Aboitiz y Compania, the history of a Spanish business in Cebu, Central Philippines
By Irene R. Sino-Cruz
WHAT started as a trading business in the early 1900s has grown into a conglomerate with interests in shipping, power, real estate, banking, manufacturing and a number of other businesses spread across the country.
It is quite a feat for Aboitiz & Co., which at one time was on the brink of bankruptcy and whose physical assets were almost wiped out at the end of World War II.
Shortly before the war, Aboitiz & Co. owned a sugar plantation and mill, shipbuilding and repair facility, hardware, hemp processing, international and domestic trading and cold storage facilities, knitting factory, liquor business and a cattle ranch.
Although the Aboitizes started doing business in Leyte, Cebu is now home to their corporate headquarters.
The Aboitiz & Co. experience was cited in a seminar on family corporations as a good example of a well-managed family-owned business.
Many family-owned businesses in Cebu that started in the early 1900s went bankrupt or split up after the first generation.
However, the Aboitiz group of companies enters the new millennium still intact and even growing stronger.
Aboitiz Equity Ventures chief executive officer and president Jon Ramon Aboitiz now leads the fourth generation of Aboitiz cousins in steering the family’s various business interests.
Jon Ramon attributes the continued success and unity of the Aboitiz clan to the high level of trust the family members have for each other.
"Nobody took advantage of anybody. Our closeness with each other created a bond from one generation to another. You cannot have a family corporation where certain members (of the family) take advantage of the others," Jon Ramon tells the INQUIRER.
The Aboitizes recognizes that their closeness was not enough for the family business to remain intact.
"We realized early that it’s not an easy thing to stay together. We have to work at it," he explains.
They also hired a family corporation consultant from the United States to help them in the transition from being a traditional family-owned company to one that is professionally run.
Family council
The family holds regular meetings to discuss issues. This practice was formalized when they formed the family council.
During council meetings, the Aboitizes argue on issues and make a decision according to the wishes of the majority, explained Jon Ramon.
After a decision is made, everybody abides by it, he says.
Even the application of the company rules does not provide allowances for family members.
"Rules must be equally applied to all," he adds.
At present, he said, 15 family members are working with the company.
"All the rest are professionals. By large, we are a professional company," he adds.
Another striking feature of the Aboitiz group is the way the transition from one generation to the next is handled.
Unlike other family-owned companies where the patriarch finds it hard to hand over the reins to the next generation, the Aboitiz group prides itself with being able to implement a smooth transition of management.
According to Jon Ramon, his father came out with the rule of requiring a family member who reaches the age of 60 to step away from the operations of the company.
While the senior family members are no longer involved in the day-to-day operations, he says that they assume the role of advisers, providing guidance to the younger family members.
Jon Ramon also notes that one does not hold a position in the company just because he belongs to the Aboitiz clan. They have to prove their worth.
The Aboitiz children usually grow up in the business, working with the company during school breaks to learn all facets of the business.
Beginnings
Aboitiz & Co. traces its beginnings to Spaniard Paulino Aboitiz who, after his marriage to Emilia Yrastoza, started trading in abaca fiber or hemp.
Aside from trading in hemp, Paulino operated a general merchandise business with Angel Moraza, who was married to Emilia’s younger sister, Guadalupe.
Together with his brother-in-law, Angel, who was based in Baybay, Paulino also operated a general merchandise store.
At the turn of the century, Paulino, Emilia and their 10 children went to Cebu when the Spanish government collapsed.
Paulino entered into a partnership with abaca dealer Jose Muertegui, who was based in Palompon, naming their business Muertegui y Aboitiz.
When the volume of business increased, the partnership bought the ship "Picket" in 1907 to transport their abaca.
At the time, combining abaca and shipping interests was common.
The family business grew under the management of the second son, 22-year-old Ramon who assumed his father’s position as a partner in the firm.
Ramon and elder brother Guillermo also formed a partnership, G. y R. Aboitiz that sold general merchandise in areas not covered by Muertegui y Aboitiz.
In 1916, the Muertegui y Aboitiz partnership was dissolved after the Aboitizes paid P95,000 for Muertegui’s share.
New partnership
The family formed a new partnership called Viude e Hijos de P. Aboitiz. It ventured into passenger shipping in 1918 when Ramon bought the steam launch Tubig from Smith, Bell and Co.
Ramon filed a petition before the Commission on Public Utilities for a license to operate the route between the Cebu and Leyte ports of Baybay, Inopacan, Hilongos, Bato and Hindang.
In May 1919, Ramon, his wife Dolores and son Eduardo left for Spain after he sold his shares to his brothers, Guillermo and Vidal.
With the success of the family business, Ramon thought that his mother and siblings can live comfortably when he left for Spain.
