Pascual del Cioppo, President of the Board of Balsasud Balsera Sudamericana in Guayaquil, discusses the emergence of the Ecuadorian city as a future regional investment hub, the importance of balanced economic development, and how his company has grown rapidly from modest beginnings to become one of the largest balsa wood companies in South America
Business & Investment: Guayaquil is enjoying a historic moment with solid management. The growth of the city’s companies has transformed it into the most attractive city in Ecuador, contributing more than $12 billion to national GDP. Please share with us your opinion on why Guayaquil is the city in which to invest and do business in Ecuador.
Pascual del Cioppo: Guayaquil is the most attractive city in Ecuador for business and investment because firstly, it is stable. The local government facilitates the creation of an industry, an enterprise or a business for domestic and foreign investors alike.
Secondly, there’s the security in Guayaquil compared with other cities in Ecuador in terms of an honest and serious workforce, who is also a bit more efficient and better qualified. Because this is the most developed city, people come from all over the country.
Workers come here seeking the opportunity to be part of the best industries that exist in the city, and that means that there is a varied and qualified workforce from which the industrialist may choose.
In the third place, the city taxes – not fiscal ones, but the city ones – allow for industrial development. Rather than strangle businessmen, Guayaquil’s taxes facilitate companies’ development and economic flow.
Services are clearly extremely important. When one makes an investment, one expects that the services they’re paying for – in this case, the city’s services – are efficient. In Guayaquil, all municipal services that taxpayers receive are efficient and excellent. This helps the industrialist avoid those headaches usually suffered while initially setting up in a new city, as the municipal services cover needs efficiently.
Rubbish collection, safety services, fire protection services, road attention and traffic safety services – everything that is the local government’s responsibility – all public services are well attended to and efficient. This puts the investor’s mind at ease, knowing that he or she can come and invest or develop his or her existing business further. That is our case – we’re already set up and we can continue developing our business without a problem. We avoid going elsewhere in Ecuador; we simply grow our operations here instead.
Another huge advantage is the port. As our business is 100% export and Guayaquil has the country’s main loading and unloading port, our transport costs are the minimum possible. As a company, we’re located just 30 minutes from the port along a safe and well maintained road that was built by the local government and is kept in the best conditions. We travel quickly and efficiently to the port. Basically, all we have to do is bring the container lorry, load it here and then it takes just 30 minutes for it to get to the port along a nice, straight road. And the port is efficient, too.
All of these things contribute to making Guayaquil the top destination in Ecuador for investors and industrialists.
Between December 2010 and 2011, Guayaquil lowered its unemployment levels from 7.6% to 5.9%, according to INEC (the National Statistics and Census Institute). Please share your view on what sectors helped lower this figure.
The main sector I see has been trade. The flow of money has come to the city, benefiting all social and economic classes.
The other sector is tourism. Guayaquil is Ecuador’s main tourist attraction, and this of course has contributed to the city’s ever-lower unemployment rate.
Another sector, as I mentioned earlier, are the services the city manages – from water and sewerage to energy. They allow construction firms to develop big financing and urbanisation plans here in Guayaquil and to choose the city as their main development site for housing services.
This also contributes because if we have urbanisation and construction, and if the city offers potable water, sewerage, energy, paved roads, rubbish collection, landscaping, etc, then we have an organised city and much better urban development.
Clearly, if we have industries that offer work for all economic and social classes, then residents of other areas will say, “Well, I’ll go to Guayaquil because there I’ll find a job, I can finance my home, I’ll have access to efficient public services and it’s obviously the seat of development in Ecuador.”
The private sector generates eight out of 10 jobs – patent proof of the importance of the private sector here. We’re discussing a model based on the alliance between private business and the government. Let’s talk about the importance of private business in Guayaquil’s public-private partnership model and the opportunities this opens up for Spanish investors.
Guayaquil’s development model is one that not only other Ecuadorian cities are copying, but other Latina American cities are emulating as well. And they form part of a kind of cluster that follows a modern development model which allows industry to grow. This creates a fusion of private investment into the cities’ development, encouraged by the local governments.
