Recently you have acquired two companies in Colombia. What is motivating this level of investment?
Our company is a German company that has been operating in the Latin American region, with investments in Argentina, Brazil, and a commercial office in Chile. There was a gap in the Northern part of South America, as well as Central America and in Mexico in terms of Knauf products. The company has a precence in North America with Knauf insulation, which is the glass wool that is used to insulate against weather or even fire. Most of the plants for business are in the US; therefore, we began the analysis of potential investment destinations and Colombia was designated as a good opportunity north of Argentina. There are three plants in Colombia that produce this product, two of which we now own. One of the attractions is that the economic environment is better tailored to companies that want to invest and get returns. For example, the market in Ecuador is smaller, while Peru could present a good opportunity if it was not for the fact that we have a plan to start quarrying gypsum in Chile further down the line, and producing there. That was why we chose Colombia.
Why did you decide to come to Latin America at this time?
The company momentum is targeting Latin America. In March 2016, we bought a gypsum plant in Honduras. We now have three plants in the region and will continue investing. These two companies were producing three of the main gypsum board types, namely standard, the ones used in more humid environments, with the other being for passive fire protection and their final product was joint compound plaster to cover the drywall. The difference with Knauf is that we build and sell systems, rather than just offering basic products. We also look into ventures with locals, and are potentially setting up new production facilities. We are going to establish a joint compound plaster production facility in July in Bogotá to mitigate the high transportation costs in Colombia. The government has made a lot of effort to improve the transport networks, but much remains to be done.
What are the next steps for Knauf in Colombia?
The first thing we have to do when taking over operations of a local company is adjust the equipment to meet our standards. It is a challenging market that has been developed with imported products managed by distributors; they are strong here and it is difficult to compete. The market does not have regulations and norms like those found in Spain, for example, and there is no standard procedures in the building industry. The challenge is that there are many products coming from different places. Therefore, one of our focuses is to strengthen the technical department, build that knowledge, and train people. We have worked with Camacol and other companies that are part of the dry construction business to develop a guide that illustrates the best practices for constructing buildings in the dry construction segment. The biggest challenge is transfering this knowledge and developing a closer relationship with the builders, the sellers, and the architects. The market here is reluctant to utilize innovative insulation and building techniques, and it is hard to break the building habits. In the end, it is a matter of showing people how these systems work by building demo rooms. Even though it is a challenge, it is possible to overcome this. One of the main benefits is that it takes 80% less time to build this way, and the materials weigh significantly less than bricks or other possible materials. Then, you can introduce acoustic isolation, fire protection, and anti-seismic functionalities, the latter being critical here as we are in the middle of an earthquake zone. The biggest challenge is to change the building culture and begin training people.
What kind of construction does the system suit best?
The biggest market is housing, which is a little harder than the commercial segment, as businesses will never complain if you can get their office ready quickly. In Colombia, the biggest area for sales at the moment is in ceilings. The internal dry walls market is just opening. At the moment, they place bricks and then a board on either side, and instead of using messy cement, this is a much cleaner and faster method. Right now, our main drivers are malls and hotels, because they need their jobs done quickly and the flexibility of our system is attractive to them.
Are you exporting from Colombia?
Yes, this is a major driver for our business. Currently, we export around 30% of what we produce and we aim to reach around 50%. The natural market for us is the Andean region, Central America, and the Caribbean, and that is where we are focusing. We are planning to control this expansion into north Latin America from Colombia. We set up in Honduras, but are looking into other markets like Mexico. In Colombia we are on the coast, which is useful. The reason we do not have a plant in Bogotá yet is that there are no gypsum quarries in the area.
What are your views on the construction industry in Colombia?
It could be a challenging year. There was a 6% increase in licence approvals in 2015 compared to 2014, meaning there are projects coming. The government was investing a lot in housing for lower-income people, but as you know the state budget has been reduced because of oil prices, so that could be a challenge.