The business highway between North America and China goes both ways.
China's Minth Group Ltd. is establishing a beachhead for its growth with North American automakers through its June 11 majority-ownership purchase of Ohio-based auto supplier Plastic Trim LLC.
The $8.7 million acquisition is only an early sign of an expected influx by Chinese firms that are eager to grow, and able to do so.
``They wanted to come to the states, and they had the financial wherewithal to do it,'' said Bill Mercurio, who completed the sale of his Beavercreek, Ohio-based firm to a partnership that also includes minority-stake investments by Tokyo's Sojitz Corp. and Plastic Trim managers.
Minth is among the first Chinese automotive suppliers to invest in North America, but it will not be the last. There is growing interest by Chinese firms and business leaders in U.S. production as they respond to the same market pressures North American suppliers have faced.
``The Chinese market has become very competitive and there is a lot of capacity,'' said Mike Benson, managing director for Stout Risius Ross Advisors LLC of Farmington, Mich. ``They're looking for ways to differentiate themselves and expand their marketplace.''
Minth already has a solid base in China. It is one of the top auto suppliers there - not only for Chinese-based automakers, but Japanese- and North American-based firms including Honda Motor Co. Ltd. and General Motors Corp.
Minth's sales to U.S. automakers, both in China and elsewhere, were up sharply in 2006, from 60.5 million yuan (US$7.38 million) in 2005, or about 9 percent of its business, to 127.7 million yuan (US$16.8 million), or just over 13 percent of sales, last year.
The company noted in its annual report that its overall exports are growing rapidly, from 23.1 million yuan (US$2.8 million) in 2004 to 123.9 million yuan (US$15.5 million) in 2006, as it has boosted spending on research and development.
Minth bought Plastic Trim, which ranks among the four largest firms in its market in North America, for access to the company's sales network, and to give Minth improved just-in-time delivery and logistics in North America, said Lily Yi, manager of investor relations for the Ningbo-based company.
The companies had competed for business, but were introduced by a mutual customer, General Motors, she said in a June 22 telephone interview.
This is the first acquisition outside China for Minth, which has about 3,000 employees at 23 extrusion factories, but the company has its eye on additional overseas opportunities, she said.
Most of its exports to date have been to Australia and Europe, but the company, which is publicly traded on the Hong Kong Stock Exchange, plans a major push into North America and Japan, she said.
``North America and Japan do not make a big amount [of exports], but next year you will see some big differences,'' she said. ``We see enormous potential in North America and Japan.''
The firm also has close ties to the Japanese auto industry in China.
Minth first contacted Mercurio in August about buying Plastic Trim. It found a skeptic.
``At first I was very, very leery,'' Mercurio said in a June 20 telephone interview.
He had reason to be careful. Mercurio had sold the company once before, in the mid-1990s, only to buy it back in 2003 to save it from closure. He rebuilt the firm, which extrudes exterior trim including body side moldings and roof trim and injection molds functional parts such as bumper fascia brackets.
With about $70 million in sales and 450 employees divided between plants in Beavercreek and East Tawas, Mich., and a sales office in Bingham Farms, Mich., the company continues to grow. It has booked another $20 million in business going forward - but that growth also brings additional costs.
Plastic Trim has had to invest in new extrusion lines to keep up with contracts, which brought new challenges.
``Our ability to grow was starting to crunch our cash flow,'' Mercurio said.
Yi said the financial health of Plastic Trim is ``not very good.'' But, she said Minth believes it can help reduce Plastic Trim's costs by, for example, using Minth's in-house tooling department in China, rather than sourcing molds in the United States, as Plastic Trim does now.
Minth believes it can return Plastic Trim to profitability without major cost cuts, she said.
Mercurio said he was not actively seeking a sale of the business when Minth contacted him.
It took time to convince him.
Mercurio said he resisted Minth until he had a chance to meet and talk to executives who were able to assure him that their business plans matched Plastic Trim's. He also traveled to China to get a feel for Minth's operations there.
``In the U.S., we have this image of China as being this poor, low-cost, low-wage supplier,'' he said. ``They're absolutely not. These guys have the most modern plants I've ever seen. This isn't just about labor costs.''
The more he saw, Mercurio said, the more he was convinced the acquisition made sense for both firms.
``This was a merger made in heaven,'' he said. ``It was the best for them; it was the best for us.''
Minth will tap into Plastic Trim's technology and use the company to coordinate production of more complicated parts, while Plastic Trim can use Minth's facilities to handle high-volume parts that do not need the same level of scrutiny.
The Chinese firm will take a cautious approach with its new North American operation, and it does not plan major changes, Yi said, noting Minth wants to avoid complications with Plastic Trim's union membership.
Minth will try to keep production and employment at the same levels and as it anticipates additional business growth, it will analyze what products it makes sense to move to China, she said.
Some Chinese companies have run into problems with overseas acquisitions because they have not paid enough attention to cultural differences, Yi said.
``For the current phase, we don't want to change too much,'' she said. ``We are very conservative and we have to make sure the first [overseas venture] is successful.''
``My guess is that our employment will grow because of this,'' Mercurio said.
Plastic Trim will also oversee assembly and delivery of some Minth parts that are harder to handle from longer distances.
``In general, if you're dealing with anything like interior or exterior trim with finishes, you have to be right on,'' Benson said. ``If you've got a boatload coming over and there's just the slightest variance in color, they're worthless.''
Chinese companies looking at acquisitions in the U.S. see the potential to boost their technological capabilities, Benson said. Firms like Minth are also looking at long-term trends, and expect a Chinese automaker to set up manufacturing in North America in the future. They want to be on the ground now, ready for that eventual move.
Minth is not the first Chinese auto supplier to buy in North America. Wanxiang America Corp. first signed a deal last year to buy the coupled products business line from Toledo, Ohio-based auto supplier Dana Corp., for instance. That deal is moving forward.
Other firms are looking, but Benson said no one should expect a sudden influx.
``I wouldn't expect a huge run on the bank,'' he said. ``They're typically much slower in the process. The companies in China are grappling with how to take part in the traditional process in the U.S.''
But they are coming, he said. They are motivated and they have money at a time when the North American industry is looking for new financial sources.
``There definitely will be more,'' Benson said.