The situation that exists between the private sector and the local government allows us to invite both domestic and foreign investment.
Our company comprises not just Ecuadorians, but foreign capital as well. Our foreign partners – who hail from Latin America and beyond – first came to Guayaquil and discovered how safe and prosperous the city was, how organised it was, and the investor-friendly facilities in place. These factors convinced them to stay and they associated themselves with our firm.
This is an idea for those from the old world, in this specific case for the Spanish. Already in my line and in my products there are Spanish companies involved who came to Ecuador and are now working here and have offices here. In my line alone there are two Spanish firms working on my product in Ecuador. Therefore, it is this merger of the private and public sectors that is expediting growth and development in Guayaquil.
I don’t see much bureaucracy; here there aren’t so many public offices. The vast majority of the working population is in the private sector; very few people work for the public sector, with the obvious exception of the basic segments, such as health, education, the military or the police force.
Ecuador’s wood industry has been around for about 70 years, from what I understand, and some of the provinces – such as Manabí – predict an inflow of $100 million over the next five years from timber, and balsawood in particular. Could you tell us about the history of this industry in Ecuador and how it stands in Guayas Province?
The wood industry dates back to the 19th century and the production of a wide variety of tropical timber stems from the coastal provinces, with the exception of pine and eucalyptus, which have different uses. But the basic export timber that serve as the symbol of the Ecuadorian wood industry come from the tropics.
Many of those species also come from Guayas province. There has been a significant rise in the number of balsa plantations in recent years. In Manabí Province, for example, there have been close to 22,000 hectares planted with balsa in the last few years. In Guayas, there are some 4,000 to 5,000 additional hectares now dedicated to balsa. In Los Ríos, there are nearly 10,000 hectares.
I calculate that there are about 35,000 hectares recently planted with balsa trees throughout the country, and this is really proving Ecuador’s strength in balsawood production globally.
He who goes into the business of “core material” will ask: Well, where are the reserves? The reserves are in fact in the more than 35,000 hectares of balsa trees that are being planted in the coastal regions.
As for other types of timber – teak, oak, cedar, etc. – they are also listed among our coastal region’s species, and especially in the tropical north, there are many hectares being planted.
So Ecuador’s strength as a wood producer has been known internationally since the 19th century. Today, balsawood has hi-tech applications and major international industries have set up subsidiaries here to take advantage of the finished product. This shows that Guayaquil has a qualified and competent workforce, and the quality control is efficient from the forest through the finished product.
More than 200,000 people make a living in this industry, which involves working in the forests, small industry and handicraft. All in all, more than 6% of the workforce is employed in one way or another in the wood industry. What role do companies such as yours play in the creation of professionals for the sector?
We have agreements with certain institutions of higher education, where we accommodate forestry engineers and industrial engineers. At the same time, we run permanent training in the field, on plantations, and in the industry to increase efficiency overall. Consequently, our product boasts the highest quality – it’s truly world class.
Today, a balsawood product from a qualified industry in Ecuador such as ours, for example, is in high demand the world over.
Other countries are just starting, whereas here in Ecuador we’ve pioneered the application of balsawood since the 1930s. For many years, Ecuador has been the top balsawood exporter globally, in terms of both quantity and quality.
After having worked for a few years on technological performance, Balsa Sudamericana has some hi-tech products are desirable in the global market.
Our clients include wind energy firms, aviation and boat building companies, and construction companies, as they seek precisely what we offer: high quality in the core material.
In Ecuador’s productive forests between 25 and 50 cubic metres per hectare can be exploited. What forestation techniques are being implemented and how are protected areas being respected so as to maintain sustainability in the industry?
The balsawood sector has never had an effect on protected areas. Firstly, because balsawood isn’t an endangered product; the balsa tree is a wild tree that grows all over the tropic and sub-tropic. Secondly, after five years you harvest the wood and it immediately regenerates itself.
So, there is certainly no danger of extinction. The tree has been approved by international organisations like Rain Forest Alliance, who deems that balsawood poses no threat to protected zones nor to other forested areas.
