Featured In This Issue
While climatic variance and geopolitical crisis may dampen the World Bank’s predictions for global economic growth from time to time, there is no longer any doubt that globalization is the dominant business environment.
Increasingly connected marketplaces afford businesses a potential of more than 7 billion customers. But navigating and thriving in this global environment requires different and specialized knowledge, tools and training. It requires that business leaders have a new mindset—a global mindset.
Educating these new global business leaders is the mission and goal of the College of Charleston’s School of Business. The School of Business is one of six undergraduate schools that make up the 244-year-old college located in the heart of the city’s vibrant historic district.
With almost 300 students majoring in international business, the school has a substantial commitment to educating global business professionals, and under the leadership of its dean, Dr. Alan T. Shao, all students of the School of Business will graduate with a global mindset.
“I’m working to integrate global topics throughout the entire school of business curriculum,” says Shao. “A business education today is not complete without an understanding of global business. As we implement our initiatives, our students—whether they are a finance, marketing or supply chain major—will have an understanding of what globalization is all about.”
A Global Mindset
The confluence of education and globalization came early for Shao. “My destiny was determined in the crib,” he jokes but he’s not far off the mark. Shao’s father was a professor at Old Dominion University for almost 40 years where he taught management information systems, accounting and finance. The youngest of four brothers, Shao is the fifth Ph.D. in business in his family.
Shao credits his interest in globalization to his family as well. “I’m bi-heritage. My father is Chinese and my mother is an American from South Carolina so, by definition, I’m an international person.”
But what really “lit the fire” for Shao’s interest in globalization was studying abroad. “Thirty-six years ago I studied for one year at the National Taiwan University in Taipei, Taiwan,” he explains. “It was the best learning experience of my life. It taught me how to live in a culture where I didn’t understand the language and how to get along with people I didn’t understand. It went far beyond the books. From that point on, I was sold on devoting my academic life to foreign markets.”
Shao earned a B.S. in general business and an M.B.A. with a concentration in management from Old Dominion before obtaining his doctorate specializing in global marketing and marketing research from the University of Alabama in 1989.
In 1990, Shao joined the faculty of the University of North Carolina at Charlotte as an assistant professor and director of their international business program. In his 19 years at Charlotte, Shao rose to Associate Dean of Professional and Global Programs and North Carolina Ports Professor of Marketing, but more important to Shao than the titles was what was accomplished in his tenure at Charlotte.
“I was challenged to start revenue-generating, self-supporting programs in foreign markets. We successfully began MBA programs in Hong Kong, Taiwan and Mexico, as well as a dual degree Masters of Science program in Economics in Denmark. It educated our students and gave foreign students the opportunity to get our degree, but it also generated money for our local students at Charlotte. We were able to create scholarships and significant faculty development funds through the revenue generated.”
“I loved every minute I spent at that university and in the city of Charlotte,” says Shao. “Charlotte is an amazing city.”
In 2009, Shao’s global background was welcomed at the College of Charleston when he accepted the position of dean of the School of Business. The internationalization of the campus is a “top tier priority for our campus strategic plan,” Shao explains.
“Globalization opens up a whole new perspective on business,” he continues. “Educating someone to have a global perspective allows them to think differently; to open up their mind to a different way of looking at business.”
Currently, the school’s students in the one-year accelerated MBA program visit a foreign market where, for three weeks, they visit foreign manufacturing and service companies to get a local perspective on how business is done. The foreign market visits are a requirement of graduation.
“Ideally, a student’s study abroad would include learning from a foreign professor and interacting with foreign students and local people,” Shao says. “Exposure to both academics and actual business experience through tours, internships and the like allows a student to see how business is actually conducted in another country.
“And the global experience shouldn’t end when the student returns to the U.S. Each class should have globalization embedded in the curriculum. Hearing export strategies from a Chinese business person who actually exports to the U.S. adds interest and value to a curriculum.”
Shao also emphasizes what he calls diversity of the mind. “Optimally, our business classrooms should be filled with students from a variety of cultures. If you have students from Germany, Russia, Mexico and Brazil in a class with American students all doing a case study each might look at it very differently because their cultures are different.
“They may come up with a solution that is very different from someone with only a U.S. perspective and it can open the minds of all the students involved to understand and appreciate different perspectives on how to attack a problem. Different perspectives create that diverse mindset.”
