2003 International Trading Supplement - Pushing the Limits

The megalopolis of Mexico City, with at least 20 million people spread over 1,000 square miles (about the size of Rhode Island) is one of the most crowded places on Earth.

It is a city where people are accustomed to make a living on creativity and ingenuity. On street corners, clowns dance, kids wash car windows, girls sell gum, men spit out fire, and women provide lunches for a few pesos. People go door to door collecting cardboard for recycling and at times will even clean the sidewalk free of charge in exchange for bottles, cans and other scrap valuables.

In Mexico City, one can find several extremes—high-tech and low-tech industries, poverty and wealth—and everywhere the city pushes up against the limits of geography, environment, and human safety. Mexico City is where Recycle de Mexico (RDM) was born and has become one of the most successful recycling companies of Latin America.

PART OF THE GLOBAL MARKET. Recycling in Mexico is nothing new. Prior to World War II, individuals were already making a living manually collecting and packing all sorts of scrap. No high-tech advantage drove the first recycler to turn this activity into a business; no government incentive or law was in place to prevent pollution. There was only one reason for this activity to take place: the industrial manufacturing sector in Mexico needed the material and was willing to pay for it.

Now, with the opening of Mexico to global competitiveness, the country is in a moment of painful industrial survival. In recent years, the government has embraced free markets and sought to minimize its hand on the economy. The country is quietly emerging as an industrial power that produces and manufactures a multitude of goods (from boxes to automobiles) that are dependent on recovered scrap as their raw material.

On the pulp and paper side, there are 64 paper mills throughout Mexico. They consume more than 3.6 million metric tons of secondary fiber, which represents an increase of over 1 million tons since just a decade ago. Mexico as a pulp and paper producing Latin American nation ranks second only to Brazil in manufacturing output.

While Mexican paper production is small in comparison to the U.S., totaling just under 5 percent, its regional supply and demand balances are key to the North American equation. One of the main factors that separates Mexico from Brazil and North American producers is the lack of timber infrastructure.

Mexican regulations make it hard for companies to own and administer the large tracts of land needed for extensive forestry projects. Instead, paper manufacturers rely on a mixture of virgin pulp and recovered fiber. In fact, the industry as a whole relies on recovered fiber for nearly 80 percent of its raw material and has to import significant amounts—close to 1.4 million metric tons last year alone—mainly from the U.S. and at times as far as South Africa.

HUMBLE BEGINNINGS. Beginning in 1975, now deceased founder Aurelio Herrera Figueroa and his wife Maria de la Luz Silva Martinez, started collecting and buying scrap paper to originate the business now known as Recycle de Mexico (RDM).

Since its humble beginnings of paper bales manually tied, followed by using wooden presses placed in the Herreras’ own backyard, RDM has grown to be one of the largest privately owned paper recyclers in the western hemisphere, processing and distributing between 16,000 to 20,000 metric tons of secondary fiber per month.

Over time the company has acquired facilities to currently operate close to 19,000 cubic meters of production space. Some of the paper grades that RDM specializes in include high de-inking and groundwood grades. The material arrives at RDM’s four facilities in baled or loose form.

Baled materials come from some of the largest printers in Mexico. The company runs sophisticated air systems and baling operations at printers and provides them with total management (including on-site staff) of scrap paper, rolls and other materials.

Loose material arrives via independent haulers using pickup trucks, trailers and vans. Since the company doesn’t own hauling equipment, it relies on secondarily owned transportation to receive and deliver baled materials. "Part of the business strategy to attract suppliers includes faster payments, plants located at close proximities and quick turn around time (loading and unloading)," says Operation Manager Hugo Garza. "All are key issue to attract higher volumes," he explains. "This is important in a city of this magnitude where traffic chaos is around the corner at any minute," he continues.

According to RDM Controller Pedro Cruz, RDM’s expediency on turning around inventory, its use of in-house electronic communications, up-to-date buying and selling reports, client relations, equipment maintenance and total quality control are part of its corporate culture.

THE VISION. Early in his life, his father’s paper recycling business opportunities influenced founder Aurelio Herrera. He envisioned that recycling could provide him with the environmental, creative and financial incentives that could make it a great profession.

He embarked on learning the different aspects of recycling, from efficient collection methods to paper grades to commercializing the product. Later on, under his leadership, he assembled a team of professional and talented members and provided them with the vision and the means to accomplish the task. The company went from working in Aurelio Herrera’s own backyard to building four modern covered facilities in Mexico City.

