THEY may be the exception rather than the norm, but Latin America is clearly capable of producing world-class companies. Embraer, set up in 1969 as an aspiring national aircraft-maker by Brazil's military government and privatised in 1994, has since established itself as the world's third-largest producer of commercial jet aircraft and the market leader in jets with 50-120 seats.

To do so, it has had to be nimble. Its first commercial jet, the 50-seater ERJ-145, sold mainly to North American regional airlines keen to skirt union restrictions on the crewing of larger planes. With its bigger E-170-190 range (of 70-122 seats) the company broke out of that niche, finding customers among many of the world's main airlines. In 2002 it set up a joint venture in China to manufacture the ERJ-145. It is now building factories in Florida and Portugal.

The recession has hit the aircraft industry hard, and Embraer has not been spared. It has gone from assembling 14 E-jets a month to just eight, and has mothballed one of its three production lines. Revenues last year fell by 14%, to $5.5 billion, and more than a quarter of the company's workforce was laid off, bringing it down to 16,800. Embraer also faces growing competition. As well as Canada's Bombardier, a long-standing rival, this will soon include companies from Russia, China and Japan that are developing small commercial jets.

But Frederico Fleury, Embraer's chief executive, reckons his reliable commercial jets with their established brand will be hard to beat and can win new orders for routes currently being flown by bigger planes. Rather than develop larger aircraft of its own, which would pit it against Boeing and Airbus, the company is diversifying in other ways. The rise in the oil price has made the ERJ-145 uneconomic, and Embraer will shut its factory in China next year unless it secures an agreement to make the E-190 there. At its main factory at São José dos Campos it has reconfigured the ERJ-145 production line to make executive jets, and its defence business is expanding. Between them these two parts of the business are likely to grow to make up half the company's sales, up from 27% now, says Mr Fleury.

Embraer, he insists, has been strengthened by adversity. It has improved its productivity, partly through a host of small changes such as switching off lights during the lunch hour, and partly through more automation. It has continued to invest in research and development and will launch two new executive jets in the next three years. The company's competitive advantage is not cheap labour, says Mr Fleury, but its know-how (of composite materials, for example), its highly educated workforce (a third of them engineers) and its network of local suppliers. In other words, it is not very different from any other high-tech global company.