The “Ready-to-Work” Graduate
Shao’s passion for a global education for his business students is only equaled by his passion for the ultimate outcome of their education. “My goal for each one of our graduates is to be a ‘ready-to-work’ graduate,” he says. “That’s so important. So how do you create a graduate who is ‘ready-to-work’? You create it by working closely with businesses.
“The more closely linked the business school is to the business community, the better equipped our students will be for employment. We’re designing our curriculum needs around the needs of the business community so when they need to hire, our students’ learning already fits those needs.
“For example, BMW, Boeing and Michelin told us that student knowledge of an ERP (enterprise, resource and planning) system would be very beneficial, so we ordered the software and we’re integrating that into our curriculum. This gives our graduates the added advantage of a skill these businesses are looking for in hiring.”
“In our halls, it’s difficult to tell who’s a practitioner and who’s an academic,” says Shao. “We have the business community through our halls every day. They are part of what we do.”
Chief Executive Officer for InterTech Group Anita Zucker is a current executive committee member and past chair of the board of governors who supports Shao’s push for globalization at the school.
“International trade is vital for my companies,” says Zucker, “and it’s becoming more vital for this region. Now that Boeing has come to Charleston, they’re bringing people from all over the world here who are interacting with the people working and living in South Carolina. We have to make certain that a global perspective is incorporated into the teaching at the school. Our community needs to have that level of knowledge and experience.”
Another board of governors’ member, Marco Wirtz, is president and CEO of German-based Daimler Vans Manufacturing which assembles Sprinter Vans for the U.S. market in their plant in Ladson, S.C. Wirtz is pleased with the internationalization focus at the school and especially with its new offering of a major in supply chain management, available in fall 2015.
“International business is about logistics,” says Wirtz. “It’s crucial for an internationalization effort. Logistics methods and processes change as the world changes. It’s wonderful that businesses can get students from the college with fresh knowledge and fresh ideas into their companies to help them change with market changes and remain competitive.”
Global Mindset from the Top
Shao also emphasizes the importance of government’s role in supporting globalization efforts at the school. Current board of governors’ members include Speaker of the South Carolina House Bobby Harrell, State Senator Paul Campbell and past member and current U.S. Senator from South Carolina Tim Scott who spoke at the school as recently as a few weeks ago.
South Carolina Governor Nikki Haley has also spoken at the school twice in the last two years. But political support of the college’s global initiatives is part of a larger realization: global trade is a major economic driver for South Carolina.
“Gov. Haley has charged Charleston and South Carolina with developing the economy,” Shao explains. “The governor understands the business advantages of globalization and she and South Carolina Secretary of Commerce Bobby Hitt are doing a very good job of educating businesses and consumers about it. The state’s global mindset comes from the top.”
And that mindset and economic development plan appears to be working. Many global companies call South Carolina home.
The first 787 Dreamliner aircraft rolled off Boeing’s North Charleston Final Assembly Plant in April of 2012 bound for the Air India fleet. Boeing employs about 6,500 people in the plant and is a huge presence in the area; it has recently acquired additional land with the intention to grow.
“When you have such a behemoth of a business in the region, you create global interest,” says Shao. “Many smaller businesses—vendors of Boeing—have built up around the Dreamliner plant.”
Another global behemoth that’s found a home in South Carolina is BMW who recently announced that it will make a $1 billion investment to its Spartanburg plant to increase production up to 450,000 vehicles by the end of 2016. In 2011, BMW exported more than 192,000 vehicles worth $7.4 billion, making it the largest auto exporter in the U.S.
Those 192,000 vehicles, destined for 130 different global markets, were all exported from the centerpiece of the state’s global trade engine: the Port of Charleston.
A Global Portal
President and chief executive officer of the South Carolina Ports Authority James Newsome, III, calls the Port of Charleston a “major strategic asset of the state.”
“Businesses locate in areas of global sourcing and global manufacturing,” says Newsome, who is also on the school’s board of governors. “Businesses locate near a great port because it gives them access to the world.
“I think there is universal acceptance in the state that the port is an important asset. I know that not only from statements made, but also from the money invested. In addition to what the port is investing, the state has set aside some $700 million for various infrastructure-related port improvements.”
