When most people hear the name Alibaba, they think of a character from “Ali Baba and the Forty Thieves,” one of the most familiar of the The Arabian Nights stories. But Alibaba also happens to be the name of the largest global tech company that you’ve probably never heard of. While Alibaba controls 80 percent of China’s online shopping market, it has little name recognition in the United States. But that may all be about to change.
Alibaba is in the process of amending its prospectus for an initial public offering (IPO) on the New York Stock Exchange (NYSE), which will probably occur sometime in September. Alibaba’s market cap will rank up there with household names like Microsoft, IBM, Oracle, Samsung, and Facebook. Some think the offering may approach $20 billion and value the company at well over $150 billion.
Now, in addition to launching what could be one of the largest IPOs ever, Alibaba has set its sights on the American online shopping market. But can a Chinese company and its dynamic founder who has “Americanized” the Chinese market “Chinafy” the American market with the same success? What will be the impact on U.S. online commerce and what are the takeaways?
Amazon, eBay and PayPal With a Dash of Google
Hangzhou, China-based Alibaba Group is a collection of Internet-based e-commerce businesses including online web portals, online retail and payment services, a shopping search engine, and online mapping. Alibaba serves as a marketplace, connecting buyers and sellers, and runs a platform where people and merchants go to sell things and people come to buy. Alibaba says it has no desire to sell products itself so as not to compete with the merchants who drive its middleman/facilitator business model.
Alibaba is, by some measures, the world’s largest e-commerce company. According to The Wall Street Journal, transactions completed on its various online sites topped $248 billion in 2013. That’s more than Amazon and eBay combined. Alibaba’s three largest marketplaces—Taobao, Tmall, and Alibaba.com have hundreds of millions of users and host millions of merchants and businesses. Alibaba has been likened to “a mix of Amazon, eBay and PayPal with a dash of Google thrown in.”
The company was founded in 1999 when Hangzhou native Jack Ma created the website Alibaba.com, an English language business-to-business web portal designed to connect Chinese manufacturers with primarily American buyers. Alibaba.com also offers a transaction-based retail website called AliExpress.com, which allows smaller buyers to buy small quantities of goods at wholesale prices.
Alibaba’s consumer-to-consumer portal, Taobao, is similar to eBay and by itself is China’s largest e-commerce site. Founded in 2003, Taobao is a huge online marketplace where more than 8 million sellers sell over 900 million products direct to Chinese consumers. In such a huge marketplace, it can be hard for sellers to stand out, so advertising designed to drive traffic generates the vast majority of Taobao’s revenue. The company’s powerful search engine also directs traffic to sellers and is an important component of the Taobao advertising strategy.
Tmall.com was launched in 2008 to complement Taobao, but instead of individuals and small businesses selling their products, Tmall is where large companies like Nike, Proctor & Gamble, Apple, Gap, and Walt Disney market their global brands to an increasingly affluent Chinese consumer base. These companies pay to be listed on the site and then advertise to compete and get noticed.
Alipay is an online payment escrow service linked to a customer’s bank account that is China’s biggest payments processor and operates similar to PayPal. Ma created Alipay in 2003 after realizing he could not successfully sell online without an escrow service to protect buyers and give them the confidence to do business with smaller merchants. Sellers do not get their money until the buyer is satisfied.
The company has also recently ventured into logistics because of China’s fragmented logistics network. Unlike the U.S. where UPS, FedEx, and the USPS provide quick and efficient delivery of products nationwide, in China there are literally millions of small one or two truck delivery services, along with a dozen or so larger providers. Ma and Alibaba are currently engaged in at least two major initiatives to create a software-based smart network to help integrate these millions of Chinese logistics providers to speed up product delivery all over China.
In June, Alibaba launched its first foray into the American retail marketplace, 11 Main (11Main.com), which hosts more than 1,500 merchants in categories such as clothing, fashion accessories and jewelry, as well as home goods and arts and crafts. 11 Main is intended to be a go-to for unique, interesting, limited edition products. The brand is designed to evoke a Saturday morning stroll amongst the small, unique shops of Main Street as opposed to driving your car to the Wal-Mart parking lot.
In May this year, Ma stepped down as the Alibaba CEO, but he remains the company’s executive chairman as well as a major shareholder. Few people expect the passionate former English teacher to slip away to the sidelines, though. Most view it as delegating the immediate operations to others while Ma continues to set the course for Alibaba as it expands from its China base into a global market.
Entrepreneurialism in China
Dr. James A. Tompkins is an internationally known authority on supply chain strategy and operations. He is founder and CEO of Raleigh-based Tompkins International, a supply chain and logistics consulting firm. Tompkins has studied Alibaba’s success in China and also has considerable insight on how Alibaba will impact the U.S. marketplace.
“In 2014, I believe that Alibaba will do $420 billion in online sales,” predicts Tompkins. “By comparison, in the United States we only do $475 billion online. I also believe that by 2015, Alibaba will become the largest retail platform in the world…even larger than Wal-Mart.”
Tompkins also points out that Alibaba is growing rapidly, with revenue growth running at an astounding 70 percent per year from 2009 to 2013. That rapid growth has also driven profitability to stratospheric levels as Alibaba earns $0.43 in profit out of every dollar of revenue. By contrast, the profit leader in American online commerce is eBay whose margin in 2013 was just 17.8 percent. Alibaba’s amazing success has also helped make China the world’s largest e-commerce market.
“Alibaba’s IPO will be huge because it is based on the rise of the middle class in China,” suggests Tompkins. “Today in China, only a third of the gross domestic product (GDP) comes from consumers. In the U.S., two-thirds of our GDP comes from consumers, so the growth potential for China is enormous.”
Tompkins believes that to understand Alibaba’s goals, you have to understand its visionary founder, Jack Ma. Ma learned English as an unpaid tour guide for foreign visitors, and later taught English in China for five years. But when he saw the Internet for the first time on a visit to the United States in 1995, he immediately saw its potential as a great equalizer at home. “Our competitors are not in China, they are in Silicon Valley,” Ma has been quoted as saying.
“Jack Ma is also seen as the Godfather of entrepreneurs in China,” says Tompkins. “Alibaba has offered other entrepreneurs the opportunity to have a place to build their own business. He has helped millions of entrepreneurs and has revolutionized retailing in China, but the world certainly did not expect to be taught a lesson on entrepreneurism and commerce by China.”
Chinafication and Americanization
From the beginning, Ma said his goal was to create a global business, but his eyes were always on the United States. His first online business, Alibaba.com, was designed to give Chinese manufacturers greater exposure in the West. So when the time came to expand outside of Asia, instead of focusing on other developing markets—like South America and Africa that have some similarities to the logistical challenges faced in China—Ma chose to set his sights squarely on the American market.
“Jack Ma’s area of expertise is not retail; it’s not technology; and it’s not logistics,” says Tompkins. “His area of expertise is the ‘Chinafication’ of things that work in the West. He studies what works in the West, adapts it and brings it to China. So he is extremely aware that when he comes back to the West he now needs to ‘Americanize’ what he did in China. And I think the real goal that Alibaba has for the IPO is to create brand recognition.”
Tompkins says learning about the U.S. market is one of the main reasons Alibaba has spent over a billion dollars on investments in U.S. companies over the last 18 months. These investments include sports merchandiser Fanatics, search engine Quixey, instant messaging service TangoMe, ride sharing and delivery service Lyft, luxury e-commerce 1stdibs, and online retail marketplace ShopRunner.
“His goal for M&A in China has been to increase his success and his profitability, but in the U.S. his goal for M&A has been to learn,” explains Tompkins. “When he’s made acquisitions in the U.S., he’s always asked for board seats to learn about the U.S.”
“Jack Ma practices martial arts, so he follows one of the key principals of Kung Fu, which is he should take your strength and turn it into his strength,” continues Tompkins. “His big competitors are the big American retailers, most of whom are mass merchants. So what does Jack do with his first true American site? He opens 11 Main, which is just the opposite of mass merchandising. It is designed as a personal relationship between a merchant and a customer. You have to request an invitation to join.
“The vision of a Chinese Internet company coming to the United States and being successful is a huge barrier because Americans are just a bit uncomfortable about learning entrepreneurship from a Chinese guy. They view China as a Communist country, so he faces some huge barriers. What he is doing is very Kung Fu.”
But Tompkins believes that 11 Main is just the first step in Alibaba’s American strategy. He says the next step could be the real game changer.
“I think there is also going to be a big marketplace that will not be just unique products,” he says. “In that marketplace he will have stores for office products, stores for toys, stores for women’s merchandise, stores for men’s merchandise, drug stores, grocery stores, and more. I don’t know what he will call it, but I think it will be up and operating before the 2015 holiday season.
“That is the site American retailers have to fear—especially American retailers that do not have a unique product offering. If I am a large department store and I sell Coach and Gucci and Ralph Lauren, I will have a problem, because why would you want to shop with me when you can shop at Jack’s store that has all of those things and is going to give you a really good price.”
But haven’t Amazon, eBay, and other online retailers both big and small been doing quite well in the U.S. market over the last 20 years or so? Can Alibaba really change things in the more mature U.S. online marketplace? Tompkins thinks they can.
“It has to do with being a huge marketplace,” Tompkins suggests. “If you can become big enough to become a destination, you can turn off the other search engines’ spiders because people will come to you first. Merchants will want to be on your site, and then because merchants want to be there, customers want to be there too.
“When more customers do, more and more merchants will as well, and it just snowballs. As the site gets bigger and bigger, merchants have to buy advertising, so they shift their advertising budget away from where it traditionally has been and they give that advertising to Alibaba.
“So the question is how do you get huge? How do you prime the pump? You do that by making your fees very low. The fees for 11 Main are about half or less than they are on the other major U.S. marketplaces that are out there,” Tompkins points out.
“That fee 11 Main charges its merchants is 3.5 percent, but there are three very important exceptions—one is for books, one is for music, and one is for movies. For those, the fee is 0 percent, a strategy that seems aimed squarely at Amazon’s core business,” says Tompkins with emphasis. “That’s Ma’s Kung Fu philosophy in action.”
Fueling the Counteroffensive
If Alibaba is successful in revolutionizing online commerce in the United States, how will that impact the Charlotte region and how should American companies respond? Tompkins says the Charlotte’s region’s retailers, like those anywhere else in America, can’t just play defense, they need to respond with a counteroffensive.
“The first thing is price,” he explains. “Retailers need to reduce operating cost. They need to reduce inventory cost. This will allow them to offer things like free delivery and free returns.
“Second is selection. They need to increase non-stock items as well as stock items. They need to offer a broad selection and they need to own a category.
“Third is convenience. They need to provide the speed of delivery that their customers desire. Most people will not pay for same day or next day delivery. Some people want it quicker, but others are willing to wait.
“Finally is the experience. A merchant needs to offer a personalized and engaging experience. Their customers must feel like they are related to individually.
“A merchant’s supply chain is the fuel for their counteroffensive,” Tompkins continues. “They need to develop a channel strategy, and their channels need to be transparent to their customers. They also need to define their distribution and fulfillment network, something I call ‘Get Local.’ That means they must meet the requirements of the customer from a shipping and logistics point of view.”
Tompkins believes that Charlotte may be well-positioned to take advantage of the need to “Get Local.”
“The Charlotte region is located within a 24 hour drive of 60 percent of the U.S. population,” he explains. “That is very important because if companies are going to ‘Get Local,’ they are going to need to locate in those areas where you can get to locations quickly. So I think that is a big plus for Charlotte.
“Another big plus for the third party logistics providers, and for distribution and warehousing, is where Charlotte is located relative to the east coast ports. Charleston, Savannah, and Wilmington are going to become more important when the Panama Canal widening opens and we find more ships traveling from Asia direct to the east coast as opposed to Asia to the west coast. I see that as a substantial shift.”
While Alibaba may not be a household name here in America just yet, Tompkins says companies need to begin planning their counteroffensive today. “I believe that by the holiday season of 2015, we’re all going to be talking about Alibaba.”
K&L Gates LLP is a global law firm that currently has close to 2,000 lawyers in 48 offices, spanning five continents (26 U.S. offices, seven Asian offices, eight European offices, two Middle Eastern offices, four Australian offices and one South American office). The firm serves clients in key commercial and financial centers around the world.
