September 2004: Volume 46, Number 9
From Water Tec of Tucson to Water Tec International
by Nate F. Searing, WC&P Managing Editor
In March 2001, WC&P sat down with Leigh DeGrave, head of Water Tec International Inc., to talk about how he had set his sights on the Mexican marketplace and Water Tec’s plans to reach into Central and South America. (See www.wcponline.com archives for the original DeGrave Q&A, March 2001).
Now more than three years later, we invited DeGrave back to take a look at the successes, large and small, that have made Water Tec de México an industry leader. From expanding the company’s reach to more than 340 dealers in Central America to opening new offices stateside, the Water Tec name is now stamped on products in every country from the United States south to Argentina.
“We ship to a lot of Central and South American countries, just about all of them actually… it’s a growing market,” DeGrave said.
Water Tec opened its first international office in Guadalajara, Mexico in 1997. With its manufacturing and corporate offices located in Tucson, Ariz., just 70 miles from the U.S-Mexico border, Water Tec today does about 50 percent of its business in Central and South America and the remainder in the United States.
Unlike many firms that have moved production to places like Mexico to take advantage of cheaper labor supply, Water Tec has manufactured its products in the same location for nearly 40 years.
“We’re backwards, keeping our manufacturing stateside and shipping across the border,” DeGrave said of the company’s organization. “Labor may be more expensive … we’re not always going to be the cheapest, but we are going to the best.”
Today, Water Tec de Mexico operates offices and warehouse facilities in Guadalajara, Mexico City, Mérida, Monterrey and Hermisillo, and is cautiously optimistic about opening a new location in that country. The result, DeGrave said, is the ability to provide dealers in any part of Mexico with Water Tec products within 24 hours, a feat that few of their competitors can match.
The clout has also helped the company expand in the United States, opening additional offices in Phoenix and Las Vegas, as well as expanding its product lines by venturing into pool products throughout Latin America.
Most of the products, however, still fall into the commercial and light industrial category, DeGrave noted, with the majority of the company’s business coming from filtration, ultraviolet and RO equipment.
However, like many international businesses in Mexico, the future success of Water Tec hinges on its ability to take advantage of a residential market poised for explosive expansion.
“As you start to see more middle income consumers, you will start to see residential products become the norm,” DeGrave said. “The (current) goal in Mexico is to improve water quality, but more from a safety or health standpoint … but as the middle class becomes more prominent, a whole lot of the creature comforts that have had little or no prior presence in Mexico are really going to take off.”
And with name recognition and a reputation for quality already established in the new marketplace, Water Tec de México is a perfect spot to take advantage of that demand, DeGrave said.
Water Tec International Inc.
350 E. Irvington Road
Tucson, AZ 85714
Tel: (520) 790-3222: Fax: (520) 790-1514
Management: Leigh DeGrave, president;
Richard DeGrave, vice president; Jennifer DeGrave, manager; Elizabeth Stark, Water Tec de México manager
And now for the interview:
WC&P: Three years ago we talked about your plans in Mexico, how you were looking to expand in that marketplace. Today, we’d like to look at how it’s evolved so far and where you are headed from here.
DeGrave: Well, since that time, we have opened two more offices in Mexico, bringing the total number to five. So now we have the one in Merida, on the Yucatan side of Mexico, for distribution and then we also have an office in Monterrey.
WC&P: And how did those come about?
DeGrave: The plan has always been to position ourselves strategically to get product to our customers quicker. Prior to that, we were basically in Guadalajara and Mexico City.
WC&P: You had just opened the office in Mexico City when we last spoke.
DeGrave: Our main idea in opening up the other two offices was to pretty much cover the rest of the country. Strategically, that positions us so we can get our product to customers on the same or next day anywhere in the country. Monterrey is our main office at this time. It has the largest inventory and allows us to get product to our other stores or directly to the customer at any time, day or night.
WC&P: How big is that facility?
DeGrave: That one is about 30,000 square feet, moving water treatment products, pumps and pool equipment. That part has changed a lot, too, since we last spoke. We weren’t heavily involved in pool products like we are now.
WC&P: Is the market for pool products in Mexico that significant?
DeGrave: It really is. A lot of the dealers that we are selling water treatment equipment to, a good percentage of those do pool products. It’s different from the United States, where those don’t usually go hand and hand. But in Mexico, it’s a pretty typical pairing.
WC&P: You were working with about 200 dealers in Mexico in 2001, where are you now?
DeGrave: We are at about 340. Monterey really has been a big help to us. It is a much bigger market than some of the other locations.
WC&P: Are the competitors in Mexico locals, or are they U.S. companies following your lead and expanding south across the border?
DeGrave: Actually, we do not see as many U.S. companies down in Mexico. But there is growing competition from the locals.
WC&P: How do you compare in size?
DeGrave: You know, I’m not sure. I would say that there is at least one other Mexican company that’s equal to us in size. Most other companies are smaller. There are a couple of decent size competitors. As far as distribution, we’d have to be number one or number two.
WC&P: You’ve expanded in the U.S. as well, into both Las Vegas and Phoenix. Has the growth in Mexico been a driving force for that? What prompted the movement stateside?
DeGrave: We have a good group of high quality dealers, and it was really their interest in seeing us grow into those cities that prompted the expansion. Our dealers expect dependable equipment and service from a good company. There a lot of original equipment manufacturers in Phoenix, but having been in business for as long as we have, and knowing what they want because we have our own retail in Tucson, we’re in a unique position. It’s a plus for our independent dealers out there because we do know our product better than some other OEMs would.
