Bekaert, a Belgium-based wire manufacturer, has been around for 130 years. What started off as a small, local operation has become a global technological and market leader in drawn wire products and applications, specializing in advanced metal transformation, materials and coatings for customers in 120 countries.
Today, the Euronext-listed company has 23,000 employees and combined sales of €4 billion (US$5.76 billion). A significant portion of that success is due to its performance in China.
While the brand is not found on shelves, you’ve probably used their products inadvertently. One in four tires in the world is reinforced with Bekaert’s tire cord; every year 500 million bottles of champagne are held corked by company’s wire muselets. The windows of the Great Hall of the People in Beijing are coated with Bekaert insulating film; the CCTV tower uses Bekaert steel fibers for concrete reinforcement.
Coping with crisis
However, like other globally exposed manufacturers, Bekaert ran into rough waters last year. The sudden slowing of economic activity in China at the end of 2008 cut sharply into its capacity utilization, delivery records and working capital levels. Management also had to deal with high stock levels and outstanding receivables. As serious was the overstaffing issue caused by the slowdown. Many employees, newly recruited and experienced, suddenly become temporarily redundant.
"Targeting domestic market demand has been one of the driving forces of our continued investment plan to China over the last decade" said Mark Goyens, president of Bekaert Asia. "We just needed to decide whether its strategic position on our map still remained."
For Bekaert management, the decision was easy. As the recession deepened in other countries, the Chinese market opportunity assumed increasing importance. China was building and selling a lot of cars, and Bekaert had the technology Chinese manufacturers needed, not only for tires but also for seats, wiper blades and other components.
"Forty percent of the world’s radial tires are made in China," said Goyens. "That gives you an idea of how important the China market is for us."
Bekaert had set up its strategy to penetrate into the emerging markets as early as 1948, establishing a joint venture in Chile. Gradually the company expanded its presence. In 2002, its relative presence in Latin America (26%) was already slightly larger than in North America (24%). The entire Asia Pacific, however, represented only 9% of the company’s global footprint.
From 2002 onwards, though, investment in the Asia Pacific region began rapidly ramping up. Cumulative investment increased from less than €139 million (US$200 million) to around €625.5 million (US$900 million) by 2008, and annual sales growth in the region likewise accelerated, from less than €200 million to €764 million (US$1.1 billion) in 2008. In China, Bekaert has continued to build an average of one factory per year.
Today, the Asia Pacific region contributes one fourth of Bakeart’s combined sales. On the global level, the company’s sales ratio by region has materially changed; sales in emerging markets now account for 75% of the total, the inverse of the ratio in 1995.
Investment alone is not the only explanation for the firm’s ability to recover quickly. It also managed to implement its cost control program without slashing headcount. When the crisis first hit, many foreign firms panicked, laying off swathes of employees in China even when local demand remained strong. Bekaert’s capacity utilization hit a record low at the beginning of 2009, but managers saw this sort of restructuring as short-sighted.
"We’d been recruiting and training 1,000 people a year in China," said Paul Choo, head of human resources in Asia. "That’s a substantial investment and it also won us good relations with local governments and communities. We are here for the long term." Management instead turned to training and reassignment to keep underutilized staff busy, scoring important loyalty points.
Bekaert didn’t have to wait long for an opportunity to manifest itself. As Chinese growth recovered, the company soon found it needed to put employees back to work on the main production lines. Some firms found themselves scrambling to find workers; but Bekaert had retained its people necessary for a rapid return to high capacity production.
Nevertheless, challenges remain. At present Bekaert enjoys an advantage due to its production capacity and to its cutting-edge technology (and its associated intellectual property), but this advantage must be constantly defended. Managers have therefore put in place a sophisticated system for both protecting existing IP. and producing new patents. Bekaert’s regional R&D facility in China has already begun to produce domestic patent applications. The company also occasionally engages its key customers in co-development projects.
Another challenge is sustainability. Some economists predict that the effects of the stimulus package will begin to wear off and overall demand will again slow. But Goyens believes the sectors that account for the bulk of Bekaert’s business will continue to grow due to fundamental strengths, as will opportunities in new sectors.
"We are now growing our business on the basis of innovations in applications for energy and mining markets," he said. "Our products find their way in offshore and utility transmission, in windmills and in the photovoltaic industry. Our sustainable profitable growth strategy is not based on one specific policy or another, but on what the Chinese government has been doing for the last 25 years."