It’s in our best interest to replant the land once the trees have been cut and cleared. It’s our raw material, our source – we wouldn’t say let’s clear cut and be irresponsible by not replanting. That would only dry up our supplies. Our supply source is kept full precisely by reforesting, not only in a natural way but also through technology. Why? Because we must get the most production possible form the smallest amount of land.
Every day there are new experiments and studies to get the greatest number of trees from a hectare. Today, aside from its industrial production, Ecuador is a pioneer in balsa tree planting.
Let’s focus now on Balsasud. It’s a family company that has been active in “balsa core” for many years. Tell us a little about the company’s history.
Of course. Balsera Sudamericana was established 18 years ago. When the family business passed to me, I’d already learned the ropes.
Back then, in Ecuador there was another balsawood firm in my family so I’d quickly learned that this country’s balsawood practically knows no equal anywhere else in the world because of its high quality. I decided to get involved, we made steady investments and a year and a half ago we made the company’s largest investment to date. We got the best kilns on the market and we substituted the old machinery with brand new European equipment. Today, we have the very best product of unparalleled quality.
We decided to get into this business 18 years ago because we discovered all of the applications that balsawood has – they go way beyond transport, boats, etc. There are laboratories in Ecuador and abroad where every day they discover new uses for balsawood.
Starting only recently, balsawood became the essential component of the blades on wind turbines. The discovery of this application for balsa came about through the research carried out by wind energy companies, like Simex, Gamesa, Acciona, General Electric, Mitsubishi, etc. Consequently, wind turbines around the world now contain balsawood.
Originally, the US military sought out balsawood as a substitute for cork during WWI. Nevertheless, balsawood proved to be more useful as lightweight construction material for shipping containers and gliders. Could you please share with us more benefits of balsawood and Balsasud’s main product, ProBalsa?
Our product is used for both wind turbine blades and for military use. In WWI and especially in WWII, Ecuadorian balsawood was used to build the famous fleet of “Mosquito” planes.
All shipping containers that western military forces use are made with balsa components. Balsa is also used in submarines and other forms of transport, everything related to the structure of lorries, trains and aeroplanes – in fact, balsa is a vastly important material in aviation. All of these applications known today and those discovered tomorrow – like in construction, which is a new application that is now being developed – are what make balsawood a special product. However, not just any balsawood product will be successful; it must be a high performance, high quality one, such as ours.
ProBalsa’s quality is outstanding and can be used in hi-tech applications, which do not permit any errors in the wood’s density, measurements or properties. If there was anything faulty in these three aspects, the product’s mechanical properties would be insufficient. And what makes balsawood so successful is the fact that its mechanical properties are superior to those of PVC, polystyrene, PET and other synthetics.
You have several balsa plantations in addition to the factory to process it. What is your vision for your business? What goals do you have for the industrialisation of balsa wood?
First, we have a structure that ensures 100% of our supply is from our own plantations. We also have independent suppliers who have their own plantations, our plantations as well of course.
We have our plant in Guayaquil and our subsidised plant in the city of Miami, Florida, under the name of Core Line. So that’s our production structure.
Now, our goal is to continue growing, inviting the world to know more about us every day, people who really are interested in investing in high-tech products for the "core material" and who obviously know that you can increasingly replace PVC, polyurethane, PET and foam with balsa wood. The physical properties balsa wood provides, besides being totally natural, are superior mechanical properties from being a natural product, and balsa is a far better product than the pollution-producing PVC, polyurethane, foam or PET options.
You have made a large investment in technology. Can you tell us a bit more about it?
Yes of course. Before starting to remodel and build the new dryers, we hired three engineers to carry out a study to ascertain which would be the best mould to suit us.
After some trials, a European system of dryers was designed, which we built and today are working; we have now doubled our production capacity and drying.
Drying is different here; it is a much more professional drying system. The drying processes in the 10-12 days of drying balsa wood can be handled by software from anywhere in the world via the internet.
Those processes with valves and steam traps were brought especially from Europe and were built with high-tech technical criteria. We put all wiring underground; there are no overhead wires or unprotected wiring – everything is covered and we have a control system whereby the software systems report the details of the drying process to us 24 hours a day.
