July 26, 2016 Striking It Rich

Volume 10 | Issue 3

In the early days, Protexa used to buy asphalt from Mexico’s state oil company, Pemex. But now the tables have turned, and Protexa supplies

With $150 million in annual sales, hundreds of employees, and decades of experience in the various industries it serves, Protexa S.A. de C.V. (the industrial division of the Protexa Group) is certainly no amateur in the Mexican market. One might even describe it as venerable, and its broad diversification into a variety of different products and services certainly give it a measure of security.

Yet with the global market changing at an incredible pace, Protexa has no time for retrospection – venerability does not a successful company make. At the same time, the kind of competition that this new global market is raising up is potentially the most destructive kind: price competition, in which aggressive new competitors make the same product at a lower price, thereby touching off a bloody battle of attrition from which no one escapes unscathed.

What to do? For one thing, stay positive, and work hard on the segments of the business – like oil well drilling – that are guaranteed strong growth in the coming years. For another thing, don’t just work harder – work smarter. Protexa General Director Omar Garza said Protexa is well on its way to putting into action a plan to steer the company away from the bloody waters of price wars and toward the clear blue sailing of high quality, added value, and open markets.

Humble beginning
Out of its three main divisions of Protexa S.A., it was in the manufacturing arm of the company where, in 1945, a man named Humberto Lobo Villarreal began patiently carving out a place for himself in the world of Mexican industry. The manufacturing business he founded was family-owned and made and sold roofing supplies. It could have ended like that, but Villarreal was a man with vision As the company grew and became the primary consumer of asphalt produced by Mexico’s state-run petroleum company, Petróleos de Mexico (Pemex), Villarreal saw a business opportunity in strengthening that relationship. Today, what has become Grupo Protexa provides a vast number of services and products to Pemex, as well as other sectors of Mexican industry.

The original roofing materials business that Villarreal founded is still around and is one of the five largest manufacturers of roofing material in the Mexican market. Yet with competition in the Mexican market fierce – and competition with the giants of the international roofing industry out of the question – that division of the company has diminished in importance. Protexa is instead expecting ambitious growth in several other divisions, the most important of which is its well-drilling products and services.

Striking it rich
It’s a good moment to be providing well-drilling support for Pemex, Garza said, and Protexa has the skills and experience to do it. Protexa has been in the well-drilling business with Pemex for 25 years, during which it has managed to reduce Pemex’s drilling time by about 30 percent.

One of the major products Protexa produces is drilling fluid – the viscous liquid pumped through the drill that cools the bit, stabilizes the well, and prevents blowouts. Protexa operates two drilling fluid production plants: one in Ciudad del Carmen, Campeche, for underwater drilling fluid and one in the state of Tabasco for the terrestrial drilling market. Along with that specially designed and manufactured product, Protexa also offers its expertise and equipment in drilling wells up to 8 km deep for Pemex.

During its 25 years drilling wells in Mexico, Protexa has learned a lot, and the drilling solutions it provides are therefore tailored for use on Mexican soil, Garza said. For example, the geology in many parts of Mexico is characterized by a particular variety of crumbly, sandy shale. Any little bit of water can dissolve that material and send it collapsing in on a half-drilled well. The drilling fluid produced by Protexa is designed to form a barrier during the drilling to prevent that collapse from happening.

That technology, developed in Mexico, gives Protexa a distinct advantage over international competition like Halliburton, which offers only generic drilling solutions. This puts Protexa in a good position, because not only can it compete rigorously in the Mexican market, but the Mexican market itself is an excellent one in which to be.

“The future of drilling in Mexico has enormous growth potential,” Garza said. “There are enormous reserves. There are reserves, theoretically, for 20 years.”

The only problem for Pemex, he said, is that those reserves have yet to be proven, which is where Protexa comes in. Garza expects Pemex to double or triple its drilling activities within the next few years to better document its reserves, especially in areas like Veracruz, where reserves have yet to be quantified. Protexa, with its experience, proven products, and ample infrastructure, will be more than ready to step in and offer Pemex a hand.

Protexa at home
While its petroleum division may be its most important at the moment, other businesses provide Protexa with a diverse industry portfolio in the tradition of founder Villarreal’s vision. In its division of plastics, Protexa currently runs the largest high-density polyethylene pipe manufacturing operation in Latin America.

Manufactured at a plant in Monterrey, pipe diameters can range from half an inch to 36 inches, designed for uses as various as potable water, drains, natural gas, and conduit for fiber optic cables. The factory produces 14,300 tons of piping a year, the vast majority of which is destined for the domestic market. Protexa holds a 60 percent share of the Mexican market.