Guillermo and Portuguese Arnaldo F. Silva formed a corporation called Aboitiz y Compania Incorporada and capitalized at P1.25 million and P500,000 paid-up capital.
The Bureau of Commerce and Industry approved the corporation papers on Feb. 4, 1920.
The Aboitiz cousins, Manuel Moraza and Joaquin Yrastoza, joined the corporation after they bought 300 and 50 shares, respectively. Aboitiz brothers Paulino and Luis each owned 100 shares.
Trouble
A few months later, the business was in trouble and the corporation, deep in debt, was on the brink of bankruptcy.
Responding to the family’s call for help, Ramon returned to Cebu in September 1920, 14 months after he left.
He learned that the company owed P2 million to the bank and to others.
He wrote to Silva, the company president and general manager: "The biggest fortune that I have is my word and my reputation. Money can be lost and can be recovered, but once reputation is lost and one’s word is worthless, one is surely finished."
Against the advice of many, he refused to declare bankruptcy. Instead, he negotiated with Philippine National Bank (PNB) Cebu manager Jose Martinez for the restructuring of the P800,000 loan. He also borrowed from businessman Joaquin Castro and Gotiaco Hermanos.
At the same time, he convinced Macleod and Smith Bell to advance funds to the company in exchange for a first choice of any abaca shipment.
Twenty years later, Ramon was able to pay off the loan.
Business was booming as demand for hemp and copra grew steadily.
War period
When World War II broke out, Japan invaded Cebu on April 10, 1942. The Aboitizes went about doing the business in spite of the difficult circumstances.
The war struck its hardest blow shortly before it ended when bombing by both sides destroyed their knitting factory in Manila, the power plants in Mindanao, a portion of their shipyard on Mactan Island, hardware store and ice plant in mainland Cebu.
The business empire that Ramon built with the help of his brothers and cousins survived the devastation of the war due to a decision to diversify.
Two businesses, the knitting factory and liquor operation, continued to earn an income throughout the war years.
Despite the destruction of many company assets, Ramon remained unfazed. He, his brother Vidal and cousins went on to rebuild their various enterprises with some of the company assets that survived.
US Navy contract
The company’s Cebu Shipyard and Engineering Works entered into a contract with the US Navy for the exclusive use of the area for two years.
The post-war years saw the family forming another shipping company, started manufacturing oxygen, reviving operations of its power firm Cotabato Light and Power Co. and bought the franchise of Davao Light and Power Co.
The growth of Aboitiz and Co. from a trading firm into a conglomerate can be attributed to the astuteness and keen sense of timing.
Through the years, the company has the knack of seeing possibilities in businesses and selling these off at the right time.
While Ramon took some risks, he did so after carefully studying the situation.
When he acquired Cebu Ice & Cold Stores Corp. in February of 1926, the company invested a lot, buying new equipment. The new acquisition provided cold storage and sold ice, distilled water and refrigerated fruits and meats.
After upgrading the equipment, Ramon learned that electric refrigerators were being introduced to the Philippines.
He decided to continue operations of the ice plant when after a market study, he learned that only 20 percent of his market can afford to buy refrigerators.
Ramon’s business acumen has enabled the company to survive the challenges.
His timing was almost perfect, acquiring a business at its peak or with potential and selling it when business is bad and still earn profits for the company.
Ramon's sons and nephews were able to steer the business to continued growth.
Changing of guards
Management of the company was first handed to Ramon’s son, Eduardo, and then to Ramon’s brother, Luis, before Eduardo’s son, Jon Ramon, took over.
The changing of the guards brought many changes. Aboitiz & Co. went public in 1994 through Aboitiz Equity Ventures, a holding management company for businesses in power distribution, financial and insurance services, food and industrial production.
The new management has also made use of information technology by participating in Bayantrade, a procurement exchange company, through AEV.
Bayantrade is a partnership with Ayala Corp., Benpres Corp., JG Summit, Philippine Long Distance Telephone Co. and United Laboratories.
Another strategy is the use of IT to increase productivity of company employees.
"Every company has to have an Internet strategy because future business is completely intertwined into the Internet and e-commerce," notes Jon Ramon.
Aboitiz & Co. is also into industrial and commercial real estate development (through Aboitizland), banking (Union Bank and City Savings Bank), power distribution and generation, freight forwarding and food-related business (Pilmico Foods Corp.).
According to Jon Ramon, the company’s main thrust is to work for the growth of AEV businesses especially banking and power.
He has high hopes for the company as he believes that the family members will continue to work together despite the diversity.
"You have to work at it to ensure you have the harmony to move forward," he said.
DE: http://www.inq7.net/bus/2001/jun/11/bus_15-1.htm Philippine Daily Inquirer article "Unity in diversity" By Irene R. Sino-Cruz June 10, 2001