With 35 major practice areas running the gamut of corporate, finance, litigation, intellectual property, real estate, policy and regulatory, financial services and energy, K&L Gates has the infrastructure, expertise and resources required by clients, regardless of size or industry.
In 2008, Kennedy Covington Lobdell & Hickman LLP (“Kennedy Covington”) looked at K&L Gates as an ideal partner to transition into the 21st century. At the time, Kennedy Covington was a North Carolina-based firm of 200 attorneys with offices in Charlotte, Raleigh, Research Triangle Park and Rock Hill.
It combined with the international law firm that year, making it part of one of the largest and most dynamic law firms in the world. It was a statement that they knew where business was going—business was going global.
“The most important thing is to be where our clients need us,” says partner Michael Hawley. “Increasingly, we are representing companies transacting and operating globally. That international involvement is either intentional or because clients are drawn to it by their business dealings. Eventually, all businesses will have international exposure; it’s where business is going; it’s a natural evolution.”
“It made sense for us to be in a position to better serve our clients by having access to resources that we simply could not provide as a geographically-concentrated, middle market firm,” explains administrative partner Sean Jones. “Looking at how things were changing in our region, it just made sense to combine with K&L Gates.”
“We also were attracted to K&L Gates because our client base and areas of specialization aligned nicely with their platform,” explains Jones. Clients across the platform range from startups to Fortune 500 companies, and Carolina specialty practices in securities, mergers and acquisitions, private equity, employee benefits, corporate law and supporting areas blended well with the K&L Gates’ practice offerings.
K&L Gates itself has a storied past. To the base firm (Kirkpatrick & Lockhart, a Pittsburgh firm founded in 1946) were added many comparably situated and like-minded firms over the years. Those firms came from all across the U.S. and from many corners of the world.
Two of particular note were London-based Nicholson Graham (formed in 1858) and Seattle-based Preston Gates & Ellis (founded in 1883), the latter carrying the name of William H. Gates, Sr., the father of Microsoft founder Bill Gates.
After several name changes, the firm concluded that its brand going forward would be best represented by the straightforward K&L Gates, proudly displayed at global offices all around the globe.
While K&L Gates is a relatively new brand, it is already receiving wide recognition. In 2013, Mergers & Acquisitions magazine named K&L Gates Law Firm of the Year.
For the last three years, the firm was named to the Global 20 by Law360, citing it as one of the 20 law firms with the greatest global reach. And in 2012, K&L Gates was named one of America’s Best Corporate Law Firms by Corporate Board Member Magazine, in association with FTI Consulting, Inc.
K&L Gates’ client service was also recognized among the top 10 in BTI Consulting Group’s Client Relationship Scorecard; and for the fourth consecutive year, the firm was among the top two law firms for first tier rankings in the 2014 U.S. News Best Lawyers survey of the Best Law Firms.
Recognition has also gone to K&L Gates’ Chairman and Global Managing Partner Peter J. Kalis. The American Lawyer identified Kalis as one of the 50 most influential innovators in the global legal industry in the last 50 years, and The National Law Journal included him on its inaugural list of the top 50 legal business trailblazers and pioneers.
Kalis, a Rhodes Scholar who received his doctorate in philosophy from Oxford University and served as editor-in-chief of the Yale Law Journal while attending there, has been an industry firebrand, often shaking up the status quo, and an outspoken advocate of innovation.
One big differentiator for K&L Gates is their embrace of technology. “Technology has always been part of our corporate culture,” explains Jones, “but with K&L Gates, it’s been taken to a new level. We have to be on the cutting edge of technology to seamlessly operate 48 offices around the globe.”
“K&L Gates is fully integrated,” confirmed Hawley. “It’s one firm, one partnership, and we use technology to connect with our partners and our clients, no matter where they are in the world. Technology is a huge driver for us.”
The firm’s rapid global expansion has also distinguished it from competitors, but Kalis’ most innovative—and controversial within the industry—move yet has been his push towards financial transparency.
When Kalis released the firm’s 2012 financial results in February 2013 (prepared to Securities and Exchange Commission reporting standards), it was the first time ever a U.S. law firm had disclosed its financial standing in such detail.
U.S. law firms, as private partnerships, are not required to publicly disclose their financial information, leaving industry publications with only voluntarily submitted surveys as the primary indicator of a firm’s financial health..
“Transparency makes an organization better,” maintains Kalis, “because it informs and empowers our clients and stakeholders, requires organizations to run themselves responsibly in real time, and discourages firms from tossing the dice into an uncertain future.”
Transparency and Innovation
Transparency and innovation are so important to the K&L Gates brand that the concepts are reflected across the globe in their office design. Each of the 48 offices is uniformly sleek, gleaming, white and minimalist.
The Charlotte office, which occupies the top floors of The Hearst Tower, offers broad views of downtown Charlotte through the distinctive glass triangles that crown the Tower. The office lobby and meeting and conference rooms are light, bright and spacious in the characteristic design of the brand.
In a blend of technology and design, digital screens dominate an entire wall of one conference room in the Charlotte office, facilitating video conferences, seminars and webinars.
“Thought leadership on cutting edge issues is very important to us,” says Jones. “That technology enables to us distribute, broadly and quickly, innovative information on those issues, whether through our webcasts, newsletter postings or video conferences. Partners are also frequent speakers at professional and community events.”
Thought leadership is stressed worldwide at K&L Gates. In June, a partner from K&L Gates’ Frankfurt, Germany, office, Mathias Schulze Steinen, was in Charlotte to speak at a global conference and to meet with a prospective client considering expansion into Germany.
Schulze Steinen is a regular visitor to the Carolinas and works with many businesses in the area. Noting the large presence of German companies in Charlotte and the Carolinas, Schulze Steinen remarks, “There is a very close relationship between the Carolinas and Germany. Germans like doing business here. Lots of German companies have their U.S. headquarters here in the Carolinas.
“Charlotte has direct flights to and from Germany and the workforce in the Carolinas is well educated and has a good skill set. This is something German companies very much appreciate. We need to be here, on a regular basis, connecting the dots between German companies with their operations in the U.S. and Carolinas companies doing business in Europe.”
Strategic partnerships is a strong theme in the K&L Gates Charlotte office. “We represent businesses,” says Hawley. “While we’re not business consultants, we regularly connect our clients with the right resources.
“One of the great benefits of a substantial platform like ours is that we can connect those dots for people. We can put a company in contact with others, and with experts, so they can find out if their product or idea is viable. If it is, we can help them with the legal logistics required to implement their strategy.
“The magic of the K&L Gates platform is that now we have colleagues like Mathias Schulze Steinen in places like Frankfurt. If someone comes to us with a product they’d like to market in Germany or Europe, we can engage Mathias to advise on the legal aspects. On the flipside, we can also do the same for a client of Mathias’ coming into the U.S. That ability extends throughout all of our 48 offices.
“We feel the Carolinas are an attractive place to enter the U.S. market—the cost of doing business, the quality of life, the level of sophistication here create an impressive package—but if a client prefers the West Coast, we can connect them with our office in Palo Alto or San Francisco. With K&L Gates we have resources to help a company no matter where their needs might be.”
This interaction between offices is another hallmark of the integration of K&L Gates. In 2013, 466 of their 500 largest clients used lawyers in two or more K&L Gates’ offices and 15 of their 20 largest clients used lawyers in 10 or more offices. “There are built-in synergies associated with this sort of work flow across offices,” states Jones.
The Charlotte office fosters inter-office connections through good, old fashioned Southern hospitality. “We have a reception every year for our colleagues coming into the U.S. for the annual K&L Gates partners’ meeting,” explains Hawley.
“We call it the International Connections Reception because we literally have partners from all over the globe attending. We take care of people very well here in the Carolinas—we feed them lots of barbecue, hush puppies and banana pudding—stuff that they’ve never had before,” he grins. “They enjoy it and are impressed with what they find here in the Carolinas, especially the sophistication of the markets.”
America’s Back in the Game
Jan Johnson, business development manager for the Charlotte office, points out, “The K&L Gates’ global platform provides a tremendous resource to our clients. For instance, if a client needs expertise in trade regulations, we’ve got more than 190 lawyers in our Washington, D.C., office and several of them are heavily involved in trade issues.
“The great thing is that no matter the question, no matter the need, no matter where in the world, we have someone somewhere who can answer that question or provide the service that client needs,” she adds.
“There are two ways a company can enter another country,” explains Hawley. “It can start an operation from scratch, or it can buy an existing business in that country. Activity in both areas is rebounding nicely. Our M&A (mergers and acquisitions) practice is a good indicator of economic growth, and we’ve seen solid improvement in M&A transactions going both ways; European and Asian companies buying American companies, and vice versa.”
Schulze Steinen agrees with the predictions of a growing U.S. economy, “America’s back in the game. That’s what we think in Europe,” he says.
“There’s never been a better time for global business in Charlotte,” says Hawley. “Trade between the Carolinas and other countries is about to explode. Our job is to provide the legal resources needed to support that growth, across our global footprint.”
“We’re the same lawyers, doing the same things as we’ve always done, we’re just doing them with a bigger platform and with a larger resource base,” Hawley concludes.
“For 50 years we’ve been assisting Carolinas-based companies with their legal needs,” says Jones. “That’s always been, and is still, the bread and butter of, what we do. With the K&L platform, we just have more resources to offer clients now. It’s about being local, but thinking globally.”
“One of the most fundamental obligations of any society is to prepare its adolescents and young adults to lead productive and prosperous lives as adults. This means preparing all young people with a solid enough foundation of literacy, numeracy, and thinking skills for responsible citizenship, career development, and lifelong learning, states the seminal Pathways to Prosperity report of the Harvard Graduate School of Education.
Yet the report continues to say, “there are profoundly troubling signs that the U.S. is now failing to meet its obligation to prepare millions of young adults. In an era in which education has never been more important to economic success, the U.S. has fallen behind many other nations in educational attainment and achievement. Within the U.S. economy, there is also growing evidence of a ‘skills gap.’”
The report lays the foundation for study of the how much and what kind of post-secondary is really needed to prosper in the new American economy.
“What the whole world wants is a good job,” Gallup Chairman Jim Clifton states more bluntly in his best-seller The Coming Jobs War. He acknowledges the global jobs war and maintains that “the next 30 years won’t be led by political or military force. Instead, the world will be led with economic force—a force that is primarily driven by job creation and quality GDP growth.” He says leaders and legislatures must realize that every decision they make should consider the impact, first and foremost, good jobs.”
He also advocates that school leaders think beyond curricula and their graduation rates; “students don’t want to merely graduate; they want an education that results in a good job.”
Out of Sync
No one has better first-hand experience with the subject matter than Charlotte’s own Bill Anderson. As a principal in the Charlotte-Mecklenburg School System (CMS) for over 25 years, Anderson witnessed thousands of graduates walk across the stage and into their futures, knowing full well that at least one-third of them had no idea what they were doing next. Anderson is now executive director of MeckEd, a private non-profit organization committed to excellence in public education.
“Although approximately 60 percent of them would enroll in college according to national statistics, only about 59 percent of that number would graduate within six years,” he comments. “Few knew what they wanted to study as a major and fewer still had any experiential learning behind them that could lend itself towards a career.”
Anderson witnessed what is occurring all over the country: high school students heading off to college or out into the world with little, if any, tangible knowledge of career options. Compounding the problem, a college education no longer guarantees employment that parallels the investment in time and money. Nearly half of 2010 college graduates work in jobs that do not require a bachelor of arts or science degree. Many cannot find a job at all and, for the students who did not graduate from high school or enter into post-secondary education, unemployment rates have shifted into double digits.
Meanwhile, companies across the United States are lamenting their loss of workers to retirement and wondering where replacements will be found as they see an up-and-coming workforce that is unprepared to meet the old and new demands of business operations. Plus, importantly, the rapid changes that continue to occur in science and technology are outpacing the typical liberal arts classroom while companies are in great need of workers that are highly and specifically trained.
This is particularly true in advanced manufacturing, information technology, health care and engineering. “What’s really happening is that so many fields have begun to flourish and require very specific one-to-two-year certifications. There are now lots of very valid careers that don’t require a four-year degree,” says Anderson.
