Natan bursztyn

Globalization Case Series Pankaj Ghemawat

Copyright © 2013 Pankaj Ghemawat. This material should not be cited or circulated without the author ’s written

permission.

Taking Totto Global

In 2013, Nalsani sold Totto backpacks, accessories and clothing through 480 stores, of which one-

half were located in Colombia and one-half in 21 other countries. The company, which was p rivately

held , d irectly or ind irectly created jobs for 3,000 people in Asia, where most of its production was located ,

and 7,000 people in Latin America, where most of its major markets were. By 2017, it aim ed to have 650

stores in 30 countries and to become a globally recognized brand . Exhibits 1 and 2 contain, respectively,

images of the company’s founder, Yonatan Bursztyn and of on e of its Totto stores. Exhibit 3 supplies d ata

on the evolution of Totto’s stores, and Exhibit 4 summarizes the order in which it had entered foreign

markets. The rest of this short case provides a historical chronology.

Nalsani, a concatenation of the names of three brothers (Natan-Alberto-Samy), dated back to

December 1987 when Yonatan (Natan) Bursztyn, aged 28, decided to buy a leather goods factory in

Colombia. An ind ustrial engineer by training and the youngest of five brothers, he had gone from family

company to family company, but had quickly realized that he would n’t be able to run any of them. After

hunting for several months for something in manufacturing, he found a bankrupt leather good s factory

with about 40 employees whose owner was willing to rent the plant to him for a year, with an option to

purchase, and to guarantee a certain volume purchases over the next few years.

Bursztyn quickly realized , however, that it was risky to depend on a single buyer and began

looking for new outlets for his production capacity. While he originally focused on leather good s, visits

to fashion shows around the world , particularly the 1988 Mipel Fair in Milan, inspired him to create a line

of backpacks in nylon that would integrate color, design and functionality —even though that required

d ifferent machines. By the end of the year, Nalsani had started sourcing fabric from China to bypass the

limited number of colors—nylon was available only in black, gray and pink in Colombia —and high costs

locally. And since a previous job representing IBM had convinced the founder of the value of branding,

he also looked for a brand name that he would be short, easy to pronounce in multiple languages and

easy to remember. Since he particularly liked the song “África” by the North American pop group Toto,

he lit upon the brand name Totto.

Totto backpacks and other products were initially only d istributed to chain stores, but most of the

product was p laced in the back of the store, and poorly d isplayed there. Nalsani decided not to let its

products be treated like that and settled on the id ea of opening its own retail stores. Natan Bursztyn’s

wife’s family, which was involved in retail, helped with know-how in this regard . In late 1989, Totto

opened its first store, on factory premises—where people who had seen Totto products and the

company’s address in supermarkets had been coming to demand add itional products —but qu ickly

followed up with other, free-stand ing stores.

Totto presented its first collection in November 1990, which was well-received and started to

generate loyalty among youth and sporty people with informal tastes. And a friend opened a franchise

store in Cali in March 1991, inaugurating an expansion strategy t hat would be applied to and prove

particu larly critical for Totto’s international expansion.

Totto’s international store roll-ou t began in 1992 (which was also when it began manufacturing

products in as opposed to simply importing fabric from China). Yon atan Bursztyn’s brother, Samy

moved to Costa Rica and suggested that they open a Totto store there, under the franchise model. Costa

Rica anchored the development of a systematic approach to franchising. Totto looked for partners for

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whom the franchised operation would be a major focus—instead of big partners involved in multip le

lines of business for whom it might not command as attention. And it also kept on subfranchising within

Colombia, which continued to dominate the company’s sales. .

Internationalization continued with entry into Ecuad or in 1998, but the even bigger boost to it that

year came from Yonatan Bursztyn’s moving his family overseas. While he continued to visit Colombia

every month for a week at a time, the company was mostly run by h ighly-empowered vice presidents and

he had more time to think about its longer -run strategy. A decision was made to grow the international

operations significantly and was reflected in a stepped -up pace of entry into foreign markets and a sharp

rise in sales outside Colombia

Over the next ten years, Totto expanded its footprint to cover more than a dozen countries in the

Andes, Central America and the Caribbean countries, but stayed out of the Southern Cone (although it

d id enter Chile in 2010). In particu lar, Ecuador and Venezuela (which Totto entered in 2004) accounted

for as much as 85% of international sales by the end of that period . But since then, the political

vicissitudes in Venezuela had significantly reduced its share of the total. Totto d id continue to hold a

large share of the market in Ecuador, where its smoothly running network of 50-odd franchised stores

continued to account for as much as 40% of total international sales.

As sales ramped up, Totto maintained but d id not increase its production in Colombia. The

company estimated Colombian prod uction costs to be twice as Chinese ones—a burden that might be

bearable for prod ucts sold in Colombia but not elsewhere. Franchisees paid a markup on costs bu t were

offered three d ifferent types of price lists. If they had enough demand to import container loads, pricing

was FOB China. If their demand was lower but they d idn’t want to pay Colombian taxes, products

would be imported to the Colombian free trade zone that the company used and pricin g would be FOB

from there. And for the (very few) products that were produced only in Colombia, pricing would be FOB

from within Colombia, although that imposed an extra tax burden on the franchisee. In 2006, the

company decided to open a d irect office in Hong Kong, as had other big brands from around the world ,

in order to better meet the needs of its growing international operations.

Mexico, which Totto also entered that year, was a potentially large market that marked the next

step in the company’s in ternational expansion. Since it seemed infeasible to find a franchisee who would

make the investments requ ired to achieve national coverage, substantial d irect investments were requ ired

there—and in Spain and Portugal, which the company entered in 2009 an d 2010 respectively. Thus, in

Spain, where retail stores were very expensive, Totto secured shelf space in the Corte Ingles chain, with

results that the company described as “extremely good” and was working through d istributors to place

its prod ucts in sm all mom-and-pop stores as well. It was also exploring the markets in Greece—where it

had purchased a d istribu tor and which it regarded as a potential base for expansion in the Balkans as

well—and in Israel. And the United States had been described as another very important next step for the

company.

Overall, at the end of 2012, Totto had a lead ing market share in Colombia across its 240 ou tlets in 38

cities (includ ing those operated by 30 franchisees), 277 chains and 794 d istribu tors and was build ing a

large, new, state-of-the-art d istribution center. And its international operations, which accounted for 40%

of revenues (and a higher proportion of unit sales), included 214 stores mostly operated by one of 18

franchisees, 64 chains and 1,637 d istributors.

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Exhibit 1

Yonatan Bursztyn receiving the Ernst & Young Entrepreneur of the Year Award, 2011

Source: Ernst & Young

Exhibit 2

A Totto Store

Source: Totto

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Exhibit 3

Evolution of Stores, 1991-2013

Source: Totto

Exhibit 4

Market Entry Sequence

Source: Totto.com