With growth in fiscal year 2013 of over nine percent and expected growth of more than six percent in fiscal year 2014, the Port of Charleston is growing at more than twice the rate of the general U.S. port market.
A new container terminal located at the former Navy base that will expand capacity by 50 percent is one of the improvements earmarked for the money, but the lion’s share of dollars will be spent on deepening the port’s harbor to 50 feet or more.
The Charleston Harbor Post 45 deepening project is in study phase currently but at its projected completion in 2018, the harbor will be able to accept larger post-Panamax container ships, further enhancing the port’s contribution to the state’s economy.
The expected growth at the Port of Charleston is a good reason for a better connection with Charlotte according to Newsome. “As capacity increases in Charleston, we’re going to need more capacity to move containers by rail,” he says. “With the new intermodal facility in Charlotte, it makes sense to grow that connection. There could be synergy between South Carolina and North Carolina in moving freight so we need to work more closely together.”
Shao also sees Charlotte’s potential in global business. “I know Charlotte well,” Shao says. “Charlotte is well-positioned to continue their upward trend toward being a global hub of business.
“Charleston has a jump on the global mindset. We already see global business as an economic engine. Charlotte needs an aggressive campaign by the academic community, business and government to get out the word that it’s good to be global and to show how other states and regions have been able to lift their profiles by taking advantage of markets outside the U.S.
“With advancements in transportation and technology, no place is too far anymore. Businesses need to understand the opportunity.
“Certainly, Internet search engines can show you trading opportunities worldwide, but trade councils, U.S. Export Assistance Centers and the Department of Commerce’s Gold Key Program all do a tremendous job of promoting international trade.
“I would suggest getting your toes in one market first. There’s a lot to learn when exporting or importing into a foreign market. It’s good to learn the basics of international trade through one market before expanding all over. And there’s no substitute for travel abroad. Do your homework before you leave but definitely go to that market and see if your product works.”
There is more growth ahead for the College of Charleston. Although efforts to pass a University of Charleston bill in the state legislature that would allow the school to offer doctoral programs was defeated last month, that’s one mission incoming President Glenn McConnell has said he’s going to undertake.
McConnell has advocated doctoral degrees along with research programs linking logistics with the Port of Charleston or programs tied to work at Boeing. He believes that to strengthen the institution, “what you do is build in these other areas where there’s a perceived need. The college has to be relevant to this business community and to the demands of today.”
As Shao and College of Charleston School of Business work to advance the global mindset, as Shao says “developing business students who understand that we live in one world and that world is one huge market,” it is clear that they are on the fast track to success.
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.”
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.”
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.”
“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.”
New business owners have many important decisions to make to get their business off the ground. One of the most important choices is the form of legal entity the business will take. Three of the most popular entity types are limited liability companies, limited partnerships, and Subchapter S corporations. C corporations are still available; however, they have lost popularity in recent years due to a less favorable tax structure compared to ‘pass-through’ entities. Limited liability companies, limited partnerships and S corporations all provide liability protection and are taxed as ‘pass-through’ entities, but there are many important differences between them.
Limited Liability Company
A limited liability company (LLC) is a hybrid entity in that it can be structured to resemble a corporation for owner liability purposes and a partnership for federal tax purposes.
The owners of an LLC (called “members”) are generally not liable for the debts of the business except to the extent of their investment. Thus, the owners can operate the business with the security of knowing that their personal assets are protected from the entity’s creditors. This protection is far greater than that afforded by general partnerships.
LLCs can be treated as partnerships for federal tax purposes. LLC earnings ‘pass-through’ to the members and are reported on the members’ individual tax returns. LLC losses ‘pass-through’ to the members as well and are deductible on their individual tax returns subject to certain limitations.
An LLC that is taxable as a partnership can allocate, among other items, income and losses to its members by special allocation. Also, LLCs are not subject to the restrictions the Internal Revenue Code imposes on S corporations regarding the number of shareholders and the types of ownership interests that may be issued.
A limited partnership (LP) can be the most suitable entity for a new business venture that raises capital from private investors but also provides those investors with limited liability protection.
LPs allow you to raise capital to fund the business without giving up control or being saddled with considerable start-up debt. A general partner assumes the role of managing and operating the business. Investors who contribute capital receive limited partnership interests in exchange for their contributions. Limited partners are able to share in the entity’s financial results without managing the business or risking personal liability.
