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If so, we'd love to hear it!
Simply click the link below and submit any ideas that you have for us to talk about on future Wheel of Risk episodes!
Alix McCabe: Let's say you're the CFO of a company that's already evolved from a small plastic resin distributor to an emerging industry leader, when you spot something coming down the pike that could be a catalyst for tremendous growth.
Craig Wellen: We effectively saw that there was going to be a huge, major increase in the production of plastic raw material here in the United States and the end result of that was that the United States was going to become a big exporter of plastic raw material.
Alix McCabe: I hope your passport's up to date because we are headed overseas to explore the story of MGI International LLC and the sudden supply shock.
Welcome to Wheel of Risk, a new podcast series proudly presented by Allianz Trade. I'm your host, Alix McCabe. On every episode we spin the wheel, land on a new worry and then tackle it head- on by hearing from business leaders who've been through it all before. Plus, we bring you expert advice to help you keep your business safe, secure, and well ahead of the competition. Go ahead, spin the wheel. We've got you covered.
It's a classic example of the old saying, often attributed to former President John Adams, "Every problem is just an opportunity in disguise." I'm talking about a huge spike in domestic plastic production about 10 years ago as a byproduct of a boom in natural gas development. The key for MGI International was having the foresight to see it coming and putting a plan in place to take advantage. But I'm getting a little ahead of myself here, because the story of MGI actually started much earlier, decades ago in fact, with an Italian immigrant who came to America in the '70s and founded a family business that he scaled to $ 100 million worth of sales in 15 years. And that was just the beginning. To tell us more, I'm pleased to introduce my guest for this episode. Craig Wellen is the Chief Financial Officer at MGI International LLC. Craig, welcome to Wheel of Risk.
Craig Wellen: Thanks, Alix. Great to be here.
Alix McCabe: Thank you so much for joining us. Let's also take a moment to say hello to my colleague and friend, Al Reytan, senior director here at Allianz Trade. Al is joining us to provide his very valuable perspective. Albert, thank you for being here, Sir.
Albert Reytan: My pleasure, thank you for having me.
Alix McCabe: All right, so you guys know the drill. We'll hand the mic over to Al in part two of the podcast and we'll talk to Craig first. Al, I also want to encourage you to jump in here in Act One, because I know your relationship with MGI is a very long standing one, is that right?
Albert Reytan: That is correct.
Alix McCabe: Okay. So Craig, let's get back to that origin story that I teased off the top. This is super interesting to me. Tell me, if you would, how MGI came about and how it grew from those humble beginnings to the industry leader that it is today.
Craig Wellen: Sure, Alix, happy to walk you through it. And building upon your story about a founder operated business that was grown to a $ 100 million top line around 20 years ago. At that time, the founder actually passed away very suddenly and tragically from a heart attack. And when that happened, the business was left with the founder's son, Marco, of what was called at the time, Marco Polo International, the roots of the business. At the time Marco was only a few years out of college, so very, very young, but he was very, very entrepreneurial and what Marco was able to do, was he was able to stabilize the business. It floundered a bit with the founder passing away, but he stabilized the business, brought in and built up a good team around him, kept pushing and then slowly started pushing the business more on an uptick.
Alix McCabe: So you started as a domestic company. How many countries are you doing business in today?
Craig Wellen: So right now we are selling into 80 countries worldwide, which is greatly expanded from call 20 years ago, where it's more like five to 10 countries. So a huge, huge international expansion in the last 20 years.
Alix McCabe: Wow, that's a massive growth story. I read that you have a fun anecdote about how the company's relationship with Exxon, for example, changed over the years?
Craig Wellen: Yeah, it's a great story. Over 20 years ago, the business had floundered a bit when the original founder passed away suddenly. The business was really scraping and begging its largest supplier, Exxon, to hang in there with them and just begging for any kind of product whatsoever. Fast forward 20 years to today and as a company that is now partnered with, and majority owned by, ITOCHU International, one of the largest companies in the world. ITOCHU International's headquarters in New York is the old ExxonMobil headquarters. So you're talking with a business that 20 years ago was begging Exxon for product and now we are doing our quarterly board meetings in their old boardroom, looking down on the skyline of all of Manhattan.
Alix McCabe: That's such a great testament to the growth of the company and the trust that you have in the industry now.
Craig Wellen: It really is incredible when you take a step and you think about it.
Alix McCabe: So Craig, tell me what is your own background and when did you, personally, come to be involved with MGI?