Another important product that Protexa produces for domestic consumption is coal tar. Coal tar is a thick, viscous, and highly conductive by-product given off during coke production. Using its own patented method of distillation, Protexa produces 25,000 tons of coal tar per year. Most of it goes to multi-national giant UCAR, which uses it to make graphite electrodes for the electric arc ovens used to manufacture steel. UCAR’s factory – the biggest of its kind in the world – is located in Monterrey, and gets 70 percent of its coal tar from Protexa.

Protexa abroad
A good portion of coal tar, however, is also destined for export. As dominant as Protexa is in the Mexican market, it also owes a large part of its success to this international business: a full 30 percent of the $150 million in business it does every year comes from exports. Along with coal tar exports, another key to those export revenues is its business producing fiberglass fabric used for covering roofs and for isolating underground piping.
Protexa’s fiberglass fabric factory can churn out five million square meters of product per year, using technology it bought from a German company called Lipex. Protexa’s fiberglass cloth has a presence in 12 countries around the world, including Columbia, Canada, Italy, Chile, and Puerto Rico.

Aiming high
Another part of Protexa’s business is, at the moment, much more humble. But it’s there, Garza said, that Protexa is aiming for the most growth. For about 20 years, Protexa has operated two factories in its onlays division – one in Coahuila, one in San Luis Potosí – that apply finishes to certain car parts. They use both electrophoretic and electrostatic processes to apply the finishes to parts made in Mexican factories for companies like the Robert Bosch Group, Metalsa, Rolmex, and Black & Decker.

It was only in the last few years, however, that Protexa realized the potential for growth in that area. Since then, the company has been working hard to improve that line of business and make the factories attractive for companies seeking high-quality, reliable finishes for their parts manufacturing.

Last year, the two factories became both ISO: 9000 and ISO/TS certified, which means they have been declared qualified by the International Organization for Standardization to manufacture their products and send them directly to clients without any intermediary inspection. “It’s a very valuable certification for us,” Garza noted. “Those are the values that want so we can differentiate ourselves from our competitors.”

Even more prestigious, last year Protexa was awarded a Shingo Prize for its efforts to improve, daily, its auto parts finishing sector. Garza said Protexa was the first Mexican manufacturer to win such an important award.

Blue ocean, red ocean
All of this highlights what will be Protexa’s strategy for competing in a globalized market: quality is the key, and value-added products are the way to go. In this sense, Garza said, Protexa is taking its cue from a book called The Blue Ocean Strategy, by W. Chan Kim and Renée Mauborgne. The idea is that by producing a unique product – or otherwise distinguishing itself through high quality and value-adding – a company can avoid the “red ocean” of fierce and bloody price competition in favor of the “blue ocean” where direct competition is minimal.

“What we’re initiating and looking for is to strengthen ourselves in our markets, but by adding value,” Garza explained. “We want to strengthen the value structure of our products and services to distinguish ourselves from the competition and avoid killing ourselves everyday over prices.”

In the roofing industry, for example, “every day we lose an arm,” Garza said with a chuckle. Auto parts finishing, on the other hand, is somewhat more open. In a different area, Protexa provides the service of changing catalyzers on gasoline refineries in Mexico and extracting the precious metal – platinum mostly – that accumulates in them. Last year, Protexa began offering a similar service to refineries in Corpus Christi, Texas – and so far, it’s the only company offering such a service.

“This is the kind of market we’re looking for,” Garza said. “I’m not going to compete with the Chinese. The Chinese are the cheapest in the world. There are going to be people who buy Chinese products. That doesn’t matter to me. What matters to me is that they buy quality, instead of just buying cheap. We’re directing everything toward providing high-quality products and services, not the lowest prices.”

Bold new products
With that in mind, Protexa is in the process of bringing a brand new construction material to market to replace cement block construction. Typical cement block weighs around 17 kg per block. Protexa’s block, meanwhile, will weigh half that – because it won’t even be made of concrete.

As Garza explained it, the blocks will be manufactured out of a chemical left over from the production of Hydrogen Fluoride. When treated using a special chemical process, it forms crystals “like a porcupine,” and the crystals bind together, creating solid blocks with no need for added concrete. In addition to being lighter, the blocks are three times better at insulating and absorbing sound.

“We have a very important prospect for growth with those construction products in Mexico,” Garza said, “especially because energy is costing more and more, and this product does a good job of saving electricity in air conditioned buildings, making a home more comfortable.”

Project 2015
The new construction material, the Corpus Christy business, the Shingo Prize, the expansion of the car parts finishing factory: it’s all part of Protexa’s ambitious plan called Project 2015. Under that plan, Protexa wants to increase its business seven-fold, to $1 billion from the current $150 million. It will do this, Garza said, by seeking out those blue waters of opportunity and added value. Price wars, he said, are a thing of the past.
“I think this is a strategy that’s going to work for us.”

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