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CEO Tom Duncan greets visitors to China-based Positec’s North American headquarters with a firm handshake and huge smile. Then, he ushers them over to a completely furnished workshop stretching the entire right wall of the reception area, complete with a huge workbench, drills, table saws, circular saws, replacement bits and blades, and more. He walks through the shop with a gleam in his eye; he says he gets to work his dream.
“Whether it’s an end user, a retail client, or a product developer, Positec is dedicated to providing a hands-on experience here at our Charlotte headquarters,” explains Duncan. “This workshop has been created so that we can not only test out our new products, but also provide our buyers with a totally immersive experience.”
Duncan laughs as he admits that he often feels like a kid in a toy store when new products arrive for testing in the workshop.
As is evident from the company’s name, short for Positive Technology, Positec’s entire approach to creating home improvement technology is one that centers on innovating for the customer. On display are many of the company’s products including a new battery powered string trimmer and a wheelbarrow that can transform into eight separate forms. One display shows off several of the company’s over 2,000 patents and Duncan says that another 2,000 are currently being processed.
Duncan cites the Worx TriVac patent as an example of the company’s innovative problem solving. The Worx TriVac is both a leaf blower and a vacuum, changing functions with the flip of a switch. Duncan describes how other leaf vacuums require a long, cumbersome barrel so that users can’t injure themselves by reaching into the vacuum.
Positec’s engineers decided to design a unit with a short barrel with a slight bend at the end to keep hands out of harm’s way, resulting in a blower/vacuum combo that is only slightly larger than a traditional hand vacuum.
“Because of one small, innovative change, the entire concept of a blower/vacuum combo has been turned on its head,” Duncan remarks, most satisfied.
Looking for a Start
After graduating from the University of Virginia in Charlottesville, Duncan describes his “first real job” with Lawler Ballard Advertising in Nashville, Tenn., where he wrote sales brochures and managed a few accounts.
“It was a great first business job. I’d compare it to the hub of a wheel—I dealt with different types of businesses. I’d visit a liqueur account in the morning and, while still in my suit, a dairy farm in the afternoon to learn about its forage grass for cows. The next day I’d visit a bank.
“I was hearing about the coming formation of the European Union, and that interested me,” Duncan continues. “I decided to get an M.B.A. in international business studies; I left my job and enrolled in the University of South Carolina (USC) Moore School of Business.
“As part of the program, I took an intensive German language course and then spent eight months in Germany as an intern at a packaging machinery company. Learning a language in school and then having to speak it in a business setting is one of the most humbling experiences you can have.”
“I’ve always had an international outlook when it comes to business. In fact, I think a lot of Positec’s success is due to that. I meet business owners all the time who are focused solely on their specific regions, and many are afraid to step out of their comfort zones,” he says. “I am completely comfortable in international communities. I enjoy the diversity, learning the culture…it’s all part of the fun.”
With his business degree in hand, Duncan went to work for Vermont American, a joint venture of Emerson Electric and Robert Bosch in 1992. “I was recruited because I knew German,” he says. “In 1998, I was promoted to vice president, and in 2000 Bosch bought Vermont American. He stayed on as vice president of international with the Accessory Business Unit of Robert Bosch Tool Group for a couple of years, but was intent on starting his own company.
“At that point, I wanted to do something entrepreneurial. So I left in 2003 and acquired the rights to use the Rockwell name for power tools. Rockwell International had sold premium-priced tools for professional tradesmen and serious do-it-yourselfers under the name until the early 1980s, but not since.
“I planned to reintroduce the brand with a new line of tools and sell them through stores like Sears, Lowe’s and Home Depot. So, I started looking for investors and a factory to make them.”
Making a Connection Abroad
“It was right about then, in 2004, that I met Don Gao in Shanghai.”
In the mid-1990s, Gao was a contract tool manufacturer with his own factory. He manufactured private-label hand tools for clients (as an OEM, original equipment manufacturer) such as Sears. He won a huge order for angle grinders from U.S. tool titan Black & Decker. In one year he shipped 700,000 of them, Then, Black & Decker cut its orders, deciding to make the grinders itself—and right in Gao’s own city, Suzhou.
But with Gao’s setback came inspiration. “Chinese companies are too focused on price,” he says. “You can succeed only if you build loyalty,” and he was convinced brands were the best way to do that.
So he started Positec to manufacture and distribute his own branded power tools, rolling out his Worx label in 2004.
