Small injection molder Pacific Plastics & Engineering faced a daunting customer demand - set up an Asian operation. Not an easy thing, especially for a family-owned firm with 60 employees and all its manufacturing in Soquel, Calif.
But the company made it work by adopting a strategy that some say too often is overlooked: It found a joint venture partner, and now is working with that company in Bangalore - India's Silicon Valley.
Partnering can be a lower-cost, lower-risk way of entering new markets or expanding technological offerings, especially when the manufacturing economy continues to bump along and some estimates say there is 30-40 percent excess capacity in the U.S. injection molding industry.
``It's a way to create a virtual large company without damaging your balance sheet,'' said Brian Tartell, president of PennTar Consulting Inc. in Port Washington, N.Y. ``I think people are more creative in satisfying customer needs without taking as much of a financial risk.''
The strategy has its limitations, and requires careful analysis of partners and a lot of trust between them, said Tartell, who talked about the approach at a September financial conference his firm organized in Chicago.
But it can open up markets. An automotive molder looking for a presence in another geographic area could set up a partnership with a packaging molder, or a company with smaller presses could develop an arrangement with a firm with larger machines, Tartell said.
Injection molder Sate-Lite Manufacturing Co. in Niles, Ill., had been trying to grow the market for its bicycle reflectors by selling them into Europe, but was running into problems because European bike manufacturers wanted to buy lights along with reflectors.
The company did not have the capability to make lights, but it did have a manufacturing plant in China, a key asset for the cost-conscious industry. So the company teamed up with a German bike lights maker, Hella KG Hueck & Co., which had no Asian presence.
Hella transferred its small bike lighting business from Finland to Sate-Lite's plant in Shunde, China, and the companies formed a 50-50 venture that is operated by Sate-Lite's Asian plant. Hella sells to Europe and Africa, while Sate-Lite handles North and South America and Asia.
For Sate-Lite President Richard Van Deventer, it's an example of when a joint venture makes sense. Both companies brought unique assets.
The approach is not how Sate-Lite first entered Asia in 1998, however. The company looked at a joint venture, but ultimately decided to do it on its own.
Van Deventer said the government of China recently had created a new legal structure, the Wholly Foreign Owned Entity, which let non-Chinese firms for the first time have independent operations in the country. And he heard stories from firms that had entered joint ventures but regretted it.
``A lot of companies go into China with JVs, but they later regret it because after a year they realize they can do it on their own,'' Van Deventer said. ``There has to be a compelling reason for you to do the joint venture. The JV partner really needs to bring something critical to the table, other than just knowing their way around.''
Connecticut injection molder Seitz Corp. set up an operation in China three years ago, at first using space in a customer's facility but then setting up its own assembly and manufacturing operation. Beyond satisfying its customers, the venture has mushroomed into another line of business - advising others interested in China.
Seitz sells its Chinese experience, offering consulting services and space in its factory, in Changzhou, to other companies, said Tom Herd, vice president. The other companies often don't know what they want from Asia and are looking for a lower-cost way to explore the market, he said.
Pacific Plastics faced a similar situation - a customer told it that it had to be in Asia, or it would lose business. But Pacific did not know how to approach that vast market.
Chairman and Chief Executive Officer Stephanie Harkness said the company's research convinced it India was the best spot - English is common, the workforce is good and the country protects intellectual property.
While PPE favored a joint venture as a way to minimize risk, it needed to find a partner that had the same ideas, she said. Harkness made many trips to India, and reviewed three finalists before deciding on a company owned by the brother of PPE's Indian-born sales director.
``It's like getting married,'' said Harkness. ``I needed to know I had a partner looking for a long-term relationship.''
It's a 50-50 venture, with the Indian firm being the operational arm and PPE doing sales and marketing, she said. For now the venture mainly molds caps and closures. But Harkness said the Asian operation, which only began June 1, is helping to open up other business.
Harkness believes mom-and-pop operations like hers - she and husband Jack own PPE - have to work collaboratively with others to survive.
``For the most part this industry was sole proprietors, who come from our cowboy history,'' she said. ``As we look now at a global landscape, that kind of thinking won't support the business opportunities of the future.''