learns to diversify after turbulent political times

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Mr Valentin Bagarella, President of Sadeven Industrias C.A.

Sadeven Industrias C.A.

Interview with

Mr Valentin Bagarella,
President of Sadeven Industrias C.A.

September 21st 2000.
Can you give us a brief historical background of the company?

Sadeven started in 1989, about eleven years ago. Everyone came from an international background; we started working in this country about twenty-three years ago. We came from different countries, I am personally from Argentina. We were part of an international group of construction companies owned by General Electric, this means that I worked for them for twelve years. In Venezuela, I started with them in 1977 working for them first as a commercial engineer, then as construction manager, later as general manager and finally as managing director. At that time the group of companies was purchased by ABB from General Electric. Some of the people who were managing here were basically left with two options: move to a different country where ABB offered us new opportunities, or to stay on your own.

We opted for the second option and, with the assistance of some Brazilian shareholders founded Sadeven in early 1989, technically speaking from scratch. Of course we had a good background as we were working in the same kind of activities and with the same kind of customers, but when you start again you lack the support of an international company. The first years of our activities were a bit rough in the sense that we had to start building some background for our new company. Our foreign shareholders, after two or three years, decided that they did not want to stay here any longer and wanted to sell their shares. That was the year we had two military revolts. Being the President of this company and a minor shareholder I took it upon myself to find new shareholders here in Venezuela, so I picked people who were friends and owners of other construction companies more oriented towards civil works contracts, and then, with their assistance we continued moving on in Venezuela. Almost immediately business took off for us now as a national owned company. Soon after that we also began working outside of Venezuela. Using our previous experience in the region when we were employees of the subsidiary of General Electric, we tried and were able to do more or less the same with Sadeven.

We are a company, which is successful in the electromechanical field of construction. We do not build bridges or roads; we build industrial plants and electrical infrastructure. That is basically our main area of activity. We are constantly seeking new opportunities, and we try to anticipate and take advantage of changes. We also try to achieve excellence through our ability to diversify technologically and geographically performing in the construction projects. For reasons of survival in a market were you have lots of ups and downs, you cannot limit yourself. If you say that you only build transmission towers, you will disappear. We define ourselves as an electro mechanical contractor; we work in almost every field of application of the electromechanical construction.

Going back to our history, as I already said we tried to diversify geographically always taking into consideration the limits that our financial capability allowed us. We started to work in the region in 1994 with small operations in Colombia and Dominican Republic. Later we performed projects in Central America, El Salvador specifically. We are currently working in Colombia, and in Trinidad and Tobago. We have been successful with the things done over there. In any case our basic activity is here, Venezuela is our strong point and head office, but we work with a regional outlook.

We provide construction services for a broad range of clients. We are in the petroleum and petrochemicals, mining, industrial plants, environmental installations, electricity generation, electrical substations and transmission lines. To serve them we have three different operating units inside the company: transmission systems, industrial installations, and structural steel fabrication /galvanizing; this last one because we are a construction company, which also builds transmission towers in our own manufacturing plant which provides ten percent of our yearly income. From this plant we export towers to all the countries where we had construction activities and also to others where we still do not operate .In Mexico we sold two thousands tons of towers and we still do not have a construction activity there.

Right now we are incorporating a company in Mexico, and we plan to put part of our net worth there in order to be able to develop some of construction activities. That company will be called Sademex. If we are lucky we should have our Mexican operation on the way in a few months. . This is also using our same strategy: mix of geographical diversification/ working in different fields.

How do you manage in the middle of the recession to almost double your sales?

We are less hit because the geographical/technical diversification gives us more opportunities to pursue and in addition we spent a lot of time working and had a little luck. Construction has a lot to do with various things; technology has some value, but in the end everyone has the same technology available, it is very difficult for one to say that he has the technological edge and thanks to that he can get more contracts. That is not true in the construction business, here the people are very important: entrepreneurship, leadership, setting examples and a lot of work helps us to make a difference. We try to maintain our supervisors and foremen working for us as much as we can, this establishes loyalty and identification with the company. We have a budget for preparing the personnel and we use it. We also try to motivate them with some participation in the results we achieve in every different project. With this recipe we have been working through recession, crisis, and problems. We also have earned a favorable reputation as we try to serve our customer and also try to perform in accordance with the budget and schedule. We think it is very important to fulfill the commitment you have with your customer, and we also feel that when the customer does not fulfill their obligation to us we have to be very strict. In this way we can get the economical equation back where it should be.

