Market Movers: Lessons from a Frontier of Innovation - IFC

14Market MoversCASE: AMANCOPIPE DREAMSamanco has grown to belatin america’s leadingmanufacturer of plastic pipesand fittings with a strategythat has built-in sustainability.The Sao Paulo-based company wasbought for $500 million in February2007 by Mexichem, a Mexicanchemicals manufacturer that isquoted on the Mexican stock market.Mexichem was one of at least nineorganisations interested in purchasingAmanco at the time of its sale,attracted, according to CEO RobertoSalas, due to Amanco’s leadingposition in Latin America, its proventrack record of profit growth and itssustainability commitment.“Twenty-first centurycompanies need to integratethemselves much more closelywith what is happening insociety in general. Those thatdon’t will be relegated toJurassic Park.”Julio Moura, president andCEO of GrupoNuevaSustainability – or the triple bottomline (TBL) approach, as it is calledinternally – first became part of thecompany’s competitive strategyunder previous owner, GrupoNueva,“as Amanco searched for the bestway to attain price premiums”notes Andreas Eggenberg, a formersenior executive. Amanco is in amarket that is highly commoditised.A pipe is a pipe is a pipe. Differen-tiation through innovation is theonly way to escape from that typeof low-margin ‘commodity hell’.But the benefits of many forms ofinnovation in the industry oftenprove short-lived; new productssometimes have a competitiveadvantage for just a matter ofmonths.So the company has differentiateditself by developing a brand thatis associated with sustainability inall the countries in which it operates.This is partly reinforced by itsnew products, which systematicallytake account of environmental andsocial impact. For example, the companyhas taken the precautionaryapproach in identifying a substitute,calcium zinc, which can be used toreplace lead-containing compoundsin its PVC piping at an extra costof only 3.5%. Then it developed anew plastic technology for sewagepiping that is more water-tight thanany comparable material, and alsocheaper to install.The company has a wide range ofclients and it develops productsand services specifically for differentgroups. It has, for instance,been developing a scheme basedon the base of the pyramid (BoP)concept, identifying products andservices designed to improve socialconditions for low-income customerswhile creating value for thebusiness. The company invited itsemployees to come up with businessplans for the scheme and itreceived 250 proposals, some ofwhich are now up and running.The initial BoP project was a$100,000 investment in Guatemala.Small farmers there do not haveaccess to reasonably priced financeto buy the agricultural irrigationkits that Amanco was proposingto sell, so the company found partnerswho could help with trainingand financing – including the Inter-American Development Bank andthe NGO Opción. There were soundbusiness reasons for choosing Guatemala– it had some 300,000 smallfarmers who could be potentialcustomers. Despite their limitedresources these farmers haveproved to be a good credit risk.The gradual build-up of the company’sreputation for innovationand sustainability through thedevelopment of this sort of newproduct and service has beenbacked by a concerted attempt tolead discussions across the regionon the sustainable use of waterresources and on transparency.Amanco was a leading supporterof the Fourth World Water Forum,held in Mexico City in March 2006,and it has signed agreements withother firms in the sector to increasetransparency and hence to reducethe opportunities for corruption.The company’s financial performancehas been uneven across the continent.Although it is the leader inits Spanish-speaking markets, it hasa much less dominant position inBrazil, even though Brazil accountsfor over a quarter of the company’stotal sales and is its biggest singlemarket. Nevertheless, Amanco’sefforts to strengthen reputationand brand have been working –and the company has gone frombeing relatively unknown in Brazilto being widely recognised andhighly trusted in only a few years.