Like practically any industry today, the international leather industry is in the throes of change. Consolidation is snuffing out smaller tanneries and manufacturers, while bigger ones are growing even larger. Within that second group is Medina Torres S.A. de C.V., a Mexican tannery and leather goods manufacturer based in the central state of Guanajuato.
While it is in a good geographic and economic position to be a leading exporter of high-quality leather goods, Medina Torres hasn’t rested there. Since the company was hit hard by the currency crisis of 1994, the motto at Medina Torres has been “proactive, not reactive.” As such, the company has nurtured and maintained a wide array of products and services, diversified throughout some of the most stable international markets in the world
Meanwhile, the company has kept a dedicated yet small staff, managed with a minimum of bureaucracy. This has allowed it the flexibility and know-how to snap up opportunities where they present themselves and wedge itself into the kind of important market niches that leather goods manufacturers need to survive. So while some tanneries are disappearing, and others are struggling, Medina Torres is looking for something more ambitious: a doubling of its size in the next five years.
As a business, Medina Torres S.A. de C.V. started out with a loan in 1940, when 15-year-old Carlos Medina Torres asked his mother if he could borrow money to buy his first cow hides. His father was also a tanner by trade, and in the early years Carlos operated his budding business in facilities he rented from his father. Then in 1968, he opened his own tannery in Leon, Guanajuato, where it is still located today.
Of course, Medina Torres is quite a bit bigger these days. Operating on four hectares of land, the company runs 13 separate warehouses, three of which are occupied with manufacturing finished leather goods. The other 10 are dedicated to tanning and producing the leather that will be either sold as raw material or manufactured into finished products in the facility itself.
But it hasn’t been easy for Medina Torres to get to where it is today. During most of its history, the company concerned itself almost exclusively with footwear on the domestic market. Carlos’ son, Oscar Medina Plascencia, took over from one of his brothers as general director in 1990, and the company continued to manufacture leather footwear using raw material that it imported from abroad.
Then came the economic crisis of 1994. The Mexican peso rapidly devaluated against the dollar, and Medina Torres, like many businesses at the time, was devastated. “As of that crisis, we were practically bankrupt,” he said. Buying raw material in dollars and receiving a majority of its income in pesos was sucking the life out of the company.
But Medina had some good luck, and some good ideas. First came NAFTA. Then came the renewed Mexican economy, leaving the company to consider the lessons learned and adapt accordingly. “After that, there was some reinvestment, and from there came the idea of manufacturing products for other kinds of industries,” Medina said.
The lesson, therefore, was to diversify, and the company did so in three different ways: Currency, products, and markets. The first thing the company decided after the crisis, Medina explained, was that no less that 70 percent of business should be done in dollars. The policy functions as a hedge against any future devaluations of Mexican currency, which, although not likely at the moment, are always a possibility.
Right now, the company exports a full 80 percent of its output, placing it well above the 70 percent floor it has set for itself. Another goal the company set for itself was to offer a wider variety of different products and services. In that line, the company now makes products in niches as varied as office furniture, motorcycle saddlebags, gun holsters, and rawhide bones for dogs.
The third step in diversification was spreading its business throughout a variety of different international markets. Once again, such a strategy would serve as a hedge against risk in any individual market, as well as a competitive benefit as the leather industry gets more globalized and competitive. Medina Torres products can be found all over the world including the following countries: the U.S., Canada, China, Japan, Australia, India, Costa Rica, Colombia, Dominican Republic, Puerto Rico, and Guatemala.
As a company, Medina Torres has done quite well in the years since the devaluation. In the last seven years alone, sales have doubled to an annual $22 million. The company is planning on doubling sales again within the next five years. Annual reinvestment in upgrading the facilities is of the order of $500,000, and, said Medina, “We continue to see a lot of potential for growth right here.”
Part of its growth has been through the on-going consolidation in the leather industry. Medina Torres has acquired some of its smaller competitors and incorporated their facilities and operations into its own in Leon, Guanajuato. More significant growth, however, has come through the company’s “proactive not reactive” strategy. By aggressively seeking out various niches in the leather industry, Medina Torres has positioned itself strategically in
Finding the niche
One niche, for example, includes large customers that market security-related equipment like gun holsters and handcuff cases. Medina Torres makes products on behalf of U.S. companies like Gould & Goodrich, Acer, and Yankee, to name a few. Although Medina Torres still sells raw leather, it has found that adding value to it in the form of finished products has some nice benefits for the bottom line.
In the same fashion, therefore, Medina Torres has made important progress in the manufacture of motorcycle equipment like saddlebags and seats. A big purchaser of the company’s leather goods in the U.S. is Harley Davidson, while an even bigger customer in the U.K. is Triumph.
Meanwhile, the company is taking advantage of its ISO-TS certification – required by the automotive industry – to start marketing its leather for high-end automobiles. Although the company already has a strong presence in the aftermarket, it’s looking toward stronger contract relationships. Six months ago, Medina Torres started selling its leather in Colombia, for use in GM’s Opera, and in certain Mazda models as well.
“We’ve identified very quickly our market niche,” Medina said. “Our strategy has been (to occupy) a market niche with high added value, so we’re going after very specific markets.”
Location, location, location
In seeking out those niches, Medina Torres has done much to exploit its natural geographic advantage. Perhaps the only serious threat to Medina Torres in the leather industry comes from Brazilian companies, Medina said. Raw material in that country is abundant, and the economy there is stable. But there is one catch: Because of the tropical climate, Brazilian leather tends to be of a lower quality, with more imperfections on the hides from insect bites and scratches.
The raw material used by Mexican companies like Medina Torres, on the other hand, comes from cooler or more arid climates like Canada, the U.S., and northern Mexico. So when it comes to niches, Medina Torres has concentrated on high-quality ones. Seat covers for automobiles are one example of that, while another is office furniture. The company holds approximately 80 percent of the market for office furniture leather in the U.S. and Mexico.
Other niches Medina Torres have taken up come from a “philosophy of trying to look for options and markets including the ones that seem a little different from the traditional,” Medina said. One example is the dog bones and rawhide that the company manufactures in different shapes and flavors under its own brand Compa, as well as for the brands of its customers.
Medina Torres has also begun an initiative to market collagen – a by-product of the tannery process – for cosmetic purposes. The idea has been kicking around the company since 1998, and after years of development and market research, Medina Torres is finally ready to launch the brand.
Flexibility is key
As the leather industry consolidates, Medina Torres has had some rough seas to navigate. Diversification has served the company well, as has the exploitation of its key location that gives it access to high-quality raw material. Another important advantage the company holds is its relatively flat management structure.
With only 80 employees working in 19 different areas, Medina said that it’s easy for him to keep tabs on the company, and in turn for others in the company to keep tabs on one another. “Even I used to think that meetings were a waste of time, but the reality is that they are very valuable,” he said, adding: “It’s a very particular strategy and everyone is focused on the same objectives. Everyone understands how one area has an affect on the others.”
In Mexico, the company has two or three serious competitors, but Medina emphasized that in the leather business these days, the international market is much more important. He pointed to Medina Torres’ strong experience in the personnel department. “It gives us a lot of strength because we’re oriented toward making items that are high-quality and of a certain difficulty, that require a certain structure, and more than anything a human aspect and a culture of doing things well is the most complicated in this industry.”