Interview with Marinaldo Santos, CEO of TRAEL Electrical Transformers

Let’s begin with a general question about the industrial sector in Mato Grosso. Your company is one of the largest industrial companies in Mato Grosso, a state which is not known for industry as it is for tourism and agriculture. What is your perception as a private company of the industrial sector, what advantages does Mato Grosso have to offer?

I should begin by talking about the history of this company. The company was created 20 years ago when we saw that there was a lack of industry in the state of Mato Grosso. If you think it is lacking today, then imagine it then. However the company did not begin in the industrial sector, we actually began in the services sector.

As we were working in the services sector, we saw the potential and the need to have a small industrial factory to be able to attend to the local market and regions a little bit further afield such as Rondônia, Acre, and Amazonas. The company began to grow and so we had to look for new markets not only in the central west and north. It was really a natural process. I suppose one of the difficulties we have is that we are a bit far away from many regions but it hasn’t stopped us from being competitive.

How are you able to compete with other companies? Is it easier to compete in regions where other large companies are not based? Is it possible to compete with such large companies?

It is possible; but you have to always be investing in finding ways to increase production and you must have excellent transport facilities, technical competitiveness and efficiency in your factory. You also have to work with the government and the Federation of Industries to see what benefits they can offer. Mato Grosso might not offer all the advantages that other centres can but it does allow conditions for companies here to compete with others outside of this state.

Are your clients national or international?

Today 15% of our production goes to Mato Grosso, the rest of the country receives 80% and then 5% is for the international market. So you can see that 85% of our production is for the market outside of Mato Grosso and outside of Brazil.

Through the social programs such as Luz para Todos, you have been able to see that local demand is being met. Now you are expanding to cover industrial demand by providing industrial transformers. Can you tell us a bit more about your new strategy?

This new strategy is a result of a reduction in demand due to such social programs as Luz para Todos. The energy companies in this country are now in the hands of very few groups. For example Rede Energia has 34% of the country’s energy concessions in the states of Mato Grosso, Mato Grosso do Sul, Pará and Tocantins. Therefore the purchasing power of these companies is really great and they can do reverse auctions to drive purchase prices down. It is a rather nasty practice of undercutting prices and it is a technique implemented all over the world.

Therefore we had to look outside of this unfavourable scenario. In 2008 we expanded our factory and began to invest in technology and to produce special transformers that are for high voltage transmission. We see this development as having a steadier potential.

We are in a process of 8 years of total investment of around 30 million reals; today we have invested more than 20 million reals. We are also investing a large sum in terms of the home sector, which has been suffering but where we can expand in the future. We want to continue with this investment and with the first stage of this development.

What other stages are there to this investment?

The first stage is to develop and produce transformers that are safe and secure. Today a transformer like this can cost up to 250,000 dollars. Depending on their configuration they can cost up to 100,000 reals. It’s not just a question of investment in the transformers; you also have to pay and prepare engineers and technicians, they have to gain excellent experience.

Do you need foreign technology? What technology is being used and where does it come from?

The technology used for transformers is well distributed; the knowledge is not specific to one place in the world. You just need to have financial investment to be able to do the best job you can. You also have to employ people who are already experienced in this field so that they can pass on their knowledge to the other workers here. In terms of equipment, a lot of it is imported from the USA, China and Europe. We are always travelling abroad, looking for the best equipment to give the best performance, production and quality so that we can offer competitive prices.

In terms of human resources, do you have engineers that come from Mato Grosso? Do you recruit and train people on the job?

No, a lot of our engineers do not come from Mato Grosso originally. Normally they are engineers that have worked in other factories. Perhaps they have worked 30 or 40 years in one factory and are looking for a change. Or, in other cases, we search for our professional employees by making a proposal, looking at what they earn in other companies and winning them over. In terms of technicians we tend to employ local people and train them on the job. Obviously human resources can be an issue, as we are quite a remote factory, when we bring employees in from other regions they have to adapt to the culture and the climate here in Mato Grosso.

The costs here must be an advantage over companies that are in São Paulo in smaller spaces.