WC&P: Is there growth on the horizon, a plan to take Water Tech into the remainder of Latin America?
DeGrave: Our concentration has been and continues to be staying in Mexico, but we do ship products into other countries, from both Tucson and from the Mexico offices.
WC&P: Which ones?
DeGrave: We ship to a lot of Central and South American countries. I would have to say just about all of them. Not in huge numbers, but it’s a growing market as well.
WC&P: Any one product more than others?
DeGrave: We’re seeing more in filtration, ultraviolet and reverse osmosis. Not as much in the conventional water conditioning, the softeners, and not nearly as much in residential. The commercial and light industrial markets are by far the most active.
WC&P: Is it the same way in Mexico?
DeGrave: Yes, the majority of it is light commercial, typically filtration, RO and UV. The goal in Mexico is to improve water quality, but more from a safety or health standpoint than the aesthetics. It’s been harder to generate an interest in softeners, for example.
WC&P: What were some of the challenges you faced when expanding/making Water Tec into an international player?
DeGrave: Whenever you are exporting, you must provide a lot more customer service and education. In the U.S., things are driven more by price. That’s because the consumer, whether an end user or a dealer, pretty much knows what he wants. He’s basically just shopping around looking for the best price. Not that price is unimportant in Mexico and the other markets, it is, but there is a lot of application and education that goes along with it. There’s a lot about the industry that is new to them, and they look to us to be teachers as well as suppliers. That’s why we do seminars for our dealers on a regular basis. The turnout we get for them is tremendous, there’s nothing like it in the United States. They are definitely eager for knowledge.
WC&P: What’s on the horizon in Mexico? Where is the growth going to occur?
DeGrave: We’re pretty optimistic all around. We’re starting to see water treatment in light commercial and bottled water applications, and we’re hoping to see that trickle down into the residential consumer end.
WC&P: That seems to be a pretty big potentially large market.
DeGrave: Right, our hope is that with the rise in middle-income consumers, we’ll start to see residential products become the norm. In the case of Mexico, the middle class is a smaller percentage (of the population) than in the U.S. In fact, right now there is not much of a middle class at all (in Mexico). But as that middle class becomes more prominent, a whole lot of creature comforts that have had little or no presence to date in Mexico are really going to take off.
WC&P: Is Water Tec growing because of what it’s doing in the United States or what it’s doing in Mexico?
DeGrave: Actually both. We are growing at a pretty good flip, about 40 percent annually right now. We’re just going to keep doing what we’re doing.
WC&P: Though you’re moving product in smaller numbers to other Latin American countries, are there plans to move, or open new offices further south?
DeGrave: There’s nothing going on outside of Mexico at this time. We’re looking closely at opening one more additional office in Mexico, and that’s the only plan in the immediate future. In fact, if you look at a map you can figure out where it’s going to go, but it’s still just plans at the present time. We have five offices now (in Mexico).
WC&P: But all the manufacturing is still here in the United States?
DeGrave: Yes, we’re backwards, keeping our manufacturing stateside and shipping across the border.
WC&P: But since it would be cheaper to manufacture down there, why are you still in Tucson?
DeGrave: Oh, it definitely would be cheaper! But our customers buy our products because they are reliable and our system (for manufacturing) works very well the way it is right now. There is very little turnover in our staff and the result is a top quality product day in and day out produced here in Tucson. Shipping as much product as we do and sending a lot of it into Mexico, the highest level of quality has to be there every time. Labor may be more expensive, but like I said, we are not always going to be cheapest, but we are going to be the best. That type of attention to detail will keep people coming back to us.
WC&P: So there are no plans to move or increase manufacturing south of the border?
DeGrave: No. While I have faith that if we did make a big move like that, that we could maintain the highest quality, the problem is perception. Our dealers are hesitant to change and like any business, you rely on your reputation. Outsourcing for cheaper labor would have a negative impact on that.
WC&P: But with 40 percent growth a year, how are you keeping up with the increased demand for goods produced at a single plant in Tucson?
DeGrave: Basically we are just getting more efficient. We’ve added more people. Our inventory turns are very high. That’s our big push: we’re never going to be the cheapest, but we are going to be the best supplier for our dealer network and we’re going to make it worth it for new dealers to want to be a part of our operation.
WC&P: So with the quality of your products, you can charge a little more, because you get what you pay for.
DeGrave: Yes … We’re not quick to make changes. If it works, and it is dependable, and our customers like it, then we are going to go that route. We are not going to try to change a product, or go with cheaper labor, just because it would be more affordable. Water Tec has grown because we have put a good product together. If you change that, that’s were problems come from. Our strength is we build dependable products and it’s always in inventory. The inventory part is enormously beneficial in Mexico where most companies don’t have the capital to keep the amount of inventory stocked that we do.
WC&P: It seems like it would be difficult, at a certain point, to continue to move south without moving at least some manufacturing south.
DeGrave: Yes, that’s true and it is an option. We could save some money in labor costs and transportation costs but that root question is still there. ‘Why are we where we are at today?’ The reason is because we do a good job. It would be a pretty dramatic change to move manufacturing and you’ve seen a lot of companies do it. But are their customers still as happy? We just don’t want to have to ask that question. I hope the market doesn’t push it in that direction. But I would like to continue things the way we have so far. It’s worked very well for us.