July 26, 2016 Business Vision

Volume 9 | Issue 4

The business vision of a German immigrant took this office and school supplies company to new heights and broad horizons.

Baco, S.A. was founded in 1943, originally as a die-cutting factory producing some office articles. Its founder, Horst Urich-Sass, a German immigrant and businessman, became a leader in his industry and knew how to adapt the development of his business to the demands of the times.

A small workshop that started manufacturing the famous brass German fasteners, still part of the product catalogue, the company grew to export to 23 countries in Central and South America, Australia, Turkey, Israel and Saudi Arabia. The company also contracts with maquilas for private brand name products in the United States and Canada.

“Baco is a 100-percent Mexican, family-owned company with over 60 years of tradition in the office and school supplies’ segment. We manufacture our own brand name products and also commercialize and distribute well-known brand name products through our distribution network in Mexico and abroad,” said Eduardo Mena, sales vice-president.
According to Mena, the company lost its leader six years ago, and his son Edgar took over the company’s management to continue with the values of respect, quality, service and price that always characterized this company.

Baco has a strong presence in Mexico D.F., metropolitan area with over 10 million inhabitants, where 50 percent of office and school supplies purchases take place. In addition the company’s network of facilities encompasses 17 different buildings covering 20,000 square meters, which means there is a specialized facility for each type or line of product.

“Baco’s brand name penetration in Mexico is deep. Our catalogue includes over 400 articles, and we carry market participation between 60 and 85 percent, according to the different products we offer,” he said.

The office line of products include two-piece file fasteners, paper clips, staple removers, Superflex staples, cardboards, index card dividers, hanging files and tabs, binders, sheet protectors, tabbed divisions and self-adhesive tabs. School products are comprised of paste paints, modeling clay, watercolors, chalk and erasers, scissors and cutters, sharpeners, school bags, compasses and drafting tools, among others. Each line includes a variety of models and presentations to service clients’ requirements.

INTERNATIONAL MARKETS
The American market hosts nearly 4,000 office superstores, but today, domestic expansion is not the name of the game. Companies are trying to improve productivity, service and margin profitability to generate higher margins in-house, and go after international expansion. The strategy to improve margins is based on an efficient supply chain, which guarantees that the customer will find the product in store when needed. Online distribution and complementary services such as online printing, and copying centers are also additional ways to attract the customer’s attention.

However, the key to increase profit margins is to manufacture products with a brand name. Baco understands the nature of this strategy and not only develops its own products but also supplies these chain stores in Mexico and abroad, exporting eight percent of its annual production.

“We need to work against all odds to keep our market leadership,” said Mena, “For instance, we pay more freight when we export to Central America than companies exporting from China. The problem resides in the containers,” he explained, “If the container is not sold in its trip back to Mexico, we have to pay it too, which increases our liability.”

The company has established merchandise inventories in local warehouses in Guatemala for Central America; Montevideo, Uruguay, for Mercosur; and Arica, Chile, for the Pacific Cost in South America. It is also looking to establish a joint venture with a South American industrial group to manufacture product in either Uruguay or Ecuador.

Central and South American markets are very competitive markets because distributors are used to imports from all over the world. They are well versed in quality and price, said Mena. For that reason, Baco de Mexico participates at international and national fairs and expos related to technology and product trends, such as the annual international fair organized by ANFAEO (Asociación Nacional de Fabricantes de Artículos Escolares y de Oficina) the association that gathers school and office supplies manufacturers and distributors in Mexico. Last year, ANFAEO attracted 184 national and international exhibitors to its 110,000-square-foot exhibition area.

“This $12 billion market is served by manufacturers from China, Italy, Brazil and Argentina, and keeping high quality and low prices is essential to gain market share. We also build strong relationships with our distributors with a constant presence in these markets,” explained Mena.

Baco has been also discussing the possibility of targeting the U.S. “nostalgia” market. The company has ambitious plans to enter the United States with its own brand name products, which are well known by Mexican immigrants. The company carries international certifications for its maquila production to Canada and the United States in certain products such as the ASTM 46, LAN 41 and ASME.

THE NATIONAL MARKET
Strategies for the Mexican market are diverse, considering the economic development of different regions. Although the company maintains its level of inventory and assortment at local levels, promotional and marketing strategies might differ. When serving small businesses in distant, low-economic level areas, Baco de Mexico applies incentives and offers conditions that are more flexible to business owners. “We have slightly different policies for the Southern states than the ones located around Mexico City or the Northern part of the country, always looking to adapt our services to the clients’ requirements,” he said.

The market is so tight that Baco is constantly upgrading technology in order to acquire machines at reduced costs that are more agile. While some processes are automated – injectors, stamping presses and buttonhole machines – products such as modeling clay, because of its malleability and stickiness, demand intensive labor and need to be handled by hand. The company hires around 600 operators, a number that varies according to the seasonal needs for inventory. The school season starts in April and May to stock up for September, while the office season starts in September and October.

STRUGGLING WITH THE GLOBAL MARKETS
Mena believes the sustained growth the company experienced in the last years of 8 to 10 percent annually is due to the solid financial position of the company and its strict administration. These policies allow the company to make advanced purchases of raw materials and supplies, which represents an advantage in a market with swinging prices and demand.

However, the company’s main concern is related to the unfair competition coming in as illegal imports. According to Mena, large national interests are unfortunately involved in this type of smuggling, bringing in under-invoiced merchandise through containers. “Some of our customs personnel participate in this corruption, neglecting their supervision and enforcement duties,” he said. This merchandise is then sold on the streets, through small roaming vendors or small businesses. Mena estimates that only 10 percent of the merchandise that arrives to Mexican ports is legally entering the country.

ANFAEO has made several petitions to the federal government to end the problem and some taxes are charged when merchandise can be proven to enter at dumping prices, but policies are not consistent and enforcement is difficult, said Mena.

Nevertheless, bestowed with surprising inertia, Baco keeps growing, following the principles established by its founder, Horst Urich-Sass, such as respect for its customers, unsurpassable service, fair prices and payment terms, and the development of new products that satisfy the always growing needs of the national and global markets.
Baco remains restless and a company full of projects. With its lines of wax crayons, permanent markers and dry eraser markers, Baco keeps its horizons open to new challenges. “Our commitment to clients and suppliers is to continue with the business ethics and dedication for which Baco is well known,” he concluded.

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