The general partner is usually personally liable for the entity’s debts. The risk of this liability can be minimized by: (i) creating a corporation to manage the partnership and serve as general partner, and (ii) procuring adequate insurance to cover potential liabilities arising from operation of the business.
The partnership is a ‘pass-through’ entity for tax purposes, with each general and limited partner including their share of income, deductions, credits, and losses, on their individual tax return.
Subchapter S Corporation
In an Subchapter S corporation (S Corp), the shareholders are not personally liable for corporate debts. In order to receive this protection, the corporation should be a viable entity separate from its shareholders and incorporated in accordance with applicable state regulations.
S Corp shareholders report their percentage shares of profits and losses on their personal tax returns. S Corp profits are taxed directly to the shareholder whether or not the profits are distributed from the entity. S Corp losses are deductible by shareholders to the extent of their basis which includes what they paid for their stock and any loans made to the entity. Losses that cannot be deducted because they exceed shareholder basis are carried forward and can be deducted when there is sufficient basis. No special allocations to shareholders are permitted.
An S Corp can lose its status if the original shareholders transfer stock to an ineligible shareholder such as another corporation, partnership, or nonresident alien or if shareholder distributions are not distributed according to ownership percentages. If the S election is terminated, the corporation becomes a taxable entity (a C corporation). Shareholders of a C corporation are not able to deduct losses and corporate earnings could be subject to double taxation.
To conclude, the entity choice will depend upon the nature and size of the business entity, the level of activity of the participants, consideration of tax consequences, concerns for succession and management, as well as potential liability protection. The proper choice of business entity is a critical decision, one which shouldn’t be made without solid professional advice. A little planning ahead of time can alleviate unexpected problems in the future.
Planning for a Successful Sale to Insiders
This article deals with Step 4 of our firm’s six step planning process for helping business owners create an optimum succession plan for their business and exit plan which best meets their business and personal objectives.
Last month’s article focused on the keys to reducing the risks of an unsuccessful transfer of a business to “insiders” (family members, key employees and co-owners). This and the next article will present 10 specific elements to consider when planning for a successful sale to insiders, i.e., a sale which best meets the owner’s objectives and that keeps the owner in control until he/she is paid all or most of the sales price (in the event that the chosen successors do not have adequate funds to cash the owner out).
Element 1: Time. The first (and most important) question an owner should ask when considering a sale to insiders is, “Am I willing to take the time (typically 3 to 8 years) to execute and complete an insider transfer (while maintaining control)?” If the answer is no, then it is probably best to consider other alternatives such as a sale to an outside third party.
With the help of advisors trained in Exit Planning, who know how to design successful transfers to insiders (addressing the key factors in our previous discussion), creating the plan can take 60 to 90 days. However, the lion’s share of the time is spent implementing that transfer.
During this 3- to 8-year period, owners work with their management team to build the value of their companies, transition all management responsibilities to their management teams (so that the business not only survives the owner but thrives after the owner retires), and actually sell a substantial portion (or all) of the company to the insiders.
Element 2: Defined Owner’s Objectives. If owners are willing to devote the time necessary for this exit strategy, they also must define and quantify their objectives. These may include: Making sure they have chosen and properly trained the right successors able to profitably grow the company in the absence of the owner; Planning their (and their spouse’s) financial security and independence during their retirement; Choosing a date to begin retirement; Keeping the family legacy (or company culture) intact; Rewarding key employees; and/or Taking the business to the next level—on someone else’s dime. In a well-designed transfer plan, these objectives are met before control is transferred.
Element 3: Business Cash Flow. Healthy cash flow is critical to any sale. No buyer (insider or outsider) wants to buy a company with anemic cash flow. In a transfer to insiders, cash flow assumes gargantuan importance because initially it will be the major, if not sole, source of the owner’s sale proceeds.
Element 4: Growth in Business Value. Like healthy cash flow, buyers look (and pay top dollar) for companies that have the potential to grow in value. In transfers to insiders, only if cash flow continues to grow does the ownership transfer generally occur. For this reason, it is vitally important that owners contemplating an insider transfer install and evaluate Value Drivers before and during their exit transition. For a quick refresher on Value Drivers, please see our March 2014 article.
