Controladora Mabe, S.A. de C.V. - Company Profile, Information, Business Description, History, Background Information on Controladora Mabe, S.A. de C.V.



Palmas 100
Mexico City
D. F.
11000
Mexico

History of Controladora Mabe, S.A. de C.V.

Controladora Mabe, S.A. de C.V., is the third largest manufacturer of large household appliances in the Americas, located in Mexico but serving the Western Hemisphere from Alaska to Argentina. In Mexico, it accounts for almost half of all refrigerators, stoves, and washing machines sold, and it also holds about one-quarter of the U.S. market for these products. In Latin America south of Mexico, Mabe has plants in five South American countries. It exports its products to over 70 countries and sells more than 13.5 million appliances a year, some 75 percent outside of Mexico. Mabe is 48 percent owned by General Electric Company, which is its exclusive distributor in the United States.

Mabe Alone and Mabe Plus GE: 1946-92

Luis Berrondo Martínez was a young Spaniard when he arrived in Mexico City in 1944 to play jai alai. His brother Francisco owned, along with an Egyptian, Egon Mabardi, an importing company located in the city. In 1946 the two founded a tool-and-die firm that also manufactured lamps. They named it Mabe for the first two letters of their surnames (Mabardi-Berrondo). In the beginning Mabe only had 20 employees, but it soon received backing from the Saíz Sánchez brothers and the following year began making kitchen furnishings. Mabe also made special lamps for government offices and other customers.

Mabe was employing 150 people in 1953, when it began making gas stoves. It founded its first branch outside Mexico City, in Monterrey, Nuevo Leon, in 1955, added ovens and toaster-broilers to its kitchen line in 1959, and established its first distribution center in 1961. This facility was in Mexicali, Baja California, on the border with the United States. The following year Mabe opened an assembly plant for its products in Venezuela. By 1966, the company was building entire modular kitchens and had distribution centers in other parts of the Caribbean and in Central and South America. Luis Berrondo became chief executive in 1965 on the death of his brother and also went on to found other businesses, most notably Grupo Financiero Bital, S.A.

Mabe joined with three other companies--IEM, Supermatic, and Acros--in a consortium formed in 1969 to manufacture compressor motors. In 1974 it was a firm with 1,000 employees and annual sales of $20 million. Three years later it opened a plant in Querétaro to manufacture refrigerators under the Astral brand name.

Mabe was making more refrigerators in Mexico than any other company when, in 1987, it formed a joint venture with General Electric Co.'s Major Appliance Business Group. GE acquired 48.42 percent of Mabe and immediately began putting into effect a plan to construct and operate a factory in Mexico that would turn out one million gas ranges a year, chiefly for the U.S. market, under four labels, including GE and Hotpoint. Ground was broken for the plant in San Juan Potosí in 1988, and full production began in 1991, with the facility quickly supplying one-third of all gas stoves bought in the United States. It was the world's largest facility for making gas stoves, but 80 percent of the components were made in the United States.

Thriving and Growing: 1992-99

General Electric provided Mabe with technology, channels of distribution, and access to raw materials. With the support of so powerful a company, Mabe had the wherewithal to make major acquisitions. In 1988 it purchased the washing machine business of Grupo Industrial Saltillo, S.A. de C.V., the Mexican leader in this field (and also allied with GE), and in 1993 it acquired Polarix, a Colombian manufacturer of refrigerators. Mabe also signed a strategic alliance with the Dutch firm Ceteco, manufacturer of washing machines and stoves in Venezuela. By means of the Regina brand, Mabe exported its products to other South American countries. In 1994 it opened a research and development center in Querétaro and joined with the Japanese company Sanyo Electric Co., Ltd. to produce compressors and motors in San Luis Potosí for refrigerators and washing machines. The following year it acquired Durex, a producer of home appliances in Guayaquil, Ecuador. Mabe was able to raise $100 million in a private placement and was the first private sector Mexican company to receive an investment grade rating from Standard & Poor's LLC. Moreover, the rating did not require explicit credit guarantees from General Electric.