Following this, we turn to the new machines that are imported, which feature high-tech brushes with less waste, and obviously table saws that are highly accurate to reduce waste. With that we are helping to preserve the environment, because to produce a wooden container we need to be more efficient every day and use fewer trees; if we are less efficient to produce the same wooden container, more trees are needed. By reducing waste, we need fewer trees and thereby contribute to protecting the environment.
Balsasud is one of Balsa Core Composite’s largest companies in Ecuador and South America. It also has a team of professionals who have been in the timber business for more than 18 years. How does this experience and professional team satisfy every need and provide the best quality for customers?
Our secret is our “customer service” – this is our letter of introduction and it is beyond question.
We have full confidence in our customers; we believe that without them there would be no product development in the world. To grow, we need the customer to have confidence in us and we rely on our clients; we cannot fail. We know that the time we give a customer a product with mechanical deficiencies, we will lose credibility and lose sales, as that customer will go to another supplier.
Second, because nothing is perfect, for obvious reasons if a faulty product gets sent out we do not ask you to prove that the product was defective. We completely trust the customer, anywhere in the world, and immediately assist in the replacement of the product without a load of questions; the customer just has to inform us via the internet what came out defective from the many containers, cartons and packages they received and we will replace it immediately.
Third, obviously we try to help. There are many customers who ask for our professional assistance to help them improve or to reduce waste, and we have been prepared to send people from our company anywhere in the world; we have no limitations. For example, two supervisors went to China last year to assist our customers. I mention China because it is the farthest point from Ecuador, but likewise we would do the same with a client in the U.S. or anywhere in the world without looking at the distances.
Since its foundation, the company maintained a process of constant improvement, which has pioneered the use of modern techniques. What challenges had to be overcome to reach your current position?
Our first problem was when we started we were not big and we had to compete against large companies. I'm not talking about Ecuadorian companies that were similar to us but large multinational companies: Swiss, French, English, and Japanese companies who were already here before us, and obviously we had to first compete against them. Second, we had to let people know we were a new but responsible company. Third, we had to devote time and investment that initially entailed very expensive bank loans, which thank God and we do not have any more. We have no debt with any bank in the whole world; we do not owe anything to anyone today.
That was the first challenge. The second challenge that was also hard was that the competition tried to prevent us from growing. The third was when we were a large company sitting at the big table of the major leagues, as guests, and not because we wanted to sit there but were invited to join them. We were seated at tables of the big leagues and since then the whole face of the company changed because the major players realised that we could be part of that game and of that group. From that moment on, the company’s spirit, including that of the workers, changed because the workers’ environment changed; you could see other clients, another future for everyone and the company had already started moving in a completely different direction.
Balsasud’s multifaceted process to industrialise the balsa wood comprises the latest technology and equipment that is controlled by a large and experienced team of professionals who carefully select the raw materials from its own plantations and independent providers as discussed before. How is Balsasud characterised by its commitment to quality and the environment?
We are concerned about the environment. As part of our environmental contribution, we do everything we can through seminars so that farmers do not cut down a balsa tree straightaway, but to leave it to grow naturally.
Secondly, we teach them how to plant balsa wood on their properties in the best way, so as to have a more efficient yield per square meter of forest.
And thirdly, as part of our commitment to the environment, we have nurseries with forest-grade seeds. Anyone who has a property and wants to venture into the timber industry and comes to us for seeds, we not only provide them with seeds but we also show them how to get the maximum benefits from the seeds when sowing them.
That is our contribution. In addition, occasionally, although not all the time, we do radio campaigns aimed at farmers to encourage them to plant balsa wood and also teach them how to do it well, that is also partly how we contribute to the environment.
Could you tell us about the evolution of prices of balsa wood and the different varieties that offer?
A few years ago a balsa tree cost $3 or $4. Today global demand has made the same tree go from $10 to $18, and it is not based so much on the quality, but mostly the thickness. A tree is measured by its trunk in inches: the older the tree, the thicker it is. Its thickness grows approximately a foot to a foot and a half per year, so a four or five-year-old tree, especially five, has a much higher price because of the cubic-metre yield of the wood. Obviously younger trees are cheaper and thicker ones are worth a bit more.