“I think too often Americans have a negative perception of Chinese companies,” says Duncan. “But I have a unique perspective. I was impressed with Positec’s operation, which was entrepreneurial and driven by innovation.
“He was starting the Worx brand of tools and was interested in joining forces, so we began talking,” says Duncan. In late 2005, Gao hired Duncan to head up his North American operations to sell Worx and Rockwell lines of home improvement tools.
Also that year, the company selected Charlotte for its North American headquarters. It chose the Queen City over Atlanta and Chicago because of its proximity to Mooresville-based Lowe’s Cos. Inc., which has become one of the company’s largest customers.
“It just made all the sense in the world to be right next to the second-largest home-improvement retailer,” Duncan says. “It was the best decision we ever made. Our business with them has really expanded, and I think being here and having this office so close just makes doing business so much easier.”
Some of the same advantages apply since it is also relatively close to the Atlanta headquarters of Home Depot.
Duncan adds that it was also “because of the people.”
“There are so many talented professionals in the Charlotte region,” he says. “We have some of the best, brightest, and most experienced in the home improvement technology industry right here and we couldn’t pass up the opportunity to tap into that.”
Launching the Brands
Rolling out Rockwell and Worx brands of home improvement tools through Positec here in the U.S., Gao and Duncan faced stiff competition from some of the biggest names in the industry including Black & Decker. At first, breaking in with retailers such as Lowe’s, Home Depot and Sears was not easy. Sears and other clients weren’t receptive to the company’s brands, preferring instead that the company continue to provide the private-label tools carrying the store’s brand.
Fortunately, Duncan reached back to his experience at former employer Robert Bosch GmbH with television marketing directly to consumers, and in 2008 Positec aired its first infomercial around a lightweight, cordless lawn trimmer—the Worx GT. That year, the company sold 400,000 units, Duncan says, more than doubling the entire market.
As sales climbed, consumers began asking for Worx and Rockwell products, resulting in a change of heart from the big-name buyers. Retailers such as Lowe’s took notice and agreed to carry the products on their shelves, finding that infomercial products sold at a higher rate than most other brands.
Positec became a supplier to Lowe’s in October 2009 and was named its 2010 Innovator of the Year among Lowe’s 2,500 suppliers, becoming the first company to win a Lowe’s Supplier of the Year award in its first year as a vendor.
Positec was also awarded 2011 Product of the Year by DIY Weeks, the leading European trade magazine, for the Rockwell Sonicrafter oscillating tool and the G-Force angle grinder in the power tool category and the TriVac blower/vacuum and the Eco cordless mower for the garden tools category.
Also in 2011, Positec Tool Corporation settled into its present location in 25,000 square feet—the entire third floor—of the Linville Building, which is co-located with its 26,000-square-foot reverse-logistics warehouse facility in the Perimeter Woods Business Park in the Huntersville area.
In addition, the company relocated its retail distribution facility from Long Beach, Calif., to about 120,000 square feet of industrial space in Huntersville Business Park.
Today, Positec maintains facilities in China, Italy, Spain, Brazil, and Australia, and here in Charlotte, Memphis and Chicago, and also in Canada.
Positec’s U.S. sales last year totaled over $200 million and made up over half of the parent company’s total revenue. With consumers spending more on home improvement, Duncan expects Positec’s U.S. business to achieve double digit annual growth over the next few years. Further, with certain products such as lawn trimmers, Positec is gaining market share and creeping up on industry giants such as Stanley Black & Decker Inc.
“We’ve created more than 100 high-paying jobs in the United States,” Duncan notes, “and also a number for our business partners here.
All told, the global Positec Group is made up 4,000 employees operating in 12 subsidiaries worldwide with roughly $400 million in revenue. Gao is still sole owner.
Gao, who remembers leaving a state-owned company to start his business with the help of suppliers who allowed him to defer payments, says he has enough money. Except for one possibility he’s happy to contemplate: “Unless I buy Black & Decker,” he says with a smile.
Serving the Marketplace
Positec Tool Corporation’s customer service center is located right in the same building. Customer service representatives answer phone calls and emails from end users, retailers, and manufacturing and distribution partners.
“What we’ve found is that, in order to truly deliver value to our customers and partners, we have to be close to them. You can’t get closer than our headquarters.”
Innovation is Positec’s calling card, Duncan says. The company has developed a robotic lawn mower and a safe chainsaw called the “JawSaw.” The latter features a blade that’s partially enclosed to prevent injuries.
