The Exporting Advantage
Things had not been going well for Hibco Plastics. The company, based in Yadkinville, N.C., makes foam packaging materials and was encountering setback after setback. It began in 1993, when Hibco's biggest customer, IBM, jumped ship, causing sales to drop nearly 30% almost overnight. By the time Hibco regained its footing, the recession of the early 2000s hit. Demand plummeted, driving down prices and margins. Revenue fell from $13.3 million in 2000 to $10 million in 2002, and the company cut its work force from 100 to about 60. Hibco needed to find an edge, any kind of edge, over the competition. The company found that edge in a place it had never considered looking—in Mexico.
Thanks to south-of-the-border demand, the 46-year-old company is now pushing into new, higher-margin lines of business—in particular, a kind of plastic "soil used to transport plants and flowers. Even more surprisingly, the foray into exporting—conducting commerce across a language gap, in a vastly different market—has transformed Hibco's overall approach to business and opened new opportunities domestically. "It keeps us on our toes in our core business, says Mark Pavlansky, Hibco's 39-year-old president, who runs the company with brothers Jon and Keith.
Foam fabricators like Hibco purchase huge slabs of plastic foam from major manufacturers, then slice and dice it into shapes for packaging and other purposes. For years, as plastic packaging snatched market share from paper and wood, fabricators enjoyed strong growth in what was a relatively simple business—simple enough that a fabricator could get by handling a very narrow range of plastics and producing very few separate items. It was easy to assume that there were no questions to ask, no new problems to solve. The recession shook the Pavlanskys from such complacency.
Fortunately, Hibco had been working with an inventor named Wayne Castleberry, who had approached the company in 2000 seeking plastic carrier trays for transporting flowerpots. A few years later, Castleberry had another idea: foam plastic as a growing medium—rubber dirt, some call it—and he wanted the brothers to join him in developing and selling it. Synthetic soil has been around for years, but Castleberry said his formulation was better.
With Hibco's recent setbacks fresh in mind, the brothers decided, Jon says, "if there's foam to be fabricated, we're interested. Earlier this year, Hibco signed a royalty agreement with Castleberry and got to work. It quickly became apparent that the most promising market for the soil substitute wasn't the U.S. but Mexico, which exports a huge volume of agricultural products. But Hibco had never exported before. So Mark and Jon enrolled in an eight-week class in exporting at nearby Wilkes Community College, taught by a local SBA official and an export loan officer from Bank of Granite. They got a crash course in things they'd never much considered—international shipping risk and how to minimize it, financing via letters of credit, intellectual property issues.
Jon then headed to Orlando to attend the International Plug & Cutting Conference, an annual gathering of so-called plant propagators, who grow plants from seeds and cuttings to a size large enough to sell to growers, who then nurture them to retail size. Sales leads were plentiful, many in Spanish, which Jon had learned years earlier to better communicate with Hibco's production workers, many of whom are immigrants.
The quick export education and Jon's language skills helped Hibco land new customers like Agromod, a Mexican company that grows agave, the plant used in making tequila. Agromod, which has produced 10 million agave plants in the past four years, uses foam plastic to grow plants in greenhouses because plastic provides better moisture control for the plant and thus produces a higher survival rate. That business—selling plugs to growers, mostly in Latin America—now accounts for 5% of Hibco's sales and is growing rapidly.
But the Pavlanskys have their eyes on a considerably larger prize. Right now, few of those Latin American plants are headed to the U.S. That's because the Department of Agriculture, with few exceptions, forbids import of plants in foreign soil or soil substitutes. The Pavlanskys' goal is to change that.
It's a big challenge. Foam plastic can be sterile and certified free of foreign pests, proponents argue. But the powerful American Nursery & Landscape Association likes the restrictions and warns about the next Dutch elm disease hitting the U.S. via foreign soil or soil substitute. The USDA is considering changing the rules, and Hibco has met with congressional officials from North Carolina in an effort to influence the outcome. It's also invested nearly $100,000 to research the issue and campaign for changes within the industry. There's been no return so far, and a resolution could be years away, but it's a big opportunity for the company. Meantime, Hibco is learning a lot about the plant business, which will help it boost sales overseas and domestically.
In any case, the export business has transformed Hibco's entire culture. The staid, complacent company of years past is now on a hunt for new niches to exploit—including foam for roofing and insulation and specialty packaging for the medical industry. Just like foam plugs for growing, they're materials the company was unfamiliar with. Serving new niches has meant reconfiguring its cramped factory—a big risk. But the brothers are no longer so risk averse. Hibco's work force is back to 100, 2005 sales are expected to hit $14 million, and the factory is running three shifts. "The greater we customize, Mark Pavlansky says, "the greater we open up our market.
Everyone knows that the global marketplace can be scary, full of competitive threats that seem to emerge overnight from almost anywhere. What countries make business leaders the most nervous? The management consulting firm A.T. Kearney recently put the question to 300 U.S. technology executives. Here are the top five places that keep them up at night—and why. —Lora Kolodny
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Indian contractors are grabbing more sophisticated work—driven, in part, by Indian entrepreneurs who have honed their chops in the U.S. and are returning home to start their own businesses.
3. South Korea
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A loose regulatory environment makes Russia attractive to entrepreneurs, especially in hot areas like biotech. Counterfeit products make up 40% of the country's consumer goods sold.
This island nation is the only Asian country with a bilateral free-trade agreement with the U.S., which gives its exporters an edge. It's also drawing more direct foreign investment than ever.