July 26, 2016 Tough Material

Volume 11 | Issue 4

Brazil’s Fitedi is a third-generation textile manufacturer. For years, its steady growth was a given. However, as Michael Sommers discovers, the challenges of foreign competitors, rising costs, and a plunging dollar caused the company to launch an offensive campaign that involves adopting new strategies and moving in new directions.

Last year Fitedi proudly celebrated 70 years in the textile business. Over the last three-quarters of a century, the family-owned company, based in central Minas Gerais, has built up a reputation for producing solid, high quality and dependable yarns and fabrics. Yet, despite the importance of tradition, the company has also shown surprising resilience and an adaptability to roll with punches. While acquisitions, corporate shake-ups, and branching out into new areas haven’t been part of its modus operandi, the company’s ability to gauge the moment and make changes have ensured its longevity.
STEADY GROWTH
Current President Marco Aurelio Mauad Notini recalls his grandfather founding the Companhia Fiação e Tecelagem de Divinópolis (Fitedi) in 1937: “My grandfather was a distributor of electrical energy in the region surrounding Divinópolis. At the time, there were no public energy companies. Private industries had to generate their own energy. So when a group of farmers from the region asked my grandfather to join them in starting a textile manufacturer, he agreed.”

A pioneer in the region, after building a plant and equipping it with state-of-the-art machines imported from England, Fitedi opened for business in 1939, producing fabrics such as ginghams, zephyrs, canvas, and cottons that were popular with (and could be afforded by) working-class Brazilians. By the 1950s, the company had traded in much of this subsequently phased-out equipment for new spinning and processing machinery, allowing it to churn out more high-quality, sophisticated yarns and fabrics. Over the next few decades, Fitedi was content to grow steadily, updating its equipment and technology to stay abreast of the market, while the Notini family gradually gained an increasing amount of control over the company (today it owns a 98 percent share).

The company’s major milestone took place in 1980, when in an attempt to create added value to its products, Fitedi began making ready-made articles. This verticalization gave the company complete control over the production chain from the arrival of raw material through dyeing, spinning, and weaving processes to the full finished end product ready to be shipped to stores. Fitedi started out with a line of products for toddlers and infants, which gradually grew to include everything from diapers and sleepers to bedding. Later it added men’s and women’s underwear and lingerie.

Initially, the decision to add ready-made lines was a way of safeguarding the quality of its products from beginning to end as well as cutting down on costs and offering more elaborate products that yielded larger profit margins. However, in more recent times, the strategy has become a survival tactic for ensuring Fitedi’s permanence amidst tough economic circumstances and a rapidly changing marketplace.

A READY-MADE SOLUTION
“Textiles are a commodity,” explains Notini. “And it’s increasingly difficult for us to compete in terms of this commodity with producers such as China, India, and Pakistan whose labor costs are so much lower and who can undercut us in terms of price. For this reason, although we’ve been making ready-made pieces for a while, we’re now really beginning a major shift towards such products so that we won’t have to compete directly against these manufacturers here in Brazil.”

At its 131,000-square-foot plant in Divinópolis, Fitedi, currently at full production capacity, turns out 400 tons of yarns – cotton, polyester, acrylic, viscose, and tencel – a month. Yarn and threads still comprise its principal product line and main source of revenue – aside from supplying its own needs, the company also sells to other manufacturers. In contrast, ready-made articles account for only 20 percent of the company’s revenues. But if Fitedi has its way, within the next five years, the company will be responsible for 50 percent.

“While our production output has been stable over the last few years, our revenues have fallen,” confesses Notini. “And although we’re operating at maximum capacity, we haven’t made any new investments in expanding our plant. Right now our priority is to reduce our costs by purchasing new equipment and investing in ready-made articles.”

OFFENSIVE MEASURES
Aside from difficulties competing with foreign rivals such as China and India, another major thorn in Fitedi’s side has been the plunging dollar, which in the last few years has lost more than 60 percent of its value against the Brazilian real. This currency crisis has not only made exports all but impossible for the company, but has also made battling it out at home a challenge, particularly when faced with foreign affiliates. Although the company doesn’t compete directly with large textile manufacturers – it operates in niche segments in which it is very well-positioned in terms of its products’ high quality and relatively low prices – Fitedi does feel constant pressure to drive down its in-house costs (last year alone, costs of materials rose by 5 percent, while wages rose 9.1 percent). It has done so to a significant degree by verticalizing its operations, a factor that sets it apart from the Brazilian companies with whom it does compete directly. Moreover, in terms of its labor costs, Fitedi can take advantage of a workforce whose wages are somewhat lower than those in the neighboring states of Rio de Janeiro and São Paulo (although not as low as those in the states of Brazil’s Northeast).

However, viewing the current state of the marketplace, other measures have been necessary. As such, in keeping with the founder’s origins in the energy generating business, Fitedi has been moving ahead with plans to manufacture electricity at its own hydro-electric plant. “Currently, 25 percent of our energy is selfgenerated,” says Notini. “Our ultimate goal, though, is not only to be completely self-sufficient, but also to produce enough energy to sell to other companies in the region. We’ve already developed the projects and we’re at the stage now where we’re just waiting for our environmental permits to be approved.”

The increasing steps towards auto-sufficiency – the company is also involved in reforestation as a means of supplying itself with the lumber it uses – appear to be a sure-fire strategy for sticking around. While Notini claims that the sector “is in a decisive moment,” Fitedi is feeling anything but indecisive. On the contrary, it is forging ahead on two fronts: adding value to its products and diminishing costs with the aim of continuing its gradual, steady growth for the next three-quarters of a century. As Notini himself points out: “Right now, our only alternative is to attack.”

Subscribe to Industry Today