“It’s an industry with giants,” he says. “We’re definitely the smallest guy in the block. But we can offer innovation that maybe they don’t have or can’t provide. Or maybe we’re quicker on the draw than they are. That’s kind of been our niche. The only way we’re going to win is by being different.”
“What we’ve done,” Duncan continues, “is strike out on our own with premium pricing. Sure, you can get home improvement products cheaper elsewhere, but our products will outlast the competition year over year. Our premium pricing is designed to provide extra value for customers, most of whom will not need replacements or repairs, even through heavy use.”
Regarding Chinese manufacturing and its role and image within the United States, Duncan points out that the tide is slowly changing. In the past five years, wages have almost doubled for Chinese workers, placing many manufacturing centers in the country at a disadvantage.
Additionally, he notes, shipping large, bulky items from China is becoming cost prohibitive, causing many companies to begin investigating the benefits of transferring tasks to the United States. “We’re even considering transferring some functions that are now done in China to our North Carolina facility,” Duncan notes.
With the Worx and Rockwell brands putting out innovative products year after year, it seems that Positec is right on track to gain market share in the home improvement industry. At the company’s headquarters, engineers pore over customer feedback in order to define what needs to be done to create products that not only serve to make home improvement tasks easier, but also to construct design ideas that minimize cost and space while increasing efficiency.
“What our team is most committed to,” maintains Duncan, “is making life easier for home improvement enthusiasts the world over.
“Give us a home improvement task, and we’ll make it easier to complete and help you get it done faster. We know that in Charlotte, we’ve got the right people to help our customers get the job done.”
Who knew the 2013 Color of the Year would be cobalt blue, or that the Fall/Winter 2014 hues would be bright jewel tones and soft romantic neutral tones? Who created the dyes and swatches of the Spring/Summer 2015 palette featuring a “rainforest” theme of tropical colors? And who makes those colors into a standard format that can be communicated to a global supplier base?
That would be a very well-known company in the textile industry—perhaps not so well-known here in Charlotte—but nonetheless right in our backyard: DyStar LP. Very simply put, DyStar LP and its parent conglomerate DyStar communicate major retailers’ constantly changing colors to international suppliers.
DyStar LP is a manufacturer and supplier of dye, chemical auxiliaries, specialty chemicals and services to the textile and leather industries throughout North America. They work to make sure colors in manufactured products are true to the intent of the retailers.
It is an impressive challenge that extends across all industries. DyStar LP relies on the resources and the reach of the DyStar group to interact with companies globally and to support their customers at all stages in the textile chain, from the first inspiration of a designer, through production and testing, to the finished product in the store.
DyStar prides itself on consistency and exceptional results. How do they do this? To understand, you first need to appreciate the company’s impressive lineage.
A Colorful Lineage
As it’s constituted today, DyStar’s lineage is a Who’s Who of over 150 years of integrations, mergers and acquisitions. At the same time, it also is a paradigm for successful survival of the decades-long exodus of apparel and textile production to Asia.
DyStar was a direct product of major changes that came to the textile industry during the 20th century—technological innovations, synthetic fibers, logistics, and globalization of the business.
By the late 1980s, the apparel segment was no longer the largest market for fiber products, with industrial and home furnishings together representing a larger proportion of the fiber market. Industry integration and global manufacturing closed down many smaller firms in the 1970s and ’80s.
Here in the U.S., 95 percent of the looms in North Carolina, South Carolina and Georgia shut down, and Alabama and Virginia also saw many factories close.
In the mid ’90s, globalization of the industry within Germany resulted in reorganization of companies and production chains, resulting in a vertical integration of the global value chain—from development to production to sale, a dynamic illustrated in the transformation of DyStar.
DyStar started as a joint venture in 1995 between the textile dye divisions of Hoechst Celanese and Bayer, functioning as a coloration specialist. It then embarked on an impressive expansion by strategic acquisitions of BASF, Mitsui, Zeneca, Color Solutions Inc. and Yorkshire Americas.
These acquisitions were pivotal in transforming the company into a solution provider, offering brands, retailers and their industry partners a complete range of colors, chemicals and services.
By 2004, DyStar was widely recognized as a leader in the textile market, and was acquired itself by private equity firm Platinum Equity for a price analysts estimated at $680 million.
With subsequent acquisitions of Rotta Group (2005), Boehme Group (2006), and Texanlab (2007), DyStar grew in strategic market segments—covering auxiliaries and leather, and becoming a full solution provider.
