Interview: Tecnoglass COO Christian Daes Is Striving for Greater Vertical Integration and Further Expansion into the United States
Barranquilla-based window-maker Tecnoglass (NASDAQ:TGLS, BVC: TGLSC) is an undeniable success story in Colombia. It is a manufacturer that exports the bulk of its products to the United States in a country not known for export-oriented manufacturing.
Christian Daes, the company’s chief operating officer, told Finance Colombia that there really is no secret: Tecnoglass simply manufactures windows for the U.S. market and then delivers them with higher quality and at a lower price than the competition.
“I don’t show results quarter after quarter to make anybody happy. I plan for the long run.” – Christian Daes, COO of Tecnoglass (Photo credit: Liliana Padierna)
He recognizes that not enough Colombian companies have been able to replicate this model to take advantage of the free-trade agreement with the United States.
But the company wastes no time lamenting that fact. Instead it has continued making acquisitions and setting up operations in the United States since becoming a publicly traded company on NASDAQ in addition to its listing on the Colombian stock exchange, Bolsa de Valores de Colombia (BVC).
Daes recently sat down for an extended interview with Loren Moss, executive editor of Finance Colombia, to discuss the early history of the Tecnoglass, its recent acquisition of Giovanni Monti and Partners Consulting and Glazing Contractors (GM&P), ongoing efforts for greater vertical integration, further expansion into the United States, and why Barranquilla is set to rise again as a business hub.
Read an edited version of their conversation below or watch the video version here:
Loren Moss: To start could you just give me a recap of Tecnoglass? We’re here in Barranquilla, the largest city on the Atlantic coast of Colombia. How did Tecnoglass get started? Tell me about how you guys have grown to where you are now.
Christian Daes: We began in 1984 making solar water heaters, but then soon after we started the company, natural gas came in pipes in Barranquilla, and obviously the natural gas people began to distribute the natural gas heaters for water at a very low price and financed from 12 to 24 months to incentivize people to use natural gas.
Obviously we had our first crisis there. We were using glass and aluminum to make the solar water heaters, and so we decided that maybe making aluminum windows would be a good deal. We began making aluminum windows. We began to grow the company.
“Our sales were up to $50 million USD by 2006, and we decided that it was time to establish our own aluminum company to continue with our vertical integration.” – Christian Daes
By 1990, we were doing a couple of million dollars in sales. By 1994, we were already doing $15 million USD, and we were already a national company selling in Bogotá, Medellín, Cali, Cartagena, La Guajira, and Santa Marta. So, we were buying a lot of glass. We decided to put our own template facility.
At the beginning, the name was “Energia Solar,” so Tecnoglass started as a company to supply the glass to Energia Solar. When we finished the plant that was ready to start in 1995, Colombia was in the middle of a construction crisis. Crises have always changed our path — or our future — which is good because every time we have had a crisis, we have become a much better company.
Since we didn’t have anybody to sell the glass to — because Colombia was in a construction crisis — we went to the U.S. to try to open a market, and we found the perfect partner in the U.S. called RC Aluminum and Mr. Raul Casales. We started making glass for him. We did the first job, and then he saw the quality of our products and he began to expand — to buy more from us. Then we asked him why he didn’t send me the aluminum and I would cut the aluminum, assemble his windows and put my glass in and ship them to the U.S., which he agreed to and we started with the job in 1997.
We began to develop the business over the years. In 2000, the hurricane law they passed in Miami-Dade County obligated everybody to use hurricane-proof glass. We were ready to invest in the new laminating facility. We expanded five times in the next five years. Our sales were up to $50 million USD by 2006, and we decided that it was time to establish our own aluminum company to continue with our vertical integration.
When we had the aluminum factory ready in 2007, the U.S. was in the middle of a crisis, and we used to sell 90% of our production to the U.S. and 10% to Colombia. So we had to come up with new products for Colombia and for Panama, and we were able to grow from $50 million USD in sales to $120 million USD by the time the crisis was over in the U.S.
So that means that the crisis helped us to really grow and expand our sales into other markets where we were not selling before. Then, in 2013, we decided to go into the NASDAQ market, and the reason why we did so was because we felt that was the only way to really expand in the U.S.
We were playing local in Miami, but it wasn’t so easy to sell in New York or in Ohio or in Chicago or in Los Angeles because people said, “Who are you? How do I know you are going to deliver?”
