MBA. Hellen Ruiz Hidalgo
Strategic Communicator, (OCEX-UNED)
Vice-Rectory of Research

Business review of the Vargas Group. At OCEX we wanted to present, in this informational capsule, a review of the Vargas Group, a 100% Costa Rican company, with a track record of over 80 years. This company has had an exceptional industrial performance. Through business and technological innovation, with high levels of investment and international quality certifications, it has managed to meet the highest standards required to join the companies promoted by the Foreign Direct Investment (FDI) under the Free Trade Zone regime.

The Vargas Group supplies cardboard products, thermoformed plastic, alcoholic beverage and food labels, and high-tech packaging to medical component companies. Since the massive decline of INTEL's historic investment in Costa Rica, precision and medical equipment has become Costa Rica's leading export sector. It is the most dynamic FDI segment with a coverage of 36% of exports in 2021 and a growth of 38% between 2020 and 2021 and an exported volume equivalent to $1,166 million.

Why a business review? The World Bank page, underlines Costa Rica's "success" and in its country context literally says: "In many respects, Costa Rica is a development success story. Considered an upper middle-income country, Costa Rica has experienced sustained economic growth over the past 25 years. Such progress is the result of an outward-oriented growth strategy based on openness to foreign investment."

en grupo vargasThe importance of the Vargas Group's productive interlinkage with the precision and medical equipment sector is therefore understandable. From the methodological point of view, and this is the fundamental aspect, from OCEX's perspective, it is, in this case, a decisive business dynamic for national development. The following is OCEX's analysis of the relationship between the companies in its domestic business park and the firms whose roots are FDI.

However, this Foreign Trade Observatory (OCEX-UNED) has systematically pointed out the contradictions of this strategy, also known as the "export model", due to the generation of productive dualities that have not been duly addressed with appropriate public adjustment policies. This criterion has been shared even by several Costa Rican analysts who have emphasized the duality that exists between its export success and its productive backwardness, as well as its social performance. Thus, for example, the State of the Nation Program has detailed that: "Inequality increases, income poverty remains stagnant, the real income of the employed does not grow in the most vulnerable sectors, nor in the social classes that receive lower wages, and employment opportunities are limited. This disconnection has been a characteristic of the Costa Rican economy so far in the 21st century. To address these problems, it is essential to implement productive development policies and improve institutional capacities" (author's emphasis). 

This has been the grounded approach of the doctoral thesis of Velia Govaere, coordinator of OCEX, who summarized these criteria as follows in an article in the Revista Nacional de Administración: "The country's successful outward linkage, promoting state-of-the-art technological development, has little relation with its inward productive technological empowerment policies".  

Trayectoria Grupo VargasMonge et al. consider that the problem of the Costa Rican model lies in the productive gap between exporting companies, especially high-tech ones, and low productivity and sophistication companies aimed at their domestic market. For these authors, the solution is to achieve a reconnection through productive linkages.

In an article already considered a classic of diagnosis and prescription of national public policies, they state that "Despite the positive results of the economic opening process, Costa Rica has not yet managed to extract the main benefits of FDI and exports".  First, the value added of its exports is relatively low due to the low level of linkages of export companies with the rest of the economy.

How to overcome this productive distance? Back in 2013, in an article in the National Journal of Administration (RNA), written jointly by Velia Govaere and this author, we said that there was a "need for sophisticated local suppliers that can only be the product of a strong innovation component in local companies." That explained why "the resulting linkages have had very modest results."This has prompted OCEX to pay special attention to Costa Rican companies that have managed to link themselves to the export effort in high-tech lines. Thus, in OCEX Newsletter No. 1 of 2015 we reviewed the company Etipres, linked to the labeling of export products.

We now turn to the Vargas Group, a family business that has achieved a level of investment, sophistication and technological innovation that allows them to link up with highly sophisticated Free Trade Zone companies, such as the high-tech medical device industry.

Vargas Group Overview. Founded in 1942, Group Vargas is dedicated to providing integrated printing and packaging solutions. It is the first company in the printing industry in Central America and the Caribbean to be certified ISO-13485. It is also certified under the Good Manufacturing Practices (GMP) and ISO-9001 standards, which guarantee its Quality Management System.

In its corporate governance. The Vargas Group, although it is a family company, has a corporate governance structure. A Family Protocol establishes principles that separate the organization chart, the management of the family patrimony (society) and the management of the Company. The administrative team is led by the General Manager, who is external to the family and has autonomy in the conformation of his work team. 12 managers from different areas report directly to him and make up the Executive Committee that oversees the entire staff, consisting of 210 employees, more than 80 domestic and foreign clients and an external market in more than 10 target countries.

Corporate Social Responsibility and Sustainability Strategy. The corporate responsibility with its personnel begins with the on-site management of a Health Clinic, with a doctor, a nurse and a company nutritionist. It has a company cafeteria that is partially subsidized for its collaborators, with breakfast at 50% and lunch at 40%. It has a Solidarity Association to which the company contributes 3%. In addition, priority is given to hiring local personnel.

In terms of gender, women account for 40% of the general and plant personnel of the Vargas Group. 80% of the female personnel are mothers from a disadvantaged sector of San José, with a primary school education. During 2020, due to the pandemic, a monthly subsidy of ₡85.000 colons was granted to some female employees who are heads of household. The beneficiaries of this subsidy were selected on the basis of a socioeconomic study. The subsidy was given in the form of a supermarket card used to purchase basic supplies and food.

From an environmental standpoint. Group Vargas has four programs focused on the rational use of natural resources, good environmental practices, and reducing the generation and management of polluting waste. These programs are:

1. Gota to Gota: For a responsible use of water resources.
2. Turn it Off and Let's Go: For an efficient and responsible use of energy.
3. Let's Recycle Together: For integrated waste management.
4. A Green Ride: To reduce the use of hydrocarbons and CO2 emissions.

In addition, the Vargas Group participates in four national and international efficiency and sustainability programs:

1. Integral and responsible waste management.
2. Ecological Blue Flag Program.
3. Building with high standards of energy efficiency and sustainable design. LEED (Leadership in Energy and Environmental Design) program.
4. Technology and automation of industrial operations.

Conclusion. The linkage of national companies with multinational exporting companies, established as FDI in Costa Rica's Free Trade Zones, is a decisive component of the modernization of the national industrial park itself. However, the international quality standards tovisita Grupo Vargas which national companies must be certified are so high that their production does not receive a significant demand from the domestic market and their productive offer ends up being adequate for export and for the provision of products for Free Trade Zones, rather than for Costa Rica itself.

In order to be able to opt for a technological linkage with the high technology of the products exported in the Free Trade Zone, suppliers with high productivity and technological innovation are also required. The way the Free Trade Zone policy is set out in Law 7210, this dynamic makes national companies that reach this level of development consider opting to become Free Trade Zone companies to be one of their natural developments.

This is the case of many large national companies and the Vargas Group is among the companies that have opted to leave the definitive regime and join the free zone regime. In these cases, it is a business movement of productivity development, which places its line of business in a very high percentage of linkages with Free Trade Zone companies.

In the case of the Vargas Group, it is a company with a formidable innovative energy, which has made truly exemplary efforts to improve its corporate governance. Its long history as a family business goes back several decades. Its ability to adapt to changes in its business environment and to the adoption of corporate governance has been remarkable. As a national company, it is to be emulated its risky bet on an investment that places it at the highest levels of technology in its field.

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