I believe that this combination of working in almost every field of the electromechanical construction and in the surrounding region instead of only in Venezuela, makes our operation original and more flexible. The fact that we spent some money on our staff and we fulfill our obligations with the customer, plus the fact that we work a couple of hours more than our competitors, gives us a certain advantage. We believe that we live in an environment where there are many problems with the quality of communication, bureaucracy, etc. Because of these shortcomings if you want to be able to accomplish your duty to the shareholders of the company you have to work more.

You mention before that some of the foreign shareholders decided to leave the company and right away some other Venezuelan shareholders decided to join the company. Could you perhaps give us the picture of the shareholding structure, who are the main shareholders in Sadeven Industrias?

As a individual I am the main shareholder but the main shareholders of the company is a family which is very involved in the Venezuelan construction business and a small amount of the shares is with other management of the company. In theoretical terms this is a type of family owned company, but certainly is not a family operated type. This company is handled by the managers, probably because of our previous work as employees of a multinational, the shareholders meet once a year, they get the balance sheet and an explanation; they provide approval to our strategic plan and to the major investments budgeted. Once they do that the management of the company is put to work, we have a delegation system here where each of the directors of the company have a responsibility, which he must fulfill and is measured in accordance to that responsibility.

I personally never think of myself as a shareholder, it is wrong to act as the owner in a company where there are other shareholders that do not work there; you want to delegate authority and that the fellow employees of the company assume responsibility. In order to gain freedom from the shareholders it is very important that profit is generated every year. In making profit one gains freedom. It is very difficult that someone will want to obstruct your activities if you are doing well.

Has the idea of going public, of issuing an IPO ever crossed your mind and under what circumstances, and with what goals?

Yes, it has come to mind in a couple of opportunities, but the fact is that first we have to find the way to increase our activity and start to participate in other areas of business indirectly related to the construction sector. The problem we have nowadays is to be able to get to different and new areas of work. Another issue is what to do with the money we produce. Of course we could give it to the shareholders, but since we want to have a non-marginal company we cannot do that. We envision ourselves as leaders, a regional leader in the electromechanical construction and electric infrastructure, in which the customer can trust. In order not to be marginal the only thing we can do is to continue growing. For us to grow we have to find new ventures that will help us grow. We want to use the extra money we have in order to invest it in different opportunities. We want to work more on a regional basis to see if in the future we are going to be able to have new strong holds in other countries that will bring about different opportunities. The basic reason why we have not gone public is because so far we have not felt the need for additional capital to do so.
Out of the country you have already expanded your activities, are these going to be more profitable in the medium term?

That I cannot tell. The country I know best is Venezuela. This is the place in which we usually earn most of our money. We basically know the customers here. The majority of our management is here; we still expect to get from Venezuela a reasonable return. In that sense we trust that we will continue growing in Venezuela even if at a different speed. That will depend on many things, like whether the prices of oil will drop soon, that are not directly related to our own capabilities. We have certain expectations for Mexico at this point, because we believe that the economical policies in Mexico are promoting stability and also because there is a huge factor being that the U.S is a bordering country. We will begin with very cautious steps.

Speaking of Mexico, they are going through a positive transition, political and economical, and the financial position in the construction sector is very critical, that is the reason why they told me that it is the moment for foreign companies to invest in Mexico and they are going to take advantage of having a healthier financial position, do you perhaps plan to do this venture with local expertise?

Now we are proceeding to incorporate the company by ourselves. We plan to work in consortia or joint venture with other companies; we believe that these kinds of associations bring good results. In any case, when you make an association with somebody, you distribute the risks and always learn something, which is usually good for your future development. The association is strongly judged by the growth opportunity. We are in the process of taking our first step and we will eventually see the outcome.

You have a long experience being part of joint venture projects like SINCOR, INELECTRA, PDVSA subsidiary how would you access the experience that you got from these companies, and what is the profile that you are now targeting for future projects?

