Handle Global Markets With Care

Enter Markets With a Lot of Research and Good Partners, and Be Ready to Make Difficult Decisions

August 2011 Control Design IssueDon't forget your toothbrush. That's the simplest travel advice ever. But the basic preparation it implies is what machine builders and anyone else must do to explore new places and break into new markets.

Of course, the world is conceptually smaller and flatter now. However, when you get off an airplane, so to speak, and end up in the center of a city where no one speaks your language, you'd better be prepared—as well as patient, tolerant, generous, willing to learn and friendly. The same goes for doing business there, but sometimes it takes a favorable environment and a friendly push to make it happen.

For example, packaging machine builder Z Automation in Arlington Heights, Ill., considered establishing a presence in Europe for a long time, but held back until just last December, when it opened its new sales office in Frankfurt, Germany. Though it's focused on sales now, the office is expected to start offering support and service soon.

"In the past, we were pushed by multinational end users that we supply equipment to in the U.S. to help them in other parts of the world. We did what we could, but we resisted opening an international office until the economic downturn in 2009 made the exchange rate between the dollar and the euro better for us to do it," says Randy Spahr, Z Automation's executive vice president. "The European packaging market began to change at the end of 2008 when the overall business environment started to slide, and many big OEMs cut staff and business activity. The downturn and relatively weaker dollar made it hard for them to sell in the U.S., but made it easier for us to begin to sell there. So we decided to move, open our sales office, and exhibit at Interpak in Düsseldorf this past May."

At the same time Z Automation set up its sales office, Spahr found and now partners with two local machine builders in Germany. One makes pouch-forming machines and the other makes labelers. In exchange, he adds, Z Automation plans to help them break into the North American market. "We'd been talking with them for years about moving into Europe, and they said to let us know when we were ready," Spahr explains. "Now they're helping us do service, support and production-line integration. They build primary packaging equipment—in this case pouching—and we do the secondary packaging, mainly cartoning and case packing."

In fact, the head of Z Automation's German sales office secured its first large order in December, and with its partners is now installing and integrating two cartoning and case-packing lines for parts manufactured by a large automotive accessories supplier (Figure 1). This initial installation is especially important, Spahr adds, because it gives Z Automation a showcase and references that demonstrate what it can do for other potential clients in its new market.

"Our German sales guy has a lot of experience in this market, and he was able to bring in an automotive end user, and convince them we would be a good supplier. He works directly for us now, but we also knew him previously," Spahr adds. "Even now, this is still a relationship business, and developing partners and customer contacts takes time, cooperation and work."

To further aid its U.S.-based end users who need even easier access to its machines in Europe, Z Automation's next logical step will be to open a manufacturing facility in Eastern Europe, and probably get it up and running by the second half of 2012, Spahr reports. "We're going to start making individual parts, which are less costly to make in Europe than shipping them from the U.S. We'll see how the market evolves, and then start to build whole machines there."

Good Guidance
Because local knowledge is the key to entering and succeeding in a new market, a local sales representative and technical support is the starting point for doing business there, according to Brian Deal, packaging market segment manager for Schneider Electric. "A local sales rep and tech support can cost more initially, but they're what allow machine builders to reap long-term benefits in new markets," he says. "In fact, a couple of machine builders I know were at Interpak for the first time, and on the first day they were approached by other builders about filling in holes in each other's product lines, so they could offer end users a more complete solution together."

Besides securing local help, machine builders also must be flexible—even with their machine designs—when seeking to serve users in new markets. Mike Wagner, Rockwell Automation's global OEM business manager for packaging, reports that he just finished working with a German packaging machine builder that had to do more redesign than it expected before it could set up shop and provide machines to users near Shanghai, China. "The builder originally wanted to simply market the bagging machine it sells in Germany, but its bag forming and cutting process had more automation and was more costly than many potential Chinese users wanted," Wagner says. "They often use a manual foot switch, which is slower but they feel gives them better accuracy. As a result, the German builder had to go through three redesigns to reduce the bagger's automation and price, and is now selling machines and gaining customers."