Element 5: Capable Management Desiring Ownership. Having a motivated management team in place and capable of replacing the owner seller is hugely valuable to any buyer. In a transfer to insiders, such management is essential. That management group must desire ownership and be willing to sign personally for any acquisition financing or ongoing company debt. Owners often assume that their management teams want to own their companies—and they do—but sometimes only until they realize that they have to pay for ownership (or at least guarantee company loans).
These successors to the owner must be respected by and followed by the other employees as successor leaders who not only are competent owners and managers but also are qualified to control all decisions regarding the future of the company. Once these successors are chosen by the owner, and in place and capable of replacing the owner, the owner should begin to delegate all responsibilities to them.
Next month’s article will address the remaining five elements which should be part of a business owner’s plan to successfully transfer his or her company to insiders.
The Immigration Act of 1990 created the Immigrant Investor Program as the fifth preference category for employment-based immigration—the EB-5—to stimulate the U.S. economy through job creation and capital investment by foreign investors. Approximately 10,000 EB-5 immigrant visas per year are available to immigrant investors who invest in a new commercial enterprise, a troubled business, or a regional center pilot program.
Alien entrepreneurs can obtain an EB-5 immigrant visa if they invest $1 million in a new commercial enterprise which will create at least 10 full-time jobs for U.S. workers. Investors only need to invest $500,000, however, if the investment is made in a high unemployment or rural area. The new commercial enterprise must have been established after November 29, 1990.
If the company was established prior to that date, it can also qualify for investment as a troubled company if it has been 1) restructured/reorganized so as to be tantamount to a new commercial enterprise; or 2) expanded through investment in such a way that the resulting new commercial enterprise yields a 40 percent increase in net worth or number of employees.
In 1992, Congress created another avenue for foreign investment called Regional Centers—economic units designed to promote investment, economic growth, and job creation. A Regional Center can be a private enterprise or a regional government agency that has a targeted investment program, directing and managing investments in the designated business and geographic focus of the Regional Center. Jobs created both directly and indirectly are counted for purposes of meeting the 10-job-creation requirement.
Even if foreign investors want to start their own companies in the U.S., over 90 percent of EB-5 investors choose the Regional Center for their green cards and then come to the U.S. and start a company. They then bypass government examination of where their money is being spent and how the companies are creating the required jobs. There is also no day-to-day management required and less risk with a Regional Center investment.
EB-5 applicants must demonstrate that their investment is both legal and available by filing an I-526 immigrant petition with U.S. Citizenship and Immigration Services (USCIS) along with evidence such as articles of incorporation, bank statements, asset verification, funds transfers, stock certificates, tax returns, I-9 forms, business plans, or other financial transactions as well as documentation of employees hired and a regional center approval if appropriate. If USCIS approves the petition, then applicants can become two-year conditional residents upon completion of the process.
To become a conditional permanent resident (CPR), an investor can visa process or adjust status. CPR status is valid for two years. Three months before CPR status expiration, investors and their family members must petition for removal of the conditions, which, when approved, affords them full lawful permanent resident status.
While the EB-5 program offers significant economic benefits to both investors and job-seekers, the processing time for an EB-5 permanent resident case has been lagging for the past several years. USCIS’s new EB-5 Director Nicholas Colluci, however, is making changes to the EB-5 program with the intent to improve both efficiency and quality.
As a result of transferring the adjudication of I-526 petitions to the D.C. office, USCIS processing times on EB-5 applications have improved. Unfortunately, the wait time for processing I-526 petitions is still 12.4 months.
Colluci plans to increase staffing in the D.C. office to continue to reduce processing times and advance quality control by hiring staff with backgrounds in economics, securities and immigration law to identify investment projects that are likely to succeed.
If EB-5 demand continues at the current pace and exceeds the supply, USCIS may establish a cutoff date for those investors born in China who account for more than 80 percent of the 10,000 EB-5 visas available. In the past, the predicted establishment of a cutoff date for China EB-5s never occurred because of the slow pace of I-526 approvals.
If USCIS does establish a cutoff date, it will likely occur in August or September of this year. Chinese investors should not be alarmed by the prospect of a cutoff date, however, because a new supply of visas will be available at the beginning of the new fiscal year starting in October, eliminating the shortage.
The McKinsey Global Institute recently issued an analysis of global flows in this digital age—how trade, finance, people, and data connect the world economy. First, they concisely describe global flows over time.
