By Jan H. Schut
Here’s what some companies in the plastics industry are doing to keep going. We asked senior executives from a dozen companies, including processors, machine builders, and material suppliers, to share their strategies for survival and even growth in hard times. Their views are drawn from interviews and written comments and combine the perspectives of young companies and old, public and private, in widely different businesses with sales ranging from the millions to tens of billions. But their general advice is surprisingly uniform. Keep expanding globally. Raise productivity. Focus on higher margin business.
A decade ago a lot of American companies were nervous about globalization and saw it only as a threat. The big lesson learned through the recent recession is that globalization in some form is necessary for survival. “If you rely on one country, the future goes as that country goes,” notes Joseph Pregont, CEO and president of Prent Corp., a privately held packaging thermoformer in Janesville, Wis., serving electronics, consumer products and medical customers. “We’re a miniature global company,” Pregont says with about half of sales from international plants in China, Denmark, and Malaysia. Last year Prent opened another foreign plant in Costa Rica.
“Slowdowns are often the right time for investments for those who can,” notes Serge Rogasik, V.P. for plastic additives in North America for BASF. BASF Group, headquartered in Ludwigshafen, Germany, a maker of pigments, antioxidants and light stabilizers for plastics, bought Swiss specialty chemical maker Ciba AG in 2009 at the start of the recession, and since then has invested in two new antioxidant plants in Bahrain and Singapore to support plastics growth. But “there are plenty of ways you can improve productivity and focus on higher margins without major investment,” BASF’s Rogasik adds.
In another recent downstream buyout PolyOne Corp. in Avon Lake, Ohio, is acquiring Spartech Corp. in St. Louis, Mo., a maker of specialty compounds, sheet and barrier packaging. The deal, which is expected to close in Q1, will bring PolyOne some specialty compounds for aerospace and security markets that it didn’t have before. Spartech can ride on PolyOne’s international sales presence to distribute Spartech products globally. And PolyOne hopes to apply operating efficiencies like its Six Sigma to Spartech production.
EXPAND SALES GLOBALLY
Moving production offshore doesn’t necessarily hurt domestic employment either. When Prent set up its first overseas forming plant in Malaysia in 1998, Pregont explained to employees “that by moving thermoforming manufacturing overseas, we would actually create jobs at home, and we have.” The reason is that Prent builds its own in-line thermoforming machinery and automation in a separate machine building operation in Janesville, not just its molds. In-house machine building to support overseas expansion increased Prent’s domestic employment 20% over the past four years.
Machine builders sometime keep all or part of their manufacturing in the U.S. to protect proprietary technologies, and expand globally in sales. But U.S. manufacturing means high cost labor. Maguire Products Inc., a maker of feeders, blenders and dryers for extrusion in Aston, Pa., does all its manufacturing in eastern Pennsylvania and exports 50% of sales. In 2009 at the start of the recession, Maguire cut its workforce 15%, lowered remaining salaries for two months, and gave Fridays off. But cost cutting alone isn’t typically enough. At the same time, Maguire also shifted its focus to high-end new products and away from incremental growth in low margin products.
One such high-end new product was a custom blender with special bridge breakers to feed wood flour for plastic lumber, which Maguire had finished developing in 2008. Maguire realized that the same device could also feed bulk powders like calcium chloride, an extender in blown film and extrusion blow molded bottles. “We standardized it as the MaxiBatch line of blenders with five dosing devices for powder or flake or poorly flowing regrind and for liquid color or additives,” explains Pat Smith, V.P. of sales and marketing at Maguire. “That is a specialty item for other manufacturers.” Previously calcium chloride could only be fed in pellet form or using gravimetric powder feeders, which also cost three times more than MaxiBatch (about $100,000 vs. $35,000).
Maguire filled its warehouses in the U.K. and Singapore with the new blenders. “We have over 100 blenders in stock at any time. We have shorter lead time in Europe than European manufacturers do because they choose to build to order. We keep the pipeline full,” Maguire’s Smith explains. “We can absorb the carrying cost because we fill more orders than they do. It’s a huge competitive advantage.” Maguire continues to invest in high-end products like a new generation vacuum batch dryer, now in beta test sites, which will be introduced in 2013.