Collaborative Workforce Development
MeckEd was established in 2006 with a mission to educate, engage and impact the Charlotte-Mecklenburg community through work that supports strong, vibrant and successful public schools. Over the years, it has made conscious efforts to increase high school graduation rates and to have students understand the importance of secondary and post-secondary education. In so doing, it has sought to raise awareness among educators, students, parents and the business community that higher education should rightfully mean different things to different students.
MeckEd has taken up the charge to lead a strategic partnership with Charlotte Mecklenburg Schools, Central Piedmont Community College (CPCC), and the University of North Carolina (UNC) Charlotte to implement a Collaborative Workforce Development Plan to address the disconnect between education and the country’s need for a qualified, highly technical, workforce and its ramifications. The Collaborative Workforce Development Plan identifies twelve key initiatives that align education with workforce needs.
MeckEd’s critical role is to serve as a link between the schools and the Mecklenburg business community to build relationships and guide businesses to establish opportunities for students to learn about career options and gain hands-on, on-site experience in various fields. These opportunities can be fulfilled through seminars and workshops, guest speakers, site visits, job shadowing, internships and apprenticeships.
Access to Career and Technical Education coursework for students in high school is also very important to the process. Now, high school students can take courses that are specifically designed to align with and lay a foundation to the coursework needed to fulfill degree, diploma and certification programs at CPCC and at UNC Charlotte.
“There are hundreds of students who don’t know what they want to do or can do who could have their interests ignited by these programs,” espouses Anderson who joined MeckEd in 2010. “Many of these students lose interest in school or simply muddle through because they lack information to understand the relevance of their studies to real life. Participation by the business community allows students to discover what they like to do and what they need to learn to be able to do it. They are then able to make an informed choice as to what kind of education they need.”
The Collaborative Workforce Development Plan is modeled after the work and ideas of Robert Schwartz, academic dean and professor at the Harvard Graduate School of Education who heads up the Pathways to Prosperity project which has met with broad success.
The report stresses how far the United States has fallen behind other countries, especially in manufacturing, and how this has greatly diminished the middle class. It questions the modern-day validity of our beliefs about education and concludes that the ultimate implication of too great a focus on academia is that America has ceased to be a leading force in the world of making things.
It points out that the four-year-degree mantra is actually harmful for some students who need, instead, a sharper focus on their career goals. And it recognizes that to achieve success in meeting workforce demands, employers must play a greatly expanded role in supporting career pathways.
Conventional Wisdom Flawed
For the past few decades, generations of Americans have relied upon the notion that to be successful in career and life, one must earn an undergraduate, perhaps a graduate degree. This idea was fueled by good intentions of society, particularly parents, who wanted their children to experience greater success and have an easier life than they had working in factories and sweat shops, garages and mines or on the farm where the labor was hard and the environment dirty.
“Offshoring labor was an easier way to make money and a cheaper way to get products,” explains Clifton Vann of Livingston & Haven, a Charlotte-based industrial solutions provider that offers apprenticeships under the Collaborative Workforce Development Plan. Vann maintains that the U.S. has drifted away from manufacturing, outsourcing to other countries, and towards a nation driven by service industries.
“We’ve come to a point where we can’t chop our own wood anymore,” declares Vann. “When we were selling tractors and appliances, we had something tangible of value. When we started selling each others’ mortgages we collapsed our middle class which is what supports manufacturing. So much talent has gone to unemployment.”
Today, with incredible advances in technology, the manufacturing workplace is a far cry from factories where workers stood all day and got dirty and greasy. Today’s manufacturing is carried out in pristine, computer-controlled laboratories, the operation of which requires specialized training. Also, manufacturing jobs garner paychecks that often exceed those of workers holding a four-year degree.
Still, it’s a hard sell to persuade parents that two-year community college degrees and certification programs are as good as, and carry the status of, four-year degrees as pathways to rewarding careers. This is particularly true for families whose children are the first generation to attend college. The effort must go beyond facts and deal with the hopes and aspirations of parents for their children. It’s also about pride.
As the nation chose higher education as the single track to help students transition from school to career and adolescence to adulthood, most other tracks were left with a stigma attached to them, particularly those jobs in the trades or “blue collar realm.” This stigma continues on, not just in the job market, but also in the selection of coursework by students. The path to offering more choices and greater flexibility will require impressive marketing and public awareness campaigns, points out MeckEd’s Anderson.
“We do respect the college path,” insists Anderson. “It is the perfect path for approximately 60 percent of our youth. But we also need to have students graduate with some practical experience towards their career path.”
Changing the Culture
Parents and students are not the only segments of the population that need to be moved to change, businesses also need to come forward to work with and help students decide what they want to do after high school.
Internships and apprenticeships are needed from every cluster including advanced manufacturing; automotive and logistics; business management, entrepreneurship and financial services; construction and energy; industry cluster; engineering; health care and human services; information technology; and public safety and first responders.
“Employers need to understand that getting involved in their own workforce development is an investment in time, money and knowledge versus charity,” says Anderson. “Workforce development means continuous operations and the ability to attract new customers. Community leaders need to understand that companies who are interested in moving their operations here must find a skilled workforce waiting.”
“We’re all about building a talent pipeline; not just vocational pursuits but arts, as well,” says Richard Zollinger, vice president for learning and workforce development for CPCC. “All of our programs are linked to jobs. We are creating a foundation that will supply skilled individuals for high demand jobs in advanced technical skills.”
Zollinger says that the community college is starting to see students with success stories transferring into advanced manufacturing. “We have a long way to go, but we’re finding success because we are immersing in hands-on experience. You don’t learn about welding by reading about it. You see it demonstrated; then you do it.”
The Collaborative Workforce Development Plan is currently in place within four CMS high schools. “For every CMS high school in the system, there are probably 500 students that want an internship but they aren’t available. It’s an issue of supply and demand. Students want to do these things. We need business partners, small and large, to increase supply,” says Anderson.
A European State of Mind
According to the Pathways to Prosperity report, “If you look at the U.S. secondary education system through a comparative lens, one big difference becomes immediately apparent: most advanced nations place far more emphasis on vocational education than we do.
“Throughout northern and central Europe especially, vocational education and training is a mainstream system, the pathway helping most young people make the transition from adolescence to productive adulthood.”
Mecklenburg doesn’t have to reinvent the wheel to implement much of the Collaborative Workforce Development Plan. It can look to European countries that have been using a similar model all along. In Europe, business and education are required to work together. Together, they assure that students finish their studies and are ready to go to work. Consequently, there is a more vibrant middle class in countries such as Germany and they have weathered economic downturns with less unemployment.
The Pathways report describes the European system generally: In Austria, Denmark, Finland, Germany, the Netherlands, Norway, and Switzerland, after grade 9 or 10 between 40 and 70 percent of young people opt for an educational program that typically combines classroom and workplace learning over the next three years.
This culminates in a diploma or certificate, a “qualification,” with real currency in the labor market. In virtually all of these countries, vocational education also provides a pathway into tertiary education for those who choose to take it.
Upper secondary vocational education varies more from country to country, but there are two basic models. The first, usually referred to as apprenticeship or the dual system, has students spend three or four days in paid company-organized training at the workplace, with the other day or two in related academic work in the classroom.
Germany has the oldest and best-known apprenticeship system, which offers programs leading to recognized qualifications in about 350 different occupations. Switzerland also has a very highly regarded apprenticeship system.
Other countries have opted for a model in which vocational education is mostly provided in school-based programs, although they all incorporate at least some work-based learning. These countries typically introduce students to a broad cluster of occupations (e.g. health care or IT) before narrowing the focus of training in the third year.
These models provide food for thought as it becomes an economic necessity for the U.S. to revaluate its preparation of the workforce. It is as elementary as the lesson from the nursery rhyme, “Tinker, tailor, soldier, sailor…Oh it’s such a lot of things there are and such a lot to be.”
We must do something to get back in sync with workforce reality. “And,” concludes MeckEd’s Anderson, “partnerships between education and business are essential to the task.”
Randy Austin is a true enigma. The slow talking, unassuming businessman who started a metering company nearly 25 years ago measures his words before he speaks. Shake his hand and converse awhile, and you’ll see why the seemingly quiet man is at the helm of one of the largest independent distributors and renovators of electric and gas meters and related equipment in the United States—maybe the world.
Not parking meters, mind you, but the gadget-y ones on the outsides of homes and businesses and atop utility poles. Meters that measure electricity, meters that measure natural gas, intelligent meters that can’t be tampered with, and meters that report directly back to utility companies for reading, connection or disruption of service.
Talk about utility meters with Austin and his demeanor changes. He’s blunt, shoots straight from the hip, and is passionate about the not-so-simple round gauges and related gadgetry.
“We are a small company in a very big building,” says Austin about his 264,000-square-foot building in York, S.C. “Our customers know where we are and that’s all that really matters.”
Most of those same utility powerhouses don’t know that Austin’s company, Vision Metering, LLC, got its start in a basement shop in Belmont, N.C.
Surplus Consignment is a Start
Austin, now 60, grew up in Detroit. He began his fascination with electricity, its properties, and how it makes things work as an electrician in the U.S. Navy for eight years, traveling the world. He also worked stints at Westinghouse Electric and Ekstrom Industries Inc., a meter socket adapter manufacturer.
It was in 1983 that Austin moved to Belmont, N.C. He was consulting for Brazilian metering company Nansen, importing their product, and selling it to electric utilities in the U.S.
“Our price was the driving factor. We had a better price than anyone else,” he says proudly.
It was during that time that Austin met Debbie Ruth, now Vision Metering’s executive vice president, while the pair both worked at Process Systems and APTECH, Charlotte companies and leading manufacturers of isolation relays and protection devices used by electric utilities.
What followed next can only be called fate—the kind of fate that any businessperson dreams of.
Friends in the meter department at Georgia Power asked Austin if he knew where to sell their surplus electrical equipment. Austin had lots of ideas. He didn’t hesitate and sold a shipment of solid-state recorders the following day.
“They took us in to a warehouse and wanted us to sell surplus equipment,” Austin recalls. “It was all sorts of equipment related to meters, metering parts and more. They said, ‘Take all of it!’
“We had 12,000 square feet of space back in Belmont, and were looking at a consignment contract to sell 300,000 square feet of equipment!” remembers Austin.
So that day in 1991, Austin and Ruth rented a Ryder truck and transported the equipment—and that was the start of Austin International, Inc. They had leased the basement of a building next to Sammy’s Restaurant in Belmont, and would eventually buy the town’s closed Family Dollar and Food Lion stores just to have space for their growing inventory.
“We created a newsletter called MeterScene and sent it out to all the potential customers we could think of,” says Ruth of pre-Internet catalogs. “The newsletter detailed all of our surplus parts and grew from two pages to 52 pages at one point.”
Austin notes that their first sales markets grew in Central and South America, leading to sales in the Philippines and then the Caribbean basin. “We now have a factory in the Philippines to build special elevated metering equipment,” says Austin.
The consignment business eventually parlayed into $14 million in annual revenue.
“The significant part of the history of our company was the consignment factor. There was no outlay of cash really. The constant business helped keep us going,” says Ruth, 56.
With constant business from Florida Light & Power, Georgia Power, Virginia Power (now Dominion Power), as well as Duke Energy, the pair knew they needed to grow in size, and look beyond surplus goods to manufacturing and refurbishing meters as well. The need was there. How to meet it?
Through a vendor tip, the pair showed up at an auction in York, S.C., in 2001 and nabbed the town’s former Cannon Mills/Fruit of the Loom plant built in the late 1800s. Austin and Ruth, who now lives in York, paid $300,000 for 264,000 square feet of manufacturing space on 25 acres.
“It’s all on one long, long level building with lots of docks. It’s been perfect for us and our employees,” says Ruth. “It was a steal.”
In August 2001, the company consolidated all of its metering operations in the York facility and began branching out into manufacturing and refurbishment to meet the needs of their growing customer base.
Moving Forward with Selective Manufacturing
Over the last 10-plus years, Austin’s company has become one of the largest utility products and service providers in the U.S., if not the world. The company has developed its own trademarked product, the Vision, which is a family of smart grid solid state electrical meters for residential, commercial and industrial use.