Global flows have been a common thread extending through the mercantilist and colonial eras, from trade routes of old such as the renowned Silk Road through the industrial revolutions that swept across Europe and North America in the 18th and 19th centuries to the more recent rise of emerging economies. But today the web of cross-border exchanges has exploded in scope and complexity.
The opening up of economies that started in the early 1990s and brought Eastern-bloc countries and Asia fully into the global economy set the stage. However, two major forces are now accelerating the growth and evolution of global flows.
The first is increasing global prosperity. By 2025, 1.8 billion people around the world will enter the consuming class, nearly all from emerging markets, and emerging-market consumers will spend $30 trillion annually, up from $12 trillion today. This will create enormous new hubs for consumer demand and global production.
The second major force is the growing pervasiveness of Internet connectivity and the spread of digital technologies. More than two-thirds of us have mobile phones. In 2012, there were 2.7 billion people connected to the Internet. A torrent of data now travels around the world. Cross-border Internet traffic grew 18-fold between 2005 and 2012.
Here is a summary of their very interesting findings.
Global flows are growing and contribute to GDP growth. Flows of goods, services, and finance in 2012 reached $26 trillion, or 36 percent of global GDP—1.5 times as large relative to GDP as they were in 1990. If the spread of digital technologies and rising prosperity in emerging economies continues, global flows could nearly triple by 2025 and boost economic growth.
Developed economies remain more connected than emerging markets. However, the latter are rising rapidly. Germany tops the overall list, while the U.S. is third. Among emerging markets that are becoming more connected are Brazil, China, India, Morocco, and Saudi Arabia. “Flow intensity”—the value of flows relative to the size of their economy—is significant. Among the world’s large economies, Germany has a flow intensity of 110 percent, China, 62 percent, Mexico, 78 percent, and India, 61 percent.
The knowledge-intensive portion of global flows increasingly dominates. Knowledge-intensive goods flows are growing at 1.3 times the rate of labor-intensive goods flows. Today knowledge-intensive flows account for half of global flows, and they are gaining share. Although developed economies as a group dominate knowledge-intensive flows, China’s knowledge-intensive flows are the world’s second largest.
Digitization is transforming and enriching all flows. Digitization reduces the marginal costs of production and distribution and is transforming flows in three ways: through the creation of purely digital goods and services that are either transformations of physical flows or entirely new products, through “digital wrappers” that enhance the value of physical flows, and through digital platforms that facilitate cross-border production and exchange. Moreover, digitization has begun to change the mix of flows. Some goods flows are becoming services flows, for instance. All this is creating significant new opportunities for innovation and disruption.
Networks of global flows are broadening and deepening as emerging economies join in. Emerging economies are becoming important as both consumers and producers in the global economy, and account for 38 percent of global flows, nearly triple their share in 1990. South-South trade between developing economies has grown from just 6 percent of goods flows in 1990 to 24 percent in 2012. In absolute terms, the increase has been from $198 billion to $4.4 trillion.
Global flows are shaped by—and are influencing—trends in major sectors. As global supply chains become more fragmented and countries specialize in production, flows of intermediate goods (as opposed to final goods) are soaring. Digitization is likely to help to transform global logistics and manufacturing sectors by replacing some physical flows with virtual flows. Digital platforms are enabling new players to participate in sectors ranging from shipping to payments.
Companies, entrepreneurs, and individuals have more opportunities to participate. Governments and multinational companies were once the only actors involved in cross-border exchanges, but today digital technologies enable even the smallest company or individual entrepreneur to be a “micro-multinational” that sells and sources products, services, and ideas across borders. Traditional business models are being challenged by micro-scale activities ranging from micro-work to micropayments and micro-shipments.
The McKinsey report portrays the new era of dramatically broadening and deepening global flows will create many new opportunities for governments and companies to drive growth and innovation and will open the door to greater participation by entrepreneurs and individuals. It also points out the necessity for new investments and focused policies, and challenges in dealing with new types of competitors—both at home and abroad.
Their parting words are food for thought: Finding ways to harness the positive potential of global flows to raise living standards and shared prosperity while mitigating the risks is imperative. The cost of being left behind—for countries, companies, and individuals—is rising.
See the complete April 2014 analysis at:
See the Web of World Trade at: