Editor's note: Over the past few years, the North Americancustom injection molding industry has experienced a rash of acquisitions,mergers, joint ventures and other corporate alliances-so muchso that this trend, aimed at raising productivity and capturingeconomies of scale, is changing the face of the traditionallylarge and fragmented injection molding business. To get a clearerunderstanding of the causes and effects of consolidation in theindustry, IMM spoke to Peter J. Mooney of PlasticsCustom Research Services (PCRS), author of a report that focuseson the implications of corporate consolidation for injection molders.Below, Mooney shares some of his findings and observations.

Injection molding is an ideal platform for consolidationbecause companies can get real economies of scale with biggerplants. In addition, as everyone knows, today's business managementmantra is "grow, grow, grow that business"-somethingthe North American injection molding industry has certainly takento heart, showing an annual growth rate of 10 percent between1995 and 1997 (see Table 1).

In fact, because of thenature of the business, injection molding almost has to show somecorporate consolidation. Among plastics processing methods itcompetes with-including industrial thermoforming, industrial blowmolding, and rotational molding-injection molding is the one processwhere the potential for economies of scale is the greatest.

Onereason for this is the shorter cycle time in injection molding.Because cycle times are shorter-particularly for small parts-comparedto other processes, injection molders tend to capture more high-volumepart programs. Also, while the other processes remain largelylabor intensive, injection molding has evolved into a highly capital-intensiveoperation, one where large molders can generate the fundsrequired to operate lights-out molding plants.

There are many driving forcesbehind the industry's push to grow and consolidate, some of whichare more obvious than others. In some cases, North American custominjection molders are simply following the lead of their customers(OEMs), which have been forced by domestic and global urgenciesto grow their businesses to maintain profit margins.

Generationalissues are also playing a role. Custom injection molding beganyears ago in mom and pop shops, run by people with great technicalskills and a wonderful feel for customer service. However, todaythere is a drive to find people or partners that offer great management,financial, and marketing skills-resources that can help take abusiness to the next level.

Moving to that next levelcan also involve adding secondary operations. Unfortunately, manycompanies don't feel that they have the financial capabilitiesto get into processes like assembly, machining, decorating, andso forth. However, when companies combine their resources, theydiversify and grow their core capabilities and strengthen theirfinancial borrowing power.

Partnering and acquisitionsare not limited to domestic companies. For many molders, thereare great benefits to expanding globally or buying into technologynot available in the U.S. Currently, the global environment isnot a very attractive one, yet companies are still looking foropportunities overseas. This reflects forward-thinking on thepart of some molders. Certainly, with improvements in the globaleconomy, more U.S. molders will aggressively pursue global growth.

Playingto Win

To be successful in the consolidationgame, be it an acquisition, merger, or some other form of strategicalliance, molders must choose their moves and teammates wisely.When looking to combine forces with another company-a competitoror a supplier, domestic or foreign-the ideal target should bea company that can provide an immediate enhancement to the value-addedservices that a custom injection molder is increasingly expectedto provide. Leading-edge technology and staff that has continuallyrecreated itself with new products are key.

A companywill not be successful if it simply decides it wants to get biggerand says, here's a company that might want to partner. The goalshould be to find what's missing. Who is out there with the extrasize, financial resources, management skills, market niche, orleading-edge technology required to better serve customers andpromote growth?

There are many potential benefits fromgrowing the business: enhancement of cash flow, attainment ofcritical mass, concentration of core competencies, increased productionefficiency, and expansion of domestic and/or global presence.However, as with all good things, there are some potential drawbacks.

One of the biggest risks injection molders face as theymerge with and acquire other companies is getting too big andtherefore, too remote. The nature of the plastics industry hasalways involved strong customer relationships, and the struggleas companies get bigger will be to maintain these relationships.Not only do molders need to stay available to their customers,but they must continue to make each feel important, regardlessof size.

Grow, Grow, Grow

Thepace of continued consolidation among U.S. custom injection moldersis mixed among the major niche markets: automotive, electronics,and packaging. While the automotive sector experienced a slowdownin consolidation moves between 1996 and 1998, electronics andpackaging have experienced either constant or accelerating growth.

Consolidation patterns will continue to vary from marketto market because of different growth dynamics. For instance,the current slowdown in the automotive market can be attributedmostly to the fact that these molders were ahead of the game,reacting to booms in the automotive industry.

The majorfactors pushing consolidation among automotive molders includea need for improved production efficiencies in a very cost-competitivelandscape and the desire to offer one-stop shopping for specificautomotive areas, such as complete exterior or interior capabilities.

One-stop shopping is also driving consolidation in theelectronics sector. Injection molders are consolidating to combinemetal and plastic capabilities, as well as to offer secondaryprocesses like sheet metal stamping, circuit board manufacture,and final assembly.

Players in the packaging industry-bothcustom and captive-are pursuing a global growth strategy to staycompetitive and to serve customer plants abroad.

Short-term,economic factors may slow consolidation; however, in the long-termit will continue. First, the industry is still highly fragmented,presenting ample opportunities. Second, technology enhancementswill undoubtedly drive up the cost of doing business in the field.Third, progressive molders intent on building world-class standardsof excellence will likely need to partner with other progressivemolders to allow continued investment in R&D.

As corporateconsolidation continues, it will produce two profitable businessmodels: megacompanies that capture the top three to five positionsin the supply of molded parts to specific markets, and small specialtycompanies that build a strong and sustainable market niche inspecialty applications. In each case, having a strong and readilyidentifiable corporate focus will be vital. Those companies thatfall between these two models will not be able to succeed on theirown.

Note: Peter J. Mooney's completefindings are available in "The New Economics of InjectionMolding: The Implications of Corporate Consolidation for the InjectionMolding Business." This PCRS report includes analysis ofthe consolidation trend and its impact on the industry, as wellas coverage of recent consolidation activities among U.S. injectionmolders. It is available from the IMMBook Club at a cost of $600 to custom or captive injectionmolders and $1200 to all others. Call (303) 321-2322 to placean order.