“We want Barranquilla to be known in the future as the capital of windows in the world. Whenever anybody thinks about a window or a piece of glass, they should have Barranquilla in mind.” – Christian Daes
So, when we entered the NASDAQ market, the stock market, we had that in mind — and it paid off because we were doing $120 million USD and today we are going to do approximately $350 million USD in sales, which means that it helped the purpose.
Loren Moss: That’s interesting. I remember when you were in Medellín recently, I was at a talk that you gave and you talked about how difficult it was to break into the U.S. market.
There were people that you talked to that really didn’t want to trust you and had never thought about Colombia as an exporter of glass, and when you shipped them glass and they measured the quality, that they would probably check it even more stringently than if they had bought it domestically. How hard has it been to overcome at least any initial perceptions with people not thinking of Colombia as a traditional export manufacturing source?
Christian Daes: It’s very difficult. Getting a product from Colombia that is not a traditional product — like windows and glass — to a U.S. market was the most difficult thing that we have ever done.
There is an ASTM standard that you have to follow for quality in glass, and when we got to the U.S., the standard was not being used to check glass. But the standard says that you should the check 3 meters, or 9 feet, away from the glass, and if you don’t see the defect, the defect is not there, and our glass was being looked at from 3 inches with a magnifying glass to see if they could find anything.
So that taught us to be even better, to make an even better product and become a stronger company quality-wise, and that’s why we have the best quality in the industry. That’s why our slogan is “The Power of Quality.” That taught us a lesson to be the best.
Loren Moss: We’ve followed Tecnoglass for some time, and your glass is used in some very marquee properties: airports, high-rise hotels, universities — not just in the U.S. and here in Colombia, but even in Panama and other countries. How do you see the potential for growth? Obviously, the U.S. is a wide-open market for you, but then in other countries, whether those are nearshore countries here in the Americas or the Caribbean or even across the ocean. Is there a potential there or is there still so much of a market opportunity in the U.S. and Colombia to be exploited?
Christian Daes: Definitely the U.S. is such a big country and a powerful buyer that we still have a lot of growth to do in the U.S. The market for windows in the U.S. is over $30 billion USD, and we are hardly making 200 and some million dollars in sales. So that means there is still a long way for us to go.
But we are also looking to many other markets, even Colombia continues to be a very strong market for us. Panama, Bolivia, Ecuador, Argentina, Chile. And we want Barranquilla to be known in the future as the capital of windows in the world. Whenever anybody thinks about a window or a piece of glass, they should have Barranquilla in mind, and that’s what we’re trying to build here. Now that you are here, you can see the magnitude of the facility that we have in Colombia. This is 90 acres of land. This is 3 million square feet of factory.
Loren Moss: Usually when people outside of Colombia hear “Colombia” they think of Bogotá and they think of Medellín and they might think of Cartagena for tourism. Barranquilla is a large port city. Even though there’s a lot of domestic manufacturing here, it’s interesting that you guys have staked your claim here in Barranquilla. Besides being a major port city, what are the advantages of this particular city on Colombia’s Atlantic coast?
“The U.S. is such a big country and a powerful buyer that we still have a lot of growth to do in the U.S. The market for windows in the U.S. is over $30 billion USD.” – Christian Daes
Christian Daes: The best thing about Barranquilla is not only that it’s positioned in a strategic place. Because obviously, being less than three days away by boat from Miami — or five days from Houston or 10 days from L.A. or seven days from New York — that’s a very powerful place to be when you want to export, especially to the U.S. market.
But in the end, it’s the people in Barranquilla. People in Barranquilla are different. They are relaxed, happy, hardworking, and they learn anything quickly. It helps when getting into this type of business that you don’t learn at university.
For finance, you can go to university and learn how to work the finance side or accounting of administrative issues or the calculations of a civil engineer. But to make windows, there is not a university. This is something that you teach from one person that knows to the next one.
And Barranquilla has proven to be the perfect place to be because the environment where we work is a happy environment. One of the things that surprises most of the visitors when they come over from the U.S. is that people are so young, people are so happy at work, and people can deliver what they promise that they can do.
Loren Moss: I’ve only been here in the city a few times, but it seems to have a very good infrastructure, very good roads as far as capacity compared to even other cities in Colombia. Why is it that Barranquilla’s message has not gotten out? Why is it that Barranquilla doesn’t have maybe the fame that some of the other large cities in Colombia have?
Christian Daes: Well, because we were for many years behind in many things. But lately we have had four mayors in a row that have been very good to Barranquilla and that have really turned Barranquilla around.