Craig Wellen: So my background is actually as an investment banker. My first 17 years of my career were on Wall Street, mainly focused on mergers and acquisitions, M& A investment banking. And then the last decade I've been the CFO of a couple businesses. And with that background, around five years ago, having been mutually introduced through a childhood friend to the founders of MGI, I ended up migrating over and becoming the CFO of the business at that point in time.
Alix McCabe: Cool. Very cool. So, now, let's maybe get into the nitty gritty of your business. Tell me, if you would, about the types of challenges that you face in your industry, the risk factors, if you will.
Craig Wellen: So selling into 80 countries worldwide, and given our current business model, a lot of the challenge is managing credit risk. A lot of the reason why suppliers will not interface and sell directly to some of our customers is because they're of, in some cases, smaller size and they don't have direct relationships or it's a difficult effort for them to qualify such customers or to find such customers worldwide. So being able to assess credit risk is a major item as we think about the business model.
Alix McCabe: Albert, do you have anything to add based on that description?
Albert Reytan: Well, I've seen the evolution of the company from a multifaceted perspective, including the expansion into international markets, including the strong risk management focus the company has in conjunction with also having us as their support. And, of course, how important this combination has been to MGI's lenders. As you're aware, most domestic banks will not lend against foreign receivables that they consider to be excluded from the borrowing base.
Having said this, we saw our role, Allianz Trade's role, in concert with the growth of MGI as fulfilling three broad roles, if you will: the risk management, risk mitigation of the portfolio, principally the foreign portfolio, Allianz Trade's enhancement of the receivable since we are AA- banks are in fact quite comfortable with that and thirdly, we provided a vehicle allowing this growth to take place internationally, safely. Allianz Trade has a global footprint in over 52 countries and that fits very, very well in line with MGI's global expansion, not just in terms of entering a market, but growing within the market and expanding.
Alix McCabe: Makes good sense. Craig, I'd love to learn more about the supply shock that you experienced about a decade ago. So this seems like it's a good part of your growth story. So what exactly was the opportunity that you guys saw coming?
Craig Wellen: So what happened was with the advent of shale gas and fracking and natural gas extraction out of the great shale resource here in the US, we saw a boom happening with respect to natural gas production in the United States. Because of that, we, in our close collaboration with our suppliers, knew that they were planning to build a lot of new chemical plants to take advantage of that cheap resource locally here and to convert it into plastic and product. So with that, we effectively saw that there was going to be a huge major increase in the production of plastic raw material here in the United States. And the end result of that was that the United States, after not adding any production versus 30 years prior to that, was going to become a big exporter of plastic raw material and that there was going to be a huge export boom of that in our sector going forward.
Alix McCabe: So you're anticipating this, right? What type of challenge does an opportunity like that present for a company like yours?
Craig Wellen: Well, first you've got to build a worldwide sales network, which is very, very challenging and figure out in terms of the various countries worldwide who are good customers to deal with, who are reputable folks, et cetera, and then figuring out how to manage the logistical supply chain to be able to efficiently get goods to folks in those countries as well. Then beyond that, it's obviously figuring out how to credit qualify a lot of customers in those end markets because they're not known to you, they're new customers, new markets and there's a lot of risk associated with that.
Alix McCabe: So what type of support or infrastructure would you say you would've needed, or did you need, in order to take advantage of this moment, this boom?
Craig Wellen: Well, aligning with an entity that can provide informational insights into these various countries, the risk associated with these countries, was very, very important. And then as we knew that we were going to grow and we were going to grow our receivables and our inventory and our working capital, we realized that we would need low cost financing to be able to effectively finance at a efficient rate, to be able to capitalize on that growth. And what we found quickly is that one good way to de- risk that receivable portfolio for lenders, who are also themselves skittish about lending against receivables in foreign markets, was to consider credit insurance. And it was the credit insurance that helped us work through that with the lenders and unlock that.
Alix McCabe: I was just going to say, how do you get your lenders comfortable, right? With that high percentage borrowing against your AR, but you answered the question. Albert, I bet you're chomping at the bit to weigh in here?
Albert Reytan: Sure am.
Alix McCabe: As you've had a longstanding relationship with MGI, right?
Albert Reytan: Absolutely.
Alix McCabe:Okay. Well, hold onto your thoughts for just a moment longer, we will come back for Albert's reaction and a little bit of advice after a quick break.
I'm Alix McCabe and you're listening to Wheel of Risk, a new podcast series brought to you by Allianz Trade. In the fast- paced world of business, there's no shortage of things to keep you up at night, but all business is about risk, trust and reward. And we are here to help you minimize the former and maximize the latter. To learn more about how a partnership with Allianz Trade can benefit your organization, please visit allianz- trade. us/ podcast. That's A- L- L- I- A- N- Z - trade. us/ podcast.
