Global Marketplace Strengthens U.S. Operations

What does it mean to the U.S. distribution market when manufacturers establish an offshore foothold?

38a_flags_globeIn response to surging economies, the growth of the industrial gas market in Asia is staggering. Gas producers have invested billions in capital for infrastructure, and the demand for support industries such as tank and trailer manufacturing has been robust. Companies willing to establish Asian operating centers benefit by strengthening local relationships that are vital for success and providing a readily available stream of product to the region. Initially, major OEMs entered the Asian market by assuming a minority equity position with local entities or purchasing existing fabricators. Companies desiring to reduce manufacturing costs have invested solidly to offset competitive pricing structures and eroding margins. There are inherent risks, however, for a U.S.-based company to place human resources in an emerging territory where considerations of safety, amenities, housing, language barriers and governmental restrictions exist. Global opportunities leverage industry experience against vast responsibility in the hands of management located thousands of miles away from the home office.

Three years ago, RegO Cryo-Flow formed a subsidiary in Shanghai, China. While all manufacturing occurs in the United States, on-the-ground presence is a key asset where delivery, service and technical assistance are available in the same time zone and in the equivalent language as customers. Throughout the process of setting up an offshore company, we learned several things. These lessons learned overseas continue to enhance our U.S. business strategies. The lessons are relevant for any business—supplier or distributor, domestic or not.

Prudent Capital Investments Provide Rapid Returns
North American consumers tend to take for granted the North American manufacturer’s commitment to continual investment in capital equipment, human resources and an adherence to manufacturing standards that often exceed the standards that are acceptable to offshore consumers. Invariably, offshore companies that copy current domestic designs fail to achieve repeatability with their products by lack of industry experience and poor quality standards. Inconsistent machining and assembly outside of the tolerances often lead to product failure when mediocre equipment is put into service.

Global Reputation Adds Enormous Value to Finished Goods
Like any good recipe, ingredient selection is critical when components contribute to excellence in the finished product. Quality automotive manufacturers, for example, avoid second-rate components when building premium vehicles. While lower tier products may reduce the cost of construction, gambling on safety and long-term reputation of the finished product is an extreme risk. Incorporating high-end equipment in products enhances and legitimizes offerings.

Diversify—But At What Level?
The realization that your organization cannot be all things to all people is essential to enterprises relegated by evolving markets. Focusing on core competencies and adhering to those principles will prevent investing time and resources to minimal gainers or lost causes. Historically, companies that divert to tangential activities, especially in unproven territories, have realized degradation of their core markets. It is important to remember, however, that the evolution of products is driven by the end-user, not the manufacturer.

Make Sure You Are Understood In Your Language And Theirs
Assuming that your business philosophy is completely understood by your associates—offshore or not—is a potential pitfall. Being absolutely confident all players understand the playbook can avoid operational breakdowns. Language barriers are often solved by careful translation of directives. U.S.-centric business philosophies must be carefully modified only after local requirements are scrutinized, including cultural nuances. Effective solutions and protocols that are overly complicated most often will be misunderstood or ignored. Likewise, a domestic business selling into these countries must have technical information and literature translated into the national language that reinforces the company’s long-term commitment to the territory.

Know What Fits Where
Market requirements often vary by geographic region, and commodity costs can vary dramatically. For example, LNG is a favored fuel for certain regions based on pricing influenced by feedstock and the cost of liquefaction. Equipment designs often vary and are affected by local codes and regulations. Lack of global standardization can drastically drive up manufacturing costs by requiring multiple country-specific iterations.

Know the Rules
Understanding regulatory requirements, including governmental oversight, is vital when establishing remote businesses. Estimates of the time and costs required before opening the operation include legal services, rents, business registrations, taxation requirements, general accounting reporting and banking entities. Products may require government approval, including on-site inspection and certification, before they can be sold within the country. In some cases, this approval process may be lengthy and prove costly.

Weigh The Evolving Costs of Production
Overhead in an emerging country may not be static due to changes in economies. With the improvement of local conditions, you can experience “westernization,” whereby a cultural shift catalyzes worker desire to succeed and improve their way of life. Wage demands could easily escalate and the availability of qualified workers lessens as pressures created by the costs of living increase. Those companies attracted away from major cities due to salary differentials may find it more difficult to replace skilled workers as they migrate to urban centers.

Be On The Lookout For New Frontiers
Companies should be aware of the life cycle of markets, as some may be close-ended. Portability of the offshore business is important, as is reaching to a larger geographical area. Newly identified targets such as Vietnam are consistently being scrutinized as the next region for low-cost industry. As the global industrial gas picture is ever changing, opportunities may require the re-deployment of assets or additional support facilities.

Certainly, being on the ground in emerging industrial countries such as China provides a variety of benefits to an organization if the business model is supportive. First and foremost is the establishment of national acceptance within the country and recognition of quality as the primary driver. Development of alliances by and with foreign nationals is essential to growing interests, as is patience in the development phase. With increased opportunities worldwide, domestic operations are strengthened in the process if flexibility remains in the forefront..

Gases and Welding Distributors Association
38b_tarala Michael A. Tarala
Michael A. Tarala is the sales and marketing manager for RegO Cryo-Flow Products, headquartered in Burlington, North Carolina, and on the Web at www.regoproducts.com.