Banking on the written word

Scott McCulloch is Editor of Families in Business magazine.

Faber-Castell, the eighth-generation family-controlled writing instruments group, is showing no signs of retrenchment but just how long will its creative streak last?

Faber-Castell is keen to set the record straight from the outset. The family business is not a German pencil-maker that exports but an international group with 15 factories round the world and 5,500 employees.
 
The group, led by eighth-generation Count Anton Wolfgang von Faber-Castell, has operations in more than 100 countries. That's a far cry from the company's 18th century origins when Kaspar Faber, a German cabinetmaker, began making pencils in 1761 at his workshop in Stein (just outside Nuremberg). Little delineated Faber's business from other German pencil makers, who, as a group, produced inferior products because of a scarcity of graphite, a key ingredient.

Today 85% of the company's sales are achieved abroad. But turnover for the year to 31 March is expected to come in at a lacklustre €267m. "Taken as a whole we're not exactly happy, but we're also not hugely disappointed," says chairman Count Anton. The group expects to post a 10% increase in pre-tax profits. "But the weak US dollar was a bitter pill for us
to swallow."

Although the company has achieved significant growth in Germany, it has experienced difficulties as a result of the downward trend on the market in Brazil and pirate copies of its products from east Asia. Nevertheless, Faber-Castell is achieving above-average growth with its range for three- to 12-year-olds. Its products for young people and adults are also expected to achieve growth in the medium term.

Although a lucrative segment Count Anton believes the group is unlikely to focus exclusively on the youth area of its market pointing out that the company sees itself as a "companion for life". The group's "playing and learning" products, aimed at pre-teens, will remain a priority in the medium term. The scope for increasing turnover lies in the group's colouring products and creative handcrafts, particularly in Latin America, Asia and in eastern Europe. "We also plan to expand the playing and learning field by means of creative kits for children, which should establish us better in toy shops all over the world."

Some analysts have described the group's diversification into creative products for adults and children as a strategic reaction to a waning market for fountain pens and related products. Faber-Castell insists its orientation towards such products is in no way a bid to compensate for falling turnover in the classic writing implement market but a logical step towards its goal as companion for life. It looks a canny strategy. "It also has potential for worldwide growth," says Count Anton. His words reflect Faber-Castell's ruthlessly focused business mentality. With the exception of the founding of a real estate company in Brazil in the mid-1990s and consulting activities, Faber-Castell has remained vertically integrated. The company's broad strategy is equally logical, neatly dividing into five product areas designed to entice consumers over a lifetime. "I don't expect that to change in the future."

The future is unwritten, but pencils undeniably lie at the core of Faber-Castell's history. In the late 18th century, graphite was mined in northern England and at the time English pencils were the gold standard around the world. But graphite – the 'lead' in pencil lead – was becoming scarce, and pencil quality was diminishing. A turning point came in 1839 when Kaspar's great-grandson Lothar Faber took over the business, then known as AW Faber. He produced the first hexagonal pencil, and his commitment to quality made Nuremberg the centre of German pencil production. By the end of the century 25 pencil companies were operating in the vicinity. He also began embossing his pencils with the AW Faber company name, thus creating the world's first brand-name pencil.

AW Faber began selling pencils in the US in 1843. (Lothar's brother, Eberhard, was sent to the US in 1841. He found the pencil business so promising that he branched out on his own, forming Eberhard Faber.) A foreign branch of the company was set up in New York City in 1849 and others in Paris, London, Vienna, and St Petersburg followed. Faber travelled the world, dispensing samples and spreading the word. By the mid-1800s, AW Faber was a well-known commodity.

Lothar acquired a graphite mine in Siberia in 1856. The purchase turned out to be a major coup for the company and put it unequivocally in the lead. Although Siberian graphite had to be transported by reindeer to the nearest port, graphite from England had virtually vanished, giving the company the world's top supply.

It's just as well. The material can mean the difference between a good pencil and a bad one. "It should have a smooth feel, not scratch the paper, and a Faber-Castell lead mustn't break – even under a load of 2kg," explains Count Anton. The wood casing is also decisive. "The best wood for pencils is cedar, and in our case it comes from California." It doesn't stop there. From a technical point of view, a perfect surface texture also plays a part. The Castell 9000, one of the group's key brands, receives several coats of paint and a transparent varnish. The pencil is then stamped and lettered, dipped in paint to give it a rounded end and, of course, sharpened.

By 1861 the Geroldsgruen branch was opened in Upper Franconia and became one of the largest manufacturing facilities of slide rules in the world.

