Fabrica de Papel San Francisco sculpts a growing niche in its far corner of Northwest Mexico

A little-known tissue producer moves step by step into a 2-nation market, emphasizing its close relationship with the big neighbour to the north. FAPSA is not only moving into the fast lane for tissue but is gearing up for an entry into the baby diaper market.

Here we present a profile on Fabrica de Papel San Francisco in the city of Mexicali, Baja California. Keep your eyes and ears open because we'll be hearing more about this fascinating family-owned enterprise.


On the world scene today, there is a lot of talk about "emerging nations." Our topic here is about "an emerging tissue producer," Fabrica de Papel San Francisco S.A. de C.V. (hereon referred to as "Fapsa"). This lesser-known company, which has been quietly producing paper products for half a century, suddenly is blossoming out into an important mill in an area of Mexico that is otherwise virtually devoid of tissue production or any other papermaking operations. The owners see the new millennium as an opportunity to develop into a much-more-significant manufacturer and supplier of hygienic paper products. Interestingly, Fapsa does not hide the fact that it would welcome a technical partner in their growth program, even though recent restructuring among US tissue majors has narrowed the field of potential associates. Before delving into the Garcia family-owned Fapsa's climb up the tissue ladder, it's timely to mention a few facts about Mexico, the southern neighbour to the giant fellow republic to the north. If you haven't kept up with the demographics of Latin America, it may surprise you to learn that Mexico today has a population of about 99 million with an average density of 50 people per square mile. Its area is 1.96 million km² (For comparison, Germany has about 82 million, an area of 357,000 km² and a population density of 230 per km².) Deduction: Mexico has a large population but it's spread over an area many times greater than that occupied by any Western European nation.

A LONG, LONG FRONTIER. The Mexico-USA border is a thin line running over 2,000 miles from NW to SE, stretching all the way from the blue waters of the Pacific Ocean to the Gulf of Mexico on North America's eastern Atlantic Ocean Coast. Along the way, the Rio Grande River composes well over half the borderline. At various points, there are Mexican towns/cities with such romantic-sounding names as Tijuana, Mexicali, Nuevo Laredo, Ciudad Juarez, and Matamoros. In recent years, the border areas have undergone profound changes. The attractive combination of a large supply of eager workers and plenty of available land for new industries has attracted innumerable foreign corporations to set up shop on the southern side. But one industrial operation in particular has grown and prospered in a different way and remains -- to this day -- local-family-owned, independent. That business is Fapsa. The location is the city of Mexicali in the State of Baja California.

It's in the extreme northwest corner of Mexico. Mexicali is no tourist mecca. The land here is as flat as an unrolled tortilla shell. The climate is hot -- I mean really hot -- with no mountains, forests, lakes or rivers to moderate the temperatures. A day of 100°F (38°C) is just ordinary here.

AN ATTRACTIVE INDUSTRIAL CENTER. But such facts conceal the reality that Mexicali is a vital manufacturing center for such companies as Sony and Daewoo, who discovered and appreciate its many advantages. The city took on a different complexion in 1986 when Mexico joined GATT (General Agreement for Tarifs and Trade). Global concerns found it to be a low-cost manufacturing location. Ninety-five per cent of all the industry in Baja California ("B.C.") is foreign-owned and serves both Mexican and US markets. This prosperous state has Mexico's lowest unemployment and its highest wages. B.C., definitely a "young" state with new cities, is just 100 years old. The average age in B.C. is under 18 years, so a future work force is assured. However, B.C. does compete with USA for labor. Even so, Sr. Garcia says the labor turnover is "nearly zero." Automation is taking hold gradually, and Sr. Garcia cited the new Fermi Sincro 4.0 and 6.5 and related equipment as examples.