Over the years, the company has and continues to invest on American, Canadian, and Spanish-made baling equipment, sorting lines and air systems to better serve its customers and to maximize efficiency.

The company is made up of 45 employees, which includes corporate, office and production personnel. Buyer Agustin Castillo recalls how, in 1995, Herrera assembled his team to participate on a training course entitled "How the Brain Functions."

"Mr. Herrera’s goal for me and for my other colleagues attending this training was to understand how important our brain functions are, how creativity, personal relations, moods, our productivity, the growth of our company depended on how well I knew myself," he recalls.

His employees were asked to write their personal and company goals for one month and one year and to check them periodically. Herrera related this metaphor: "We have embarked on a journey, and we all are responsible to navigate the ship on this vast ocean of opportunities, risks and challenges. Some may jump off the ship, others will continue and endure the journey."

Mr. Herrera would set the course to follow, and the members of his team would set the sails to maximize the wind direction toward their destination. "It was his vision and leadership that has made Recycle de Mexico such a successful company," recalls supervisor Alma Marquez who, on numerous occasions, has gone the extra mile to move every ton of paper out of her facility. "We perform as an on-time inventory service for dozens of mills in Mexico," she continues.

"RDM has something that speaks louder than words," says general manager Marilu Herrera, who is Aurelio’s widow. "Only a sound company with efficiency at all levels can master an average of 16,000 to 20,000 tons of fiber per month with just 45 employees, including office personnel, in a city of 20 million people" she states. "We have grown one pound and one ton at a time, and now we continue buying one pound and ton at a time. Most importantly, we work on high volumes at low cost" Herrera continues.

"During my husband’s tenure, his vision, innovation and leadership, along with my financial knowledge, allowed us to grow in ways that enticed every member of our team to make a contribution to the company’s growth," says Marilu Herrera. RDM is like a catalog provider of raw materials that serves printers, supermarkets, suppliers and the mills that depend on the company for high volume, quality fiber, and in some instances even for equipment.

Just as in other paper producing nations, Mexico’s paper industry is cyclical and very competitive. Further volatility is added by the peso’s fluctuations against the dollar and the nation’s dependency on imports.

Moreover, the lack of resources, restricted credit and a weak banking system continue to hinder Mexican industrial expansion. In spite of that, the Herreras knew from the beginning that the potential for business to grow was present. They have worked with international institutions such as the Ex-ImBank to finance some of their previous expansions, benefiting from secure low-interest loans. Furthermore, they have consistently visited paper plants all over North America, Europe and Asia to learn from them and apply the best practices that they have to offer when feasible to adapt them to Mexico.

THE ROAD AHEAD. The company continues to explore, innovate and invest in personnel, equipment and business models that sustain its growth. "We are blessed to have gained the respect of our suppliers, partners and paper mills," says Marilu. "Even though the increased use of recovered fiber has been good for collectors, processors and end mill users, it has also forced us to find more creative ways to increase tonnage. We support our suppliers with secure pricing and financial support so they can concentrate in growing the tonnage," she explains.

RDM has evolved from just being a paper packer to now being a nationwide distributor of recovered fibers. Its latest projects have taken the company out of Mexico City to Central America, the maquiladora regions of the north, Yucatan, Veracruz and other places to source fiber and find new suppliers. Soon, the company hopes to break ground along the U.S. border.

"Our expertise, the ways we manage on time inventories are spotting us on mill’s radar screens," says Marilu. RDM’s strategy for growth is being built around a talented team that is very professional, focusing on short and long-term goals. They often visit and explore the market opportunities that the U.S. can offer them. The U.S. has about 50 percent collection of recovered fiber, which provides a company like RDM with a fertile ground to grow its volume. "We have plans to continue our strategic business expansion beyond the Mexican borders," says Marilu.

Marilu suggests that, "A company is like a human being that requires constant learning, renovation of the mind and adaptation to change; otherwise it could suffer from a premature death. If the economic climate and cyclical aspect of the business is tough for everyone that participates in our business, think of how much worse we can make it by not having talented people working on our team."

The company’s success can be measured in both terms. First, RDM’s contribution to the modernization of the sector and, second, how 45 members push the limits of 16,000 to 20,000 thousand tons per month, and have learned to do "mas con menos" (more with less) every day.