Executive Cases: Interviews with Senior Executives of Early-Stage Companies:
Pintar International – Philippines
Prepared by George Foster
Pintar International Corporation started as a backyard operation with a handful of workers and a small kiln to produce a special kind of ceramics called bone china (bone porcelain) under the supervision of Manuel Pleno, a ceramic engineer who had learned how to make bone china while training in New Zealand with a ceramic factory.
Q1: What was the source of the initial idea, and how did that idea evolve into a viable, growing company? How did it change over time?
“The world market for bone china decorative wares was mostly concentrated in the US, the United Kingdom and Germany. The English makers had already developed a sizeable market for their decorative bone china. At the time Pintar entered the market, there were a Japanese maker and several Taiwanese makers offering a less expensive product due to significant wage differentials between the United Kingdom and the Asian countries.
“Deciding what to produce, creating innovative and attractive designs and correctly pricing them, given our production limitations at the start, was critical. Fortunately, we mostly made the right decisions and the company grew. From fashion jewellery pendants to napkin rings, we graduated into bathroom accessories (tumbler, toothbrush holder, soap dish), and then to larger vases, footed bowls and dishes. We also went in new directions, like Christmas ornaments.
“As our production facilities improved and our ovens became larger, we were able to introduce more items into our product lines and also achieve economies of scale to make it economically viable.”
Q2: What were the major growth accelerators for your company in the early years of high growth?
Pleno: “Finding large customers was the most important accelerator for our company in the early years of high growth. Being a small start-up company, our size was a challenge compared to our potential buyers’ requirements. Servicing the orders to our customer’s satisfaction and getting repeat orders is really the name of the game. Consistent and dedicated work with no let-up was essential for Pintar. We also developed our business with smaller customers to grow them into medium-sized companies. We were continuously product-developing with them, some ideas coming from them and others from us. Also, by having satisfied customers, word goes around the buying community, and referrals from existing customers brought in more customers.
“Finally, we had unexpected sales help us grow and build stature. An example was when an NGO approached us to provide employment for resettled squatters (slum dwellers) from Metro Manila who lived near our factory. They were taught how to make bone china roses (small ones that could be transported in boxes without crumbling) to attach to our vases. Pintar designed a range of gift items with at least a dozen roses attached to each item. These products were very successful at the Frankfurt show. Our sales jumped and we were able to give livelihood to quite a number of people outside our factory.”
Q3: What role did key aspects of the entrepreneurial ecosystem surrounding your company play in the growth of your company?
Pleno: “The ecosystem in the Philippines was not manufacturing-friendly when Pintar started. We encountered politicians grand-standing and passing 20% increases in minimum wages without regard to labour-intensive export industries such as Pintar’s. Overregulation drove up the cost of doing business. Advance taxes on imports, automatic surrendering of foreign exchange to the central bank and buying again when needed to import raw materials became part of doing business.
“Nonetheless, there were also positives from the government for a small start-up during our early years. They helped us participate in international trade fairs. The Department of Trade and Industry helped us negotiate ways to satisfy some government regulations.
“A major positive for Pintar was the opening up of the special funding for export industries called the Export Industry Modernization Program. The Japanese government provided long-term money (up to seven years) at 7 and 3/8% per annum interest rate to Philippine exporting companies. In the Philippines, even today, there really is no long-term financing available to manufacturers. A one-year loan is already considered long term. At the time Pintar needed the financing, interest rates were running 20-30%. Later, government administrations frowned on this type of financial intervention (sadly) and wanted the regular banking channels to provide the needed financing.”
Q4: What key aspects of the entrepreneurial ecosystem surrounding your company that were absent (or existed only in a weak form) created the greatest challenges for growing your company? Please describe and discuss how you met/were impacted by these gaps in the ecosystem and their resultant challenges.
Pleno: “Normally, in a well-developed economy, there is a lot of horizontal integration among industries. Thus, if I were a ceramic factory, there would be clay mining companies, clay formulating companies, glaze-making companies, colour makers, kiln manufacturers and kiln furniture makers. In a developing country, when one starts a new industry, there are no support industries. You have to source them abroad. This is feasible if you can bring in materials and equipment freely into your country. However, usually, developing countries have very stringent rules about importing materials and tax them very heavily. To overcome this, one has to register with the government as an export company which requires a lot of paper work and time. My MBA background helped in negotiating with the government.
