PORTO ALEGRE, Brazil — Exactly 100 years ago, a German immigrant named João Gerdau bought a small, struggling nail factory here. Today, that company, now run by four of his great-grandsons, is one of the fastest-growing steel producers in the world — and the envy of every Brazilian corporation eager to establish an international presence.

No matter that steel is a perpetually troubled industry all over the world or that Metalúrgica Gerdau S.A. (news/quote) is still based in this state capital of about 1.5 million in the extreme south of Brazil, far from the country's industrial heartland. By shopping abroad for bargains with the same tenacity it has always shown at home, Gerdau has been able to transform itself into a global business — demonstrating how once-obscure companies from emerging nations like Brazil are becoming increasingly important on the international economic stage.

"This is an agile, aggressive group that throughout its history has shown an ability to rapidly identify and exploit opportunities," said Germano Mendes de Paula, a professor of economics at the Federal University of Uberlandia and an expert on the Brazilian steel industry. "They are a company with a high degree of specialization, but they have always been pioneers."

Worldwide, Gerdau has 12,000 employees, operates in six countries and produces more than seven million tons of steel a year. The company's growing international profile includes four mills in the United States, where in 1999 Gerdau acquired AmeriSteel, the second- largest producer of reinforced steel bars in the American market.

"We started with a regional focus and then went searching for a national position," Jorge Gerdau Johannpeter, the company's president and chairman, said in an interview here.

"Once we achieved that," Mr. Johannpeter said, "we came to the conclusion that if we wanted to maintain our focus in steel, we had better seek an international position because the world was already moving toward globalization and more open markets, and we couldn't afford to be left behind."

The Brazilian steel industry, whose annual production of 25 million tons makes it the eighth largest in the world, was created with United States aid during World War II to help supply the Allied cause. Gerdau entered the business in 1948, after earlier trying manufacturing ventures in areas like furniture.

Over the next three decades, the company grew gradually, snapping up the factories of domestic competitors farther north and building new plants in its home region. Its focus was always on "long steel" products, which are used in the construction industry, and items like rods, barbed wire, and, yes, the humble nail that gave the company its start.

Traditionally, Brazilian companies have been so captivated by the potential of their nation's huge domestic market that they paid little attention to the world outside. But Gerdau's managers have always been quick to adopt foreign innovations, as one might expect of an immigrant family that has maintained its ties to relatives in Hamburg and New York.

"My father was born abroad and was director of a German bank, which means he inspected all the branches here in South America," said Mr. Johannpeter, who spent part of his childhood in Buenos Aires and, in addition to Portuguese, speaks English, German and Spanish. "So he had an internationalized mentality, open to the most modern management and financial technologies of the time. That was very much a part of our culture and upbringing."

From the beginning, for instance, Gerdau operated with a mini-mill system that had proved successful elsewhere, deliberately avoiding larger integrated plants, which require bigger investments and are less flexible, so it could decentralize its production and put its factories closer to both markets and the sources of raw material.

That way, the company was able to capitalize on the enormous natural competitive advantage that Brazil enjoys in steel production.

"Economically, there are few places in the world where it makes sense to be producing steel," said Mauricio Reveco, Latin American steel analyst for Salomon Smith Barney in New York. "Brazil is one of those places, though, and the reasons are clear: you have cheap iron ore, labor that is less expensive than in the United States or Europe, and abundant energy sources."

But in Brazil, too, there are limits to growth, and when Gerdau began to look outside the country with the intention of becoming an international producer, it sought a steady but measured expansion. The process started in 1980 with the purchase of a small company over the border in Uruguay, and accelerated with the acquisition of mills in Cambridge, Ontario, in 1989 and Winnipeg, Manitoba, in 1995.

Along the way, Gerdau also established footholds in Argentina and Chile in the 90's through the acquisition of producers there. But the company's most prominent venture came in 1999, when it entered the United States market in a big way by acquiring a 75 percent interest in AmeriSteel from Kyoei Steel of Japan for $272 million.

The AmeriSteel transaction increased Gerdau's overall output more than 50 percent, tripled its production outside Brazil and raised the company to the 25th-largest steel producer in the world from the 46th, according to rankings compiled by the International Iron and Steel Institute. It was also in 1999 that Gerdau's American depository receipts began trading on the New York Stock Exchange. [On Wednesday, they closed at $6.50, up 24 cents.]

With the downturn in the world economy, Gerdau's expansion overseas has proved to be a double-edged sword. Brazil continues to grow, albeit more slowly.

But with nearly half the company's production now taking place abroad and with a glut of steel and slumping demand having led to declining prices, analysts warn that Gerdau is more vulnerable than in the past to market fluctuations.

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(From: New York Times, 30/08/2001)