Naturally, not even the best-performing imports can meet the plump margins of the units that Labconco produces itself. But these pickup products offer shortcuts, giving the company the ability to plug a hole in a product line, reinforce a commitment to a particular market, or gain an introduction into a new clique of customers much faster than it could otherwise.
On average, it takes Labconco four frustrating years to design, develop, and distribute a new product and generate a decent revenue stream. With imports, the gratification is almost immediate. A new chloride station, which measures the salt content of substances, was brought to Labconco's attention courtesy of its Japanese distributor. While Labconco already offered a similar product aimed at medical users, this one appeals to another big market segment: food labs. "We didn't have the time to go back and redesign," says Sperry. "This way, we didn't have to."
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4. Exporting Forces You To Plan Profitably
"When the Japanese asked for a price concession of 2%, we just gave it to them," recalls McConnell. "After that we learned how little we knew about our own costs."
The company's accounting weaknesses weren't like its other problems. It wasn't a question of finding better people, as it had been in engineering. Nor did money need to be spent on tools, as McConnell had found in the factory. What he needed, McConnell soon realized, was more detailed information. "The cost system needs more integrity to handle international," he says.
Questions kept popping up: How will it affect profitability if our charges in Madrid are different from Cincinnati's? If we have to modify this freeze dryer -- adding a transformer to comply with European electrical codes -- what do we need to charge to safeguard our standard margin? "There's the potential for financial surprises," says McConnell. "We don't want any."
Instead of treating international products as onetime sales, McConnell worked with Gound, who heads finance, to assign a component part number to each one of them, enabling the products to flow through Labconco's normal costing system. Then, since they required only slightly more labor to produce, international products could be priced the same as domestic ones. Now McConnell may decide to sacrifice margin for the sake of expanding into a new country or keeping a competitor out, but he knows -- more or less -- how such moves will affect earnings.
While the figures remain a bit sketchy, Gound estimates that Labconco's international sales are probably a smidgen less profitable than its domestic offerings, because of the extra labor involved in meeting foreign electrical requirements. But Labconco's overall efficiency and profitability are obviously enhanced by the added volume. "We're much better with it than without it," says Gound. "We're simply spreading our overhead over more sales dollars."
The exercise of scrutinizing component costs seems to have sharpened Labconco's tracking abilities. With the help of cooperative vendors, and a more conducive factory layout, Labconco has reduced its inventory of self-manufactured metal fabrication parts by 60% in the last couple of years. And Gound's department has become "much more organized from a follow-up standpoint" regarding collections, given that international receivables tend to stretch out to 60 days.
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5. Exporting Grows Your Business
The argument for selling abroad goes something like this: when your domestic market is sputtering, Europe could be revving up. And when Europe stumbles, Japan might rise. And when the United States, Europe, and Japan all disappoint -- as Labconco has experienced this year -- the company is still well positioned to pick up profitable one-shot deals from Saudi Arabia or Canada or Korea. "Spikes of activity come from different countries," says McConnell. "They offset each other."
Or they help, anyway. Last year Labconco was staring at its first flat year in the last decade, during which sales grew by at least 10% each year. Any growth that comes in the next two or three years, McConnell predicts, will result from increased international sales. "It's the key market for us," he says.
But global sales have grown Labconco in more ways than just broadening its sales base.
Consider employees. Labconco engineers have studied electronics; factory workers have explored testing techniques; financial types have come to master letters of credit. Even the marketing department, in preparing simple text for foreign dealers to translate, has "learned how to boil down our copy," says Kenny. Specifics aside, "all the exposure to the world makes you smarter," says Kerm Dyer. "You're in their plants; you're talking to their technical people. You get ideas about everything, from new products to bending a bracket better." There's no question that Labconco, in McConnell's words, has "developed, as a company, a broader knowledge base."
And McConnell never lets employees forget their best teachers. At companywide meetings, international sales manager Sullivan stands up and reports; he'll even pass around pictures of a product being used in some exotic locale such as Indonesia. "People love that," says Sullivan. McConnell, whose top executives all travel abroad, encourages them to share ideas by offering information "ad nauseam" himself. "I tell them I want them to be inquisitive," he says. "Then I kick them out of the office."
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On this particular night, though, most employees seem to have departed voluntarily. McConnell, returning to his office at 8 p.m., finds the exact sales information he expects in the same spot on his desk as always. At his request, Labconco's computers spit out two detailed daily sales reports: one international, one domestic. It's another way for him to communicate the importance of foreign sales. But it also gives him a chance to see what's selling where and compare margins on a product-by-product basis. Not that anything he sees is likely to narrow the scope of his thinking.
"We'll invest more, because international is where the long-range potential is," McConnell says. "Why can't it become 30%, 40%, or even 50% of our business? It can. There are so many more things we could try." His eyes trail his index finger down a row of numbers. He takes a moment to gaze out the window, where he has a bucolic view of several birdhouses and the occasional turtle meandering across the road.
"The international marketplace really teaches you lessons," he says, returning the report to exactly where he found it. "It has already made us a hell of a lot better. But we have just scratched the surface."
