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What you should know about international expansion

Editor’s note: This advice on international expansion comes from Agostino von Hassell of The Repton Group, a specialist in international matters. Von Hassell writes IMM’s International Report and prepares IMM’s Molders Economic Index.

More and more injection molding firms have already set up (or are considering setting up) operations—branch manufacturing plants—outside of the United States. Data collected by the U.S. Department of Commerce—the agency primarily in charge of promoting exports—show that since 1989 the number of U.S. companies with operations abroad has tripled: Today one out of every 220 manufacturing firms in the United States has at least one foreign operation. While there are no data specifically on how many molders have set up shop in foreign countries, the trend is obvious. And it’s not just for the largest molders, either. 

Molders that want to expand internationally have three common options: joint ventures, outright purchase of existing operations, or building new plants. Each option has countries where certain strategies work better than others. It pays to know the territory.



The reasons are simple: Either the molder wants to or must be much closer to the customer’s assembly plants, or certain opportunities present themselves due to either geographic location or advantageous labor costs. 

Setting up molding operations abroad is becoming more and more common. Major companies such as the car makers, the major consumer electronics companies, and medical device makers are setting up new assembly plants all over the world and close to large and growing population centers. And they want their parts makers right next door. 

The opportunity for U.S. molders is enormous. Major companies would prefer working with U.S. suppliers, typically considered among the top in terms of technology and quality, provided they can be "local" and offer competitive pricing, often based on rock-bottom labor costs. Molders are in a good position to export their know-how and other basic services. 

Here are some key considerations in setting up operations abroad. This article is aimed at smaller injection molding firms, typically those with less than $100 million in annual sales. The larger firms—many of which already have extensive operations abroad—have often very different issues to address. 

The information presented here is somewhat general in nature but can be expanded on in great detail for almost any location. It is based on the practical experiences of The Repton Group. In the past few years we assisted a plastics processor in buying a majority interest in a molding plant in Japan; we also helped one processor acquire a toolmaking facility in Portugal; and we assisted two processing firms in evaluating foreign operation options in Thailand, China, and the Philippines. 

Today one out of every 220 manufacturing firms in the U.S. has at least one foreign operation.
What Route is Best for You?
Do you want to start your own manufacturing operation abroad or do you want to buy an existing business? Or would you prefer a joint venture or partial ownership in a foreign molding operation? The answers to these questions are dictated not only by your specific needs but also by both legal and cultural issues in the target country. 

Here’s one example. The automotive industry in Thailand is growing exponentially and may see accelerated growth as additional assembly plants are opened. This is obviously a very attractive market for automotive parts makers. But a molder in the United States or even in neighboring Vietnam would have a hard time exporting parts to Thailand: That country mandates at least 70 percent local content on cars made there. So the only realistic way to participate in this growth opportunity is to set up shop in-country. But in a subtle way, mostly through taxes and certain social benefits, the Thai government encourages foreign manufacturers operating in that country to do so jointly with Thai businesses. While it is far from mandatory, for smaller companies it will quickly become apparent that the joint venture route is the easiest and generally preferred one in this case. 

Other countries—primarily in Europe, Latin America, and Australia—are wide open to foreign investment and have no objections to foreign ownership of manufacturing operations. Japan, however, encourages joint ventures and seems to prefer Japanese majority ownership in such ventures. Again, it is not mandated, but the pressure to conform definitely exists. 

From our own experience as well as from discussion with injection molders that have operations abroad, joint ventures tend to be the preferred and easiest route in most cases. A close second in terms of ease is to buy an existing operation and modify it to meet your needs. The hardest approach, based on what molders have experienced, is starting from scratch on foreign soil. 

One of the most challenging aspects of setting up shop abroad is finding qualified managers. Such managers not only have to be in tune with American business practices but also must have the skill and the talent to translate this into the local culture. This combination is not easy to find, and is much in demand. 

Keys to Keep in Mind
Not only is the fundamental decision on how to operate important, and finding the right management a challenge, but there are also other aspects to the decision that must be considered up front. 

  • Profits. How easily can you repatriate profits? Some countries, mostly in Asia and Africa, put some strict limits on how much of profits generated in their country can be shipped back to the United States. In some cases the new host country will even insist that when you export product from the new location, profits made on those sales return to the country of production.
  • Taxation. One of the major pitfalls in setting up foreign operations is that companies underestimate the tax burden at the new location. While we in the United States like to complain bitterly about how much we pay in taxes, the reality is that compared to the rest of the world our taxes are pretty low. Many countries—just think of high tax countries such as Germany or Sweden—will easily take 55 percent or more of all income, private or corporate. And initial tax breaks given to foreign investors tend to evaporate rather quickly.
  • Sources of financing. Raising the credit lines needed for operations abroad can be surprisingly tricky. One example: Riots in Indonesia over the past year have scared many U.S. bankers, even though very few manufacturing operations in that country were damaged or burned. As a result, it is difficult at this time to raise capital for ventures there and the local credit market in Indonesia is practically nonexistent.
  • Regulations. Very few Americans realize just how under-regulated and free wheeling our economic marketplace is. We have very few rules compared to the rest of the world. Possibly only Hong Kong has fewer actual rules. But once you go abroad, a massive regulatory load will hit you like a sledge hammer. Most European countries, for instance, make it almost impossible to lay off workers. The bottom line is that the heavy regulatory burden will contribute significantly to your operating costs. And careful research in that area is a must. Look at environmental costs, labor law, taxation, and industrial safety requirements.
  • Foreign pay scales. One obvious attraction for moving manufacturing abroad is lower pay scales, particularly in countries like Mexico and the Pacific Rim. Even some North African countries are emerging as good locales for manufacturing operations that could supply the European market.
  • Key legal issues. Apart from the obvious such as negotiating decent basic contracts, molders are well advised to consider legal protection for proprietary technology. Some countries are notably lax in helping firms protect trade secrets. China, in particular, is a major offender and U.S. firms often have little recourse. Keep in mind that proprietary technology developed in the United States is attractive the world over and is one of the main reasons countries clamor for U.S. investment and transplants.

    Where to Get Help?
    The U.S. Department of Commerce and the State Department are excellent places to start. Both are keenly aware of the economic benefits of U.S. companies exporting services that have become a very significant part of our foreign trade. 

    Both federal departments have free detailed information on foreign countries. For instance, look at www.usatrade.gov for detailed information such as commercial guides for foreign countries, targeted market research, trade leads, and trade events. 

    The State Department (www.state.gov) is another resource. The State Department also makes available additional commercial guides for specific countries. The Overseas Security Advisory Council is a source of helpful information on security issues abroad (somewhat of concern in the Pacific Rim, Pakistan, India, and North Africa). 


    Contact information
    The Repton Group
    New York, NY
    Agostino von Hassell
    Phone: (212) 750-0824
    Fax: (212) 752-5378
    E-mail: [email protected]

    State Department: www.state.gov
    Department of Commerce: www.usatrade.gov
    Overseas Security Advisory Council: www.ds-osac.org

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