Sometimes you have to tweak your business model. Conair Group in Cranberry Township, Pa., a maker of auxiliary equipment including dryers, blenders, feeders, granulators, and downstream extrusion equipment, has been global since the 1970s with overseas sales, service and manufacturing in Mexico, Taiwan, Singapore, and China—all wholly owned, and most recently India. Conair president Larry Doyle is credited with having set up the Indian operation in 2007–Conair’s only overseas site that isn’t wholly owned–as a joint venture with NuVu Engineers, an established manufacturer of auxiliary equipment. “India was a unique situation,” Conair’s Doyle explains. “It is a natural partnership and a very successful one.” NuVu Conair has grown so rapidly despite the weak global economy that by 2010 it announced construction of a new manufacturing plant.
Another company that has seen foreign joint ventures grow gangbusters is Visteon Corp. in Van Buren Township, Mich., which makes automotive climate control, electronics and interior components, including plastics. Visteon’s 50% owned Yanfeng Visteon Automotive Trim Co. joint venture in Shanghai, China, with SAIC Motor Corp. (formerly Shanghai Automotive Industry Corp.) together with Visteon’s 70% owned Halla Climate Control Corp. joint venture in Seoul, Korea, which makes car climate systems, represent about 60% of Visteon’s revenue. Both joint ventures are growing much more rapidly than Visteon proper. Visteon now plans to sell its own climate control business to the Halla joint venture, which will make Halla’s climate business No. 2 in the world.
Yanfeng Visteon’s sales grow 28% a year, so Visteon president and CEO Tim Leuliette recently told a Barclays’ Global Automotive conference in New York that he expects Yanfeng could be bigger than Visteon next year. In an interesting twist on globalization, Yanfeng also intends to globalize its own interior car parts production. “No matter how good they are, regional players ultimately need to be global too,” Visteon’s Leuliette explains. “Interiors, instrument panels, seating, and other parts are over 70% of Yanfeng’s business. European car makers who use Yanfeng in China now want to use Yanfeng globally for other interiors too.”
That means everyone–sales, manufacturing, and R&D. Communicating with global sales offices means starting the day earlier. “Your sales team has to be more 24/7 focused,” says Peter Cloeren, CEO of Cloeren Inc., a family-owned builder of flat extrusion dies in Orange, Texas, which manufactures all dies in the U.S. and exports 65%-70% of them. CEO Cloeren says he now starts work at 5:00 a.m. instead of 6:00, so he “can catch the Europeans in the morning and the Asians in the evening.”
Because Cloeren manufactures in the U.S., which is a high cost environment, manufacturing also had to get more efficient. Cloeren cut about 20% of employees after 2009, and at the same time invested substantially in new equipment to increase manufacturing productivity. “We’ve invested about $5 million in the last 12 months in new machine tools, which for a company of our size is a lot of money,” CEO Cloeren says of the stomach-knotting decision. “We bit the bullet, and we’re charging ahead.” The company is building a 10,000 square foot extension onto one of two die-building plants to house the new machine tools.
Sales people have to focus earlier and better on customer needs. Conair reorganized some of its sales force just before the recession, creating a new PET packaging sales team to understand the needs of PET film and sheet producers and get higher yields. Conair had previously dedicated sales teams to downstream extrusion of profile and tubing and to thermoforming. “There was certainly a downturn in 2009,” says Conair’s Doyle. “But Q1 and Q2 of 2010 were already better, and Q3 was strong enough to make new investments.” By 2011 Conair had bought a 50,000 square foot plant in Pinconning, Mich., to meet increased demand for high-output cooling tanks, water baths, cutters and winders for pipe, profiles and medical tubing, developed with the sales team for profiles and tubing.
R&D efforts also have to be targeted. “Be sure your R&D people are working on things that are meaningful,” cautions Diane Gulyas, president of performance polymers at plastics and chemical producer DuPont in Wilmington, Dela. Gulyas, who came up through 35 years at DuPont from field sales rep to lead the polymers business, became president in late 2009 just as the recession hit. As president, Gulyas pushed for innovations like the rapid commercializing of Zytel Plus in 2010, which won the “Most Innovative Use of Plastics” award from the SPE Automotive Division that year.
Zytel Plus, a new family of nylon resins that can withstand higher temperatures for longer time periods, was developed in record time in response to an urgent customer need. As car engines got smaller and more efficient, they were getting too hot for existing nylons. “Zytel Plus gave us 30-40 degrees F hotter surface temperatures. They were the fastest development we have ever done, between 9 and 12 months,” Gulyas recalls. New automotive materials typically take two to three years to commercialize. (BASF, for example, developed high-temperature-resistant Ultramid Endure for the same market, but had the first production application two years later in 2012.) Zytel Plus succeeded because DuPont R&D was put to work very early on a new customer problem.
