In Brazil, a Jungle-Bred Startup Stirs Free-Trade Rage

  • Transire’s breaking with the country’s costly production
  • Amazon forest disrupter aims to take over POS terminal market

Through this door, the Brazilian executive promised, was a vision of China.

The factory floor in the midst of the Amazon rainforest didn’t quite resemble the hypercompetitive nation, with two assembly lines occupying about half the available space. It was more like China-lite. But it doesn’t much matter. It counts as China in Brazil when a small, young company like Transire Eletronicos is disrupting the $350 million market for credit card swiping machines dominated by VeriFone Systems and Ingenico Group.

Transire factory

Photograph by Sebastian Liste for Bloomberg Businessweek

Transire is breaking with Brazil’s overpriced and inefficient reputation by offering goods at a much lower price, said Cristiano Porto, chief operating officer of the operation, who had giddily unveiled what he had billed as China.

Its rivals aren’t happy.

Transire’s costs are lower given its location in the Free Trade Zone of Manaus, a city that is the only one of its kind in Brazil, and smack in the middle of the jungle. The company, also benefiting from the nation’s worst-ever recession forcing clients to seek cheaper terminals, is working over the competition in a country that the World Economic Forum ranks 128th of 138 in terms of goods market efficiency, and 135th for imports as a percent of GDP.

Those getting worked over are crying foul. Brazil’s electronics association, Abinee, is alleging the company’s imports may be exceeding the free-trade area’s limit. Porto says some 75 percent of material comes from China, below the upper bound.

“That’s just the desperation of those who are losing market share," Porto said. "We have the government’s findings that prove throughout Transire’s existence all requirements were fully attended to."

Brazilian-Chinese

While not quite Chinese, Transire does have a partner in PAX Global Technology, a Hong Kong-listed company. It sells point-of-sale terminals to Brazilian payment processors including Cielo, Redecard and PagSeguro in a nation where millions still lack access to formal banking.

The availability of factory workers in the industrial hub is helping Porto speed up expansion. The company recently hired 40 people in two days, and would need just two weeks to swell its ranks by 400 people from about 900 at the factory currently, if, as Porto hopes, is soon needed. On a mid-July day, workers in navy uniforms and earplugs plucked Chinese bits from a slow-moving conveyor belt, fastening them, blasting them with airguns and testing finished terminals.

Abinee, the association railing against Transire, said it called for the investigation to possible violations that may create unfair competition. It has separately requested that three federal ministries intensify supervision of local production rules for the manufacture of credit card machines.

There’s a lot at stake for Ingenico, Verifone and their local producers -- all members of Abinee, unlike Transire. Ingenico and Verifone accounted for about two-thirds of terminal sales by total value last year, according to market intelligence firm ABI Research. Their factories are located in Sao Paulo and Minas Gerais, which have the benefit of being centrally-located, but offer little fiscal incentive. Ingenico said it doesn’t comment on competitors. Verifone declined to comment.

Growing Sales

Transire expects to increase sales this year, doubling last year’s to 2 million, Porto said. The number of point-of-sale terminals companies shipped nationwide was 2.3 million in 2016, according to ABI research. Ingenico shipped 800,000 terminals in Brazil last year, and 450,000 in the first half of 2017, according to Eduardo Cataldi, the company’s Latin America vice-president of finance. Barclays Plc payment analyst Darin Peller expects Verifone’s fiscal 2017 revenues for Latin America to be roughly flat versus last year, when they were $248 million.

“Internationally it’s just gotten more competitive from PAX and other players that are smart terminal manufacturers,” Peller, a managing director, said by phone. “Only catch is that PAX is starting off from a much smaller base, so it has potential to gain market share, but in a potentially shrinking market for what they have to offer."

Legacy hardware like the terminals are losing ground to smart systems, like Square Inc and tablet-based providers like First Data Corp and Poynt Corp that sometimes do away with swiping altogether. Verifone and Ingenico have begun offering tablet-based systems, as well, Peller said.

Suframa, the government administrator of the Manaus industrial hub, will send a response to Abinee once its investigation is complete, according to a statement from its press office. Suframa said 2017 inspections show Transire complying with all legislation.

Exporting Transire’s machines is “the next natural step,” Porto said. The market for point-of-sale terminals in Latin America was worth $553 million in 2016, according to ABI Research.

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