Our experience with those partnerships, the alliance, and associations and in general the different systems used in the past are positive .Of course, some were more positive than others. Like I mentioned before, there is always something to be learnt from all experiences. The associations are something that any one wanting to be involved in the business must be willing to do. In order to associate yourself with another company you should be clear on a certain number of things: you will relinquish some authority, you have to deal with someone else that might have a different bottom line and therefore the interest will be different but you have a common interest and you must be very honest with your partner. We try to be fair and have a relationship in which everyone has his or her own rights. My opinion is that we will continue to work in this kind of partnership and in the future we might look for more. And this might be targeted in the specialty that the partner can bring, depending of the needs of the company.

To be able to promote the willingness of association with us, a few years ago we started integrating ourselves. Sadeven is the only real construction contractor in Venezuela who has in house engineering capabilities in order to perform high voltage projects. As such our company does the engineering, the manufacture of towers, and the construction of transmission lines, in electrical substations we have a rare capability. Now we have to look for different approaches to the association. The fact is that every project had a different kind of partner, since we continue with our diversification approach and our main objective is to get construction contracts, we favor partnership.

When the fabrication of steel structure and high tension towers accounts like you mentioned for ten percent of your total revenues, do you expect these market segments to be more represented in the future do you expect it to grow significantly, what are the markets that you are targeting and are you also trying to target the markets of Latin America?

Our fabrication activity is more the result of our intention to integrate a little bit more our activities and have more flexibility in order to fulfill the schedule of our customers that believe that fabrication of towers is considered a business in Venezuela. The main customer of our manufacturing unit is our own company. We have been successful in past years supplying towers to the regional markets. To Ecuador, Colombia, El Salvador, Mexico, Jamaica, Dominican Republic, Trinidad and Tobago, Honduras. Today it is very difficult for us to sell towers in the foreign market because the present relationship between the U.S dollars and the Bolivar makes our products expensive. Our manpower is expensive, if you consider the productivity we get for the money we pay. We are not today in a very good situation if we want to export, so we export only to the projects in which Sadeven is the contractor. In that case our manufacturing unit works as a partner. If we have to sell the towers to someone else he would have to put an administrative cost and profit in order to sell it to a project and those cases we are no longer competitive.

In any case we expect new possibilities here in Venezuela; the electrical infrastructure has been very neglected in the last fifteen years. There should be a participation of private, local and foreign entities, in association with the government, in order to develop the electrical grid and also to provide more generation. That will happen soon, and once that happens we should be able to increase our business in the tower area because it is a little bit different when we are inside, we have the protection of the customs taxes and the transportation costs, which should offset some of the negative costs of manufacturing here. Our local expertise is also an important item.

You talk about diversification geographically speaking, and also in different fields in the construction sector, do you also have the ambition to diversify your activity to other sectors besides construction?

Yes, since we believe that whatever we do has to be something in which we have some sort of background, we might involve ourselves in areas in which the service activity one way or other is required. In the past we tried but did not succeed to operate one marginal oil field. We were the only bidders but we were unable to provide the bonds that would guarantee the performance of the contract, therefore the customer decided not to give us the contract. The fact is that we are always looking for activities in which we can use some of the expertise related to the services that we usually provide. We would not go as far as involving ourselves in the Internet sector for example, because it is something we have no experience in, but we may relate ourselves to the oil service area, or the gas development. We are looking for partners. In the future we see Sadeven as shareholder of new companies doing business in these areas.

Considering that Forbes Global readers are top executives and that some of them are managing construction companies and they may be interested in investing in Venezuela. Why should they knock at your door to consider your company as the ideal partner for their ventures in Venezuela?

A couple of things that we can share for others people's benefit, we know the market; we have been able to succeed without using unethical mechanisms. We believe that professionalism pays back. The combination of choosing to be professional and that we know our customers and that there is some kind of trust related to our name is an asset that we have in Venezuela.

NOTE: World Investment News Ltd cannot be held responsible for the content of unedited transcriptions.

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© World INvestment NEws, 2002.
This is the electronic edition of the special country report on Venezuela published in Forbes Global Magazine.
April 2002 Issue.
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