A business downturn might be the last time companies think about increasing their research and development budget, but that's exactly what GE Plastics is doing.
In 2004, the business - which was merged recently with General Electric Co.'s quartz and silicones businesses to create GE Advanced Materials - will increase its technology spending by 33 percent and increase its technology staff by 22 percent, officials said at a Jan. 29 media event in New York.
Between 2000 and 2004, the unit also increased its custom applications and market development staff by 65 percent.
``We're spending more on technology at the bottom of the cycle than at the peak,'' GEAM President and Chief Executive Officer John Krenicki said. ``We're totally consumed with top-line growth.''
The increased R&D spending has kept technology Vice President Wiliam Banholzer a busy man.
``We have more going on now than we ever have,'' Banholzer said. The investment is expected to lead GEAM out of a 2003 year that Krenicki admitted ``was a tough year for the industry.''
For the year, GE Plastics' profit tumbled 50 percent to $422 million as sales stayed flat at $5.2 billion. The unit represented about 4 percent of GE's overall sales and about 2 percent of GE's overall profit in 2003.
``We put our head down and focused on strategy,'' he said. ``We ended up seeing sequential [sales] improvement beginning in the third quarter, and we were up double digits in the fourth quarter.''
Krenicki listed commoditization, overcapacity, customer shift to China and inflation in prices of raw materials and energy as issues facing the industry.
On the topic of China, Krenicki said GE Plastics ``is off to a good start'' there, but also ``is only beginning.''
Plastics is GE's largest business in China, with 2003 sales of $640 million. GE Plastics' China sales have climbed 26 percent since 2003. Annual sales could hit $1 billion by the end of 2005, Krenicki added. GE will double the capacity of its compounding plant in Nansha, China, by the end of the year.
At the same time, Krenicki said he ``[does not] want people to think we win only by driving more business to China,'' pointing out that plastic end markets such as large-part automotive molding and a lot of interior automotive work is expected to remain in North America.
Automotive remains GE Plastics' largest single end market, although it represents less than 25 percent of unit sales. Krenicki expects that market to ``get big again'' in 2005 and 2006. In anticipation of this return, GE Plastics has been devoting more resources to Japan, where automakers like Toyota, Honda and Nissan are ``very important customers,'' according to Krenicki.
GE Plastics officials also are quite aware of the ``c'' word - commoditization. Krenicki said about 40 percent of the unit's products are ``under commodity pressure,'' meaning they're facing competition from more than two or three similar products. Although the unit is seeking to reduce this percentage, Krenicki said GE will not cut back on production of commodity-type grades of polycarbonate, ABS or other resins.
``We can't shrink our way to profitability,'' he said. ``Reducing the number of grades we make isn't part of our strategy.''
One anti-commodity move is the construction of a new world-scale plant for GE's Ultem-brand polyetherimide in Cartagena, Spain. The $350 million project will create 120 jobs and is set to open in 2007.
GE Plastics also is in the midst of refitting about one-third of its Lexan-brand PC capacity in Mount Vernon, Ind., to produce copolymer grades. The $55 million project should be complete by the end of the year, according to product Vice President and General Manager John Dineen.
``We're changing the DNA of the polymer in order to do different things,'' Dineen said. ``In a market like this, you can get out, you can hide under your desk and wait for the economy to improve or you can invest in leadership and technology.''
The unit also is in the process of phasing out the brand name of its GE Polymerland resin distribution business, although it has no plans to eliminate the business. GE does not split out sales of Polymerland, but industry estimates place its annual total at about $1 billion, with 90 percent of that amount coming from GE's own resins.
GE also has no intention to add suppliers to Polymerland's lineup.
``The future of the business isn't in distribution,'' Krenicki said. ``We'll continue to distribute non-GE products our customers want, but we're not interested in becoming a supermarket or the Wal-Mart of plastics.''