If you talk to anybody in Colombia, they will tell you that Barranquilla, within the next 10 years, will be within the first two, the first three in Colombia. Why? It’s because we are getting back on track. Barranquilla’s nickname is “The Golden Doorway of Colombia.” Why was Barranquilla called the Golden Door of Colombia? Because everything came through Barranquilla.
When the Wright brothers began to fly in North Carolina in 1912, the first plane landed in Barranquilla. The first airmail was in Barranquilla. Soccer came in through Barranquilla, radio stations came in through Barranquilla. The traffic-light system? Through Barranquilla. The first Olympic stadium? In Barranquilla. The first public water-treatment plant was in Barranquilla. The development of Colombia came in through Barranquilla.
But then, we had a problem. We had a guy who was very industrious, Julio Mario Santo Domingo, and he had the beer company. He had 20 companies in Barranquilla. But then he decided to move to Bogotá. Not the companies, but he began moving his people to Bogotá, and then he sold the companies and he moved to New York. And people in Barranquilla got used to being employees and not being entrepreneurs. And then we lost like 20 or 30 years because of that.
Tecnoglass is an example of what Barranquilla is capable of doing. We would love for Barranquilla to be more industrious, to have more industry. And I’m saying “we” because I feel like I am the mayor of Barranquilla. I want the city to do better, and I always talk to the mayor and to the governor of the Atlantico department. I want them to approach companies and tell them that Barranquilla is the place to be.
Loren Moss: Are there other major companies that are headquartered here in the Barranquilla region that might be export-oriented?
Christian Daes: Well, the headquarters of the main four companies in Colombia had their headquarters originally in Barranquilla. And in Colombia, there is a law that where the company was born is where they have to do their annual meeting for stockholders.
“Getting a product from Colombia that is not a traditional product — like windows and glass — to a U.S. market was the most difficult thing that we have ever done.” – Christian Daes
So, for example, Avianca’s meeting is in Barranquilla because Avianca started in Barranquilla. Argos, which is a company that people recognize as being a Medellín company, was started in Barranquilla, and the meeting is in Barranquilla.
And you have many other companies like that are no longer in Barranquilla, but they have to come and have their meetings in Barranquilla because this was their starting point. I mean, it’s where the Magdalena River — which is as big as the Mississippi River — is.
We have the second largest river on the continent. And when it meets the ocean — the Caribbean — Barranquilla is right there. The first deepwater port in Colombia was Barranquilla.
When my grandfather came from Palestine, he landed in Barranquilla. They didn’t know where they were going to land. They took a boat to America, and the boat would stop in Chile or in Peru or in Colombia or anywhere. It landed in Barranquilla, and many other things took place in Barranquilla. The problem is we had such success that for some time everybody studied to be an employee of Julio Mario Santo Domingo.
I wish one day we could even be similar to Julio Mario. I’m not criticizing Julio Mario. On the contrary, I’m saying that we were no longer on the entrepreneurial side because people held him as “the god” and all the companies were his. Everybody was going to school to work for him. So when he left Colombia, we were missing our father here.
Loren Moss: The boss left.
Christian Daes: There was nobody making any companies or doing any developments or anything in Barranquilla, and the public side was not helping. Finally, we got the story together, we are right back on track. We have had this mayor now, Alejandro Char — twice, once in 2008 and now for the second term. And he has been so good for the city that we are right back on track. I mean, we will be back.
Loren Moss: So Tecnoglass has come a long way since manufacturing solar water heaters. You have made some acquisitions in the United States. Can you tell us about your purchases? I believe you have a presence in Miami now.
Christian Daes: We purchased GM&P [Giovanni Monti and Partners Consulting and Glazing Contractors] because we want to install and distribute our products directly — go all the way from one side to the next, doing everything ourselves.
“Crises have always changed our path — or our future — which is good because every time we have had a crisis, we have become a much better company.” – Christian Daes
The warehouse that we purchased from Glasswall three or four years ago was to have a place that we could have our main customers. And GM&P, to have them in one place so they could be able to unload containers if they had to, or fabricate, like GMP was fabricating in Miami. And we bought these two companies to integrate them and to make sure that we have a more efficient operation and that we can go from zero to 100 with customers.
Loren Moss: Speaking of that vertical integration — of being able to offer everything from manufacturing to installation — where are you there? I know that, beyond glass, you also have an aluminum fabrication factory manufacturing aluminum. I would imagine that is for the frames for the glass, but could you describe that better? And then you have plans for even greater vertical integration? What about going to manufacturing from even the silica itself up to the glass?