These were Mabe's golden years, in which it invested $60 million a year on average and its goods were exported to 70 nations. By 1997 Mabe had become the most important manufacturer of white goods in Mexico--and not only from its factories in Mexico, since one-fourth of its sales volume was coming from its three South America plants. The company had long sent executives to South America to identify the places that offered the best conditions to build a production facility. They also sought out white goods manufacturers that were still small but had good prospects for growth. With those that qualified, Mabe would offer to buy a minority stake but insisted on control of the operation. Mabe had the capacity to produce four million units of various appliances a year, a distribution system thought superior to its competitors in arriving at major population centers, advertising to back its products, and post-sale service rarely found elsewhere in the region. In 1997, its sales of refrigerators, washing machines, gas ranges, and compressors came to eight million units, with 40 percent of its revenue in Mexico, 35 percent in the United States, and 25 percent in Latin America outside Mexico. GE provided Mabe in Mexico with its top-of-the-line electric ranges, washing machines, and refrigerators of 14 or more cubic feet. To serve its diverse markets, Mabe had created a distribution system suitable for third world conditions where roads are poor and retail chains are technologically backward. Developed by Hewlett-Packard Co., the system's function was to place virtually all of Mabe's goods in containers and trailers.



The following year, 1998, was an extremely active one for Mabe. An agreement with the Spanish company Fagor brought it two plants in Spain and Argentina. The company purchased the Inresa brand in Peru and combined Madosa with Ceteco in Venezuela, where it acquired the Condesa and Admiral brands and management of the GE brand. Mabe also entered Brazil in collaboration with General Electric's Brazilian subsidiary, forming the GE Dako brand. In 1999 Mabe initiated work on a $280 million Quantum plant in Celaya, Guanajuato, with the objective of producing 500,000 refrigerators a year for export to the United States, where they replaced the output of a GE plant in Bloomington, Indiana. This facility, opened in 2001, covered the equivalent of 15 football fields and cost $300 million to put into operation.

Mabe in the 21st Century

Mabe's sales in 2000 came to about $1.32 billion, almost twice as high as the $721 million registered in 1995. With the opening of the Celaya plant the following year, its number of its factories came to 18. The company was exporting its goods to more than 30 countries, and export accounted for 60 percent of its revenue. It now enjoyed 53 percent of the white goods market in Mexico, 50 percent in Central America and the Andean region of South America, and 25 percent of the market for ranges in the United States. However Standard & Poor's LLC pointed out that the company's debt--believed to be nearly $500 million--was increasing faster than its cash flow. There were rumblings within General Electric itself. In 2002 the company combined its lighting and appliance businesses into a single division to reduce backroom and administrative costs. An investment analyst reported that both GE and Mabe were beginning to shift appliance production from Mexico to Asia, where costs were lower. Another analyst predicted that GE would exit "nonperforming industrial segments, including motors, lighting and appliances," according to Kathryn Krandeld of the Wall Street Journal.

The competition was indeed growing stronger. Mabe's sales stagnated in 2002, as two companies based in Mexico--Whirlpool and Electrolux--and three from South Korea--LG, Samsung, and Daewoo--stepped up their efforts with sales campaigns based on low price and an eye on the U.S. market as well as Mexico. By late 2004 Mabe had shifted its strategy, spending heavily on an advertising campaign intended to target distinct segments of the market, including the high-end sector, to take advantage of consumer interest in space-saving and energy-saving appliances. Some of Mabe's marketing in Mexico was being aimed at housing developers, construction firms, and architects, with the company offering to provide custom-designed appliances at added cost. For developers of luxury apartment complexes in beach resorts such as Puerto Vallarta, Ixtapa, and Cancún, Mabe was providing a combined kitchen with refrigerator, microwave, and washer/dryer. The company prices ranged from about $125 for its cheapest ranges and washing machines to about $3,500 for its highest-end stove and about $9,500 for its highest-end institutional refrigerators.