“Your ability to create innovative products is often hampered in developing countries. For instance, we had one customer, The San Francisco Music Box Company. The music movements for this product category are only available from Switzerland and Japan. Bringing them into the Philippines required so much effort that we could not really exploit this business fully.
“Another example is packaging. There is a local packaging industry in the Philippines, but the quality does not pass the requirements of Marks & Spencer. However, the government protects the local industry. The result was large amounts of effort to justify importing the gift boxes from Hong Kong.”
Q5: At what stage did you invest significant resources seeking to grow your company internationally/beyond your domestic country or region? What factors were pivotal in deciding when to seek growth internationally and where to seek that growth?
Pleno: “Since the outset, we were aiming for international markets. Our principal target market was the US and the United Kingdom since they were the most developed markets for our product. After our initial four years of operation and just managing to survive, we decided to build a factory with the right equipment, tools, raw materials and adequate capital. That is when we decided to apply for a long-term loan and had to put up my brother’s house as collateral.”
Q6: What were the biggest challenges in building growth internationally? How did you meet or adapt to those challenges?
Pleno: “The biggest challenge in growing our business internationally was the aggressive competition from Taiwan and later China. If we were very successful with one design, for example with Marks & Spencer and our ‘Victoria’ collection, in a year’s time our Asian competitors would have copied the design down to even the packaging and the name, at one-third to half our price. But the big difference would be the quality. While ours was bone china, theirs was a more greyish porcelain. Fortunately, the English public would rather pay the little extra and get the real thing than just a cheap substitute. Our prices were still moderate compared to the English product and just as good in quality (as admitted by Marks & Spencer).
“The other strategy to overcome the Chinese competition was to enter new product categories and niche markets that they would not imagine entering. For instance, we collaborated with a Scottish soap maker to make Humpty Dumpty egg cups, with their soap in the shape of an egg. We sold tens of thousands of these. We worked with one Christmas decoration wholesaler and developed items which were not glazed and made ideal candle votive holders.”
Q7: What major role, if any, did key aspects of the ecosystem in the country (or countries) you first sought international growth either promote or impede your ability to grow in those international markets?
Pleno: “The countries we first chose to export to were very well-developed as markets, especially the US. The wholesale and retail trades were very organized. Wholesalers were typically national in scope, i.e. covering the whole US, with most having up to 15 showrooms in key market centres. Sales representatives ably covered the different market territories. There was a calendar of shows regularly attended by the tens of thousands of Mom and Pop stores all over the country. For decorative ceramic wares, for instance, there was 225 Fifth Avenue in New York City. Here, anyone important in the wholesale trade of gifts and decorative accessories can be found. Apart from the trade shows, there were monthly trade magazines that showed the latest collections and who’s who in the trade.”
Q8: Seeking international growth often has both high moments and dark (low) moments. Briefly describe one high moment and one dark (low) moment in seeking international growth.
Pleno: “One event that captured a dark moment and a high moment happened sometime in 1987. One of our biggest customers was a UK party plan (Avon style) company that was the second largest in Britain. We had been doing business together for over three years and our volume of business had reached close to half a million dollars annually. Our transactions were done through letters of credit (L/C) which stipulated the items ordered, quantities, prices and the latest shipment date. As long as the supplier strictly followed these conditions, payment was assured. Any changes, like extension of the delivery date, however, would require an amendment to the L/C which could be quite expensive.
“In one instance, as we were finishing up on two purchase orders to be loaded on two 20-foot containers worth about US$ 60,000, we realized we would miss the L/C’s latest shipping date by a few days. As had become routine with this buyer, I would fax her that we would miss our deadline and request a fax back saying that they would accept late shipment. This would be enough to present to our bank so that they would purchase our export documents without an L/C amendment. We had done this many times before. It also happened that I was leaving for Frankfurt, Germany, where we exhibited twice yearly at the largest gift and housewares fair in the world.
“When I arrived at the fair on opening day, I received the news that my party plan buyer had gone bankrupt! This meant that I would not be able to claim payment for my shipment. I contacted all my UK buyers and informed them of the situation. I was very disappointed to hear them offer to pay me 40 cents to the dollar for my shipment. I narrated my sad experience to my biggest German buyer who did about US$ 250,000 annually with me. Much to my surprise, he offered to buy the whole lot (the items were the same as what he regularly buys from me) at full value. I was overwhelmed and inspired that, in this world of business, there was room for fairness and integrity. This German buyer became my most prized customer.”