THE CROWN-GARCIA FRIENDSHIP AND PAPER PARTNERSHIP. Fapsa's beginning dates back to its days as a paper mill in 1980. Before that the Garcia family's first business under Sr. Mario Garcia Martinez (father of today's CEO and director Ing. Mario Garcia Franco) were in the converting of imported kraft paper into bags (1959). The paper was supplied by Crown Zellerbach Corp. of San Francisco, California, USA. In 1964, this liaison was extended to Convertidora, set up for converting toilet tissue and napkins using old second-hand machinery. Sr. Mario Garcia Franco joined his father's business in 1973, and by 1979 a paper mill project was initiated. Crown agreed to join in, and in 1980 a joint-venture between Crown Zellerbach International together with assets of the Convertidora resulted in the formation of Fapsa to make and market hygienic products with the family owning 51% and Crown 49%. (The Garcias retained the hag factory on their own.) The first Fapsa paper machine was an old towel PM which came from Potlatch Corp. and started up in 1982. At that time, Crown was not only the largest and most-diversified papermaker in Western USA but also No.2 to International Paper, the biggest in the world. The Fapsa-Crown relationship started in a small way, but over the years it grew in stature and friendship. Fapsa absorbed a generous slice of the famed Crown papermaking technology developed at the latter's flagship mill on the banks of the Columbia River at Camas, Washington, and also at Wauna, Oregon, and at Antioch, California, all household names in the tissue business. In 1985-86, the British capitalist, Sir James Goldsmith, took over Crown Zellerbach, and, as a consequence, all the Crown tissue mills in Western USA were subsequently sold to the James River Corp. of Richmond, Virginia, thus giving River a transcontinental reach in the tissue sector. Thus ended the 20-year partnership of Garcia/Crown. By 1987-88, Fapsa was on its own and stymied by uncertainty.

AN UNWANTED BREAKUP. These were "dark days" in the Crown tie-up. In a relatively short time, as measured by today's corporate restructuring calendars, the proud name of Crown Zellerbach went into the history book. Sir James Goldsmith's hostile takeover, financed to a large degree by the sale of Crown's many mills and vast forests, spelled the word finish to the closely knit FapsaCrown connection family. But Crown's 49% in Fapsa went over to James River, their new partner. During the Goldsmith and James River eras, Fapsa hatched a plan to triple the parent roll output by expanding the paper mill with a state-of-the-art twin wire PM, allied with the latest in converting. The years rolled by. Crown's successors had bigger fish to fry. Sr. Garcia told me, "With our 51% of Fapsa, we could have gone ahead with the new expansion program. But we could see the handwriting on the wall. Goldsmith and James River managers did not want to be saddled with a small mill in Mexico that they hadn't even seen. It was purely a peripheral inheritance for them. Eventually we were able to buy out the 49% on a friendly basis to become sole owners."

A VANISHED DREAM RETURNS. The Garcia dream was back in business, and Fapsa was taking the biggest bite in its history: the installation of one of the global industry's most-modern PMs, a Crescent former with a width of 2,692 mm, a web width of 2,629 mm and a yankee cylinder of 5.00-m diameter churning out 105-116 mtpd of high-quality tissue parent rolls for a rapidly expanding business. The basis weight range is 12-20 g/m2. The machine was built by Voith Sulzer at their São Paolo works in Brazil. Supported by a totally modern deinking plant, new PM3 and existing PM1 run 100% on waste paper (PM2 continues as a corrugating medium unit). The fiber is derived mostly from the Los Angeles, California, area. White only is made. Neither the mill nor Mexicali has its own local water source. This precious ingredient is sourced in from the Colorado River via the All-American Canal, and Mexico's share is insured in perpetuity. Environmental laws pertaining to air and water control didn't come in until 1987. In line with their "good-neighbor policy" Fapsa developed their own sludge-based products: construction bricks, exterior plaster for homes and compost.