Rapid commercialization of what customers need is also the goal behind DuPont’s new network of Innovation Centers around the world. There are nine so far built in the past 18 months in Japan, Korea, Taiwan, Thailand, India, Mexico, Brazil, the U.S., and Russia, all with video conferencing and CAD CAM seats to connect customers in those locations with some 9500 DuPont scientists and engineers anywhere in the world. Innovation Centers in Switzerland and Turkey will open in 2013, and an R&D and automotive center in China will be converted to an Innovation Center.
Focusing on aftermarket customer service is also an effective strategy in a slow economy, according to Husky Injection Molding Systems Ltd. in Bolton, Ont., which supplies injection molding equipment and services for beverage and food packaging, medical, and consumer electronics markets. Husky’s V.P. of marketing Jeff MacDonald notes examples like light weighting conversions and process and productivity monitoring software.
FOCUS ON HIGHER MARGIN PRODUCTS
In a slow economy concentrating resources onto higher margin business is important. Before the recession Nypro Inc., a contract injection molder in Clinton, Mass., had shifted its customer focus from three areas (consumer electronics, medical devices, and packaging) back to primarily medical devices and packaging, de-emphasizing wireless electronics. “They were becoming difficult for a contract manufacturer,” explains Nypro spokesman Al Cotton. “Customers were changing specs very fast, so it was costly for us.” That decision proved prescient. When consumer electronics manufacturing in Asia plummeted after 2009, Nypro wasn’t as exposed as it might have been.
Nypro’s globalization—41 locations in 14 countries, most in place for over 10 years—has been a boon for its medical device business. “We can do almost all medical devices where they’re being used,” Nypro’s Cotton explains. “That’s a big advantage in the medical business recently.” Nypro has also continued to invest in manufacturing for healthcare markets domestically, building two new clean rooms in 2012, one in North Carolina, where a customer got a state economic development loan, and one on its own in Clinton, where Nypro already had five clean rooms. The new one has higher output.
Sometimes a U.S. company becomes part of a foreign company’s global expansion and new opportunities open up. Before the recent recession Farrel Corp. in Ansonia, Conn., a builder of continuous mixers for plastics and Banbury batch mixers for rubber had neglected the continuous mixer side of its business and historically focused on the batch mixers. In 2009, Farrel was acquired by a German competitor, Harburg-Freudenberger Maschinenbau GmbH (formerly Thyssenkrupp Elastomertechnik GmbH), a unit of Possehl & Co. in Germany, which created a new HF Mixing Group and made separate business units out of Farrel’s batch rubber mixers and continuous plastic mixers. The batch mixer business unit moved from Connecticut to Farrel’s Rochdale, U.K. plant, which now concentrates exclusively on tangential batch mixers.
Farrel in Connecticut was given worldwide responsibility for developing, building and selling continuous mixing machinery in the HF Mixing group, including the continuous mixers from Pomini Rubber & Plastics Srl in Castellanza, Italy (also a unit of Possehl). Despite the recession, Farrel’s new owner also invested in a spanking new process lab for customer trials in Connecticut. The lab opened in 2012 with all the usual test and analytical equipment plus “a new 550 kg/hour compounder for customer trials. The semi-works size is large for a lab, but allows accurate scale up to any production size,” says Stephen Peterson, V.P. and business unit director for the continuous mixing part of HF. “We have customer trials and development work every week now because we have the tools.” The result? “Order income is great now,” Farrel’s Peterson says. “We’re going to exceed our budget, and we’re going to hire new engineers.”
Not all investments bear fruit that fast. Nor are we out of economic uncertainty by any means. Both DuPont and Dow Chemical Co., Midland, Mich., for example, in their latest Q3 earnings reports for 2012 announced restructuring. DuPont’s Q3 report announced the elimination of about 1500 jobs globally in the next 1-1.5 years as part of its plan to divest the Performance Coatings business. Dow’s chairman and CEO Andrew Liveris told analysts that Dow would close nearly 20 “non-core” manufacturing sites and reduce capital spending. “Simply put, we have to… stop future growth projects that are no longer affordable in this environment.” Dow is not, however, stopping all growth projects. It continues to invest in differentiated, high margin products like the expansion of its Nordel elastomers and a plant in Texas for a new process to make propylene monomer based on shale gas feedstock.