In the early 21st century disruption of the textile industry continued with advances in electronics, shifting global economics, and more restrictive chemical and environmental regulations. Massive consolidations among European producers were met with the expansion of Indian, Chinese and Asian firms closer to new consumer product makers.
Given the rapidly changing market, the complex collection of DyStar companies proved difficult for its private equity owner in the ‘credit crunch’ era: In the fall of 2009, facing liquidity pressure, DyStar’s German operations filed for insolvency.
In February 2010, China’s Zhejiang Longsheng Group (Lonsen) together with India-based Kiri Dyes and Chemicals purchased the assets of DyStar’s German operations and most of its global subsidiaries for a reported $70 million, and later that year, also Dystar’s North American operations for a reported $10 million.
Longsheng was a major manufacturer in dyes, intermediates and chemicals in China, and also a conglomerate with interests in steel, autoparts, real property and financial investment.
Kiri was one of the largest manufacturers and exporters of reactive dyes and intermediates in India, particularly known for its reactive “blacks” in the industry.
The acquisition included access to DyStar’s 16 manufacturing plants in 12 countries, its brand, patents, technical know-how and most importantly, a 21 percent global market share.
Able to acquire the assets of DyStar without liabilities, Lonsen and Kiri turned around the DyStar business, making it more cost-effective and moving it more towards the growing Asian textile market.
DyStar has continued to expand and diversify in recent years. In October 2012, DyStar acquired the exclusive dealer for DyStar products in Andean countries—Anglostar LLC and its subsidiaries.
And just last fall, DyStar acquired Lenmar Chemical Corporation of Dalton, Ga., a specialty chemical products manufacturer, to further diversify its product portfolio and technical expertise into the textile and carpet, fiber processing, laminate floor, water treatment, oil and agriculture industries.
Since 2012, all DyStar operations come under the umbrella of DyStar Global Holding (Singapore) Pte. Ltd., with shareholders Lonsen (63 percent) and Kiri (37 percent).
Today, the DyStar Group has 14 production facilities in 12 countries and sales companies in all major areas, over 2,000 employees worldwide, and serves about 7,000 customers. Last year, DyStar earned nearly $850 million, with 45 percent coming from Asian markets and 55 percent split between Europe (30 percent) and America (25 percent).
In the first half of 2014, DyStar has achieved a 13 percent increase in revenue compared to the same period last year and doubled the earnings after tax.
In Charlotte, DyStar’s operations include DyStar LP and Color Solutions International.
Color Solutions was itself a product of the textile consolidation going on here in North Carolina. In 1999, John Darsey and Freddy Miller combined businesses to form Color Solutions Inc. Initially focused on creating cotton color standards, they were able to attract major retailers—their first account being Wal-Mart—and transitioned beyond to meet customer needs.
In 2002, DyStar acquired Color Solutions Inc., changed the name to Color Solutions International (CSI), and provided the financial resources, global exposure and technical expertise to expand their product line and services.
Ron Pedemonte serves as president and CEO of DyStar Americas, DyStar LP and CSI . With a background in chemistry, Pedemonte started his career with DyStar in 1991 as a research chemist focusing on developing novel reactive dyes and then was relocated to Germany to continue on new product developments.
Since 2000, he’s been in Charlotte as regional America product manager for reactive dyes, three years later becoming the regional business manager. In 2007, he was promoted to his current position and is also responsible for global textile services. He is the inventor or co-inventor of more than 25 patents in the field of reactive dye chemistry and has published numerous papers in biochemistry.
Although headquartered in Singapore, DyStar’s global head happens to reside here in Charlotte as well. In early 2012, Harry Dobrowolski took the reins as group president and CEO.
Dobrowolski brings a strong financial background to his leadership at DyStar. A native of Ravensburg, Germany, he has lived in the United States since 1985. He received his education in Germany, with a degree in business administration and finance.
He started with DyStar in 2005 as the head of Finance and Business Services for the Region Americas. Previously, he was CFO for Rohwedder North America, an automation systems provider and before that, he had a 20-year career with Siemens Company, which included management positions in Germany and South Africa, as well as the U.S.
Speaking of the 2010 acquisition of DyStar by Lonsen and Kiri, Dobrowolski says, “This was a totally new beginning for us. Since 2010, we’ve had very positive and sustainable growth in our results.”