In 2011, Austin decided to change the company name to Vision Metering, LLC, an Austin International company, to reflect the fact that electric and gas metering had become the most significant part of the business. The ownership, management and personnel remained the same.
Visitors to the Vision Metering’s massive, glossy pine-floored York facility can imagine the former 1880s textile mill as it was, but now there are boxed meters and meter parts spread as far as the eye can see. The building consolidates the company’s headquarters and operations under one roof.
The electric and gas meter shops are largest division of Vision Metering, a cost-effective operation providing cleaning, testing, retrofitting and meter retirement services for utilities in the wake of deregulation. Vision’s engineering department designs and builds the Vision family of meters, data-on-demand smart grid products, data recorders, totalizers and isolation relay equipment.
The company still works with the purchase and sale of surplus electrical equipment in the electrical industry and has a second facility located in Belmont, just over 100,000 square feet on 15 acres, used primarily for inventory.
Vision Metering now has 150 employees, including seven engineers, and enjoys a culturally diverse workforce with talented individuals from Russia, India, Laos and Latin America. Austin adds that his employees talk of two ghosts from the Cannon Mill days that roam the building. He scoffs at the idea but still seems intrigued. Asking an employee if she has seen a ghost, she shyly replies, “We heard a woman scream loudly once when no one was here.”
Ghosts aside, Vision Metering has made almost every aspect of metering equipment big business, working not just on refurbishing old meters and building new ones, but developing new innovative products to meet utility giants’ needs.
“We discovered early on that surplus sold better if we made it look better,” says Austin. “So we began big business in meter refurbishing or even transformers. We clean, paint. We do whatever it takes to make it look like new and perform like new.”
The company’s biggest customers are Florida Power & Light, Dominion Power, Public Service Electric & Gas in New Jersey, and Entergy, which provides utilities for parts of Arkansas, Louisiana, Texas and Mississippi. FirstEnergy is another large customer, based in Ohio, serving a 65,000-sqare-mile are in the Midwest and mid-Atlantic regions.
In the past, the company also worked closely with Duke Energy refurbishing meters until Duke brought the work in-house after its merger with Progress Energy. Vision Metering did complete an automatic meter reading project for Duke from 2001 to 2004, retrofitting meters for new technology. Austin estimates Vision worked on 1.6 million meters for Duke in those three years.
He maintains that Vision attracts and maintains business from utility giants “because we are affordable and our project quality is beyond anything they see elsewhere, including overseas.”
For example, a clear replacement cover for a meter might cost $6 from one manufacturer, while Vision charges $3. “They would much rather buy it from us with our volume discounts. It saves them time and a tremendous amount of money in the long run,” says Austin.
Vision Metering also has a contract with the South Carolina Department of Corrections. State prisoners work on building the bases for standard electric meters that are then sent to the York facility to be assembled and finished.
Austin is complimentary of his team of employees, from testers to assemblers to administration. “The team I’ve built here is strong and they are self sufficient,” he adds. “I don’t have to micromanage.”
Vision Metering now works with both electric and gas meters, offering new Vision meters, using two state-of-the-art testing facilities for both gas and electric meters. They service over 1.5 million gas and electric meters a year. Austin estimates that the company spent about $1 million in preparation to add gas meter production, testing and refurbishing to its list of services.
Keeping It Smart, Preventing Energy Theft
Products and services offered by Vision Metering are in even more demand now that technology has made meter reading by humans nearly a job of the past. That’s because engineers, like those who work for Vision Metering, are designing and building smart grid products and isolation relay equipment.
“Smart grid” refers to new digital technology that utilities are adding to substations, power lines and metering to modernize the grid. It also includes new computer systems to manage all of the new devices. Smart grids make it easier to prevent and repair outages, allow for faster and more accurate meter reading, and provide controls for energy usage and costs.
Isolation relay is designed to isolate and protect network components for safety and security. It can be used for both pulse replication and pulse isolation applications, where a utility needs to isolate their billing meter’s pulsed output from a customer’s energy management system.
Many utility companies now use radio transmitters within meters that transmit the kilowatt-hour usage reading directly to the company. Utility companies can also disrupt service or connect service using the same smart meters, according to Austin.
Austin explains that he is working closely with Florida Power & Light which has 100 percent of its service using smart meters.
One of Vision’s newest and most promising projects is its HawkEye Compact Meter along with an enclosure secured by electric circuit breakers to prevent utility theft.
“We are very focused right now on electricity in developing countries and the theft of energy,” says Austin. “In some of the Central American countries we are working with, as much as 40 percent of generated power is being stolen.”
Vision Metering has developed a new approach. In the past, electric utilities have resorted to clusters of electric meters on top of utility poles to divert theft of energy. It has resulted in metering that is difficult to read and bill, disconnect, reconnect and maintain, says Austin.
The company’s HawkEye Compact Meter measures roughly 4 inches by 4 inches by 2 inches compared to the large meters of the past. Up to 50 of the compact meters can be placed in a large metal compact enclosure, framed by an electric circuit to prevent theft or damage.
“Non-technical losses have always been a large concern for utilities in developing countries,” says Austin. “This low cost solution helps address that issue, and enables utilities to take control of energy theft. We are always trying to solve customers’ problems.”
According to Austin, his company has been working on the technology for about two years for parts of Asia, Africa and the Middle East and delivered the first meters last October. Production units started shipping in April.
“Right now about 75 percent of our business is in service with the other 25 percent in new metering products. I expect new products to dwarf our current set up very soon,” says Austin.
“New technology is being developed by our engineering team using 4G LTE modems inside meters for Georgia Power that will provide a way to communicate via a cellular system,” he adds. “Utilities currently have to have access points or nodes on top of poles to communicate. That will get rid of that utility-owned communications infrastructure completely.”
Whatever they aim their sights at, Vision Metering certainly has a vision for the future. As Austin says, “It’s the way of the future, and we are right there every step of the way.”
About an hour northwest of uptown Charlotte is the small Gaston County town of Cherryville. With quiet tree-lined avenues and a corner drug store on Main Street, Cherryville is a throwback to a simpler time when life moved at a less frenetic pace.
Formerly a bustling textile center and the home base of Carolina Freight Carriers, once one of America’s largest trucking companies, Cherryville saw its textile mills move offshore and its hometown trucker move out before being sold over 20 years ago. The resulting economic distress has been long lasting, as the still-vacant storefronts on Main Street attest.
But out on the west side of town, in a building once occupied by Bernhardt Furniture, a company named Farris Fab is helping Cherryville participate in the rebirth of American manufacturing. Farris Fab fabricates a wide variety of specialty parts that wind up in a diverse mix of commercial products including heavy trucks, earth moving and construction equipment, and subway cars.
Leveraging an available base of skilled workers with low real estate costs, Farris Fab is showing that by making quality products fast and efficiently at a fair price, manufacturing can once again become an important part of the American economy.
A Second Generation Family Business
Farris Fab traces its beginnings to 1979 when Corwin Farris opened a small 1,200-square-foot machine shop in the rural Gaston County countryside outside of Bessemer City. Initially focusing on fabricating parts for the textile manufacturing industry, the company quickly developed a commitment to quality and customer service that survives to this day.
By the late ’80s, Corwin was planning for retirement, so he looked to his oldest son Bryan to follow in his footsteps. Bryan had worked a variety of odd jobs in the family business since he was 13, but after graduating from high school in 1988, Bryan decided he wanted to work full-time at Farris Fab.
“Right after graduation break, I was back working six days a week for the next 15 years,” chuckles Bryan, who is now owner of the company with his brother Greg, who joined the business four years later. “I was basically self-taught and I learned how to manage by failing and then making it right. My dad let me fail to help me learn.”
Bryan could see that textile manufacturing was leaving the Carolinas, so he knew the company had to move in another direction to prosper. He began calling on larger OEMs (original equipment manufacturers) and began diversifying the customer base away from its roots in textiles.
“We’ve never had a dedicated sales staff,” admits Bryan. “Management handles the sales calls, and I think customers like dealing with someone who can actually make things happen for them.”
As his experience grew in the early ’90s, Bryan began taking over more and more of the day-to-day responsibilities. He can’t pinpoint the specific date when his father officially turned the company over to him, but he does vividly remember the day when he realized Farris Fab was becoming his to run.
“I remember telling my dad I needed some help,” he recalls. “I told him I was unloading trucks, programming parts, and buying lasers, while also trying to help chart the course. I told him he needed to hire somebody to help me. But as he was walking out the door, he turned around just said, ‘Don’t tell me—it’s not my deal.’ He was telling me if I needed help, I was the one who needed to make it happen.”
Today, Bryan is president of a company with three locations, just under $30 million in sales, and just shy of 200 employees. His brother Greg has also been instrumental in setting direction for the company and serves as a vice president while also running day-to-day operations at two other related family businesses—an industrial supply company and a conveyor business.
While contract non-disclosure obligations prevent publication of the names of their major customers, Farris Fab manufactures parts for a diverse range of multi-billion dollar OEMs that are a who’s who of American business, and whose names and logos are known worldwide. Farris Fab-manufactured parts can be found in numerous places including trucks, construction equipment, forklifts, subway cars, and large electric motors.
Specialization Versus Volume
Farris Fab’s specialty is contract manufacturing, with a focus on more specialized jobs. Bryan calls his business a “convenience store for manufacturing,” contrasting it with higher volume manufacturers, many of which might be located in Mexico or China.
“We say you don’t have to order way in advance or in massive quantities,” he explains. “We don’t deal in the millions or hundreds of thousands. We deal in thousands and hundreds. We can make your products faster and more efficiently, and what we do can be more dynamic and responsive to changes.”
Adds General Manager Mike Bumgardner, “A lot of what we make continues going through engineering changes. Whether it is every six months or every year, we see a lot of changes. China or Mexico can’t respond to that as quickly as we can.”
Many of Farris Fab’s projects start on one of the machines that cut sheets of material to pre-programmed shapes. The core of their cutting operation consists of several large laser cutting machines, but they also have a Waterjet machine which uses highly pressurized water to process more exotic or thicker materials that would be difficult to cut on a laser. Bumgardner compares their cutting operation to using a pair of scissors to cut out a shape from a piece of paper.
Once the metal has been cut to shape, it often moves to one of the press brake machines which bend the material to the often complex shapes required to fabricate the customer’s parts. Multiple bends are frequently required for each part.
If parts need to be joined together to create a sub-assembly, the next step is often welding. The company employs certified welders for lower volume welding jobs, but for higher volume and more repetitive tasks, the company’s robotic welders can be programmed to create the required welds more efficiently with outstanding quality.
Many of the assembled parts also require machined components. Farris Fab’s computerized metal lathes remove material from rotating round or cylindrical parts, creating a specified shape for the customer. Their computerized milling machines cut and/or remove material from the surface of a piece of material, creating a part with a specific required shape.
The final steps often include other finishing processes like painting, sand blasting, powder coating, and final assembly before the parts are shipped out to the customer.
Farris Fab works with all ferrous and non-ferrous metals as well as modern plastics, which can also be turned, milled, and even bent. They can also fabricate parts using the new state-of-the-art 3D printing processes.
With five engineers on staff, the company can also help their customers with part design and requirements definition, including reverse engineering and 3D modeling.
“It’s sort of like LEGOs,” laughs Bryan about their overall workflow. “We’re just making the blocks to put this puzzle together. We join it up or fashion it in some way and send it on down the line.”
A Big Bet Pays Off
Farris Fab’s main facility in Cherryville is 110,000 square feet and contains corporate offices as well as laser cutting machines, the machining area, press brakes, and both human and robotic welders. A secondary 50,000-square-foot facility in nearby Bessemer City contains assembly operations, metal prep and clean up, and powder coating. A third 35,000-square-foot facility located between Cherryville and Dallas contains their Waterjet cutter, another press brake, and their wet painting operation.
Cherryville’s long-standing local economic issues, coupled with the Great Recession of 2008-2009, allowed Farris Fab to acquire its Cherryville facility for a fraction of what it might have cost otherwise. With no external debt to weigh them down during the recession, the Farrises took the gamble to invest heavily in the business, positioning the company to profit from the eventual economic rebound they believed would come.
