NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Friday, August 12, 2005

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AMANCO is a Latin American leader in the production and marketing of integrated solutions for the construction, infrastructure and irrigation industries. AMANCO is part of GrupoNueva, a holding company operating throughout Latin America for more than 60 years, with more than 30 firms and factories located in 13 countries and some 7,000 employees.

AMANCO bases its leadership on the quality of its products, service excellence and a firm commitment to sustainable development within a profit-oriented framework.

Present in Argentina since 1994, AMANCO works in the areas of sustainable forest products, water systems, and light construction materials. AMANCO Argentina owns a factory in Pablo Podest?, province of Buenos Aires, that produces pipes and accessories, as well as a workshop of compounds in the province of San Luis. It has implemented a strong investment plan for modern equipment, such as exclusive double compression Rollerpal heads and Engel injectors with post-pressure control and latest generation moulds. As result, its plants represent the cutting edge technology available worldwide.

The impetus to create mobile sales

In late 2001, Argentina?s economy collapsed, its currency plummeted and the unemployment rate increased to over 18%. This situation, coupled with falling sales to its big retailers and local customers encouraged AMANCO to implement business projects that could contribute to poverty reduction. The company started with innovations along the value chain:

• Research and Development — held contests among employees to generate new ideas
• Raw Materials — Hiring the local SMEs as suppliers of raw materials
• Distribution — Took products closer to customers
• End User — Products sold to NGOs helping the poorest sectors

These innovations along the value chain helped the company realize that it needed to bring its products to its customers in quantities that they could pay for. According to AMANCO Argentina General Manager Gerardo Ourracariet, ?We did not invent anything new. We simply remembered the Big Depression of the 1930s and what our grandparents had done back then: they used to buy their daily needs from street merchants, getting only small amounts they could pay for. So, we developed AMANCO Mobile Sales.?

This involved loading AMANCO products onto two trucks and sending them out to sell to the smallest plumbing and home repair storefront shops in the poorest neighbourhoods in Buenos Aires.

“This service offered our customers more than 50 different items and the possibility to buy, invoice, ship and deliver in one single transaction,? said Ourracariet. “Mobile Sales reached out to the small customers and provided them with limited amounts of our products. This avoids the need to keep large inventories, replenishing only what they needed. And paying in cash at a fair price for them stills give us a profit while removing the middlemen.”

Developing a new market

The program started in August 2002, with two trucks in the federal capital. Today, now that the crisis is over, AMANCO has seven trucks at work: five in Buenos Aires and one each in C?rdoba and Rosario. This allows AMANCO to reach more than 1,000 new customers, who because of their small size or insufficient financial resources, had previously acquired their needs through retailers or redistributors.

AMANCO cannot make any claims about whether or to what extent the mobile sales help poor people meet their housing needs, but it is clear that the company is reaching neighborhoods where residents tend to self-build and self-repair.

Using this approach has doubled the number of plumbing fixtures sold to customers. Overall, these new customers are very prompt in their payments. Mobile Sales now represent 15% of AMANCO Argentina?s total sales, but 40% of its revenue.

Mobile Sales generated enough cash flow to keep the subsidiary from going bankrupt at the height of the crisis, a fact which got the attention of GrupoNueva management. A recent study done by GrupoNueva shows that most of the more stable companies in Latin America are doing business focusing on the base of the economic pyramid.

Generating New Ideas

GrupoNueva held a contest among employees to come up with sustainable livelihoods business ideas. Some 250 were submitted; of those, nine are being turned into business plans. True success will only be visible in a few years time when the bottom lines of the new businesses have been studied.

The impossibility of importing certain products (irrigation, infrastructure and plumbing accessories) during the Argentine crisis pushed AMANCO in another direction regarding sustainable development, encouraging it to develop relationships with small local suppliers. Attracted by the potential sales to AMANCO, these small suppliers became interested in entering into business and industrial partnerships that would prevent them from failure and allow AMANCO to replenish its stocks.

These alliances continue to be of great benefit to these suppliers and to AMANCO. Not only have the suppliers stayed afloat, but they are now implementing environmental and product standards similar to those in place at AMANCO.

Partnerships also pay

Looking for sustainable livelihoods business (helping those at the bottom of the economic pyramid) spurred AMANCO to work with Habitat for Humanity, a non-profit NGO that builds houses with the help of the soon-to-be homeowners and sells the dwellings to partner families at no profit, financed with no-interest loans. They plan to build 25,000 homes in Central America by the end of 2005.

Habitat for Humanity had been buying construction materials from local retailers. Working with AMANCO, they buy wholesale and deal with only one supplier, who knows them, so their transaction and opportunity costs are lower. AMANCO improves its sales volume, is serving a new line of customers, and opening new sales channels.

AMANCO and Habitat for Humanity are working together in five countries, and AMANCO is exploring how to extend the partnership to other countries and even other companies in GrupoNueva.