Plan Now For Europe 1992

May 1 1989 by Marshall D. Butler

There are few internationally minded American companies that have not put 1992 on their strategic planning agendas. The prospect of a single European market of 323 million consumers, compared with America‘s 245 million and Japan‘s 122 million, is a tempting marketing opportunity-especially for the insider.

As the common market becomes a reality, American direct investment in Europe is increasing at a rapid pace, and old fears about running a business in a foreign country are giving way to a pragmatic appreciation of what it will mean to have a strong European base by 1992.

I applaud the integration of Europe. The European Commission will be successful in establishing a new trade environment presenting tremendous growth opportunities, not only for the adventuresome few who had the resources to establish winning European subsidiaries early in the game, but also for those American companies who are just now realizing the market potential for their goods and services in Europe. In 1987, the combined Gross Domestic Product of the European community was $4.2 trillion, almost equal to that of the United States and considerably greater than the $2.7 trillion combined total for Japan, South Korea, Taiwan, Hong Kong and Singapore.

The anticipation of the single market system is attracting venture capitalists and stimulating entrepreneurial behavior. European manufacturers are preparing for the evolution of a fiercer, more competitive environment that will include many U.S. and Japanese companies. Mergers and acquisitions are on the rise, and many companies are implementing major organizational restructuring plans in an effort to streamline operations, achieve major cost reductions, improve productivity and increase profitability.

THE SPRINGBOARD TO EUROPE

Since 1992 is just around the corner, U.S. companies looking to expand their current market presence or companies that are interested in participating in a dynamic growth arena, should begin now to exploit the opportunities of the future single European market system. Here, then, are some general observations on doing business in the EC, together with some specific experiences of AVX there. We’re a manufacturing company, but much of this will apply to any type of business.

CREATE A EUROPEAN COMPANY

First, get fully established in Europe as soon as you can; the rewards of 1992 will mainly go to those companies which will have invested and learned during the development of the EC. Such companies will have a big head-start in the race for profits in the world’s largest market. And begin by thinking “European” from the start.

Run your European company as a European organization, staff it entirely with Europeans if you can, and consider yourself-as CEO-a European. Go there often, meet the customers (corporate and governmental) as the head of a European company. If all of this sounds a bit obvious, believe me, it’s not: some American companies are, I’ve observed, handicapped by their conception of themselves as “American companies doing business in Europe.” This idea is no longer a helpful one-1992 is mainly by and for Europeans.

In Europe, AVX is a European company. We belong to European industrial organizations. We are 100 percent European-staffed on all levels. We are treated by our customers and governments as a European company: In Paris, for instance, we now talk to the French about military telecommunications-related contracts as a French company. By the end of 1992 we may be talking as a German company, for instance, to a Dutch corporation about a possible collaboration in a bid for a Portuguese government contract.

The whole EC market will, in fact, have become a “United States of Europe” and that’s how we think of it now. I don’t foresee a common currency, or central bank, and certainly not a central government in the near future, but for most business purposes, the EC will be one big country.

After 15 years’ growing presence in Europe, AVX is now doing $100 million worth of business there, creating and manufacturing special products for such other “European” companies as IBM, Siemens, Honeywell, ITT & Plessey, as well as national governments and a host of smaller clients. Amidst such activity, the growing EC emphasis on standardization and “reciprocity” (your American-owned European company will be treated as the U.S. treats a similar European-owned American company) have already begun to cause problems, as well as opportunities, for other American companies, if not AVX. Be prepared, particularly if most or all of your components are manufactured outside the EC to establish EC-based vendors. In AVX’s case, the bulk of our materials for our European products are European and that’s a condition American-owned European companies should try to approximate; one consulting firm advises 80 percent as a desirable minimum for manufacturers.

For other products, new EC standards can sometimes present real problems. This is evidenced by the recent ban on hormone-treated American beef. It’s not guaranteed that serious American lobbying-industrial and governmental-in the EC will help avoid these types of confrontations, but our efforts here must be increased.

Information-timely and reliable is a key factor in any successful business and especially so in the fast-changing Europe of today. The Brussels headquarters of EC, already 10,000 bureaucrats strong, sends forth an avalanche of material, as do all of the participating governments. Keeping track of such information that could affect your company is crucial. Here, again, I believe that the employment of European personnel is an inherent advantage: Managers who already have a European orientation will adapt to 1992 with greater efficiency.

Speaking of European managers, I can warn you from personal experience of the danger of being unduly influenced by the quality of their English-the person who speaks the best English may not always be the best manager. You should find out how well they express themselves in their own languages; this could be much more important to you than their fluency in English-reassuring as that fluency may be to you.

