Joint ventures with foreign markets can bring new frontiers in technology and management.
It's possible to crack a foreign market on your own, but you may live to regret it
OK, so you're thinking about manufacturing and selling your company's wares abroad, but you're more than a little daunted by the risks. Why not join forces with a foreign partner? That way, you can split the start-up costs and divide up any losses. Not to mention gaining quicker international credibility, smoother distribution, and a better flow of information.
Then again, maybe you'd rather not share your potential profits -- or the secrets of your company's success -- with anyone. That's fine. But don't be surprised if, after trying to crack a foreign market on your own, you develop a new enthusiasm for joint ventures.
Ask Gordon Lankton. "For us, it was a negative experience that led to some positive results," says the president and chief executive officer of Nypro Inc., a plastic injection-molding and industrial components manufacturer in Clinton, Mass., recalling his first overseas venture a decade ago.
Today, Nypro has a presence in six countries, as well as four new factories in the United States -- all resulting from joint ventures with foreign partners. Such ventures account for around one-quarter of the company's revenues, which should hit roughly $85 million this year. More important, the partnerships have changed the company in completely unforeseen ways. "Without these foreign ventures, we'd be very limited in terms of our knowledge, our technology, our people, and our markets," says Nicholas Aznoian, Nypro's vice-president of finance. "We'd be a smaller company in every sense of the word.'
Back in 1979, when Nypro was a $25-million business, it was getting smaller in the worst sense of the word. Three of Lankton's biggest U.S. customers had urged him to set up a factory in Lyon, France, to supply their European operations with a constant and reliable flow of plastic components for such items as cameras and disposable lighters. But the French factory was losing about $700,000 a year. In response, Nypro tried to trim its payroll, and instead got caught up in a bureaucratic web from which it couldn't seem to free itself. A government labor board, whose machinations baffled everyone at Nypro, would allow the company to cut only a third of the workers it needed to let go. And, should Nypro decide to pull out altogether, union leaders vowed to block the doors.
Lankton wanted out. We can abandon the equipment, he finally told his managers, but we can't leave our customers' molds behind. So he dispatched a "hit squad," as he calls it, to sneak the 2,000-pound steel blocks out under cover of darkness. Right then, with the molds sitting in a warehouse, and his men holed up in a motel awaiting further instructions, Lankton became a devotee of joint ventures. From that point on, he decided, "I didn't want to go into new territory without a partner who is familiar with the local rules.'
He managed to locate a plastics company in Ireland that was interested in setting up a joint factory within its walls. So, lugging its molds from France to Ireland, Nypro soon launched Nypro Solus Ltd. Two years later, the parent company went bankrupt, but thanks to its general manager, Lankton learned how useful a foreign partner's knowledge can be. The manager suggested that Nypro could get a good deal on the company's 35 injection-molding machines and some leased space. Fine, Lankton said. A year later, the general manager reported that the banks, starved for cash, might be willing to part with all 100,000 square feet of the company for next to nothing. Lankton gave him the go-ahead.
Carefully negotiating with the banks and the government, the Irishman orchestrated the entire deal. Lankton concludes, "I saw the advantage of having a partner who knew all the tricks.'
Just finding a knowledgeable partner for a joint venture isn't enough, though. You have to make sure that partner's long-term goals are in sync with your own. That was another lesson Lankton learned the hard way. Around the same time as the Irish deal, a customer suggested that Nypro start a factory to supply components for the customer's Japanese subsidiary. With the help of one of his managers, Lankton lined up a contract for another $2 million in business in Asia, then set about finding a partner with whom to construct a manufacturing facility in Hong Kong. He finally settled on Chen Hsong Machinery Co., a maker of molding machines.
In retrospect, Lankton admits that when he signed the deal he hadn't taken the time to understand his new partner very well. "But," he says, "I figured I hadn't known the Irish partner all that well, either.'
This time, his ignorance proved damaging. He knew that the company's machines weren't technologically up to snuff; they were fine for serving, say, the low-quality Hong Kong market, but not for Japanese, U.S., and European customers. What Lankton didn't realize -- ``We've been arguing it for several years now' -- is that Chen Hsong's management did not intend to bring in computer-controlled molding machines. Eight years after they first joined forces, Chen Hsong has made no moves to build a more sophisticated customer base.
"We're not able to attract good business," Lankton says, "and we're losing the business we have. Unless they yield, one of us is going to have to buy out the other's share of the venture.'
Until then, Lankton had viewed joint ventures as a way of entering and keeping abreast of new markets. But when foreign companies started coming to Nypro, he learned that a different kind of partnership could push the company to new frontiers in technology and management.
Lankton was thrilled when he got the call from Netstal Machinery Ltd. We want to find a partner to help us enter the U.S. market, Netstal told him, so we're sending a team to visit 15 molding companies. Can they come see you? Lankton was flattered that the Swiss company, known for making high-end molding machines, had even heard of Nypro.
He was even more excited after his visitors outlined the plan: Netstal would ship eight machines and own 40% of the new venture, which would be managed by the U.S. entity. "By concentrating on our growth, we had lost some ground on technology," says Lankton. "Now, we would get access to their technology." Lankton soon got the word that Netstal had chosen Nypro.