Christian Daes: That’s our dream. One day we will be melting the sand and making glass. We will get there. It’s not easy. When we began, we were a garage company in a small country. We have come a long way.
There is still a lot more to do, and we are on the right track to do it. But we like to be taking steps that sound very aggressive, but they are very conservative. When we started, for example, our aluminum plant, for two years we were not making any profit, but it paid off afterwards.
When we make acquisitions at Tecnoglass, we never plan for the short term but for the long run. We are always thinking of five, 10 years from today. You have to remember that we are the only glass company of this size that is managed by the owners. So what makes us different than being a CEO that hires for a company is that my term here is a life term.
I don’t show results quarter after quarter to make anybody happy. I plan for the long run. And maybe the results today are not as good, but I’m planning the future. I am building the future. So this is basically the way that we are planning in Tecnoglass: that one day we will close the loop and do our own glass.
Loren Moss: One of the things that seems to be important here is the corporate culture, the well-being of the employees. I know that you have a foundation and that you provide a lot of things, and I would imagine it would be more difficult to do that if you were, say, private equity owners who are looking at a two- or three-year time frame to cash out versus looking at the long range and the strategy of the company for the next 20 or 50 years — or in the next generation.
Christian Daes: First of all, to us there is nothing more important in life than our employees. We want to make sure that the wealth of the company is distributed among the employees, that they do well, that they grow with the company, that their lives become better and that they can give their families a better way of life.
At Tecnoglass, for example, we pay for university for 190 sons or wives or employees. Right now, it is at any university that they want to go to and where they can get accepted.
“In 2000, the hurricane law they passed in Miami-Dade County obligated everybody to use hurricane-proof glass. We were ready to invest in the new laminating facility. We expanded five times in the next five years.” – Christian Daes
And we also have these programs to fix employees’ houses. We give them an amount of money to fix their houses, because most of the people here make $350 USD a month or $400 USD a month, and the never have the opportunity to have a better-looking place. And we go into the house and we rebuild it inside. Some people are so poor that they don’t even have a floor.
So, we make sure that we put the tiles, that we put the bath enclosure, that we do the kitchen, because that’s what we want to do for our employees.
And we have many other programs. We help them with their health, medicine, transportation, school. Anything that we can do for our employees, we will.
Loren Moss: Impressive. Tecnoglass as an exporter — and an exporter to the United States — surely has experience with the free-trade agreement that Colombia and the United States have had now for some time. Colombia as a whole has not exported as much to the United States as many people hoped it would when the free-trade agreement came into effect. What do you think the reasons for that are? What are the things that hold Colombia back from fully taking advantage of accessing the U.S. market?
Christian Daes: This is bad to say, but it’s the truth: The free-trade agreement benefits the U.S. Because now they can sell more in Colombia than before — and they are selling more to Colombia than before. And Colombia has not taken advantage basically because what we want to export is bocadillos [Colombian sweets], cheese, coffee, oil, coal — things that we were already doing.
I don’t understand how our business people in Colombia don’t see that, if China exports to the U.S. — and they have a have deficit with China for $369 billion USD — and China has similar wages in China that we have in Colombia, why can’t we set up companies in Colombia to build what China exports to the U.S.?
We are closer, we speak basically the same language, we’re in the same time zone and everything is so much easier from Colombia that it makes no sense that we are not taking better advantage of the free-trade agreement.
Why is Tecnoglass so successful in exporting to the U.S.? Before the free-trade agreement, we were doing $50 million USD in sales to the U.S., and we are now over $200 million USD in sales to the U.S. But why is that? Because we were able to design products for the U.S. market. We are not exporting the windows that the Colombian market buys. We are exporting the windows that the U.S. market wants to buy, and we have created, designed and built the windows that they want to buy. Our prices are better, our quality is better, and that’s why we have been so successful over there.
Loren Moss: If a U.S. foreign direct investor is looking to set up operations in the “nearshore” — in the Americas, in the Caribbean — to service the U.S., whether that be manufacturing, whether that be logistics, whether that be a service exportation, why should they consider Colombia and why should they consider Barranquilla specifically?
Christian Daes: Because of our location, because we are so close, because English is not difficult to find in Barranquilla, because of the way Colombian people behave at work, because, definitely, we live two hours away from Miami. Miami is closer to Barranquilla than it is to New York. Miami is closer to Barranquilla than to Chicago.
So then it makes a lot of sense, in a country like Colombia, where you find cheap labor, quality labor, good manners, a democratic country — we are the oldest democracy in the Americas — it makes a lot of sense to establish yourself in Barranquilla.