Balsasud offers the best quality in the market at very competitive prices, and excellence in customer service is part of your DNA. What other advantages does your business offer to international companies interested in bringing your products to new markets?
Our first advantage is that we are in the process of obtaining international certification with various environmental and forestry seals of approval.
Secondly, we guarantee that the whole process here is done professionally and with the support of independent suppliers and plantations.
And thirdly, we are basically part of the business and we are not new; we are in this business to stay for decades more. We give this guarantee because usually in this type of business the client is not a client for just a month, we are dealing with a long-term customer. And when a client issues a purchase agreement, he wants stability, because the contract is long term and he always looks for an international supplier because it is an international market, which gives the business such long-term stability.
We can give customers that long-term stability. We are a solvent company; we have no economic problems, thank God. Sometimes we offer clients small credit lines for the delivery of our products, giving them the ability to use our products and then pay for them, which is also part of our way of working.
Obviously we can handle technical issues in several languages and that is to the customer’s benefit because often the universal language is English, which is actually used in this business because they use no other official language but English. However, in some countries people sometimes like to speak in their own language because there are many errors in translating mechanical and technical terms from a local language into English. So, we try to use as many languages as possible in explaining technical properties contained in what we call the “data sheet”. We try to deliver it in the customer’s own language, for example in Chinese in China, Hindu in India, and so on.
Looking at the relationship between Spain and Guayaquil, over the past decade Spain consolidated its position as a major European investor in Latin America, with investments estimated at over 21 billion to fortify its presence in different markets. In your opinion, what is the importance of the relationship between Guayaquil and Spain for the future of Ecuador?
First, both the large number of Ecuadorians living in Spain and the knowledge that people have in Spain nowadays about Ecuador and Guayaquil are growing every day.
As an important development hub in Latin America, Guayaquil is an ideal entry point into an emerging market for Spanish investors, not only for ‘flight’ investments, known in Latin America as ‘swallow’ investments, but also for international, secure, long-term investments. Guayaquil can serve as a magnet for Spain outside the Iberian peninsula as a way of discovering new markets, new products and also find a way to produce things a little cheaper than the cost of European production.
Since 2008 Spain has invested €250 million in Ecuador and this direct investment between 2010 and 2011 increased by 100%. Where would you like to see more Spanish investment and which sectors do you believe have the greatest opportunities in Guayaquil?
The commercial sector is important, but it does not generate productivity: it generates trade, which is also important, but I think that any city in the world develops when it consolidates and strengthens its industrial sector or agriculture.
I think these are the two strengths necessary for the development of a city or a state. It’s not that being a city focused only on providing services isn’t important, it’s just that a city which has developed through its services sector alone leaves itself wide open to certain difficulties when global economic crises arise. But when a city is strong through its industrial development and agriculture, then that provides support, despite a global economic slowdown.
Today, for example, with regard to the current international crisis, if we are strong in the agricultural export and industrial sectors, then the effects on our economy will be much less than if only we were a city based on service development.
We live in a globalised world where communication between countries is vital to attract investment that leads to economic growth. How do you regard the power of communication in the world we live in today?
Guayaquil has every modern and international communication method available.
The mayor has made investments to ensure Guayaquil is connected internationally with the best technology. I understand that the Municipality of Guayaquil has a plan for the coming months to develop broadband for the city like any other modern city the world.
Obviously technology has come to Guayaquil; it is here now in Guayaquil and I do not think it will stay behind the technology seen in more developed countries.
Our agency has the ability to catapult the image of a country and its regions onto the global stage. What message you would like to send to the Spanish business community?
To all Spanish investors who rely primarily on the Latin American region, given all the problems that have occurred in recent years, Latin America has not collapsed: it is still there and is seen as a near future development hub by the whole world.
There are cases of countries that are stable, and in the particular case of Guayaquil, despite all the problems that exist in the world, Guayaquil is still standing, still strong. Guayaquil is an opportunity that is open to world, with full access to ports, airports and everything that is attractive to Spanish investors to come and safely invest.
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