CONVERTING BONANZA. The Perini journal was guided through the maze of the numerous tissue production halls by Ing. Eliseo Muniz Marquez, director of the converting plant. Along with a number of his colleagues, he is a graduate of the CETYS - University in Mexicali. After his engineering studies there, he was recruited by Sr. Garcia and made the move into paper. "It was not a difficult transition," he told me. The university prepared me for an excellent future in both technical and business areas." He's been with Fapsa for 18 years and, after learning the profundities of tissue converting, is now deeply involved in mastering the basics of diaper manufacturing as that new department takes shape. The Fapsa product mix here is bathroom tissue, kitchen towels and napkins (no facial thus far). The best-selling house brand is "Iris" bath tissue, which comes in packs of 4/8/12 rolls, and "Hortenisa" in 4/6/12 packs. (The latter, in espanol, is "calidad y suavidad", that is, quality and softness.) To handle the additional tonnage from the startup of PM3, Fapsa's converting operation took a definitely swift upswing. A new premium-quality grade bath tissue will carry an embossed spot pattern for luxury feel and will be marketed under the name "Nice Touch" (in English). It will be made on a Perini 4.0 winder line. The furnish, however, will consist in part of recycled fiber and will be softer and whiter than the standard grade. All other tissue made here is currently double-embossed point-to-point. "It's a challenge to change the consumers' mentality to look for better-quality, high-end tissue products and to carry out a marketing job as well to meet competition," says Sr. Garcia. The Industrial & Institutional (I & I) market is served by bath rolls of brand "142" (inherited from Crown) 2-ply single rolls of 500 count. Private labels are also produced and are handled by a special marketing division which supplies supermarkets.

CONVERTING: MODERN ALL THE WAY THROUGH. The first Perini equipment dates from 1994, when three mechanical winders run by 50 people were replaced with a new Sincro 6.5 line run by just 12.(There are many local jobs available for displaced persons, which actually helps other firms looking for good workers.). The plant enjoyed a 100%-200% improvement with introduction of its first new converting line complemented by a fully automatic Casmatic packaging system. Since 1994, six other new production lines have been inaugurated. Tissue output tripled as a result. "We had to import paper to make more product to utilize the greater capacity. These lines changed everything. The workers felt more at home with this equipment. As they learned more of technology involved, they also earned more," states Sr. Garcia. "Fapsa's tissue converting operations are among the most-complete installations in Latin America," says Gary Urban, president of Perini America Latina, the Florida-based branch which serves Mexico, Central America and companies in the northern region of South America. The stable of Perini hardware today comprises three Sincro 6.5 lines for 2-ply double embossed rolls of 180 count and one Sincro 4.0 line which is which is to be dedicated to a new premium-quality grade lath tissue product marketed in English under the brand name, "Nice Touch". All of the packaging, which is automated and was designed by Casmatic, incorporates Casmatic and VTP machines. For napkins, Bretting supplied two Twin 4 units, which are accompanied by a PCMC Super 8 folder. Next year Vapsa will start up a new Perini Fold Model 8.7 for up to 4,000 napkins per minute with an automatic transfer to a Casmatic CMF340 napkin folder. I&I products are made on three Perini Model 702G winders. The ordering, restocking and shipping are assigned to a complete computer and Internet system.

MARKETING THE PRODUCT. Fapsa competes all over Mexico in the major markets. There are 18 cities targeted in Fapsa's program, each of which is served by a sales representative. The market is evenly balanced 50:50 between chains of stores and wholesalers. The AFH market I sold and serviced locally as well.

Service is considered vital and is emphasized. The sales force really knows the customers well and maintains closest contacts on prices and service.

The Mexican tissue lineup for market share is as follows:

1. Kimberly-Clark, 54%.

2. Copamex (ex-Scott), 25%.

3. Procter & Gamble, 12%.

4. Fapsa, 6%.

(In napkins alone, it's estimated that Fapsa would rate as the producer No. 3. It is the only one of the top four that does not make facial.)

The national market is growing at a high clip, 6.5%/yr over 10 years. There are imports from USA but only along the US-Mexican border areas. The government forced K-C to divest 60,000 tpy of capacity after the Scott buyout.

