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Consolidation: Changing the face of injection molding

Editor's note: Over the past few years, the North American custom injection molding industry has experienced a rash of acquisitions, mergers, joint ventures and other corporate alliances-so much so that this trend, aimed at raising productivity and capturing economies of scale, is changing the face of the traditionally large and fragmented injection molding business. To get a clearer understanding of the causes and effects of consolidation in the industry, IMM spoke to Peter J. Mooney of Plastics Custom Research Services (PCRS), author of a report that focuses on the implications of corporate consolidation for injection molders. Below, Mooney shares some of his findings and observations.

Injection molding is an ideal platform for consolidation because companies can get real economies of scale with bigger plants. In addition, as everyone knows, today's business management mantra is "grow, grow, grow that business"-something the North American injection molding industry has certainly taken to heart, showing an annual growth rate of 10 percent between 1995 and 1997 (see Table 1).

In fact, because of the nature of the business, injection molding almost has to show some corporate consolidation. Among plastics processing methods it competes with-including industrial thermoforming, industrial blow molding, and rotational molding-injection molding is the one process where the potential for economies of scale is the greatest.

One reason for this is the shorter cycle time in injection molding. Because cycle times are shorter-particularly for small parts-compared to other processes, injection molders tend to capture more high-volume part programs. Also, while the other processes remain largely labor intensive, injection molding has evolved into a highly capital-intensive operation, one where large molders can generate the funds required to operate lights-out molding plants.

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

Generational issues are also playing a role. Custom injection molding began years ago in mom and pop shops, run by people with great technical skills and a wonderful feel for customer service. However, today there is a drive to find people or partners that offer great management, financial, and marketing skills-resources that can help take a business to the next level.

Moving to that next level can also involve adding secondary operations. Unfortunately, many companies don't feel that they have the financial capabilities to get into processes like assembly, machining, decorating, and so forth. However, when companies combine their resources, they diversify and grow their core capabilities and strengthen their financial borrowing power.

Partnering and acquisitions are not limited to domestic companies. For many molders, there are great benefits to expanding globally or buying into technology not available in the U.S. Currently, the global environment is not a very attractive one, yet companies are still looking for opportunities overseas. This reflects forward-thinking on the part of some molders. Certainly, with improvements in the global economy, more U.S. molders will aggressively pursue global growth.

Playing to Win

To be successful in the consolidation game, be it an acquisition, merger, or some other form of strategic alliance, molders must choose their moves and teammates wisely. When looking to combine forces with another company-a competitor or a supplier, domestic or foreign-the ideal target should be a company that can provide an immediate enhancement to the value-added services that a custom injection molder is increasingly expected to provide. Leading-edge technology and staff that has continually recreated itself with new products are key.

A company will not be successful if it simply decides it wants to get bigger and says, here's a company that might want to partner. The goal should be to find what's missing. Who is out there with the extra size, financial resources, management skills, market niche, or leading-edge technology required to better serve customers and promote growth?

There are many potential benefits from growing the business: enhancement of cash flow, attainment of critical mass, concentration of core competencies, increased production efficiency, 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 they merge with and acquire other companies is getting too big and therefore, too remote. The nature of the plastics industry has always involved strong customer relationships, and the struggle as 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, regardless of size.

Grow, Grow, Grow

The pace of continued consolidation among U.S. custom injection molders is mixed among the major niche markets: automotive, electronics, and packaging. While the automotive sector experienced a slowdown in consolidation moves between 1996 and 1998, electronics and packaging have experienced either constant or accelerating growth.

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

The major factors pushing consolidation among automotive molders include a need for improved production efficiencies in a very cost-competitive landscape and the desire to offer one-stop shopping for specific automotive areas, such as complete exterior or interior capabilities.

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

Players in the packaging industry-both custom and captive-are pursuing a global growth strategy to stay competitive and to serve customer plants abroad.

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

As corporate consolidation continues, it will produce two profitable business models: megacompanies that capture the top three to five positions in the supply of molded parts to specific markets, and small specialty companies that build a strong and sustainable market niche in specialty applications. In each case, having a strong and readily identifiable corporate focus will be vital. Those companies that fall between these two models will not be able to succeed on their own.


Note: Peter J. Mooney's complete findings are available in "The New Economics of Injection Molding: The Implications of Corporate Consolidation for the Injection Molding Business." This PCRS report includes analysis of the consolidation trend and its impact on the industry, as well as coverage of recent consolidation activities among U.S. injection molders. It is available from the IMM Book Club at a cost of $600 to custom or captive injection molders and $1200 to all others. Call (303) 321-2322 to place an order.

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