Why worry about having a big building-supply center open a rental department nearby and muscle into your market? Why not just graft your operation onto that big store, take advantage of its high visibility and marketing might, leverage the synergies of related businesses, bring your own rental expertise, employees and inventory to the game, and keep your business under your control? If you can't lick 'em, why not join 'em?

That's what Carlos Ibañez and his wife Ana did in 1992, starting with four or five kinds of machines - 13 in all, $3,000 worth - in one location in Santiago, Chile. Today the company - Carlos Ibañez Arriendo de Maquinaria (CIAM) - has eight such rental outlets coupled to the

big Chilean building-supply chain, Sodimac, plus a much larger main store, with an inventory of 70 kinds of machines - 500 total, worth $300,000 - and 28 full-time employees.

And revenues have risen tenfold, from about $50,000 the first year to about half a million dollars now - and that volume promises to climb steadily as rental gains momentum in the robust Chilean economy. Ibañez opened his seventh location in December, his eighth in January, and plans to open two more this year.

Sodimac operates throughout Chile with three kinds of operations: home centers catering to the consumer market; small builders' supply and homeowner stores in small towns; and much larger builders' stores aimed at contractors - these are the stores that host Ibañez' CIAM rental outlets.

The average CIAM/Sodimac store is only 250 square feet (the largest is 480) and is staffed by a manager and a mechanic. There isn't much on-site inventory, so kinds and numbers of machines have to be chosen carefully. All the stores in the Santiago area can shift inventory back and forth or be supplied from the main store, but as the operation spreads, stresses on capital and inventory become tougher.

Consequently, Ibañez is devoting more time these days to marketing and financial strategies: encouraging contractors to order in advance, for example, and other ways to optimize the employment of capital.

Ibañez leases space from Sodimac, at $3 per square foot or 10 percent of sales, whichever is more, and each of these small stores needs to do about $2,400 in rental revenues per month to break even. The two-year lease is renewed automatically, and the Sodimac contract encourages Ibañez to put in a rental operation whenever and wherever the chain opens a new builders' center.

A Sodimac builders' center consists of a retail store - quite small, compared to its U.S. counterparts - and a large outside stock of lumber, structural steel and other building materials, most of it under roof, with drive-through lanes for loading trucks.

"CIAM brings a lot of business into Sodimac stores, and vice versa - one-stop shopping," says Ibañez. It has been a good marriage, based on unique capabilities and complementary differences. There is little overlap to antagonize the relationship. Needless to say, the retail component of Ibañez' business is limited to those items directly related to rental machines and not available next door.

In addition to the main CIAM store in central Santiago, which is not affiliated with Sodimac, Ibañez now has eight locations at Sodimac stores, five of them in metropolitan Santiago, one in Reñaca, near Valparaiso on the Pacific coast about 80 miles northwest of Santiago, one in San Felipe, inland and about 60 miles north, and another - the newest, opening in January - in Antofagasta, nearly 1,000 miles north.

All the CIAM locations at Sodimac stores are identical in appearance: they all have the trademark red, yellow and black paint job on the counter, which matches the color scheme of the much larger headquarters store and is intended to increase brand awareness.

The CIAM/Sodimac locations are spaced around the ring that surrounds Santiago and their market areas, which extend about 10 miles farther out, to form a sort of pie-shaped pattern that gives CIAM complete market coverage - except for the more upscale eastern edge of the city, which is earmarked for future CIAM/Sodimac expansion.

Santiago is a city of 5 million and about 30 miles across, so there's plenty of potential for new business, in both the traditional contractor market that has been the bread and butter thus far and newer markets with higher homeowner content.

"The homeowner market has quadrupled in the last two years," says Ibañez. "Eight years ago I rented 10 percent to homeowners and 40 percent to contractors, and the rest was 2 percent to universities, 2 percent to schools and so on. And that 2 percent has become 4 percent, or 5 percent - I mean, the customer base is growing. More people are becoming acquainted with rental. It's getting bigger, and I am seeing that in homeowners more than anything."

The general rental company, virtually an institution of the U.S. rental scene, is rare in Chile. Most rental is specialty-based and very narrow in inventory - scaffolding, cranes, air compressors - but CIAM, in league with Sodimac, is doing its best to change that picture.

"The Chilean rental industry is very specific," says Ibañez. "One company may rent only compressors, maybe generators or welding machines. The kind of company I started is not common in Chile. Only about 3 to 5 percent of the work done in Chile is done with rented equipment, at present."

So there's plenty of opportunity, and competition has not pinched that thus far.

Home Depot is moving into rental in Chile, as it has in some locations in the United States, and in one Home Depot store I visited, the rental department looked quite a bit like one I visited recently in Baltimore - it occupied about the same space, but had perhaps a third of the inventory.