Welcome back. Today we've been speaking with Craig Wellen, the Chief Financial Officer at MGI International, about how his company dealt with a sudden surge in the supply of a key commodity, plastic resin, and seize the opportunity to dramatically scale up its international business. In this next part of the podcast we're going to hear more from my colleague, Al Reytan, who's a senior director here at Allianz Trade and has been working with MGI for many years now.
So Albert, I really would like to dig into the international aspect of this story because it's an interesting challenge that I think a lot of domestic companies may not consider. But first, any general thoughts on what we've just heard from Craig so far?
Albert Reytan: Well, in line with the actual chronological sequence of how this company evolved over the past 20 years, the one thing which stands out in my mind is, there's no such a thing as linear growth and linear good times. There are economic cycles, there are political global shocks that may impact the whole world or may impact specific regions, specific industries. And part of the challenge which we have addressed together with MGI has been this cyclical nature of business, if you will.
Allianz Trade strongly believes in long- standing relationships because we're there in good times and when they're in bad times. And MGI has also shown to be a fantastic partner on that same basis. And together we've navigated some pretty tricky and difficult times and situations from recessionary periods, to shocks and circumstances where currencies devalued overnight. But the important thing to remember is that this was managed jointly. We consider MGI to be a very important business partner. They do provide us with a lot of information on many of the customers internationally.
Alix McCabe: If you don't mind, Albert, that has to do with the fact that they have, I believe, a pretty vast network of customers in foreign markets?
Albert Reytan: Absolutely.
Alix McCabe: Okay. So let's focus in on the challenges of doing business internationally. You've done a lot of work yourself in emerging markets. So what kind of obstacles would you say that US companies could encounter?
Albert Reytan: Well, there is a cost to investigating credit in foreign markets, not to mention the extent of information that is available in the United States. In the UK for example, information tends to be much more readily available, but in emerging markets in particular, it's almost like building the foundation and then the home ground up. So the challenges are not just getting into a market and finding the customers. The challenges are also making sure these customers are credit worthy, not just when you set them up, but on an ongoing basis. So the business model that Allianz Trade has in having over 83 million business files globally, is that we facilitate trade flows. It's a database that is constantly growing and constantly being updated. So we rely on our local market expertise, and most importantly employees of Allianz Trade globally, to do this for us. My personal experience has been the majority of US companies in the middle market or even Fortune 1000 space, do not have this.
Alix McCabe: Al would you say that the percentage of businesses that you are personally involved with has changed or evolved over the years when it comes to export versus domestic?
Albert Reytan: Yes and no, because export is a function of product, but it's also a function of the strength of the currency. So at times where a product can be purchased from another market because the Dollar is very, very strong, customers globally may go to a cheaper source to buy that product. Now of course, if the product can only be purchased in the United States, then yes, there's absolute growth. So for example, if you're going to buy a certain computer chip that is made by Intel, you can only buy it from Intel. But to Craig's point, what happened over 10 years ago where gas prices were low enough to make the United States a very competitive source of plastic resin, even with a very strong Dollar, we saw big demand in plastic resin, which obviously helped companies like MGI.
Alix McCabe: Craig pointed out earlier, MGI is a pretty growth- oriented company. I bet that has kept you on your toes, Al, over the years?
Albert Reytan: Oh yeah.
Craig Wellen: Yeah. We enjoy sending some challenges Al's way. We don't want to make it easy for him. We want to make Allianz earn their fees, right?
Alix McCabe: Of course. Absolutely.
Albert Reytan: So Craig has a very, very strong team who do the credit management and keep the sales people at bay, if you will. But I typically interact with this team, at the minimum, once a day and sometimes many times a day. So we develop these relationships over the years and it's a two- way street. They do provide us considerable information as well that is helpful to us and we to them as well.
Craig Wellen: Yeah, what I would say is that it's also very much a two- way information exchange and mutual benefit for us as well. We always look and see if Allianz is pulling back in a certain market or coming back in or re- extending credit or enhancing credit limits in a certain region. We feel like if you were a stock market picker or Wall Street trader, that's like the smart money or the leading indicator, if you will, in terms of that being an interesting validation or an interesting thing for us as a business to look from when we think about global markets and where we want to deploy sales resources as well. It's very, very helpful for us too.
Alix McCabe: That's a strategic way to leverage the partnership.
Craig Wellen: Exactly.
Alix McCabe:So Craig, I do want to come back to you for a moment before we move on to the final part of the podcast, because I'm dying to know how this aggressive international growth strategy paid off. So how did things end up?
