GE's Krenicki: Slow times call for quick thinking, R&D

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For GE Plastics President and Chief Executive Officer John Krenicki, dreams met reality in 2003.

``When I got the call from Jeff [Immelt] to come back to plastics, it was a dream come true,'' said Krenicki, who began his GE career with the plastics unit in 1984 before moving on to a variety of other assignments.

``But times right now are as tough as they've been at any time in the past 20 years. With overcapacity, the economy and SARS, it's the `perfect storm' scenario.''

Since Krenicki was recruited to lead the $5.2 billion-per-year unit by Immelt, president and CEO of parent company General Electric Co., the new plastics chief has been working to keep the business looking ahead. He's been lifted by opportunities around the world, and in China in particular.

``GE Plastics is the largest GE business operating in China today,'' he said. ``Some say that in the next 20 years, [GE Plastics] could have a bigger plastics business in China than we do in the U.S. I say that could happen in the next three.''

Krenicki took time to cover a wide menu of industry topics in an April 9 interview at GE Plastics headquarters in Pittsfield, Mass.

Q: GE Plastics is involved in resin production and compounding, downstream activities like film and sheet production as well as resin and shapes distribution. How does that strategy work in this economic climate?

A: The way I see it, we have two things going for us. Commercially, we have more feet on the street than anybody, whether it be with our resin model or plastic distribution model. Plus, on a global basis, we're the leader in most of the products we're in, so that has to have an effect. I think we're closer to the customer and in times like this that's something you absolutely have to have.

We're also backed by a Triple A-rated company that doesn't have a lot of total exposure to the oil situation. There are parts of the cycle for GE where [GE Plastics] can help the company, and this is an example of where the company helps us.

Q: So would your knowledge of the polycarbonate sheet market help with your production of PC resin?

A: We're calling directly on end-customers since we're in sheet, so we can know what they need sooner and that's an advantage. We've got a lot of eyes and ears on the street.

Q: How would you describe the markets for PC and ABS? Are they still in global oversupply?

A: Sure. A lot of it's just because the economy's so slow. Who knows what's going to happen 90 days from now? The economy could snap back. There's just a lot of uncertainty right now and it's affecting every business. But we're playing offense and spending more on new products this year than we did last year. We're upgrading our commercial teams and still integrating LNP into our family. We have big plans for them.

This is a bump-in-the-road situation we're in and we'll be better for it.

Q: How does GE's approach to product development or application development change in a slow-growth period?

A: For us, we're accelerating. It just highlights the need to do more.

We want to have less of our business exposed to economic cycles and one way to do that is to have more proprietary products and applications. So we're stepping up, and I think this would be happening if we were down in the cycle or not. We need more products.

Q: Is this going to take the form of increased spending on plants or lab equipment or the hiring of more research and development personnel?

A: I'd have to say it's mostly people.

We have significant labs around the world and have significant resources in places like Bangalore, India. [GE] Plastics has a big presence there, and we're opening a new tech center in Shanghai, [China]. Again, it's the whole company and Plastics has a piece of that. It's mostly head count.

Q: What does the increased focus on doing business in Asia mean to GE Plastics?

A: We have to be there. We've done very well and built up a nice business in Japan over the years. We're looking to move quickly into China and other countries we do well in, like [South] Korea and Southeast Asia and Australia. A lot of it has to do with the benefit of being a company with a corporate goal of [having] $5 billion in revenue in China in relatively short order.

Q: Have you seen cases where customers are specifically asking GE to supply them from that region?

A: We have multinational companies who have operations there, but we also supply a lot of local customers, so I think we're very well set up.

We have compounding and resin plants there, so our supply chain is in terrific shape to be responsive to whatever the needs of a multinational global customer are.

Q: What has prevented other competitors from imitating the GE Plastics model?

A: You have to have a certain scale to support this level of application development and technology and that's something we've built up over the years. This is the 50th anniversary of Lexan [PC resin], so it's clearly something we've worked very hard at.

The other thing is that we have a lot of technology. It's not just know-how in Pittsfield, but in Bergen-op-Zoom [the Netherlands] and Schenectady [N.Y.] We have lots of people and we're adding to that.

Q: Some people in the industry would say that once a resin company reaches a certain scale, it doesn't make sense to be in businesses like resin and shapes distribution. But on the other hand you could argue that having resin production and knowledge of those markets would allow you to run distribution as lean as possible.

A: As far as shapes go, GE also runs a business called GE Supply, where we've been in electrical distribution for years. So we have some competency in that area.

Secondly, 40 percent of our shapes business is in polycarbonate products and we have millions and millions invested in polycarbonate around the world.

We want to know who our customers are so we can launch the right new products and devote plants as quickly as possible. We're able to control our own destiny in that respect.

Q: So you don't see distribution as a low-end business?

A: You have to look at it in the context of the whole value chain. For example, we sell a lot of Ticona products. I don't know exactly where we are on their customer list, but I think we're fairly substantial.

I think they'd say this was a good deal for them, given our presence in this market. We can sell Ticona acetal to the same customers and the incremental cost is not that great.

Q: Have you seen any signs in the first few months of the year that an economic recovery could be here soon ?

A: No, not as of today. I think the only positive indicator is that the price of oil has dropped.

Q: Has it been tougher to get a bead on the economy this year because of events like the war in Iraq and the Severe Acute Respiratory Syndrome virus?

A: Is it tougher to get an indicator on the economy now than it was a year ago or five years ago? Absolutely.

We're in a period of great uncertainty. We can specify a part on a certain car and know what the build is and know if that's going to be good or bad, but we want to have armies of people doing application development. That's what we're committed to getting done.

If car builds go down by a million vehicles but we can increase penetrations of our products on those vehicles from 5 kilos to 20, it's going to be all right. That's the goal.