“We spent a million and a half dollars for this building and spent another million and a half updating it,” says Bryan. “We bought machinery, we bought crane systems, we bought lasers, we bought press brakes—we invested in engineering software, office software, and computers—but it was all at bargain basement pricing.
“We were looking at a 10-year plan, so that when the recession ended, we would be the best on the block. Other companies would be damaged with no advancements and no engineering, and we would be ready to take over a lot of business.”
Bryan says they were also able to gain market share during the recession by being willing to take smaller orders without raising unit prices as many of their competitors were doing.
“Our competition was increasing their prices 20 percent to 50 percent because of smaller production runs, but we were willing to take the small quantities for the larger quantity price,” explains Bryan. “When we came out of the recession and everything got back to normal, our name was out there. We took over hundreds of thousands if not a million dollars of new business. It was an investment in our future.”
Both Bryan and Greg see many of Farris Fabs’ customers beginning to bring manufacturing back to America as other countries begin to see their own standard of living rise and the wage advantages they have enjoyed versus America begin to erode. He also says that the pro-business climate in North Carolina is a big positive for his company, as is his location in Cherryville.
“Cherryville’s downfall makes it great now,” says Bryan. “There is low cost land, and the county and the state really want to work with you here. This is considered an out-of-the-way place, but how out of the way is it really? We’re only just a little over 40 minutes from the Charlotte airport.”
The Cherryville location also allows them to tap into a pool of experienced skilled labor in Gaston, Lincoln and Cleveland counties. Bryan says the company can even attract workers from as far away as Rutherford, Catawba, and Mecklenburg counties. But he goes on to say that finding employees with the skills they need is still the biggest challenge they face today—even more than increasing operating costs and increasing health care costs.
“A lot of manufacturers have big buildings and great equipment, and we have all of that,” adds Bumgardner. “But we truly believe in our people and building teams. It’s not just a buzzword for us. We know about the people that work here. We know about their husbands, wives and their kids. We’re concerned about them. So it truly is a big family.”
Looking to the future, Bryan wants to diversify without straying too far from their core expertise. He sees growth opportunities in the aerospace industry as well as potential opportunities from future natural gas exploration and production activities in North Carolina. Farris Fab may also explore building products of their own rather than just supplying parts for other companies’ products.
“There is great opportunity here because the South is a growing place,” says Bryan. “Probably 95 percent of our business is done within five hours of Cherryville. Manufacturing is not that big in the Charlotte area itself, and we need more emphasis on manufacturing here, but it is still growing, you just don’t see it on every corner.”
“Companies are starting to bring operations back from overseas for greater control,” Bryan concludes. “Mexico does a great job when they can set up something repetitive, but when you need to make it fast, efficient, with high quality, and in smaller quantities, you can’t beat America. We are the best in the world.”
Last year, SEM Products, Inc. celebrated being in business for over 65 years delivering quality American-made products. This year the company continues to celebrate as May marked the biggest revenue month in the company’s history. Clearly they are doing something right!
“Our success comes from empowering our people,” says President Steve Fussy (pronounced FOO-cee ). “We give them the room and the tools to do their jobs. We make everyone feel like what they do matters—because it does.”
SEM Products is an unusual manufacturing company in that it is employee-owned. Founded in 1948, SEM manufactures a broad array of specialty aerosols, adhesives and coatings for the automotive, aerospace, marine and industrial markets.
Providing innovative and superior products and services has benefited its customers, partners and employee-owners since the mid-1980s when visionary owners Don and Marilyn Scranton sold 49 percent of the company to their employees. Don passed away in 2002, but Marilyn remains SEM’s chairman of the board.
“The Scrantons had the vision to see that if they took care of their employees, their employees would take care of the company,” explains Fussy. “Not only does ownership spin off dividends for the employees, it also creates an asset that’s worth more as the company grows in value. It’s a win/win situation.”
Moving into the Right Place
SEM Products was created in 1948 by two former Navy men, George Schneckner and William Elliott, who started a house paint manufacturing operation in Belmont, California. The acronym SEM was created from Schneckner-Elliott Manufacturing. Without much capital or equipment, they continued to make and sell house paint for many years.
In 1972, the company came up for sale. Don Scranton, then vice president of sales at Kelly Moore Paint, decided to purchase it. Scranton’s background was in architectural coatings, and he planned to diversify SEM’s operations to manufacture industrial coatings for other markets.
However, while still at Kelly Moore, Scranton had heard a presentation from a chemist on a new product to renew the color of car vinyl tops. Kelly Moore had passed on the opportunity, but Scranton pounced on it. He hired the chemist, Burt Cole, as SEM’s technology director and they promoted the new product under the name “Topper.” This led Scranton and SEM into the automotive aftermarket. It was their first step into flexible coatings and that technology grew into multiple product lines.
Scranton saw the growth opportunity in the automotive collision repair aftermarket and started to phase out the other markets that had formed the company’s early revenue base. The transition from being an architectural, multifaceted coatings manufacturer to primarily an automotive collision repair coatings manufacturer took place gradually between the late 1970s and early 1980s as Scranton refocused the company’s resources. Eventually the paint and body market became the company’s primary market, and by the mid-’80s the company was completely out of the house paint business.
During the ’80s and ’90s, Scranton made three key decisions that would play a large part in shaping SEM’s future. First, he married his former secretary at Kelly Moore Paint and appointed her customer care manager. Marilyn Scranton has a passion for people and is as concerned about SEM’s employees as she is its customers.
She has always planned employee events to celebrate both company milestones and individual successes, and helped Scranton develop the SEM culture in which employees are treated with dignity and respect, knowing that their contributions to the company’s success are truly valued.
Then, in the early 1980s, Scranton decided to sell a portion of the company to his employees. He believed that if everybody at SEM cared about and shared in the future of the company, it would create a powerful bond that would pay off in terms of quality and productivity.
“Don Scranton was a brilliant CEO,” says Fussy. “He knew what he was doing and that if he empowered the people who worked for him, they would ‘watch the box’ and nothing would go out the door if it wasn’t right. Everyone would work together to pull the cart in the right direction.”
In a third key decision, Scranton decided to move SEM from California to the Southeast in 1992 after the city of Belmont made it prohibitive for SEM to stay located in town. Believing that California had too many unnecessary regulations that discouraged the growth of paint manufacturing plants, he directed his sights to Atlanta, Charlotte and Memphis. When he decided on Charlotte, 26 of 32 SEM employees elected to move with the company. (The six who chose not to relocate were not the primary breadwinners in their families.)
After relocating to Charlotte, SEM opened a second plant in Rockingham in 1999. The company grew to 85 employees and a former accountant named Fussy, from a small town in Minnesota, joined the SEM team.
Fussy had grown up in a town so small it didn’t even have a stop light. There were 47 students in his high school graduating class. He graduated from St. Cloud State University with a B.S. in accounting, but after two years he realized he was in the wrong field. Outgoing and charismatic, his talents made him a natural salesman.
In 1997, Fussy was living in Seattle and working in sales for 3M when he attended a trade show in Los Angeles. There he met Tom Oliver, SEM’s vice president of sales, who indicated their head of marketing had just retired. He insisted Fussy apply for the position.
“I wasn’t looking for a job,” laughs Fussy. “I didn’t even have a resume.”
However, he traveled to Charlotte for an interview and accepted SEM’s invitation to move to North Carolina as director of marketing. He ascended the ranks of vice president and COO, before finally becoming president of SEM Products in 2008.
Carrying on The Scranton Vision
The economic recession hit hard in 2008. It was a tough time to be at the reins of a manufacturing company as SEM was forced to lay off 17 percent of its employees.
“That was the hardest thing we ever had to do,” says Fussy. “It’s why my hair turned gray so quickly,” he adds, only half joking.
Still, where others saw a catastrophe, Fussy and the leadership team of SEM saw an opportunity to create a more efficient, “right-sized” company and to redirect its path. The first thing he did was recommit to what he calls “The Scranton Vision.”
“The company had become numbers-focused,” explains Fussy. “The Scranton Vision is Don and Marilyn Scranton’s legacy. It is how they built a successful company.”
The Scranton Vision is based on the fact that SEM is an employee-owned company. It calls for creating a work culture that treats everyone with dignity and respect, making each employee feel valued. It also calls for building high quality products that really work. It demands spending conservatively, while still investing in the things that will help people and the company grow. It focuses on activities that develop people’s skills and add value to products with fewer meetings and more productivity.
“Basically, The Scranton Vision outlines a way to manage the company for the long term rather than for quarterly or yearly results,” says Fussy. “We need to make decisions that are good for the long-term health of the company and its employees.”
In 2009, Fussy went ahead with plans to sell the Charlotte and Rockingham plants and consolidate all of the company’s operations under one roof, moving to a 100,000-square-foot facility in Rock Hill, South Carolina.
“We invested $7.1 million in SEM’s future at the height of the recession,” explains Fussy. “We were able to sell the Rockingham plant quickly, but it took two and a half years to sell the Charlotte facility because the commercial real estate market was so depressed.”
In addition to recommitting to The Scranton Vision and consolidating operations, SEM also focused greater attention on its sales efforts. It was able to hold its own in 2009 and, since then, the company has doubled, increasing over 90 percent in sales and over 100 percent in income. May 2014 witnessed the largest number of sales in the company’s history.
SEM leads through technology to the autobody repair aftermarket. Fussy describes SEM’s strength as marketing to niches within the autobody market. Its primary customer is the body shop technician, and SEM focuses on developing products that solve problems for these technicians. These products are sold through distributors.
“We can’t compete with the big multi-billion dollar companies like BASF, DuPont, PPG, etc.” states Fussy. “We focus on satisfying the special repair needs of the automotive body technician.”
To meet those needs, SEM manufactures paint and paint products, including coatings, undercoatings, primers, rust protection products, trim paints, truckbed liners, adhesives, fillers, seam sealers, prep products, and much more. Most of its products are available in aerosol cans. All of these are manufactured and packaged in SEM’s state-of-the-art-facility in Rock Hill.
SEM’s Rock Hill facility has everything under one roof from its own body shop to its in-house laboratory, a training center, and expansive warehouse. Its marketing, training, sales, production and distribution departments are all in one location. This creates an efficient organization with the goal of operational excellence and lends itself to prompt and accurate order delivery.
In addition, SEM offers a nationally recognized training program for distribution partners and professional auto body and interior repair specialists. Technicians are instructed on the proper use of the SEM product line and each participant receives a certificate of completion.
“We want our customers to know how to use and sell our products,” maintains Fussy. “We bring customers in on Friday and visit Stewart Haas race shop, take them carting and out for dinner, and then Saturday and Sunday they are at the plant in Rock Hill for hands-on-training. It’s a complete package.”
SEM is a member of the I-CAR Industry Training Alliance. SEM School offers training programs in Metal Bonding, Plastic Repair & Refinishing, Foam & Sound Dampening, and Corrosion Protection.
While auto body shops have been SEM’s primary target for the past 25 years, the market is rapidly changing. There are only 40,000 body shops in the U.S today; down from 60,000 just a few years ago. Not long ago there were 6,000 auto body paint stores; today there are just 3,000.
“This huge consolidation poses a real concern for the future,” acknowledges Fussy. “As the auto repair industry consolidates, we will need to find new niche markets.”
In an effort to develop new markets, SEM has expanded into the aerospace and marine industries. In addition, Fussy says the company is looking at other industrial avenues. He believes the company will continue to grow by paying careful attention to quality and continuing to improve current products, as well as by developing innovative new products, forming strategic partnerships and expanding globally.
Fussy says Rock Hill is a great place to live and to do business, and Waterford Park—where SEM is located—is a particularly good business park with its golf course and walking paths. However, Fussy says that for manufacturing companies to stay in North and South Carolina and not move to offshore locations as many of SEM’s competitors have done, some greater issues need to be addressed. These issues are primarily federal ones.
“The bigger issue is that there is less and less manufacturing in our country,” says Fussy. “Something has to happen in regard to all the regulatory and safety requirements for manufacturing companies. We have to make sure we’re doing what makes sense to be safe and to have a safe working environment, but we need to eliminate the regulations that don’t add value to a product or safety for an individual.”