Another builder of vertical form, fill and sealing (VFFS) machines also redesigned its equipment with less automation for use in China, and then assumed that users in India would want the same less costly, more manually controlled and slightly slower devices, Wagner notes. "However, they were surprised yet again because users in India wanted full, European-style automation and were OK with the higher price," he says. "So you can never assume that you can take an existing machine design, and just sell it somewhere else. This is why it's so important to find and get together with people you can trust in a new market."

However, Wagner adds, even very good partnerships are finite because each participant will evolve and its needs will change. "For example, a foreign builder might gain enough experience to expand, hire its own staff, and open its own office, so it won't need the original partner as much," he says. "And so each partner will adapt, find new partners, or seek other markets."

Safety and Other Standards
To help builders and their users achieve consistent, international machine safety and avoid having to redesign equipment before it can be sold into a new country, several standards organizations have been working to resolve differences in their European and North American safety standards, and basically develop one standard that can be applied universally. For instance, the European Union's (EU) EN 954-1 and its safety categories were recently revised to become the internationally applicable ISO 13849-1 standard and its performance levels, which machine builders will have to comply with by the end of this year.

Prior confusion over what safety standard to meet for different regions is clearing up for several other reasons, says Z Automation's Spahr. "First, the biggest multinational end users have very rigid safety rules that are uniform worldwide," he explains. "Second, medium to small companies might not have these same rules, but the CE standards cover all of Europe, and so we see more use of CE-approved components. Also, many users accept our regular safety platform, which is Category 2, and then we modify each machine to comply with the applicable safety rules for wherever it's going. Finally, in the past 10 years, many components have been redesigned, so they now meet both the UL and CE standards. This means builders can buy one device to satisfy both instead of having to choose one or the other."

Besides the many related safety, electrical and fire protection standards that grew up in North America, Europe and elsewhere, machine builders also typically must comply with Reduction of Hazardous Substances (RoHS) rules that require removal of lead and other hazardous materials from cabling and other components. Likewise, some builders and users' applications are affected by the EU's Registration, Evaluation, Authorization and Restriction of Chemical Substances (REACH) law (EC 1907/2006) on chemicals and their safe use, which went into effect in June 2007.

Fortunately, many machine builders report that after they design and build a machine at home based on universal safety and other standards, they don't have to change it much or at all to send it abroad.

Research, Analyze and Decide

Gaining a foothold and then establishing a presence in a new market is not easy, and demands lots of research, analysis and clear-eyed decision making. Randy Spahr at Z Automation recommends five main steps:

  • Do your research. Learn about the size and scope of your new market. Find out about suppliers, competitors, possible partners and potential end users in it.
  • Choose good partners. Go to tradeshows. Recruit and interview potential partners. Visit their facilities. Seek to cooperate with builders whose equipment is located both upstream and downstream from your own, so your technologies can complement each other, and you can jointly integrate a production line with multiple machines. Perhaps offer to help your new partners break into your home market. An experienced local partner can market and sell your equipment, while you may be better at delivering technical support and service.
  • Understand your new market. If you can't learn the language, secure a translating capability. Also, learn the basic business terminology, dress, procedures for meetings, and manners that business people use in that region. Learn currency, finance and contract handling procedures for that market.
  • Learn local technical issues, procedures and differences from your home market. Find out how local machines are installed and configured, and how production lines are integrated. Learn how documentation is done in the new market. Research how support, service and maintenance needs are handled there, and have a good plan in place to meet those needs and expectations.
  • Reevaluate partnerships and other arrangements often. Decide how long to maintain contract selling, a partnership or a subsidiary because participants' situations and experience levels likely will change quickly within just a couple of years, and they probably will benefit from rearranging their relationships.

