms. Sensing a natural fit for workers' skills in Divinopolis, Mr. Faria canceled his meeting and drew up a new business plan.