To meet explosive growth in luxury items, Mabe was importing GE's Profile and Monogram brands, as well as producing its own in Celaya under the GE brand. It was also planning to introduce an intermediate line called Platinum for apartment dwelling affluent young couples who wanted good design but did not have sufficient kitchen space for a Profile, Mabe's most expensive brand. One product of Mabe's research-and-development facility was its "Id System"--computerized intelligence that allowed its washing machines to run more efficiently, clean clothing better, and practically rule out the possibility of damage.

In 2004 Mabe manufactured about ten million units, with 40 percent of production from its six plants in Mexico and the rest in Brazil, Colombia, and Ecuador. Of its sales of $1.8 billion that year, Mexico accounted for only $700 million. Of the rest, direct exports from Mexico accounted for $800 million, and goods made as well as sold abroad for $300 million. "If you buy a washing machine or stove or refrigerator anywhere from Alaska to Brazil," wrote Kelly Arthur Garrett for Business Mexico, "there's a pretty good chance Mabe made it. That's true even if it's not called Mabe or GE. About a dozen other brands sell Mabe manufactured units."

Throughout Latin America, the GE label on Mabe's production indicated appliances in the premium segment. The Mabe brand sold in the highest volume and was aimed at the middle and upper-middle classes. Smaller local brands in the various countries indicated lower prices for a lower-income clientele. Serviplus was the name for a network of 100 company workshops, plus 200 concessionaires, dedicated to serving customers. The shops provided 15,000 replacement parts that could be called up electronically in response to orders, arriving from any of Mabe's 14 or 15 plants.

A commercial accord between Mabe and General Electric would not expire until 2012 and was automatically renewable for periods of four years unless either party gave notice two years in advance. The alliance allowed Mabe to acquire raw materials for the same cost and with the same conditions as GE subsidiaries. It also allowed Mabe to benefit from GE's distribution network and technical advantages. Mabe continued to supply all gas stoves sold by GE in the United States. It was also providing a large percentage of electric stoves and two-door refrigerators sold by GE in the United States.

Mabe consolidated its Brazilian operations in 2003, creating Mabe Itú Electrodomésticos S.A. by buying out Dako (washing machines) and CCE (refrigerators). In 2005 Mabe purchased Camco Inc., the largest Canadian manufacturer, marketer, and servicer of home appliances, for $70.4 million. Camco's product lines included GE, Profile, and Hotpoint, and it was the primary supplier of clothes dryers to General Electric in the United States. The company was manufacturing clothes dryers and dishwashers in Montreal, and its acquisition extended Mabe's line of products to these appliances for the first time. In order to finance the purchase of Camco, which was renamed Mabe Canada, Inc., the company issued a ten-year, $200 million bond. Also in 2005, Mabe opened a new corporate headquarters and introduced improved packaging design. In 2006, it opened a showroom to display its new products, plus a gourmet center with culinary workshops and an area for potential suppliers to present their wares.

Besides washing machines, gas and electric ranges, clothes dryers, dishwashers, and refrigerators, Mabe was producing electric and gas space heaters, smoke exhausts, ovens and oven/ranges, microwave ovens, and toaster-broilers. Mabe's president and chief executive officer was Luis Berrondo Ávalos. The 52 percent of the company not held by General Electric was owned by the Berrondo, Saíz, and Esteve families, with Luis Berrondo Ávalos the largest individual shareholder.

Principal Subsidiaries

Mabe, S.A. de C.V.; Mabe Canada, Inc.; Mabesa, S. de R.L. de C.V.

Principal Competitors

Daewoo Electronics de México, S.A. de C.V.; Electrolux de México, S.A. de C.V.; Industrias Acros Whirlpool, S.A. de C.V.; LG Electronics Mexico, S.A. de C.V.; Samsung Electronics Mexico, S.A. de C.V.

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