"Home Depot has started doing rental here, on their own, like they're doing in the States," says Ibañez. Caterpillar is developing a rental business, but it's only heavy construction.

"Right now, in Chile, I think you can be as big as you want in this business. Competition is not a factor. There is nothing to hold us back."

The newest store, which just opened in Antofagasta, is nearly 1,000 miles distant from the Santiago base of operations, presenting new problems of supply and control that Ibañez has not faced before. He can't simply shift needed inventory quickly from a nearby store, or get another store manager to fill in if someone is sick, but Ibañez looks at it as a pilot for future growth and figures the new challenges will map the way for expansion elsewhere in the country.

It's a 20-hour drive to Antofagasta, but Ibañez says: "It's the only builders' store location of Sodimac I am not in. Margarita said, and I think she's right, that we have to be there. It's a city of 260,000 people and it's growing - there's a lot of copper mining and fishing there. But the distance does trouble me. It's going to be challenging, but it's going to be a very good experience."

There are urban centers in the major agricultural region to the south that beckon Ibañez, and he is looking at a couple of locations for development this year.

How did it all begin? Well, it's not the usual rental startup story. Ibañez went to Harvard University as a pre-med student, but had to return to Chile because his father was terminally ill. There he got a mechanical engineering degree instead, and then went to Spain, where he designed cranes, textile machines and lumber grinders for five years. Upon his return to Chile, he managed a brewery and then a Pepsi-Cola plant. On the side, he started a construction company, doing remodeling and homebuilding, and began to rent machines.

At last it occurred to him that he might like renting better than building. He looked into it and concluded: "I like this business!" He opened his first store in 1992, and his second 14 months later.

Then in 1993, Ibañez went to the hardware show in Chicago. Because of a travel agent's error, he got there a week early and had time on his hands. So he grabbed the Yellow Pages, rented a car and went around visiting all the Chicago rental companies he could.

"That changed my business," Ibañez says today. "The rental people I talked to in Chicago were very helpful. I took a lot of notes - see, I still have them," he says, pulling a thick stack of notebooks from his desk drawer. "I was only in electric tools, and now I saw the possibilities for expansion. I had two stores and was about to open a third. That was the turning point for me.

"I joined A.R.A. in February 1997 at the New Orleans A.R.A. show and I've been going to the A.R.A. show ever since. I go to all the seminars. They are very good. I go to every session."

Ibañez says joining the A.R.A. was "the only way I could get off the island," referring to Chile's virtual "island" status: the country is bordered on the east by the Andes Cordillera, on the west by the Pacific Ocean, on the south by the Antarctic and on the north by desert, isolating it from the rest of the world. He believes it's vital to have insights into how others are operating, and his only real source for that is what he can pick up from the A.R.A., and from Rental Management magazine in particular, since there is no rental association in Chile.

CIAM's market is mostly building, remodeling and demolition contractors, so the inventory is heavily loaded with concrete tools, breakers, grinders, tile saws and drills. Concrete construction is the norm in Chile - even the telephone poles are concrete. Floor-finishing machines also are big, as well as chain saws, but a recent attempt to introduce a post-hole auger flopped.

"They don't know what it is," says Ibañez.

"There are probably no more than five of them in the whole country. Labor is cheap, so they dig post holes by hand. I tell them they can do 20 holes an hour with my machine instead of 20 holes a day, but so far, no luck."

Marketing new ideas remains a challenge in this market.

"The value of the A.R.A. show for me is to see all the possibilities and choose what will be best for me to stock in Chile," says Ibañez. "There, I learned the variety of things available. I can't find that anywhere else.

"I stock only one brand of each machine. I do not change brands, unless I have an absolute failure. That is what works in my market. If I introduce Bosch breakers to my market, then I must have only Bosch. Hand saws? Makita. Chain saws? Husqvarna. I don't change brands. Because my customers say, 'No, I must have a Bosch breaker.' If they used a red one before, they want a red one. If I say I have only yellow ones, they don't want that. So I have to be very selective, and then put the same kind in all the stores.

"I don't think the manufacturers understand that we renters are the ones who make their brands move in the market, and expose them in the market - if we rent Husqvarna, when the customer buys one he's going to buy Husqvarna. We create that preference. I don't think the manufacturers have any real concept of our influence."

About half of the inventory is the same in all locations; the rest is market-specific, based on demand, and Ibañez watches his lost-rental reports closely - week by week. If he doesn't have something, he gets it and then calls the customer back: "Now we have it," he says.

"I consult with my wife, Ana Maria, all the time about running this business. I very much respect her opinion. She is a management consultant, and she knows a lot more about managing people than I do."