Despite the concerns about markets and regulations, SEM Products is a strong company and getting stronger. SEM is poised to do business for another 65 years forward, continuing to deliver quality American-made products, formulated and packaged in Rock Hill, into the future.
“Don Scranton was a great visionary,” Fussy asserts. “By creating an employee-owned company, he put quality of workmanship in the forefront. Our employees are running a marathon and not a sprint. We’re making decisions that are good for the long-term health of the company and its employees.”
While climatic variance and geopolitical crisis may dampen the World Bank’s predictions for global economic growth from time to time, there is no longer any doubt that globalization is the dominant business environment.
Increasingly connected marketplaces afford businesses a potential of more than 7 billion customers. But navigating and thriving in this global environment requires different and specialized knowledge, tools and training. It requires that business leaders have a new mindset—a global mindset.
Educating these new global business leaders is the mission and goal of the College of Charleston’s School of Business. The School of Business is one of six undergraduate schools that make up the 244-year-old college located in the heart of the city’s vibrant historic district.
With almost 300 students majoring in international business, the school has a substantial commitment to educating global business professionals, and under the leadership of its dean, Dr. Alan T. Shao, all students of the School of Business will graduate with a global mindset.
“I’m working to integrate global topics throughout the entire school of business curriculum,” says Shao. “A business education today is not complete without an understanding of global business. As we implement our initiatives, our students—whether they are a finance, marketing or supply chain major—will have an understanding of what globalization is all about.”
A Global Mindset
The confluence of education and globalization came early for Shao. “My destiny was determined in the crib,” he jokes but he’s not far off the mark. Shao’s father was a professor at Old Dominion University for almost 40 years where he taught management information systems, accounting and finance. The youngest of four brothers, Shao is the fifth Ph.D. in business in his family.
Shao credits his interest in globalization to his family as well. “I’m bi-heritage. My father is Chinese and my mother is an American from South Carolina so, by definition, I’m an international person.”
But what really “lit the fire” for Shao’s interest in globalization was studying abroad. “Thirty-six years ago I studied for one year at the National Taiwan University in Taipei, Taiwan,” he explains. “It was the best learning experience of my life. It taught me how to live in a culture where I didn’t understand the language and how to get along with people I didn’t understand. It went far beyond the books. From that point on, I was sold on devoting my academic life to foreign markets.”
Shao earned a B.S. in general business and an M.B.A. with a concentration in management from Old Dominion before obtaining his doctorate specializing in global marketing and marketing research from the University of Alabama in 1989.
In 1990, Shao joined the faculty of the University of North Carolina at Charlotte as an assistant professor and director of their international business program. In his 19 years at Charlotte, Shao rose to Associate Dean of Professional and Global Programs and North Carolina Ports Professor of Marketing, but more important to Shao than the titles was what was accomplished in his tenure at Charlotte.
“I was challenged to start revenue-generating, self-supporting programs in foreign markets. We successfully began MBA programs in Hong Kong, Taiwan and Mexico, as well as a dual degree Masters of Science program in Economics in Denmark. It educated our students and gave foreign students the opportunity to get our degree, but it also generated money for our local students at Charlotte. We were able to create scholarships and significant faculty development funds through the revenue generated.”
“I loved every minute I spent at that university and in the city of Charlotte,” says Shao. “Charlotte is an amazing city.”
In 2009, Shao’s global background was welcomed at the College of Charleston when he accepted the position of dean of the School of Business. The internationalization of the campus is a “top tier priority for our campus strategic plan,” Shao explains.
“Globalization opens up a whole new perspective on business,” he continues. “Educating someone to have a global perspective allows them to think differently; to open up their mind to a different way of looking at business.”
Currently, the school’s students in the one-year accelerated MBA program visit a foreign market where, for three weeks, they visit foreign manufacturing and service companies to get a local perspective on how business is done. The foreign market visits are a requirement of graduation.
“Ideally, a student’s study abroad would include learning from a foreign professor and interacting with foreign students and local people,” Shao says. “Exposure to both academics and actual business experience through tours, internships and the like allows a student to see how business is actually conducted in another country.
“And the global experience shouldn’t end when the student returns to the U.S. Each class should have globalization embedded in the curriculum. Hearing export strategies from a Chinese business person who actually exports to the U.S. adds interest and value to a curriculum.”
Shao also emphasizes what he calls diversity of the mind. “Optimally, our business classrooms should be filled with students from a variety of cultures. If you have students from Germany, Russia, Mexico and Brazil in a class with American students all doing a case study each might look at it very differently because their cultures are different.
“They may come up with a solution that is very different from someone with only a U.S. perspective and it can open the minds of all the students involved to understand and appreciate different perspectives on how to attack a problem. Different perspectives create that diverse mindset.”
The “Ready-to-Work” Graduate
Shao’s passion for a global education for his business students is only equaled by his passion for the ultimate outcome of their education. “My goal for each one of our graduates is to be a ‘ready-to-work’ graduate,” he says. “That’s so important. So how do you create a graduate who is ‘ready-to-work’? You create it by working closely with businesses.
“The more closely linked the business school is to the business community, the better equipped our students will be for employment. We’re designing our curriculum needs around the needs of the business community so when they need to hire, our students’ learning already fits those needs.
“For example, BMW, Boeing and Michelin told us that student knowledge of an ERP (enterprise, resource and planning) system would be very beneficial, so we ordered the software and we’re integrating that into our curriculum. This gives our graduates the added advantage of a skill these businesses are looking for in hiring.”
“In our halls, it’s difficult to tell who’s a practitioner and who’s an academic,” says Shao. “We have the business community through our halls every day. They are part of what we do.”
Chief Executive Officer for InterTech Group Anita Zucker is a current executive committee member and past chair of the board of governors who supports Shao’s push for globalization at the school.
“International trade is vital for my companies,” says Zucker, “and it’s becoming more vital for this region. Now that Boeing has come to Charleston, they’re bringing people from all over the world here who are interacting with the people working and living in South Carolina. We have to make certain that a global perspective is incorporated into the teaching at the school. Our community needs to have that level of knowledge and experience.”
Another board of governors’ member, Marco Wirtz, is president and CEO of German-based Daimler Vans Manufacturing which assembles Sprinter Vans for the U.S. market in their plant in Ladson, S.C. Wirtz is pleased with the internationalization focus at the school and especially with its new offering of a major in supply chain management, available in fall 2015.
“International business is about logistics,” says Wirtz. “It’s crucial for an internationalization effort. Logistics methods and processes change as the world changes. It’s wonderful that businesses can get students from the college with fresh knowledge and fresh ideas into their companies to help them change with market changes and remain competitive.”
Global Mindset from the Top
Shao also emphasizes the importance of government’s role in supporting globalization efforts at the school. Current board of governors’ members include Speaker of the South Carolina House Bobby Harrell, State Senator Paul Campbell and past member and current U.S. Senator from South Carolina Tim Scott who spoke at the school as recently as a few weeks ago.
South Carolina Governor Nikki Haley has also spoken at the school twice in the last two years. But political support of the college’s global initiatives is part of a larger realization: global trade is a major economic driver for South Carolina.
“Gov. Haley has charged Charleston and South Carolina with developing the economy,” Shao explains. “The governor understands the business advantages of globalization and she and South Carolina Secretary of Commerce Bobby Hitt are doing a very good job of educating businesses and consumers about it. The state’s global mindset comes from the top.”
And that mindset and economic development plan appears to be working. Many global companies call South Carolina home.
The first 787 Dreamliner aircraft rolled off Boeing’s North Charleston Final Assembly Plant in April of 2012 bound for the Air India fleet. Boeing employs about 6,500 people in the plant and is a huge presence in the area; it has recently acquired additional land with the intention to grow.
“When you have such a behemoth of a business in the region, you create global interest,” says Shao. “Many smaller businesses—vendors of Boeing—have built up around the Dreamliner plant.”
Another global behemoth that’s found a home in South Carolina is BMW who recently announced that it will make a $1 billion investment to its Spartanburg plant to increase production up to 450,000 vehicles by the end of 2016. In 2011, BMW exported more than 192,000 vehicles worth $7.4 billion, making it the largest auto exporter in the U.S.
Those 192,000 vehicles, destined for 130 different global markets, were all exported from the centerpiece of the state’s global trade engine: the Port of Charleston.
A Global Portal
President and chief executive officer of the South Carolina Ports Authority James Newsome, III, calls the Port of Charleston a “major strategic asset of the state.”
“Businesses locate in areas of global sourcing and global manufacturing,” says Newsome, who is also on the school’s board of governors. “Businesses locate near a great port because it gives them access to the world.
“I think there is universal acceptance in the state that the port is an important asset. I know that not only from statements made, but also from the money invested. In addition to what the port is investing, the state has set aside some $700 million for various infrastructure-related port improvements.”
With growth in fiscal year 2013 of over nine percent and expected growth of more than six percent in fiscal year 2014, the Port of Charleston is growing at more than twice the rate of the general U.S. port market.
A new container terminal located at the former Navy base that will expand capacity by 50 percent is one of the improvements earmarked for the money, but the lion’s share of dollars will be spent on deepening the port’s harbor to 50 feet or more.
The Charleston Harbor Post 45 deepening project is in study phase currently but at its projected completion in 2018, the harbor will be able to accept larger post-Panamax container ships, further enhancing the port’s contribution to the state’s economy.
The expected growth at the Port of Charleston is a good reason for a better connection with Charlotte according to Newsome. “As capacity increases in Charleston, we’re going to need more capacity to move containers by rail,” he says. “With the new intermodal facility in Charlotte, it makes sense to grow that connection. There could be synergy between South Carolina and North Carolina in moving freight so we need to work more closely together.”
Shao also sees Charlotte’s potential in global business. “I know Charlotte well,” Shao says. “Charlotte is well-positioned to continue their upward trend toward being a global hub of business.
“Charleston has a jump on the global mindset. We already see global business as an economic engine. Charlotte needs an aggressive campaign by the academic community, business and government to get out the word that it’s good to be global and to show how other states and regions have been able to lift their profiles by taking advantage of markets outside the U.S.
“With advancements in transportation and technology, no place is too far anymore. Businesses need to understand the opportunity.
“Certainly, Internet search engines can show you trading opportunities worldwide, but trade councils, U.S. Export Assistance Centers and the Department of Commerce’s Gold Key Program all do a tremendous job of promoting international trade.
“I would suggest getting your toes in one market first. There’s a lot to learn when exporting or importing into a foreign market. It’s good to learn the basics of international trade through one market before expanding all over. And there’s no substitute for travel abroad. Do your homework before you leave but definitely go to that market and see if your product works.”
There is more growth ahead for the College of Charleston. Although efforts to pass a University of Charleston bill in the state legislature that would allow the school to offer doctoral programs was defeated last month, that’s one mission incoming President Glenn McConnell has said he’s going to undertake.
McConnell has advocated doctoral degrees along with research programs linking logistics with the Port of Charleston or programs tied to work at Boeing. He believes that to strengthen the institution, “what you do is build in these other areas where there’s a perceived need. The college has to be relevant to this business community and to the demands of today.”
As Shao and College of Charleston School of Business work to advance the global mindset, as Shao says “developing business students who understand that we live in one world and that world is one huge market,” it is clear that they are on the fast track to success.
Charlotte-based building supply company Tucker-Kirby has been a well-known and respected name in the Charlotte business community for many years now. Founded in 1920 by W. F. Tucker Sr. and Robin S. Kirby Sr. as Tucker-Kirby Hardware Co., it was originally located at the corner of W. Ninth Street and Railroad.
“You can still see a portion of the foundation of the building,” beams Terry Ward, vice president of Tucker-Kirby, who recently located the exact site.
A couple of years later, the company moved westward to Palmer Street and Railroad, where it remained for over 80 years before eventually losing the property to railroad acquisition. In 2004, it moved to its present location anchoring the Wilkinson Park Business Center. Says Ward, “We’re still on the same route, just farther down.”
Bill McKinnell IV, company president, explains, “We needed to expand, but we needed to still be in the vicinity of uptown. Much of our business is generated by uptown construction, and being close to uptown is good for ‘pickup business’—work that can be handled by pickup truck.”