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New Markets, Company and Process

Although entering a new market usually means finding a partner and maybe opening an office, sometimes going after these opportunities means starting a whole new company—and going back home. For instance, when they were organizing their new packaging machine company four years ago, Pami and Joseph Minond did their own research with help from PMMI, and found that the two most promising markets were New Jersey and Argentina, where Joseph Minond grew up. As a result, the new firm, XPak, opened its first manufacturing facility in Buenos Aires in late 2006, and opened a second plant in North Brunswick, N.J., in March 2007.

"When we were evaluating what kind of company XPak should be, we found that the best packaging machine sector was food and beverage, and the fastest growing markets were the U.S. and Argentina," says Juan Ortiz, XPak's business development vice president for the Americas, who also served as a consultant to the new company. "So it really helped that Mr. Minond knew a lot about the Argentina market's infrastructure, capacity, engineering resources and labor pool."

XPak's organizers also conducted a three-month survey of each market and visited end users' facilities to learn what areas were being underserved by existing OEMs in their new markets. This would help them define what kinds of packaging machines to build. "Many packaging sectors are pretty saturated, and so we needed to find niches in our markets that would give us the best recognition and chance for success," Ortiz explains.

In the U.S., XPak began by tackling the longstanding problem of mixing and assembling packs of different flavors of beverages needed by retailers, which is traditionally a mostly manual and time-consuming job. The new company collaborated with PepsiCo, logistics provider Jacobson Companies, Schneider Electric and Festo. Thanks to this free exchange of knowledge about each participant's role and challenges in the implementation and supply chain, these partners helped develop and implement XPak's new Variety Pack Assembly System (VPASS) in 2008 on the Gatorade production line at PepsiCo and Jacobson's plant in Mountaintop, Pa. VPASS uses a gantry robot system designed by XPak to repack 24-bottle, single-flavor trays into multi-flavor variety packs.

"We've been able to automate one of the last manual cost centers in packaging," Ortiz says. "VPASS saved 27 people per day on three shifts at the Pennsylvania facility. So, even though XPak started as a machine builder, we've become a consultant on consumer package design, production line design and configuration, and even on operational efficiency and optimization."

XPak's challenge in Argentina was different because the market around Buenos Aires and in Brazil is different. Basically, when an end user in South America packs 24 or 30 bottles, they skip the corrugated trays used in North America, and rely on their shrink-wrapped film to support the bottles. "South America is less wealthy and younger, but it's also more innovative," Ortiz explains. "So they're more willing to try saving by not using the trays."
To help Argentina's bottle packers achieve this goal, XPak partnered in 2007 with supply chain strategist San Martin to integrate a high-speed, shrink-wrapping line at Coca-Cola's plant in Buenos Aires in late 2008 (Figure 2).

Ortiz reports that increasingly uniform, international safety and control standards help XPak because South America tends to require a mix of CE and UL compliance. "Uniform safety standards help us develop and maintain one design standard to which we can add different controls, servos, enclosures or other devices as needed," he adds. "It helps that we're getting closer to the uniformity of the food safety standards, which are the same for the U.S., Europe and Asia."

Finally, XPak is beginning to use Fanuc Robotics' robots at the end of its VPASS line in Pennsylvania to coalesce and lift nine trays at once into pallets, which helps it process 55 trays per minute. This line was upgraded in January to handle a newer bottle design and 30-bottle trays, which increased its capacity and production by another 10%. More recently, XPak has been working with ABB to bring coalescing robots to its lines in Argentina.

"In fact, our ongoing relationship with Coca-Cola in Argentina was solid enough that when we proposed a similar high-speed, shrink-wrap project to S.C. Johnson Wax in late 2009, we not only got a recommendation from Coca-Cola, but they allowed S.C. Johnson into their plant to learn all about the line," Ortiz says. "This was unheard of before that, and S.C. Johnson ordered its line in 2010, and it's up and running now, too. One successful job in a new market can be a springboard to other parts of that region."