Dobrowolski attributes the financial turnaround of the company to the right strategy and support from shareholders as well as integration of the supply chain. DyStar now has offices, competence centers, agencies and production plants in over 50 countries.
“This helps to ensure our expertise is both local and global for brands and retailers, mills and dye houses,” he reports. “What’s more, there are no superstars. We used to have very good managers; now we have the best team.”
Dobrowolski paints the larger picture: Following the reorganization in 2009, DyStar instituted several changes in operations. It closed some production plants in Germany and Indonesia as they had become outdated and were highly energy-intensive.
Production was shifted to more modern plants, primarily in China, where DyStar invested in state-of-the-art production technology. The new shareholders also helped to integrate the supply system and continue to be an important part of the leadership team.
“It is more than a partnership,” says Dobrowolski, “They need us to sell product and we need our shareholders to provide both suppliers and marketing information,” says Dobrowolski. “We work together very closely on a daily basis.”
A Colorful Presence
DyStar LP operates out of two production sites in Reidsville, N.C., and Dalton, Ga., and four warehouses located in Reidsville, Dalton, California and the Dominican Republic.
Through its CSI division, the company uses DyStar dyes to create over 5,000 CSI formula colors for fabric manufactured across the globe. These colors are developed through face-to-face contact with designers and color managers who have a specific color in mind.
“Globally, we are establishing color standards for more than 100 well-known brands,” says Pedemonte. “Some dyes have a lineage of 50 years or longer.”
“A retailer comes to us with a color palette for the season, whether it is spring or summer, fall or winter, holiday or back to school. They ask us to replicate the color in such a way that it can be communicated to their supply base,” describes Pedemonte. “We are smack in the middle of the textile supply chain, supplying color standards.”
“We take a retailer’s inspirational color pieces and make them into a standard format that can be communicated to a global supplier base,” continues Pedemonte. “Not only are we providing a service, but we are producing a color standard that is produced with dyes found in other countries; we lend technical support.”
The product offered to retailers consists of a certified standard (dye recipe with DyStar dyes) that is sold to global textile mills and vendors via the international website. The textile mill customer then uses this formulation to produce its fabric samples and production using DyStar dyes.
There are limitless applications for DyStar products—apparel, automotive, carpet, specialty chemical, denim, military/workwear and retailer/brand are their seven key markets.
DyStar LP maintains strong relationships with its customers; Pedemonte says that of the top 50 customers, 15 have been with the company for at least 10 years. Its diversified and well-balanced customer base of leading companies across a broad range of industries protects it from market fluctuations. High profile customers include Hanes, Fruit of the Loom, Shaw, Mohawk and Guilford Performance Textiles.
DyStar always has products in development. One of its current focuses is the denim industry. With a history of almost 120 years of producing Indigo, DyStar has developed a patented DyStar Indigo Vat 40 percent solution which represents the state-of-the-art in pre-reduced Indigo liquid. It allows for cleaner denim production and a reduction of the sodium hydrosulfite usage by 60 to 70 percent.
Coloring In the Future
As one of the premier companies in the field with a truly global reach, DyStar operates in many different legal jurisdictions and cultures and is responsible for complying with the laws in the countries in which it works. Additionally, the company aims to conduct business across boundaries with integrity and the highest ethical standards.
“It is our vision to become the world’s most sustainable and responsible supplier of colors, chemicals, and services to the global textile industry,” states Dobrowolski. “Our commitment to sustainability covers all three of its pillars, namely economic, environmental and social sustainability.”
Increasingly, rising wages in China and other countries, combined with higher transportation costs and new environmental regulations, have prompted a number of foreign and American textile companies to consider returning to the U.S. Also, with more consumers looking for ‘Made in the USA’ labels, some companies are turning back to American products.
Wal-Mart, for example, has pledged to buy $50 billion over the next decade in American-made products, including towels and washcloths.
Dobrowolski believes the trend back to Americas will continue—at least for the next few years. He adds that the textile industry itself is expanding because of consumer consumption.
“One of the factors undergirding a growing textile industry is the fact that consumers are buying more,” he says. “People don’t just buy what they need; they buy because they want the latest style or fashion color.”
With a growing industry and an expanding company, Dobrowolski expects DyStar to continue its growth path. But managing a large company with a complicated global supply chain can be challenging.
“We have to make sure our products—and the processes we use to produce them—are safe, follow strict environmental guidelines,” says Dobrowolski, “and their quality is top-notch and consistent worldwide.”
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.”