Set in Cement
For more than 90 years, Tucker-Kirby Co. has been a recognized provider of concrete, masonry, waterproofing and geotextiles for the residential, commercial and industrial building markets in the Carolinas. It sells to general contractors, subcontractors and top masons involved in the building of high-rise buildings, schools, medical and sports complexes, dormitories, supermarkets, big-box stores such as Wal-Marts and Sam’s Clubs and others.
It has been a supplier for a major Camp LeJeune military project, the largest masonry project in North Carolina’s history, the Apple Data Center in Lincoln County, and the Charlotte Motor Speedway’s zMAX Dragway Complex.
In addition to its headquarter facilities in Charlotte, Tucker-Kirby now has two other branches, one in the Raleigh/Apex area and the other in Columbia, S.C. These expansions have allowed the company to continue to grow its presence in the Carolinas and to follow its contractor clients into other states including Georgia, Tennessee, Mississippi, Kansas, Nebraska and Colorado.
The products Tucker-Kirby sells represent six divisions of the 16 divisions of construction as defined by the Construction Specifications Institute’s MasterFormat. They are: Site work and Drainage, Concrete, Masonry, Waterproofing, Finishes, and Specialties. The bulk of the company’s multi-million-dollar revenue comes from sales related to the concrete, masonry and waterproofing divisions.
Products include such items as ADA mats, concrete stains, curing and sealing compounds, epoxies, expansion joint material, concrete form materials, reinforcing mesh, rebar, vapor barriers, masonry cement and mortar, reinforcing wall bracing materials, flashing, anchors and ties, silicone and urethane caulk systems, rubberized asphaltic sheet membrane, fire safing insulation and rigid foam insulation.
“We don’t sell ready mix concrete, but we sell all the accessories—everything that’s below that concrete—and we don’t sell brick and block, but we sell the accessories to make them work,” explains Ward.
“When you see a concrete or masonry building, it’s not just a box,” continues McKinnell, “there’s quite an infrastructure to it. You have to tie that masonry in with metal ties and anchors and waterproof it. On a typical project, we could have $100,000 in materials in a building and none of it would be visible once the building is finished.”
Currently, approximately 60 percent of revenue comes from masonry-related sales and 40 percent concrete-related sales. Tucker-Kirby also sells pre-mixed bag goods, primarily for construction projects in urban areas too tight for the big concrete mixer trucks to get on site. “Ten days out of the month we are sending tractor trailer loads to Wal-Mart construction sites,” says McKinnell.
The bids that Tucker-Kirby prepares and the products it sells are “spec-driven,” or specified by the architectural plans and specifications of a given construction project.
“For this reason, our sales people are well-trained; many are certified in masonry and/or tilt wall casting,” says McKinnell, who credits much of the company’s success to its knowledgeable sales force. “Our people know the product line, the industry and they can read the plans and specifications. Our customers can feel confident that our quotes reflect the plans.”
“We don’t have order takers,” adds Ward. “We have true salespeople and we truly want to be a partner to our customers.” He says that Tucker-Kirby works closely with the North Carolina Masonry Contractors Association and participates in its certification programs: “They used to be just for masons; now we send our people to them.”
With regard to competition Ward says, “Everybody’s prices are basically the same. There’s not a nickel’s worth of difference between our prices. It boils down to us having the knowledge and the service to get the business,” says Ward. “Some of our competitors have tens of branches; others have hundreds, but we—with our three branches—are the workhorse for the masonry and the tilt side of construction in the region.”
A Cohesive Block
The Tucker-Kirby sales force starts out in the warehouse. “I came up through that route,” says McKinnell. “It makes a difference. The average person wouldn’t know anything about this business. We have 10,000 different products to learn about.”
Between the three branches, Tucker-Kirby employs 28 people. “A business is no better than its people and we have great people,” affirms McKinnell
Tucker-Kirby is the quintessential family business. While none of the company’s ownership, management or staff have been related to either the Tucker or Kirby families since the McKinnell family bought the business in 1984, a significant number of them are related to the McKinnells as spouses, in-laws, siblings, sons and daughters.
“We have lots of family members who work here, not just our family but multiple members of other families,” says Ward, who is married to McKinnell IV’s sister who also used to work for the company.
“Nepotism laws don’t apply here,” assures Bill McKinnell III, who represents the second generation of McKinnells to own Tucker-Kirby. “We like it this way. We operate as a family and it works smoothly.”
His father, Bill McKinnell Jr., attended The Citadel in Charleston and went to study at Kings Business School in Charlotte. Mr. Tucker and Mr. Kirby approached the school for possible candidates to work in their company.
“The school recommended my father,” says McKinnell III. “He came in 1930 and stayed for 45 years, moving up the ranks from sales to management to part-owner of the company in 1964.”
McKinnell III then came on board in 1966. “My Dad said he would continue to call me Billy but everyone else had to call me Bill and I was expected to carry my own weight. I didn’t want to be just like everybody else; I wanted to do better,” says McKinnell III.
Before retiring in 1975, McKinnell Jr. witnessed the sale of the company in 1974 to a Florida-based entity that had a building supply division.
“It was a good marriage for a while but the Florida company got into financial trouble and started draining the cash assets of the former Tucker-Kirby,” says McKinnell III. The company was involved in Florida real estate and went under, forced to turn the business over to the bank in 1984. By this time, Bill McKinnell IV had been on board since 1977. McKinnell III and McKinnell IV, father and son, bought out the company in 1984. Ward started work at Tucker-Kirby in 1985.
“We refer to that time prior to buying the company as ‘the dark days,’” says McKinnell IV. “It was a learning experience and a bump in the road.”
It was more than a decade later, in 1997, that McKinnell IV and Ward describe how they helped prompted McKinnell III’s retirement in a good-natured way. “He had been talking about it for a number of years, but hadn’t set a date or planned anything,” says Ward. “So, Bill and I got together and threw him a surprise retirement party with 300-400 people in attendance, including customers.”
Nowadays, McKinnell III admits, “I don’t come here much anymore, but I’m always interested in what they’re up to.”
Ward and the McKinnells are all natives of Charlotte. Ward came to the company straight out of high school. McKinnell IV was just 15 credit-hours shy of earning a degree from UNC at Charlotte. “A job opened up that I wanted and I promised my folks that I would go back and finish,” says McKinnell IV. That didn’t happen but the company presidency ultimately did.
“Very few of our employees have four-year degrees but they are highly trained professionals; knowledgeable in their jobs,” affirms McKinnell IV.
Strength in Construction
For Tucker-Kirby, the downturn in the economy hasn’t inhibited their growth. In 2008 when the downturn began, the company was able to increase staff in the Charlotte office and expand into the Raleigh/Apex market.
“Luckily for us, we had a good bit of work coming in from projects with Duke University Health System, Durham Bulls Stadium and dormitories and other buildings on the campuses of UNC at Chapel Hill, N.C. State University and UNC at Charlotte. Plus, we had branched out to military work,” says Ward. “Federal monies were made available for military and civic work. This pretty much kept us going through the slowdown.”
“Our sales staff had to expand on their core territories to find additional work, but we didn’t suffer any loss of staff due to the downturn,” says McKinnell IV.
Importantly, Tucker-Kirby had also begun to get involved with tilt construction projects, here in Charlotte, the Raleigh area and states outside the Carolinas.
Tilt construction is essentially concrete wall casting for large construction projects. Massive walls are built (poured) sideways on top of the building’s concrete floor slab or pad before being tilted (lifted) into place by a crane.
“We sell the release agent that is applied so the wall won’t stick to the pad,” explains Tim Stewart, Tucker-Kirby’s tilt specialist. The walls are built with lifting inserts that enable the crane to erect the walls without breakage. Walls can be stories high or several walls stacked on top of each other.
“One of our vendors has recently come out with an insert capable of supporting 24,000 pounds,” continues Stewart. Only two companies in the nation are authorized to sell these—we are one of them.”
Tucker-Kirby also owns bracing equipment that can be taken to construction sites. “That also gives us an advantage in the marketplace,” says Ward.
The expansion to Raleigh has paid off.
“Since opening the doors in 2007, the Tucker-Kirby Raleigh location has focused heavily on the service aspect of contractors’ needs along with a great sense of urgency on delivery schedules. Growing the product offering has also been a major focus aligning the company with top-ranked equipment lines in the industry like EDCO Masonry Saws, EZ Grout Mixers and STIHL,” says Guy Harrigan, operations manager of the Apex office.
“This, in addition to the material inventory levels in stock, speaks volumes about Tucker-Kirby’s partnership commitment to the contractor and has allowed the company to grow even in a very sluggish economy,” he adds.
Looking down the road, Ward expects the company to expand to other areas. “We’ll do our research on places and figure out where we need to be.”
A Uniform Mix
The masonry industry has its fun and competitive side. One of Tucker-Kirby’s vendors sponsors the Spec Mix Bricklayer 500, an annual fastest bricklaying trial competition between regions. The winner enjoys a trip to Las Vegas for the company’s annual convention, and has the opportunity to compete for the World’s Best Bricklayer title against winning masons from around the globe.
“Last year we were asked to host the trial competitions,” offers McKinnell. “Well over 200 people were in attendance at our facilities. We’ve been honored to be chosen to host the event again this year,” says McKinnell.
Despite the ownership changes from the original lineage, the McKinnells were never tempted to change the name of the company. “The Tucker-Kirby name was so well known when we bought the company,” says McKinnell, “that changing the name would have been a big mistake; it would have required a total rebranding. It was a case of ‘If it’s not broke, don’t fix it.’”
“We’ve even had the same phone number for decades,” adds McKinnell III with a chuckle. “Customers know us.”
It’s not surprising that the company has an adage that says, “If people come to work at Tucker-Kirby, they retire at Tucker-Kirby.”
“It’s always been like that,” attests McKinnell. “It’s a good solid company with a good reputation and fair pay. I think that’s what’s made it so successful.”
John Norman thought he was in college studying to become an engineer, when he realized he had a proclivity for accounting. He completed his bachelor’s degree in business administration and a master’s in taxation from the University of South Carolina, and joined up with Charlotte’s PricewaterhouseCoopers as a tax consultant. That was the early ’90s and already he was developing a passion for small to mid-sized companies doing business internationally.
Unraveling the complex tax laws governing foreign-owned businesses became his niche. He enjoyed solving problems while developing business relationships. When Norman learned of GreerWalker LLP and its focus on middle-market companies and international affiliations, he realized its business model closely aligned with his interests and joined as a senior associate in 1993.
Today, he has overall responsibility for the firm’s global services and manufacturing and distribution practice, and is managing director of its exit planning and investment bank affiliate, GreerWalker Corporate Finance, LLC. In short, he specializes in resolving international tax issues for foreign firms doing business in the U.S., as well as U.S. firms doing business in foreign countries. He is considered an expert in mergers and acquisitions, transfer pricing, entity selection, entity structure and ownership changes.
With just a receptionist, Charlie Greer and Kevin Walker started the firm in 1984 primarily to serve manufacturers and distributors. The practice has changed drastically in 35 years. Today, GreerWalker has 12 partners and over 100 associates, and is one of the 10 largest CPA firms in the Charlotte region and considered among the top 200 CPA firms in the nation. It is also the exclusive Charlotte member firm of PKF International, one of the world’s largest networks of independent accountant associations.
“It’s been all organic growth,” says Greer. “We’ve never had a merger.” About 25 percent of the firm’s clients are international.
When Norman joined GreerWalker 20 years ago, he says, “Everybody was doing total quality management, which is looking at your processes to determine how to become viable and independent.”
That’s when it became evident to Greer and Walker that they needed to delve into international markets, to offer global services, to avoid losing business. “Now we’re on the offense with it,” he asserts.
“Nowadays,” Norman emphasizes, “there’s no such thing as international business. If you’re in business, you’re going to have to deal globally. But,” he insists, “being effective in a global arena requires team effort.”
Klaus Becker, honorary consul of Germany, has worked with Greer and Walker for over 30 years. “They go out on a limb to be good corporate citizens and to interact with people,” says Becker.
Becker, president of Nirosteel LLC, considers the firm’s close ties with the community instrumental in developing strong business relationships. The three met when both companies operated out of 112 S. Tryon Street.