Craig Wellen: Well, fortunately it worked out pretty well. So 20 years ago, the business had gone from, let's say, a 100 million top line to 20 million top line after the founder passed and last year we did over 900 million in revenue. Really amazing, over that 20 year gross. The business actually has expanded, has founded and formed other sister subsidiaries to the original Marco Polo entity. Another company called Global Plastics was started under a multi- brand business model.
And a few years ago after the business had grown significantly, that led to what was the formation of MGI International, the M for Marco Polo, the G for Global Plastics and the I for ITOCHU, which was the big Japanese company that we brought in. A small publicly traded company of $ 60 billion, at over a 100, 000 employees, that after getting to know us, decided to come in and initially make a substantial minority investment in MGI, the parent company of this entity. And as of only a few weeks ago, we further enhanced our partnership and ITOCHU came in and acquired a majority stake in the business now. So now we are majority owned by one of the largest companies in the world, which is pretty extraordinary and an amazing story.
Alix McCabe: Yeah, that's impressive. I imagine MGI has been a really exciting place to work during this period of such unprecedented growth?
Craig Wellen: It's been extremely dynamic, as Al mentioned, of course not without its challenges. It's a lot of fun because we buy and sell and move product in every which way, in every direction possible. And there's a lot of pivoting and you got to stay on your toes and with a business model that is very, very high revenue, but as a distributor of commodities, it's not software margins, if you will. We would love to make some of those software margins.
Alix McCabe: Wouldn't we all?
Craig Wellen: No, you have to be very, very attuned and very careful and very myopically focused on every single item, every single expense. And obviously it takes really strong and good risk mitigation and risk management and that's where the trade credit insurance comes in as part of the story.
Albert Reytan: Craig, where do you rank today in terms of the top 10 distributors?
Craig Wellen: So partnered with a ITOCHU, we're number two in the world. If you were just looking at MGI separately within North America, we feel like we're a top five company, even though there's no market statistics that are shown or released.
Alix McCabe: I know you're both busy guys, so I don't want to take up too much more of your time, but before we call it a day, I'd appreciate if you could each share some closing thoughts with our listeners. So Al, I will start with you. What does every company need to think about if it's looking to aggressively grow its business, especially beyond US borders?
Albert Reytan: So they have to think of efficiencies, they have to think of time. There's a cost to doing this and we've seen many companies stumble along the way. Obviously partnering with the world's largest trade credit insurer, who has the expertise in the database in many of these important markets, provides a good solution, a very cost effective solution to at least take the risk component out of the equation and really drive the growth in an efficient and quick manner. There is no shortcut.
Alix McCabe: Thanks Albert. We always like to give our guests the last word. So Craig, what is your main takeaway either from our conversation today or from your partnership with Allianz Trade as a whole?
Craig Wellen: Well, I agree with Al. Growing and managing that growth internationally is extremely challenging. So what we've learned over the years is that just as important as the moves that we make and the decisions that we make as a management team, the only way that you're going to successfully grow a business like we have, from something that does $ 20 million of revenue to something that does close to a billion, is by partnering with the right folks. That is super critical at the end of the day and finding the right partners across the spectrum. And this partnership has been a very valuable and mutually beneficial one from that perspective. And that's been very, very helpful and instrumental in our international growth.
Alix McCabe: It's been really inspiring to learn what MGI has been able to achieve in going from basically an SME to an industry leader and in capitalizing on that supply shock about a decade ago. So thank you so much for sharing your story with us here on Wheel of Risk, Craig.
Craig Wellen: Oh, it's been great to be here, Alix, and we appreciate it.
Alix McCabe: So before you go, could I ask you to do me a favor and spin the wheel so that we can choose the topic for our next episode?
Craig Wellen: Sure thing.
Alix McCabe: All right, here we go.
Craig Wellen: Argh!
Alix McCabe:Oh no. You've landed on Russian trade embargo. It's a real doozy involving millions of dollars of potentially rotting meat.
Craig Wellen: Ew.
Albert Reytan: Eew.
Alix McCabe: My guest today has been Craig Wellen, the Chief Financial Officer at MGI International. I'd also like to say thank you to my colleague, Al Reytan. Al, it is always such a pleasure.
Albert Reytan: Thank you, Alix, for having me. And Craig, thank you so much for participating in this podcast.
Craig Wellen: My pleasure. Great to speak with you both.
Alix McCabe:I'm Alix McCabe and this is Wheel of Risk, brought to you by Allianz Trade. Thank you so much for listening, and if you like what you heard, which we hope you do, please give us a follow wherever you get your podcasts. Talk to you soon.