Globalization has helped Belgium thermoformer Vitalo Group grow into a $100 million company with 1,200 employees during the last 15 years, CEO Wim De Vos said.
But it was a major learning experience.
The global challenge is very exciting. But it's absolutely not easy, De Vos said in a keynote speech Sept. 19 to kick off the Society of Plastics Engineers' Thermoforming Conference in Milwaukee. Vitalo does both thin-gauge thermoforming of packaging and heavy-gauge thermoforming.
In 1995, Vitalo had one plant, at its headquarters Meulebeke, Belgium. Today, the thermoforming company runs 10 factories, in the Belgium, the United States, Mexico, India, Japan, China, Thailand, the Philippines and Slovakia.
Plastics companies become international to follow their customers, get business in the local market or use cheaper labor to export lower-priced goods, he said. Philips Electronics NV closed a plant in the Netherlands and moved it to the Philippines. The consumer electronics firm asked Vitalo, which had molded its trays, to set up a plant there. Vitalo did, opening up its first international plant in 1996.
De Vos said that leads to lesson No. 1: Use caution and make sure there is a broader local market.
Vitalo followed this customer. But 21/2 years later, Philips decided to close this factory in the Philippines and move to the south of China, because labor costs were much lower.
Vitalo opened a plant in China, too, but kept its Philippines operation open.
De Vos explained the challenges of opening a plant in another country. Don't expect to make profit the first year. If you make profit the second year, you're lucky, he said.
He reviewed the pros and cons of major decisions like whether to form a wholly owned business or a joint venture with a domestic firm, whether to hire local management or bring over ex-patriots from your home country, and where to source your machinery.
De Vos said that, in a low-cost country, you can't compete with local manufacturers, and your customers chose you because of your expertise and quality, not price. That means Vitalo uses the best technology in all its plants.
Competing with these local guys, it can be like a war. And I don't think you want to go to a war with old weapons, he said.
Developing nations have cheaper production labor, but De Vos said international companies always are expected to pay a little bit more, and they have the added cost of Western safety standards.
He said total labor costs for production jobs are 90 cents an hour for India, $1.15 in Thailand, $2 in China and the Philippines, $3 to $3.50 in Mexico and $5.90 in Slovakia. In Western Europe, the average is $25 an hour.
In China, factory labor costs are going up 10 percent or more a year. But the real wage spiral is coming for management-level people, thanks to a shortage in developing countries, and De Vos thinks their pay will reach the European management level in the future.