Lothar von Faber was known to be an exceptionally public-spirited entrepreneur. He set up one of the first health insurance schemes and financed the construction of company-owned flats, schools and a church. Impressed by what he heard, Napoleon III dispatched an expert delegation to study Lothar's exemplary social amenities.

Having lost two of his sons at an early age Lothar's son, Wilhelm, himself died prematurely. The company was passed on to Wilhelm's daughter, Baroness Ottilie, who married Count Alexander zu Castell-Rudenhausen – descended from one of Germany's oldest noble families. In 1900 Count Alexander joined the family business and the company name became Faber-Castell.

The 1900s saw further development of Faber-Castell's international operations. In 1905 Count Alexander launched the group's famous green pencils – a utilitarian range that would bear the group's familiar jousting knights logo and, in turn, prove popular with Vincent van Gogh. When Count Alexander died in 1928 his son, Count Roland, took over company management.

By 1962 ballpoint and felt-tip pens were being produced in Australia and Austria. A ballpoint pen factory was set up in Peru in 1965 and in 1967 Faber-Castell acquired a majority interest in a Brazilian lead and coloured pencil factory in Sao Carlos.

Following the death of his father, Count Roland, Anton took over the company in 1978 as sole owner. Media reports have suggested that this came on condition that his nine siblings stayed out of his way in matters of business. Count Anton seems to agree. "Most family businesses come to grief sooner or later as a result of dissonance between members of the family at board level, " he says. "That doesn't serve anybody's interests." Decision-making competence, he adds, is sometimes best kept to a single pair of hands. "My father chose me for the job – he obviously decided I'm not a complete fool." The Count's initial career as investment banker may also have had something to do with it. "That helped me develop my own personality."

Today few family enterprises can boast eighth-generation ownership. It could be argued that Faber-Castell is blessed with good fortune. An aggressive approach to business is more probable. The acquisition of real estate, a strategic roll out of retail units in key cities, and a commitment to vertical integration enabled the group to lay its bedrock. While bloodlines may not be wholly attributable to success they can be a potent source of inspiration. In this Count Anton looks to his great-great grandfather Lothar – a man he reveres for his uncompromising efforts towards building the family brand, one of the world's oldest. "His persistence in conquering new markets long before the word globalisation was even thought of, and not least his unusual degree of social responsibility towards his employees… these are entrepreneurial qualities still as topical today as they were 150 years ago."

That same social responsibility runs alongside the group's approach towards the environment. The group's massive reforestation project in the Brazilian savannah is a key focus. Spread over 10,000 hectares, Faber-Castell initiated the project nearly 20 years ago to meet demand for pencils and to remain independent from timber suppliers. Separately, in 1990 the group established a lead and coloured pencil factory in Indonesia, using wood exclusively from forested tree stocks.

The world market consumes an estimated 10trn pencils a year, with China accounting for 40%. Europe produces 2trn pencils a year and the group grows 20 sq metres of wood per hour to sustain a voracious market.

But how can pencils survive the age of computers? Count Anton sees a polarisation: developing countries need simple tools – pens and pencils; industrialised countries don't. For rich nations, upgrading, as he calls it, to 'lifestyle' items is an emerging and lucrative, trend. "Craftsmanship and tradition are again rated highly." The office sector and all its technology will always be an important market, but Faber-Castell sees little chance of writing instruments slipping away. "So long as mankind doesn't give up the hand-held writing habit – and there's no reason to think that will happen – there will always be a market to conquer," he says. "And we'll invest as much creativity and know-how as we have done to lead our company to worldwide expansion. Another reason is that the pencil is a very economical product. It has longevity, it's environmentally friendly and you needn't be afraid of it drying up with time."

The broad-based success of Faber-Castell is undeniable, it's firm grip on its markets seemingly unassailable. The group has no set plan for an IPO, although listing may have occasionally crossed the minds of Count Anton and his brother Andreas, who heads up the group's Asia-Pacific operations. "Never say never!" says Count Anton ambiguously. "The goal is to be in a position where we're ready for quotation on the stock market. The first step was converting Faber-Castell from a limited-liability company to a family-owned joint-stock company. But at the moment we have no firm plans for going public."

As for the next generation, Count Anton is in no mood to impose his will on his offspring. "I would not like to force my children to take over any more than I would have wanted to be forced into it myself." He reckons it's their decision and, if interested, that they should enter the business fold later rather that sooner, as he did. "My children are still young."

Count Anton has shown that he can manage a multinational. As for the future, he's equally clear on the group's direction. "I don't see it as my task or objective to preserve tradition for its own sake, but to keep tradition up-to-date as a successful system of values," he says. "To strike a balance between the proven and the modern, and sometimes even revolutionary innovations that differentiate us from the competition."