Faber-Castell is the largest maker of wood-encased pencils in the world and also makes a broad range of pens, crayons and art and drawing supplies as well as accessories like erasers and sharpeners.
Largest maker of wood-encased pencils, Faber-Castell shows how midsize companies can stay competitive
Jack Ewing
Count Anton-Wolfgang von Faber-Castellhas been known to hurl wooden pencils from the tower of his castle to the stone courtyard below. It is not a petty fit of pique by a mad Bavarian aristocrat.
The 72-year-old, the eighth in a long line of pencil makers, just wants to prove how durable the pencils that carry his family name are. The Faber-Castell family has been making wooden pencils by the hundreds of millions in Stein, Germany. A torrent of brightly coloured pencils flows from machines in a century-old factory with a tile roof and windows framed in pastel hues.
Pencilling in a Surplus
Faber-Castell is the largest maker of wood-encased pencils in the world and also makes a broad range of pens, crayons and art and drawing supplies as well as accessories like erasers and sharpeners. About half the company's German production is exported, mostly to other countries in the eurozone. That means that Faber-Castell contributes, at least in a small way, to Germany's large and controversial trade surplus — which now rivals China's for the world's largest.
Faber-Castell illustrates how midsize companies — which account for about 60% of the country's jobs — are able to stay competitive in the global marketplace. It has focused on design and engineering, developed a knack for turning everyday products into luxury goods, and stuck to a conviction that it still makes sense to keep some production in Germany.
"Why do we manufacture in Germany?" the count asked during an interview. "Two reasons: One, to really make the best here in Germany and to keep the know-how in Germany. I don't like to give the know-how for my best pencils away to China. Second, 'Made in Germany' still is important." Not all its factories are in Germany. But when Faber-Castell, which is privately held and had sales of 590 million in its last fiscal year, manufactures in places like Indonesia and Brazil, it is at its own factories.
In contrast to many American companies, like Apple, that have outsourced nearly all production to Asia, Faber-Castell and many German companies keep a critical mass of manufacturing in Germany. They see it as central to preserving the link between design, engineering and the factory floor. The result is a large trade surplus. During the first nine months of the year, Germany exported goods and services worth 148 billion more than it imported — including a surplus of 20 billion in September alone. In absolute terms, it was the largest monthly trade surplus.
Germany's trade surplus is so huge that it has drawn criticism from the US. The European Commission is conducting a review of whether it is unhealthy for the euro zone economy. Critics say Germany should invest more of the profits from exports at home, to stimulate its own economy and, by extension, the rest of the euro zone.
But companies like Faber-Castell are more concerned about their ability to stay globally competitive, leaving the macroeconomics of trade to the bureaucrats of Brussels and Berlin. There are threats everywhere, including ever-more-sophisticated Chinese competitors and unpredictable shifts in technology. And when even preschool children operate iPads, there is no certainty of a future for coloured pencils.
Posh Pens
"The biggest challenge for Faber-Castell will be how writing will develop with the advent of digital technology," said Hermann Simon, a management consultant who coined the term "hidden champions" to describe highly focused, midsize companies like Faber-Castell that drive German economy.
"Will children still write? But Faber-Castell recognises this challenge." The current market is testing Faber-Castell. While sales in the last fiscal year rose 3.5%, profit declined 27%, to 24.2 million, in part because of the cost of building new operations in Asia and Latin America. The company said last month that sales so far this fiscal were down 9%, because of the depreciation of currencies in markets like Brazil and weak sales in southern Europe.
Still, Faber-Castell, founded in 1761 when graphite pencils were a novelty, has overcome technological shifts before. When Anton took over the business in 1978, the company was a leading maker of slide rules. That was soon laid to waste by the electronic calculator. Then, in the 1980s, computer-assisted design gutted the market for its mechanical drawing products.
The count revamped the product line to put more emphasis on higher-priced products, ranging from coloured pencils for artists to fountain pens selling for thousands of dollars. Premium products account for about 10% of sales. "You have to continuously shift," said Anton. "If you lean back and say, 'With my products I can be happy,' then it's the first step to hell."
Anton, while aware of the digital threat, maintains that writing by hand will never disappear. Even in wealthy countries, he says, children use pencils and pens to learn how to develop the motor skills needed to read and write. "The pencil is in some way a very archaic product but still indispensable," he said. "The pencil will remain alive much longer than we probably believe."
"The biggest challenge for Faber-Castell will be how writing will develop with the advent of digital technology," said Hermann Simon, a management consultant who coined the term "hidden champions" to describe highly focused, midsize companies like Faber-Castell that drive German economy.
"Will children still write? But Faber-Castell recognises this challenge." The current market is testing Faber-Castell. While sales in the last fiscal year rose 3.5%, profit declined 27%, to 24.2 million, in part because of the cost of building new operations in Asia and Latin America. The company said last month that sales so far this fiscal were down 9%, because of the depreciation of currencies in markets like Brazil and weak sales in southern Europe.
Still, Faber-Castell, founded in 1761 when graphite pencils were a novelty, has overcome technological shifts before. When Anton took over the business in 1978, the company was a leading maker of slide rules. That was soon laid to waste by the electronic calculator. Then, in the 1980s, computer-assisted design gutted the market for its mechanical drawing products.
The count revamped the product line to put more emphasis on higher-priced products, ranging from coloured pencils for artists to fountain pens selling for thousands of dollars. Premium products account for about 10% of sales. "You have to continuously shift," said Anton. "If you lean back and say, 'With my products I can be happy,' then it's the first step to hell."
Anton, while aware of the digital threat, maintains that writing by hand will never disappear. Even in wealthy countries, he says, children use pencils and pens to learn how to develop the motor skills needed to read and write. "The pencil is in some way a very archaic product but still indispensable," he said. "The pencil will remain alive much longer than we probably believe."
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