To build or buy? That is the question faced by many processors as they seek to expand operations. A greenfield plant provides all the amenities of ``new,'' but there are also the hassles of locating a site, getting permits, dealing with contractors, buying equipment and finding qualified employees.
Buying an existing firm means you have the building, employees and equipment in place, pumping out parts for an established customer base. But buying a company means getting it all: the good, the bad and the ugly.
SPM Inc., a large custom injection molder based in Anaheim, Calif., has expanded both ways. Overall, the greenfield operations are ``tremendously successful'' at getting up and running faster and more efficiently, said Charles Finkbiner, senior vice president of business development.
``The upside of buying an existing molding plant is that you obtain instant business, so you don't have to build a customer base,'' said SPM President Mike Noggle.
The downside, however, is that ``you may get jobs or customers you don't want,'' said William J. Tobin of WJT Associates, an industry consultant in Louisville, Colo.
And there's also a chance those customers purchased as part of the company's ``goodwill'' won't want the new owners. ``Some customers might not like the idea of doing business with you and pull the molds,'' Noggle said.
Sometimes a company has a troubled past that haunts the new owner long after the sale papers have been signed. Overcoming a company's bad reputation may take time and effort to build trust and to prove that more has changed than the sign over the door, Finkbiner said.
``You can turn around negative feelings customers have about a company,'' he said. ``Not in the first week or month, but with good effort you can change that image by performance - if they'll give you a second chance.''
There are some caveats, however, to buildinga fresh greenfield plant.
``Starting out on your own in a new area can be a cold and lonely world,'' Tobin said, adding that it takes time and effort to build a customer base big enough to sustain a molding operation.
``The only way I'd do a greenfield plant is with a customer or group of customers to give me a base to build on,'' Noggle said from his office in Houston.
SPM put a plant there to serve Compaq Computer Corp. It now has several customers in the area.
``I'd never consider a `field of dreams' [if you build it they will come] type of operation,'' Noggle said. ``I don't like that approach at all.''
Dennis Nourse, president and chief executive officer of Kelch Corp. in Cedarburg, Wis., agreed. Nourse feels ``much more comfortable with greenfields.''
Kelch built a plant in Lenoir, N.C., in 1992, to mold steering wheels for customers in the lawn and garden tractor industry that had relocated in the South.
About the same time, Kelch purchased an injection molding plant in Twinsburg, Ohio, now called Kelch Injection Technolo-gies - Ohio.
``The greenfield plant in Lenoir was culturally successful much, much quicker than the acquisition in Ohio,'' Nourse said.
Kelch went outside the company to find a leader for the Ohio plant. Although the company selected a person who shared its values, the person was new to both Kelch and to that specific business. By contrast, the head of the Lenoir plant worked for Kelch in Wisconsin for almost a year while the Lenoir facility was under construction.
``He went there with a working knowledge of our policies, procedures and philosophies, and pragmatically how those philosophies relate to the company management,'' Nourse said.
``Fundamentally, [a new manager] must share your value system or they can't convey, educate or transfer your corporate culture to the employees,'' Nourse said.
SPM's Finkbiner said that often ``deeper cultural issues'' create the greatest challenges for processors who choose to purchase an existing plant. In some cases, processing companies are for sale because of adverse financial situations.
Employees become nervous when a new owner walks through the door.
``We sometimes meet resistance from employees,'' Finkbiner said. ``They're proud of what they've accomplished, proud of their company, but sometimes that negates really moving forward quickly.
``It's hard to change people,'' he said. ``It's not that they don't want to do a good job, but it's been so reinforced that what they're doing is correct, that they can't see a reason to change.''
For Kelch, labor problems quickly set in at Twinsburg. Employees did not respond well to the new management and adopted an attitude of ``it was good enough this way before you came here,'' Nourse said. Disciplinary problems erupted and employees tried to organize under a labor union, which ultimately failed.
``We wanted [the Twinsburg facility] so bad because of our strategic plans that we looked the other way on some major issues,'' Nourse said.
Kelch ended up making many personnel changes throughout KIT —- Ohio. Today, Nourse said the plant is ``180 degrees different than when we acquired it.''
Contrast both Twinsburg and Lenoir with Kelch's rotational mold-making facility, a greenfield operation in Middlefield, Ohio, also built in 1992. Kelch relocated some of its own management to get the plant running.
``It was a true Kelch facility from the get-go,'' Nourse said. Today it employs more than 100.
SPM's Noggle advised that when looking at an existing molding operation, a buyer should consider hard assets first and foremost, particularly equipment.
``People get burned by looking at earnings and thinking profitability is high, but profitability might look good because the company hasn't made any investment in new equipment.'' Noggle said. ``If they have older equipment, you've bought a company that's going to require upgrading and eventually you pay the price.''
A plant also might have assets that do not fit the buyer's business plan.
``It's absolutely senseless to have to rewrite your business to make the new purchase fit,'' Tobin said.
SPM's Finkbiner said the key to the success of any expansion is staffing and supporting the cultural values of a company.
``Our industry is not about technology really - someone can always build a better mousetrap,'' Finkbiner said. ``And it's not about low cost because someone can always do it cheaper. It's about exceeding customer expectations, but to do that you need people, systems, and procedures.
``New people coming into a new organization are open to new ideas, new procedures and policies.''