One of Brazil’s largest privately owned industrial conglomerates, the Delga Group produces stamped metal parts for the majority of Brazil’s cars, trucks, and even agricultural vehicles. Michael Sommers explores how the group has achieved impressive flexibility and growth without ever compromising its fundamental stability.
Judging by its impressive figures, Delga could very easily rest on its laurels. The privately owned Brazilian group’s main specialty is the manufacture, welding, and assembly of stamped metal parts as well as cabins and bodies for the automotive sector.
Delga’s products are found in 80 percent of all vehicles made in Brazil. The group owns and operates five major plants in three Brazilian states: São Paulo, Rio de Janeiro and Rio Grande do Sul and employs more than 2,000 workers. Included among its roster of clients are names such as GM, Volkswagen, Ford, Fiat, Scania, DaimlerChrysler, Volvo and Toyota, not to mention leading tier one suppliers such as ArvinMeritor, Dana, Pirelli, and Bosch. There is also the fact that the company’s revenues have skyrocketed: from 78 million reais ($36.5 million) in 2000 to 407 million reais ($190 million) in 2005. However, despite the very solid foundations that the 43-year-old group has managed to construct, Delga has no intention of slowing down. Says financial director, Luiz Nogueira, “By 2010, we expect to have more than doubled our present revenue by hitting one billion reais ($468 million) in terms of total revenues.”
Such an ambitious goal might normally imply a heavy dose of risk-taking, but the Delga Group’s growth has always been based on establishing firm foundations and following bold, but sensible strategies. The group itself originated in 1963, when a Portuguese immigrant named Antonio Augusto Delgado started his own company in São Paulo, called Fobrasa, which was involved in buying and selling machinery for the metallurgical and siderurgical industries. As Fobrasa grew over the years, Delgado increasingly flexed his entrepreneurial muscles. Having accumulated considerable private capital, he used it to found two new companies while acquiring several others, all of them specializing in machinery and parts for the metallurgical industry, with an increasing focus on the booming automotive sector. In fact, when Antonio Delgado created an auto parts manufacturer in 1996 – baptized Delga Automotiva after the first five letters of its founder’s name – the new company immediately struck gold.
The fortuitous moment occurred in 1996 when Volkswagen contacted Delga in search of a partner who could not only produce, but also assemble the cabins of its trucks. Recalls Luiz Nogueira: “At the time, this was a revolutionary project because the cabins were being completely outsourced. We became their assemblers; Volkswagen wasn’t involved at all. This outsourcing strategy was not only innovative in Brazil, but throughout the world.” At that time, Delga was the only national company to participate in this project. The contract with Volkswagen not only led the company to diversify, but also brought it enormous gains in terms of the technology that Volkswagen shared with it.
Consolidation and Verticalization
In 2001, Antonio Delgado passed away. Under the leadership of his son, Antonio Augusto Delgado Junior, all the companies owned by Delgado merged together and became the Delga Group, with Delgado Junior as the new group’s president. This fusion proved to be a major turning point. Prior to the merger, the individual companies owned by Delgado had often ended up competing against one another in the market. However, once all were united under a sole corporate administration, this sudden verticalization led to tremendous benefits.
“The consolidation resulted in an enormous increase in terms of total volume,” explains Wellington Toso, Delga’s sales director. “And this gave us a great advantage in terms of purchasing steel. Since steel comprises 65 percent of our costs, we were able to optimize this expense by buying it in larger volumes. Today, excluding assemblers for the vehicle sector, we are one of the biggest consumers of steel in Brazil. Our competitors have no way of achieving the economies of scale that we have gained. Meanwhile, by cutting costs we were able to substantially increase our productivity and competitiveness.”
This increase in volume was accompanied by major investments in new equipment. And unlike many of its national competitors, Delga was able to finance these transformations with its own capital. Comments Luiz Nogueira: “Delga has always been a corporation with great financial stability. Having our own private capital has been a great source of strength. For instance, unlike other major companies in our sector, we have very low rates of debt.” As such, in 2003, when the Brazilian automotive market experienced an unprecedented boom, Delga, with its top-of-the-line equipment and superior capacity, was prepared to absorb the sudden increase in volume that its competitors couldn’t take on.
Recalls Nogueira: “This led to enormous growth for us. From 2003 to 2004, we doubled our revenues, and then from 2004 to 2005, we doubled them again. In part, this was because we also began exploring export niches that we had never before considered.” Indeed, it was at this point that Delga entered the global marketplace. Detecting similar growth opportunities in the North American and Mexican markets, as well as among its Mercosul neighbors, Delga concentrated its export strategies on these markets.
“On the other hand, with the recent decline of the U.S. dollar, our products have become 30 percent more expensive in the last two years. In fact, we expect exports as a whole to fall over the next while,” says Nogueira.
Luckily, the robust national market will compensate for any losses. Brazil currently produces between 2.6 and 2.7 million vehicles a year, with 1.9 million supplying the domestic market and around 700,000 exported. These figures represent a 7 percent increase from last year and are expected to grow again by at least 7 percent this year. Nogueira expects the trend to continue, bolstered by the fall of interest rates (Brazil is infamous for having some of the highest interest rates on the planet) and Brazil’s increasing stability for investors. In fact, by 2010 he expects that Brazil will be producing more than three million vehicles a year.
In the meantime, Delga has another iron in the fire. In 2001, it was approached by Springer Carrier, a major manufacturer of electric home appliances. Springer wanted Delga to supply it with parts and in order to comply, Delga opened up a new plant. Says Wellington Toso: “Once we got started, we decided to continue with this whole new home appliance line. In the end, its characteristics were quite similar to those of the automotive sector. Although it was a whole new niche for us and we needed to aggregate new technologies, there were actually fewer requirements to meet and we were still dealing with stamped metal parts. We were able to double our capacities without major investments in capital and technology. Today this line is responsible for 10 percent of all of Delga’s business.”
This willingness to accommodate its clients has benefited Delga itself. For instance, a recent expansion of its plant in Rio Grande do Sul allowed the group to meet the increased demands of General Motors, which had undergone an expansion of its own. Indeed, since 2004, Delga has invested 5 percent of annual liquid profits in new equipment, facilities, and perhaps most importantly of all, in the training of its work force.
According to Luiz Nogueira, it is the professionalism of Delga’s collaborators together with the company’s management strategies that have enabled the group to stay ahead of its competitors. “In terms of technology, we are on equal footing with the top competitors in our market. What distinguishes us is our speed and agility. We have a very lean and efficient operational structure and we place enormous value on information. Solid management with solid numbers – these are essential for us.”
Nogueira points out that although Delga has 1,860 employees working for it in five different facilities, only 80 of them work in
corporate administration. “Considering the size of Delga’s body, we have a very small head. This allows us to share precise information and make important decisions with extreme rapidity. Because, ultimately, at this stage of the game, the focus is less about improvements in products than in improving the actual process itself.”