“They really do an excellent job of supporting the German community,” offers Becker. GreerWalker also supports the consul and the German American Chamber of Commerce. The firm’s generous investments include organizing seminars and supporting German-related speaking events.
“I really admire Kevin and Charlie,” admits Becker. “They’ve worked very hard to become the largest privately-held CPA firm founded in Charlotte.”
Under Norman’s leadership, the firm’s global services have steadily grown. About 80 percent of Norman’s time is dedicated to tax planning, compliance and consulting services for a wide range of international businesses.
While global business is essential to the firm’s continued growth, the company also specializes in real estate, construction and motor sports. Greer says, “It’s a rarity for a firm our size to have such a strong international tax practice.”
Greer credits the firm’s team model with setting it apart from other CPA practices. “Every client is a client of the firm and not the individual partner, so there’s a sharing of clients that you don’t see at other firms,” explains Greer. “Whenever a client gets into an international situation or is going to Germany and Italy,” comments Greer, “we automatically get John involved.”
“John’s always focused on what’s best for the client in everything he does,” says David Jones, a fellow partner who specializes in manufacturing, distribution and international business. “He creates relationships with clients that are more than just professional and client. They’re friendships,” he says.
“John’s very practical and has dealt with a lot of different businesses over time and not only helps people make tax decisions, but also helps with general business planning,” adds Jones. “There are many professionals that approach taxes and assurance as if they were a product, but have very little interaction with their clients. We as a firm, but John in particular, strive to be a lot more than that—we constantly talk what else we can do to help our clients.”
For example, it’s not unusual for GreerWalker advisors to discuss buy-sell agreements with clients, life insurance for owners and other non-tax or assurance-related business transactions. According to Jones, companies must take into consideration several aspects to succeed in global business, and Norman is extremely thorough in covering all the bases.
Client loyalty has been a key factor in the firm’s steady growth. Repeat business long-term from middle-market companies has been essential. “One Chinese company was about $2 million when they started with us,” says Norman. “Now they’re about $200 million.”
Over the last decade, changing economic circumstances necessitating doing business outside the country have contributed to growth. A decade ago, East Coast residents viewed California as a foreign country, jokes Norman, a native of Akron, Ohio. Today, his practice has dozens of U.S. privately held middle-market companies that have survived by globalizing.
In the mid-1990s, U.S. textile and apparel companies made up the first big wave of outbound work. “To remain competitive, they had to go south,” Norman says. “To get around intensive labor costs, they produced in Mexico, Honduras and Guatemala. Those that didn’t, closed.”
Before setting up shop in another country, small privately-owned firms need someone who understands the impact structures can have on company profits and navigate through complex U.S. international tax laws. That’s Norman’s specialty.
“The U.S. international tax law is really written for the old multinationals in the ’60s, and it hasn’t really been upgraded,” comments Norman. “For privately-held businesses, there are some really unfortunate hoops and quirks that can result in seriously negative effects.”
In terms of global markets, the international arena is broken into two categories: Inbound is when companies originating outside the U.S. come here; outbound is when U.S. companies do business in other countries.
When engaged globally, it is important to realize it is not a level playing field. For example, one major mistake businesses make is assuming they’re eligible for indirect foreign tax credits. “If you pay taxes in another country on your income there, that credit does not naturally flow back to you as a U.S. owner,” explains Norman. “So you end up paying twice on that same income unless you do some tax planning.”
That is the type of situation where clients need skilled tax advisors who understand international tax laws, effectively tax planning to ensure clients receive all the credits to which they are entitled. Through market analyses, advisors also help clients avoid setting up facilities in jurisdictions that are heavily taxed.
By staying abreast of international market trends in distribution and manufacturing, the firm helps clients operate more profitably. For example, in the global apparel manufacturing business, the high fashion industry has 13 seasons, rather than four. Fashion industry colors rotate every month to keep apparel trends fresh. If it takes designers six weeks to finalize color schemes, manufacturers aren’t able to produce apparel in China and get it to U.S. stores in time.
As a result, over the last several years, much of the high fashion production has shifted back to the western hemisphere. Some has returned to the U.S. while some has gone to nearby Honduras, where there’s only a three-week turnaround. But more of the higher-end products are being made in North and South America.
While relocations of giant manufacturers like BMW, Siemens and Boeing make headlines, small family-owned foreign businesses bring their share of jobs to the region. They may create 20 to 30 jobs at a time, but it’s not insignificant.
Norman and his colleagues get a lot of new clients from working with the Charlotte Chamber of Commerce and the Charlotte Regional Partnership as they bring companies to the area. They also get business referrals from local law firms, bankers and PKF International. When companies express interest in Mecklenburg County, GreerWalker advisors sit down with them to review tax structure, business structure and incentives to come.
Norman points out that Charlotte’s central geographic location makes it extremely marketable. The accessibility to Charleston ports, a major airport and the trucking industry make the Charlotte region a prime location. The area’s well-educated, well-trained workforce and openness to diverse groups is another plus, he says.
“When I came to Charlotte, basically what I was told was it didn’t matter where you came from or what you did,” recalls Norman. “Just get involved in some community organization and give back to the community, and you’ll be accepted.” He finds that attitude equally applicable to the community’s broad acceptance of foreign firms.
“It doesn’t matter if you’re from Germany, Japan or China; the expectation is that if you give back to the community, you’re going to be accepted,” says Norman.
International business inevitably depends on relationships at the local level. For example, a foreign manufacturer inbound has to ensure a continuous production cycle for dependable distribution of its product. That means it has to have local resources readily available—repair parts and service technicians—for its production processes, otherwise production stops.
“So the only way to increase sales and be accepted in the U.S. market is if you have spare parts and technicians that are available right away, not days away,” says Norman.
Norman points to a German machine tool maker for textiles that actually set up sales and service companies in the U.S. The same thing is happening now with Chinese companies. Being local also lowers shipping costs. One client that makes machines used in nonwoven textiles noted its customer moved all of its production from the U.S. to China five years ago to save on labor cost, but recently brought it back because the savings in the cost of electricity to run the machines far outweighed the labor savings overseas.
According to Norman, location says it all. Two thirds of the U.S. population is one trucking day away, and Charlotte is half way between New York and Miami. Quick access to U.S. Interstates 85 and 77 running north and south and 26 and 40 running east and west are major sellers.
“We are at the center of the hub to reach U.S. markets from a distribution standpoint,” says Norman. “From the airport, service technicians can get anywhere in the world within 24 hours.
“In the ’60s and ’70s, mostly German and other European companies were drawn to the area. Chinese companies mostly settled on the West Coast. But the West Coast is only a third of the U.S. population,” continues Norman, “and going west to east with transportation doesn’t make sense.
“There’s just so much that’s right about Charlotte. I always question when they don’t choose this region. I think we will continue to see more direct investment from Asia.”
Typically, it’s not cost effective for U.S. companies to invest directly in China, but in Hong Kong through Wholly Owned Foreign Entities, known as WOFE’s. Norman says, “It’s a weird thing between China and Hong Kong—same country, but different rules.”
Since Hong Kong has no currency restrictions, U.S. companies can send currency back to the U.S. or anywhere at any time. China has restrictions on getting money out of the country. But there are no restrictions going between China and Hong Kong. Hong Kong has no tax treaty with the U.S., but China does. Because Hong Kong has a 17 percent tax, U.S. companies have to decide if they want to pay the tax and not get a credit, or set up the business to get a flow-through credit and do the surplus.
That’s the type of tax challenge Norman thrives on helping clients understand the implications. “I love problem-solving and thinking outside the box,” he admits. He likens the necessary acuity to math word problems. “If you’re a word problem person, you belong in tax,” says Norman. “That describes tax people.”
Today, there are seven Class I freight railroads in the U.S. that account for 69 percent of freight rail mileage, 94 percent of revenue, and 90 percent of rail employment. The remainder of the rail activity is undertaken by over 550 Class II and Class III regional and short line railroads.
Railroads transformed American life. They opened vast new areas of the American interior to settlement while stimulating resource use, commercial farming, and manufacturing. There is no doubt that they were particularly important to economic development in the South.
Taking On a Challenge
Revitalization of a Railroad
One of his first recollections upon arrival in Star, Menzies says, was looking at 30-some miles of dilapidated track that were pretty much scrap metal, abandoned years earlier. “Just moving the freight car alone, the tracks would literally move or spread. That’s how run down they were,” he describes.
Known for its distinctive hunter green color with cream and magenta accents, the short line visage is as regal and dignified as its Carolina Route logo. Rail fans can catch the 90-car, 4-6 engine, 10,000-ton unit corn train as it winds through the Sandhills through Aberdeen, up the 2.8 percent hill beyond, and then through the countryside and curves to the ACWR headquarters in Candor.
Carl Hollowell, vice president of operations and general manager, describes usual operations: “Most weekdays, we’ve got a ‘miscellaneous’ freight between Aberdeen and Candor and often up to Star, or the reverse. The big draws, and the most important financial impact on the railroad, however, are the 90-car unit grain trains that come from the Midwest via CSX at Hamlet to Aberdeen. These trains supply the major poultry feed processing plants in Candor: Perdue and Mountaire.”
Short Line Goes Long
Last spring, ACWR located and acquired an existing building in Candor, just eight miles away from is Star location, and began retrofitting the 91,000-square-foot warehouse facility to turn it into a locomotive repair shop facility, installing 4,600 feet of track leading to the building and a locomotive pit which allows access to the underside of engines for repairs.
Last fall, the company also moved its headquarters there. It maintains refueling and locomotive repair operations at its Star location.
“It’s common for us to take a locomotive worth $30,000 in scrap and turn it into something worth $300,000,” attests Dale Parks, vice president of mechanical and chief mechanical officer.
“Dale has been building the locomotive, freight, and passenger railcar repair business for years now,” says Menzies. “In fact, Dale and his team have built the business to the point where we had greatly exceeded our capacity in Star to keep up with it. Interest has only increased since we’ve located to our new facility and we expect this to be a key part of our future business.”
Parks says the repair facility is the only one of its kind in the state and one of the few on the East Coast. He firmly believes that he and the team are tasked with saving an important part of Americana by restoring vintage railcars such as the “Roamer.”
ACWR’s longer term goal in Candor is to develop the rest of the 78-acre rail-served industrial site that will offer manufacturers easy access to rail and bring jobs and a stronger tax base to Montgomery County, says Smitley.
The company is marketing a 70-acre business park and multimodal facility dubbed the Midland Multi-Modal Industrial Park in southern Cabarrus County, just seven miles east of Charlotte, with highway access to I-485, rail access to both Norfolk Southern and CSX, and all utilities.
The industrial park is a piece of a larger development strategy the company calls RailVantage East (Moore, Montgomery) and RailVantageWest (Charlotte, Midland) to develop other available properties as logistics centers along the ACWR short line. Unabashedly, Smitley touts it as “Connecting North Carolina’s freight to the rest of the world.”
Connecting With Strength
Menzies views trucking companies as partners more than competitors: “While ultimately dependent on short haul trucking for distribution, railroads are making a comeback in the long hauls. Over the last 15 years, highway congestion, higher fuel costs, driver shortages and pending safety regulations are moving shipping from trucks back to rail.”
Of their relationship with the Class I carriers, he says, “It’s common for short line railroads to have issues with bigger rail companies because the interchanges are often undersized and inadequate, but fortunately with both CSX and NS, ACWR has substantial track at their interchanges with their Class I partners that result in a seamless transfer of customers freight.”
Menzies admits he took a risk by purchasing ACWR knowing that it would require tremendous capital investment, but he says the rewards have far surpassed anything imaginable. They are now focused on keeping up with the projected 30 percent population growth over the next few years.
He says they continue to look for opportunities to collaborate with adjacent landowners as well as communities that seek to attract new industry, jobs and tax base to North Carolina. As a result of these strategic partners and acquisitions, ACWR has sites and partners across its network that position it very well for long-term future growth.
Menzies’ vision for the Aberdeen Carolina & Western Railway Company was to strengthen and enhance the fabric of American industry. In fact the ACWR’s tagline touts with “Connecting with Strength.” Menzies has been able to bring together diverse and competing interests that includes trucking, logistics companies, Class I rail carriers as well as state and local political leaders that has resulted in new industry on his network that not only touches North Carolina but also the global economy.