Fapsa's three biggest home markets are found in the North Pacific area: Baja California, Sonora, Sinaloa and Chihuahua states. B.C.'s largest cities and population are Tijuana, 1.5 million, Mexicali, 800,000, and Ensenada, 250,000. Guadalajara area: Jalisco and surrounding states; and Bajio area: Quaretano and Guanajuato states. Mexico D.F. is also served. Across the border, San Diego, California, claims another 3 million.

DIAPERS: ROUNDING OUT THE PRODUCT MIX; NO PAPER BUT SAME CLIENTS. In a distinct product diversification move, Fapsa has just installed a new diaper manufacturing plant at the home tissue base in Mexicali, with formal sales begining In January, 2001. It's a major investment on top of the recent large outlays for new papermaking and converting facilities, but it should pay dividends. Fapsa is now bringing out a whole new product line of baby diapers called "Baby Touch," which was encouraged by the policies embodied in the NAFTA formation. Completely new premises and state-of-the-art diaper-making machinery have been supplied by Diatec, Perini's sister member within the parent Körber Group. Diapers for all size babies will be made. The market area is the same as for Fapsa's tissue products, both home and export with an identical distribution and consumer universe. This means big savings in transport and handling expenses. "The new diaper product line does not require tissue, but the buyers will be the same as for our tissue products," Sr. Garcia points out. Consumers can relate to the Baby Touch brand name, which is parallel to our new premium-quality toilet tissue, Nice Touch."

DEDICATION TO FUTURE EXPANSION IN PRODUCT PHILOSOPHY. Fapsa has a Source: Perini journal concept that is definitely futuristic and innovation-oriented. "We're showing a new profile now. We're going for more exports. Most importantly, we're elevating our products into the premium area and at the same time urging the consumer to recognize that good quality can be obtained at a lower price," Sr. Garcia told me. The U.S. market looms large in Fapsa's future plans. Now with a rated capacity of 150 tpd, Fapsa's goal is to be a cost-effective marketer, expanding beyond the present product mix to the I&I and private label fields. This is not an unrealistic aim when one considers that the 17 million Southern Californians' tissue consumption exceeds that of all Mexico! USA per capita consumption is over 20 kg/yr, while Mexico's is ca. 6 kg/yr each. Metropolitan Los Angeles, itself a formidable market, is only 150 miles away. An indispensability for Fapsa growth is a transportation network. In the case here, high-speed motorways branch out in the main directions, and there is rail service as well. Transportation costs amount to 12% of total product cost, but Fapsa says that they should be cut to 7% or less. Already, 9% of Fapsa output goes north of the border. Sr. Garcia's son Mario has been assigned the task of probing and further developing the export potential.

PROMOTION. Quality and softness are the key selling points for Fapsa tissue products, but promotion i not a high priority because their clientele is mainly in the low and middle-income classes.

Magazines and newspaper ads are employed, and supermarket chain clients do promote hygienics in print ads. TV has hot been used thus far. But the promotional picture is changing now due to entrance into the higher market niche. Special promotion includes sales of 3-in-1 packs of bathroom tissue, towels and napkins.

We asked Sr. Garcia how he felt about Mexico's new president, Sr. Vicente Fox, who is a former state governor. "He knows about decentralization. He will see things differently with his background and business experience. The nation will be better off under such a program because he will help bring more and better development to the various regions of Mexico, rather than the domination by the capital, Mexico D.F."

The paper industry of Mexico is one of the biggest globally for use of imported raw materials. With limit forests and waste paper availability, this activity is bound to grow. Fapsa has its own waste paper collection subsidiary; tonnage is small now but growing. To that fortunate quintet---water, fiber, personnel, transport, markets---we next identify the "secret ingredient" that has made Fapsa a regional industrial success. I speak of the entrepreneurial spirit of the Garcia family, which in two generations (and with a third now in place), turned a small paper bag facility into today's sprawling duo, the technologically advanced tissue converting plant in the center of Mexicali and the state- of-the-art paper mill on the outskirts of town that turns out the endless supply of parent rolls. That spirit, plus shrewd management, is what makes Fapsa stand out.

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