Frederick Metz Shepperd is an attorney and managing director of the Quadral Group, a consulting firm focused on global strategy, planning and implementation. He has worked closely with many family-owned businesses and is also the owner of a family company with commercial, industrial and multi-family real estate holdings established in 1918.
Despite the political and economic climate, family businesses should continue to look for a global solution to see them through these times. It may be worth remembering that being close to your customer does not necessary mean being physically close
As this article is being written, the news of war dominates the print media, television and radio. Reports of boycotts for German and French products in the US are a regular feature in the US media. Websites for boycotts are springing up everywhere. But, in spite of all the political noise, European family companies are investing in the US and taking a very global approach to their business objectives. They are following their customer, wherever in the world it takes them.
There is no question that the world economy is going through some tough times. However, many family businesses that have slowed down are taking the opportunity to work intensely on market expansion. There is a beehive of activity in global-oriented family firms because many know that the key to success is to work with a counter-cyclical plan.
This is actually not a new trend. Family company investment and growth abroad in tough times has been the basis of many a family legend. Ah, for the growth years of the 80s and 90s. Forget it. Here is a little secret: it wasn't that good and isn't that bad. What is different is how family businesses are investing and how they are successfully serving their customer.
Those were the days
We can go way back, but let's just start with the 80s and look at Germany as an example. Remember those years? For many German companies, it was a time when investment in the US was actually a lifeline. Grandpa lost the company in World War I. Dad lost it again in World War II. There was nothing in the power of the grandson that was going to see the family lose the company a third time. As a result, investment in the US became a strategic option.
Families set up companies that were almost a mirror of the company back home. It may have started with warehousing and sales functions. However, the strategic goal was to create a mirror company, totally separate, with ultimate capabilities for engineering, production and the like. A son or daughter may have been sent to the US to run the company, in fact or in fiction. Green cards were obtained for all the family. Quite often the entire blueprints of all the products of the company were quietly copied, placed on some storage media of the day, then stored in a bank vault or safe somewhere in North America.
Why all this duplication of effort? Why all the extra expense to build a parallel infrastructure for the company? There was really only one reason: war. One quickly forgets the impact of 250,000 soldiers on your country's border. With one word, they could have overwhelmed the eastern part of Germany and captured Frankfurt within a week. The son or daughter in the US was the lifeline. The green cards were the means of escape. When all would be lost with plants and equipment in Europe, there might be a possibility in the US to survive.
However much we might be astonished by these plans of yesteryear, there were functional reasons for these backup systems. Everything was a big black box. The goods left the dock, but no one knew when the ship would arrive, what ship it was and if the goods that left the port remained on the ship to the destination. In today's parlance, there were so many silo management structures and duplicate systems in place, it is hard to imagine how business was done. But it was and it worked.
Back then, being close to the customer meant being physically close. So, in dealing with the huge US market, many family businesses divided it up into time zones. One office in the East, one in Chicago, one in Denver and one on the West Coast. Unfortunately, many European family businesses did not understand the skewed population base to the Eastern US, or the even more skewed industrial base. The Denver office was the first to close for lack of business and the huge cost of flying to the nearest customer.
Of course, travel to and from Europe was a major undertaking in those days. Salesmen and engineers were placed in the US office often to duplicate the sales force back home. They also ran interference because very few Europeans actually spoke English; the salesmen and engineers in the US were very expensive translators.
Logistics of the day also required almost a duplicate warehouse back in Europe with at least a 3-month supply of a customer's parts (some actually had a year's supply in store). Just in case of strikes, breakdowns of equipment and shipping problems, the goods were safely in the US. It came at a cost, but it was a cost that everyone thought was appropriate.
In the early 90s engineers, plant managers and other operational people from the US automotive industry took a long look at all these plants sitting in all these countries and finally realised that it could be done better. They reorganised the structure of companies throughout the world in a program that became known in Ford Motor Company as 'Global 200'. Globalisation was born.
Present day practices
How far we have come. Investment in foreign markets is a far different process and the decisions behind the investment are just as different, or are they?
The structure of business has radically changed since the 80s. The process of globalisation, communications technology, streamlined production techniques, a revolution in logistics and a host of exterior factors have totally altered the concept of what it means to be 'present' on the market and to be 'close' to your customer.
Suppliers to BMW could only have dreamed about having an employee work in the engineering department of BMW in Munich. Today, it is almost a requirement for major suppliers. Presence on the market does not mean a factory, a warehouse or a sales office. It means presence in the business process of the customer, wherever that needs to be. Closeness means integration in the supply chain, added value in that process and participation in even the earliest design stages of your customer's products through supply to their ultimate customer.
Globalisation is not a question of size. It is a question of speed and flexibility. That is one of the biggest misunderstandings of the global process by family business. Globalisation actually plays to many strengths of a family business. You may still have a North American sales force, but it may be based partly in the US or in Europe. It may even be based in a customer's engineering department throughout the world. In this era, geography is amazingly unimportant. Transparency has replaced most of the black boxes in family business. And communication and the English language have truly become critical to success.
The logistics revolution of the 1990s has also changed the face of global production and distribution. Transparent systems for tracking and tracing of shipments, bar codes, GPS, third party logistics systems, virtual warehousing and the like are just the dawn of the global logistics development. Today, many of the major manufacturers of the world are actually discouraging creation of local production plants, or separate warehouses, unless they are absolutely required. Boats, trailers, containers and the like have been transformed into warehouses capable of being monitored 24 hours a day as they move towards the customer's door.
Investing in the US: STI Unternehmensgruppe
Supply and support requires entirely new strategies for family business in these times and in the global era. That is the case in point with STI Unternehmensgruppe, a family-owned packaging, display and promotion company, headquartered in Hamburg and Lauterbach, Germany. It supplies packaging to many of the great chocolate and confectionery companies, champagne and high profile gift companies in Europe, as well as other retail products companies such as Procter & Gamble (P&G). In the past, packaging companies produced cardboard boxes. They still do.
However, STI has found itself being drawn into the design process for the packaging and point of sale displays it produces. It works with the ad agency, the in-house design departments and a company's creative staff to produce a suitable product.
Although eventually the process is produced on cardboard, corrugated board or some other substance, the real value added is the creative process itself. STI is transforming on a global base with design and creative abilities as its leading edge. Its know-how and customer interaction has become far more important to the customer than where and how the end product is produced and distributed. It can still handle highly personal small volumes as well as large volumes for P&G and similar firms.
The family approach, the personal touch, brings in companies like Colgate-Palmolive and Jaegermeister, in spite of other competitors in the market that are far larger in size than STI. As a result of their success and innovative style, it has grown from a production-oriented cardboard box producer with the name of the company as Gustav Stabernack GmbH, to STI Unternehmensgruppe, with a number of companies, including the original Gustav Stabernack GmbH.
In spite of the world political and economic climate, they have recently invested in the North American market with a key presence near their customers for consulting and design support. However, their relationship to the customer in the creative process transpires throughout the world. Global production is handled through owned companies and alliances developed over the years. Global supply through global support is key for the family business today.
The proactive reliance on technology, the company expertise and a global solution propels family businesses a lot further in these times of political turmoil and economic instability. STI and others are working in a counter-cyclical manner to capture markets, talk to customers and out-pace the competition.
One must admit, however, that in spite of the dramatic changes in business and technology (the 'how') over the years, the decision to invest (the 'why') remains the same as it has always been for generations. Keep close to the customer. Create an economic base to optimise costs and to extend the family base for the future. In some aspects the old saying is true, the more things change, the more they stay the same.