You maybe tempted to use consultants in Europe. Our own experience is that they are similar to American consultants: You must be very clear in your assignments to them and you must be prepared to implement, by yourself, whatever they advise. At AVX we use them primarily for market surveys, where they go in without our pre-conceived notions. Otherwise, we get most of our information from our own European staff, European industry associations, government bodies, the EC Commission and, of course, our customers. A senior executive in our London headquarters is charged with coordinating the flow of information to all the European branches of AVX.

LEARNING THE MARKETS

When AVX started in Europe, England seemed the best place to begin. My long and prosperous relationship with Great Britain began in the 1960s when I was president of a company I founded called Alloys Unlimited, a manufacturer of packaging materials for the semiconductor industry. In 1970, the company was sold to the U.K.-based Plessey Ltd. I became a director and served for three years. I found that not all stereotypes of the British are true, nor do all American business customs apply to the European marketplace. I still chuckle when I remember interrupting a Plessey board meeting for afternoon tea, as is customary in Britain, only to find that the only person drinking tea was also the only American in the room! (Contrary to popular belief, there are many coffee drinkers in Britain.) I also found that while in America it is considered a good business practice to arrive a few minutes early for a meeting, in Europe it is considered rude to be announced before the designated appointed time.

From my experiences in Great Britain, I learned a great deal about doing business in Europe; I made many contacts which were helpful to me when the management and board of AVX-a company I joined in 1974 as president and chief executive-decided to establish a manufacturing presence in Europe and selected Great Britain as the logical place to start.

My reasons for selecting the U.K. as a springboard to Europe then are just as attractive and valid today. Britain has a sound, democratic political system and all political parties welcome foreign investment. Included in its sponsorship has been the creation of an extremely attractive financial assistance package to encourage companies to establish manufacturing facilities in the U.K. Britain also has an excellent educational system and a large labor pool of skilled and semi-skilled workers. In addition, there are no language barriers for American companies to overcome.

In the mid ’70s, we recognized a huge potential market for our products by identifying European companies who manufactured the same products as our customers in the U.S. We had established a sound customer base for multilayer ceramic capacitors (MLCs) in the U.S. and earned a leading market share position. Many of our largest customers-IBM, DEC, Motorola-were selling and manufacturing their products in Europe. They had expressed a strong desire to purchase electronic components from local, approved sources that could thereby support their local manufacturing operations.

We began by establishing a sales, marketing and stocking warehouse outside of London and shipping products from the U.S.-in order to gain qualifications and approvals from new customers as well as to supply products to our existing European customer base. The location was excellent, as we were close to transportation and shipping carriers.

In order to manufacture our products in Europe for the European market, we needed to find a location that was conducive to producing a high quality, highly technical product. We needed an environment with a sound work ethic, a multifaceted workforce comprised of college graduates with technical backgrounds, as well as skilled and semi-skilled high school graduates and a secondary educational system to support our personnel needs. We preferred to stay within the U.K., and with the encouragement, cooperation and financial assistance provided by the British government, in 1978 we built a state-of-the-art 85,000 square foot manufacturing facility in Northern Ireland.

Within two years, AVX became the leading manufacturer of MLCs in Europe. Today we serve Western Europe‘s MLC market from five manufacturing sites in Great Britain, France and Germany, and employ almost 1,500 workers.

We have not experienced any disruptions in production due to the current political environment in that region. In fact, we have lost more production time in our factories in South Carolina due to unexpected snowfalls than we have in any of our other plants.

1992 STRATEGIES

Having established a firm foothold in the European electronics market, AVX is now setting its sights on 1992 and beyond and has already embarked on a plan to maximize its efforts and success in the proposed single-market system. We are expanding our sales, marketing, and product-engineering functions to include new satellite offices in the major markets within the European community. In this way, we can acquire “local knowledge” of the companies manufacturing in each region and also take the opportunity to introduce AVX and the products we manufacture to those satellite offices.

We are also making plans to centralize key operations, such as order entry, customer service and shipping, that will improve our Just In Time delivery and Ship to Stock programs and, allow us, in many cases, to offer customers next-day service. The consolidation of operations will reduce our overhead structure and improve profitability. In addition, the implementation of dedicated and focused manufacturing lines will improve production control, increase productivity and help to decrease manufacturing costs. This, we feel, will greatly sharpen AVX’s competitive edge in manufacturing high-quality, world-class products meeting uniform specifications that can be sold throughout Europe.

For American companies with quality products and services to offer, Europe 1992 is a significant “new” market. Those intent on becoming international players must be ready to take on the challenges of 1992.