SAO PAULO, Brazil - General Motors selected the family-owned supplier Sabo for one of its 173 Supplier of the Year Awards. Sabo got the award for a combination of quality, service and price.
The quality award is deserved: Sabo has not shipped a defective seal in 10 years. It in its small factory, rows of workers sit at benches covered with piles of newly manufactured oil seals. Every one is checked.
As a family-owned firm Sabo has a problem. It was one of 12 South American suppliers to win a GM award this year. But it can no longer rely on cheap labor to compensate for a lack of technology. The company makes oil seals, gaskets and hoses.
Until recently, Brazilian suppliers were shielded from international competition by Brazil's protectionist import barriers.
Now, those barriers are coming down. Over the past five years, dozens of uncompetitive Brazilian companies have been acquired by multinational competitors.
Sabo has decided to fight it out. In 1993, Sabo purchased KACO GmbH, Germany's second-largest seal maker. The acquisition gave Sabo access to world-class technology. Equally important, Sabo gained access to Opel's product engineering center.
Sabo also expanded into the North American market. It gained customers such as American Axle, Dana Corp., Delphi Automotive Systems and Ford Motor Co. So far, Sabo has prospered by exporting components to North America.
But Sabo's next move will not be easy, said Newton Chiaparini, a member of Sabo's board of directors.
Eventually, Sabo will have to build a plant in North America, he said. 'When we talk about US sales volumes, we become nervous. But we believe we will have to build a plant in the US or Mexico.'
Sabo has financed its expansion from its internal cash flow. Last year, sales totalled $250 million and Chiaparini expects sales to grow 10 percent this year.
'We financed everything with our own resources. We have no long-term financing. This is a big problem in Brazil. We are at a real disadvantage,' Chiaparini said.
Because it is a private company Sabo has had the freedom to reinvest much of its profits in a modernization drive. Sabo has purchased machines to handle some of the quality inspections now performed by workers.
Labor is cheap, but not always as reliable as a machine. Wages are around $3 an hour, with a further $3 in benefits.
But to keep up with competitors such as Federal-Mogul Corp. and Freudenberg-NOK, Sabo cannot simply hire more quality inspectors. This would be 'a dangerous solution,' said Eurizio Pallavidino, Sabo's director of engineering. 'We need to automate.'