In terms of physical area and land area, we have enormous potential here and it is our advantage over other regions. In terms of civil construction, it can be more expensive here because a lot of the materials are imported from the south or south east of Brazil.

In terms of workforce, the unskilled workforce is cheap but the skilled workforce is expensive. If we bring in employees and train them over 1, 2, 5 or 10 years, we cannot afford to lose those employees after all we have invested in training them.

Therefore overall I would actually say that our costs are higher than companies in São Paulo.

So what are the advantages you have over your competitors?

What keeps us going is our focus on the business. To succeed you always have to prioritise and improve the way your work and what you produce. You have to always be looking for the best way of working whether it is technology, equipment, machinery, etc. It is important to invest not only in equipment but also in workforce. It is not necessarily worth cutting down on employees when you buy a new machine.

In our company we are very focused, we are creative and we make sure we invest in the correct areas, and we work really hard, we work 15 hours a day to overcome any difficulties.

Can you tell us about certifications?

Yes of course, certifications are hugely important. Apart from the ISO 9001 certification, every concessionaire that we sell to has to be certified first even before a product can be sold, of which all have to be certified in their own right. There is a lot of regulations to be followed with this kind of product and business, you have to follow these regulations to be able to work.

Energy is just like any other product that it is being used more and more every day, until one day the planet is not going to be able to cope with the demand. So not only the government but also companies are looking for ways to make their products more efficient with better performance. All over Brazil, companies are trying to make sure they can improve their performance and reduce their energy consumption.

Would you be interested in creating partnerships in the future? What is your future strategy?

Our strategy for the future is to become the best in the country. We have never really thought of setting up partnerships or a joint venture. We once had a proposal of a joint venture with an American company, but it was only speculation and nothing came of it. I don’t really believe in partnerships. I don’t think they lead to success. Our market is changing all the time, the economy is never constant. I will give you an example; 12 years ago a Swiss company ABB bought out Mega Transformadores in Santa Catarina: one of the largest transformer companies in Brazil, for 20 million dollars. I recently heard that they have said to their clients and suppliers that as of 1st of January they won’t be producing any more transformers. They must have about 70 or 80 factories all over the world making all types of products but stabilised transformer production is stopping. It is so competitive that it is almost impossible for a company like ours to set up in that environment. I don’t want to have to change my business or my headquarters, especially if I have made the investment to train my employees, etc.

In the north east there is an Indian energy company, which carried out investigations around the country during the Luz para Todos campaign. They found that there was a large market at a good price and so bought a very small company in João Pessoa, in the state of Paraíba. They invested a lot, approximately 40 million reals, it think they may have even spent 70 million. However it has surfaced from Serasa that there are 2.5 million reals that are contested. They have been working for 8 years in Brazil pushing their product; they offer very competitive prices, but it is very difficult to succeed…

Was there not a director in the company that perceived this problem and changed something, if they weren’t making money, or were they too far away in India?

Every company has its costs; unfortunately they weren’t able to make a profit. They began to create foreign debt. It was an investment that was financially contracted and didn’t work.

So you have to find a way to not deviate from the group as a whole, it could be a fusion or a new technology or other markets. You could potentially find a partner in Peru or Venezuela for example, a way for you to develop a section abroad?

I have to say that I don’t see it that way. I think if you have a large factory and good equipment, you just have to make sure you have various options for doing business, so that you don’t go into the red or have to close. We are seeing large companies having to close down.

To conclude, what is the message that you would like to give to our international and national readers?

My message is one of perseverance, you have to look at what is happening right now. If you could take a step back, to encourage an investment or take action to keep your company in financial good health or a situation that is at least tolerable, I would say don’t hesitate to do it immediately. The globalised world is right there. America is picking itself up again. Lots of material is imported from the USA. 5 or 4 years ago I used to buy equipment worth about 4,000 dollars, they are now worth about 1.7 million dollars. This is the result of globalisation and world competition. You can trade with the whole world, for example Korean merchandise is arriving in Brazil now. You have to be able to compete on the world market.