Ana's wisdom in management organization has led her husband to believe strongly in narrowing the span of control and placing great authority and accountability in the hands of all employees - particularly the women. Just three people report directly to him: Margarita Castro, who in turn manages all the store managers; accountant Carmen Aranda at the main office; and Julio Jeria, head technician, who manages all the store mechanics.

Machines cost 50 to 100 percent more in Chile than in the United States, and rental rates are a third to a half of U.S. rates. A breaker that cost $1,100 in the United States costs $1,800 in Chile and rents for $18 in Chile, $30 in the United States, Ibañez says. Even more extreme: a pressure washer that cost $900 in the U.S. costs $2,000 in Chile. This fact - along with the infancy of the rental concept in Chile and the difficulty of getting capital for inventory expansion - explains the relative sparseness of inventory at CIAM locations, as well as the necessity of precise inventory selection and planning.

Ibañez figures utilization averages 35 to 40 percent, based on time rented vs. idle, and that needs to go up. Only 3 to 5 percent of the work in Chile is currently done with rented equipment - rental is a new thing and demands a massive marketing effort in order to realize the potential, which is considerable in this stable and growing economy.

CIAM rental outlets match the hours of the host Sodimac stores, 7:30 a.m. to 7 p.m., seven days a week. The stores are closed only four days a year: Christmas, New Year's Day, Good Friday and Labor Day, which in Chile is May 1 - autumn in the Southern Hemisphere.

"I'm more exposed to customers with these hours of operation, so that puts my rental average up," says Ibañez. "I bring in part-time help to handle the long days.

"Weekends are good because most weekend rentals are homeowners - they use a machine very little and it's cash flow, mostly Sodimac credit card business, and I don't have to collect the money. Sodimac collects it and pays me 29 days later."

Only the money CIAM gets through credit card transactions goes through Sodimac; that amounts to about 29 percent of total revenues. The rest is cash or checks. Personal checks are the traditional way of paying in Chile, much more common than in the United States, and are the standard security deposit.

But the Sodimac credit card is changing that. The sign above, posted prominently at Sodimac stores and on all CIAM counters, says: "Forget about guaranteed checks and rent tools in three cash payments, with no down payment and no interest."

So customers can rent something and pay a third after 30 days, another third after 60 and the rest after 90 days. The intent is to remold customers' minds - introduce them to a new way of dealing.

On the contractor side, the average rental is six to eight days. CIAM has virtually no open accounts with contractors; maybe half a dozen out of 5,000 customers are on open accounts. That, too, will change as the rental option gains prominence. What we are seeing in Chile is the germination of an idea in good economic soil, and Ibañez - an ardent home gardener - is determined to cultivate that idea, and in his own way, add an important contribution to the growth of Chile.

Nurturing the future of Chile is in the Ibañez family genes: Carlos' grandfather - also named Carlos Ibañez - was twice president of Chile, 1927-31 and 1952-58. He left the country before finishing his first six-year term in order to avert a civil dispute that threatened to derail Chile's progress, and went to Argentina as a state guest of Juan Peron, but was re-elected (after a gap of 21 years!) upon his return.

Now there are streets and schools named after him - and one rental company: "Carlos Ibañez" has such name recognition in Chile that an industrial psychologist advised grandson Carlos to use it when he started the business: it has a lot of valuable equity in Chile.

Two of Ibañez' three sons want to come into the business. Carlos, 21 - the fourth Carlos Ibañez - is a manager type, good with people, outgoing and energetic, and Jose, 19, already shows great promise in financial management and organizational details, such as handling negotiations with suppliers.

"Chile is the most stable economy and the most vibrant country for business in South America - 75 to 85 percent of the products in Sodimac stores are produced in Chile," says Ibañez. "The economic growth rate has been 7 percent for 10 years in a row. Inflation is about 3 percent. It was as high as maybe 400 percent when Pinochet came to power - and much higher than that under his leftist predecessor, [Salvador] Allende. But it came down when Pinochet brought in the 'Chicago Boys.'"

In 1973, Augusto Pinochet took over as a military dictator and thousands of people disappeared. "It was a bad time for Chile," says Ibañez. "But he did do one thing that was very good for Chile - he brought in the 'Chicago Boys.' They are heroes in this country to at least 50 percent of the people."

The "Chicago Boys" were a team of economists from the University of Chicago, headed by free-market economic guru and Nobel prize-winner Milton Friedman. The Chicago Boys put Chile on a sound footing and the country began pulling ahead, and out of the inflation rates that have long plagued South American economies - 2,000 percent inflation was not unheard of. On payday, people would dash to the nearest money changer to convert their paychecks into dollars - their pay could lose almost all of its value before the day was out.

But all that has changed, and today Chile is confident, vibrant, with a robust industrial base and bustling with construction - and ripe for rental.