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Alfredo Peña Payro

ECUADOR - Industry

Mint Condition

Executive President, Grupo Industrial Graiman (Graiman Industries)


Alfredo Peña was born in 1964 and is the Executive President of Grupo Industrial Graiman (Graiman Industries). He studied at the Universidad Estatal de Cuenca and graduated in Civil Engineering. He then obtained an MBA from Instituto Tecnológico de Monterrey in 1999. Former positions include General Manager of Tuberia Galvanizada Ecuatoriana between 1992 and 2005, and Member of the Advisory Board at Produbanco Sucursal Cuenca between 2005 and 2010. In addition to his current position, he is also serving as President of the Chamber of Industries of Cuenca.

"We started exporting in 1993-1994 and now export 40% of our porcelain production."

Could you tell us about Graiman’s background and evolution?

It all began 55 years ago as a family business, like most of the businesses here in Latin America. Graiman was the answer to the group’s need to obtain an income in hard currency, mainly in US dollars. At that time, Ecuador’s currency was the sucre, and, like most of the currencies from developing countries, it was always subject to devaluation. Our main business at that time was importing steel as a raw material and producing steel pipes and structures for the construction industry. We bought raw materials in US dollars and sold them in sucres, and while we collected our sales, the price of our basic raw materials was subject to international demand. Obviously, this was a big problem at that time. Around 20 years ago we developed an industry that used raw materials produced in the region, like clay and sandstone. We started exporting our finished products, such as ceramic tiles for walls and floors. This activity gave us an income of much needed dollars. From that time until now, a lot of positive things have happened. Ecuador opened up its economy to the world through capital investment in new and modern technology directed at many industries to produce for local consumption, as well as for exporting finished products. We continued to search for new resources to optimize our production process, and we identified long ago that our bottleneck was our sources of energy needed for the industrial process. The main issue then became very clear; Graiman needed to change its energy suppliers. Until then, we relied on the use of LPG, but today we use natural gas. At that time, natural gas as a source of energy was not available for industry. We did our research and found out that Ecuador had 20 sources of natural gas, but as there was no infrastructure for exploitation; the industry was not using it. We worked with the government to develop these projects and we are proud to be the pioneers of using natural gas. This cost us around $10 million, just for the infrastructure.

What was the impact of having your own source of natural gas to use?

It allowed us to compete with our neighbors. Our competitors in Colombia and Peru already use natural gas in their ceramic and porcelain industries, as well as in their surrounding industries. Graiman uses a lot of energy to produce and transform raw materials into finished products. If you don’t have the right energy source or the right cost base, you won’t be able to compete or invest in the future. Natural gas is a very safe source of energy and, in terms of costs, it is very competitive. The cost of LPG depends on the oil price in the international market; it goes up and down and you never can know what will happen. Under this scenario it is hard to project long-term costs. On the other hand, natural gas is an independent resource, thus you have a fixed cost for the future.

“We started exporting in 1993-1994 and now export 40% of our porcelain production.”

How would you describe the evolution of Graiman’s exports?

Our exports have been successful. We started exporting in 1993-1994 and now export 40% of our porcelain production. We can do more, because right now the economy of the region is really hot and demands a lot of products from us. We are currently investing in our factories to increase production. In a couple months, we will inaugurate two kilns producing 20,000 sqm a day of porcelain or red clay products. Right now, we produce it all here in Cuenca. We have deals with other factories in Europe to produce our products; however, what we sell under our name is manufactured here in Cuenca.

Are you planning to expand into other markets?

There is a very good market in Central America, but it depends on macroeconomic development. Ecuador just signed a trade agreement with Guatemala, which opens a market for us because it allows us to sell our products without restrictions. We also have one with El Salvador. For us, Central America is very interesting. There are some markets that produce the same products, but they have different structures. For us, Central and Latin America are very important, as well as North America and the Caribbean. Those are the markets that are developing and we can get into those markets if we have the right product at the right price with the right marketing and at the right time. I think we are ready for them.

How many people do you have working in R&D?

We have three labs that work together. Each lab researches different parts of the value chain. The raw materials lab has people that go to the mining sector and investigate the materials, which is very important to us. We have excellent and unique materials in the Andean area. Therefore, research is very important in order to find the right raw materials. We have another lab that looks into the production sector and another group that looks into energy. It is very important because if you don’t use the correct energy, you can ruin your products. The good thing about natural gas is that it is very clean; it is a clean energy source that can be managed in a very specific way. We also have a lab that is trying to research the anthropological aspects of the mine. Marketing tries to ask questions about what the people want. We have a store that tries to convert these ideas in a way so that they can be used. We have developed some metallic floors with a shiny look, for example. We put a great deal of money into R&D, and that is how we prepare for the future. Right now, we make money in the higher rotation offerings, such as red-body products. These make up for 80% of the sales in the market; however, the remaining 20% that is porcelain is growing fast because people want to have a different floor, which the red-body cannot give you. That is why we don’t make an interesting margin, but we are putting a lot of effort into it because we think that white-body products will be the future. At the moment, China and even Colombia and Peru have lower costs. Those countries, especially China, can produce one square meter for $3. Our costs are more than that and they sell it to us at that price. We need to differentiate ourselves and give the customer more than just a product. We are putting a lot of effort in our stores to introduce a special service and design. If you are a customer and you go to our store to change your floor, we have our studio and designers who will help you decide what really suits you. Nowadays, the culture of ceramics is developing so fast that people expect more than a price. This is something we are working on a great deal.

How would you describe your logistics chain?

We are working now with new software to allow us a rational communication of information; supply chain management software is very important for us. Ecuador is changing a lot. Six years ago, the roads were not as good, meaning you needed to have warehouses. Every city needed to have a warehouse. Nowadays, we feel that we need fewer warehouses and more logistics and transportation. We are working on that issue right now. We do 30% of our own finished-product transport and 70% we outsource. We would like to outsource 100% when the industry gets more sophisticated. We have a lot of items to move and control. Even though we are working on our supply chain management, it is not our core business. This industry, in developed countries, is different. There is an industry for mining and another that distributes raw materials. We do all of that now, which is another thing that is changing a lot. The new law gives us more security to do business. Before, you needed to buy land and talk with all the people who work and live in the area, then do the paperwork and give the community what it needs. Now, the government is doing its part. We pay the government royalties and it goes to the community to work with the people. It helps a lot. In the past, we needed to do all of those things. Now, we have concessions and we export raw materials. We also produce the product and do the selling. Those are three big sectors and we participate in them all. Of course, it is a challenge being in all three and staying competitive in all three fields. However, so far, we have been doing a good job.

© The Business Year – July 2013



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