Our case studies of internationalisation

Russia is a growing sales market for machine tools. A German manufacturer wanted to develop his own activities in order to increase his exports. DRICON helped to find the right partner and to conclude an advantageous cooperation agreement.

The medium-sized company Koch AG produces machine tools. The company employed approx. 850 employees at two locations in southern Germany. Over 50% of sales were generated in export.

In recent years, sales in Poland and the Czech Republic have steadily increased to a significant level. This was mainly due to the development of sales and service networks in the countries. In order to grow further in export, the Russian market should be developed. Here, significant sales potentials were assumed. In the past, the Polish subsidiary was entrusted with this task. However, the results obtained were disappointing. The management of the Polish company could not provide a conclusive concept for market management and also failed to prove any operational success in Russia.

The DRICON team should plan the market development and maintain the project operationally. At the beginning of our work we conducted an analysis of the Russian market. The focus was on the activities of the competitors and the needs of the most important customer groups.

The result was that the Russian market for machine tools was characterized by a strong upheaval. The former state-owned enterprises mostly had technically obsolete Russian manufactures, which were to be replaced by new machines. There was a considerable amount of catching up. The financial strength of the companies, however, was very different. In addition to the former state enterprises, there were a large number of new companies, which had hardly any legacies. They operated a strongly expansive business policy. These were subsidiaries and joint ventures of Western investors as well as companies of Russian entrepreneurs.

As part of the market study, our consultants also succeeded in identifying and evaluating possible cooperation partners.

The market study showed that there was a considerable market potential for the products of Koch AG in Russia. However, the existing customs barriers and the absence of a sales and service system made it almost impossible exporting from Germany. To overcome these difficulties, we have achieved the following results:

The recommendation of our team was to enter into a cooperation with a small Russian engineering company. The Russian partner should import Koch AG's machine tools in its components. This allowed considerable tariff reductions. The machines should then be assembled and delivered to the Russian customers. Sales and service should also be in the hands of the Russian partner.

On the basis of our analysis, we have proposed the company Alksamet from Smolensk for a partnership. The company had good market access and a strong customer base from its own business activities.

DRICON conducted the cooperation negotiations and supported the drafting of a contractual agreement. Our consultants formulated an action plan together with our client and the Russian sales partner.

The results of the DRICON market study were used for a sales campaign. In order to ensure the quality of assembly, service and repair of the machines, the Russian employees were trained by Koch AG.

From the very beginning the cooperation with the Russian partner was successful. The first market successes confirm that the chosen strategy is correct and that Koch AG will be able to achieve significant sales in Russia in the future.

With the outbreak of the global economic crisis in 2008, the economic climate changed considerably in many foreign markets. A chemical company therefore wanted to review its international investment strategy. The analysis and forecasts of DRICON prevented from unprofitable investments.

After years of economic activity, as a result of financial crisis in the middle of 2008 the development of the global economy cooled off. Our client, a globally active chemical company, experienced significant downturns in demand, in important foreign markets. A comprehensive investment program was decided on the expansion of the business in South America a few years ago. In the meantime, the framework conditions had changed. A review of strategy and capacity planning was urgently needed.

The task of the DRICON team was to built development scenarios for the most important country markets and industries in South America. This should provide a basis for decision-making on possible strategic adjustments. Therefore a two-step approach was required:

1. Assessment of political and economic trends

2. Forecast the growth rates of selected key sectors

In order to make informed statements, we first researched international studies and sources on the different countries and sectors. The statements contained were supplemented by expert discussions. The team evaluated the results qualitatively and grouped them into key statements. The quantitative analysis carried out in the next step led to concrete growth and development forecasts for the individual sectors. Through scenario analyzes, corridors could be defined for the development of the market and demand potential of the key sectors in the various countries.

The results of the study prompted our client to modify their strategic planning. On the basis of prepared development forecasts by DRICON, the planned investment projects could be subjected to a risk assessment. In the medium term, there was no sufficient prospect of success for new production sites and capacity expansion due to the changed market environment. The investment program has been significantly reduced. In the following years, the economic development of the most important South American countries confirmed the correctness and value of our forecasts.

The competitiveness of a mechanical engineering company had decreased due to an unfavorable cost structure. DRICON planned and implemented a new production site in the Czech Republic. As a result, the costs were significantly reduced. The company now enjoys a strategic competitive advantage.

The medium-sized company Schöller & Söhne GmbH produces special machines for metal processing. In recent years the competitive pressure has increased noticeably. The achievable margins have declined. This was partly due to the weakness of the US dollar, which impacted the important export business. The profit development of the company has therefore declined for some time. For the next few years losses were expected in a continuation of the trend. As price increases were not feasible, management was forced to cut costs.

Some competitors have already produced cheaply abroad. Low wages in Poland and the Czech Republic allowed them to accept orders at comparatively low prices, while still achieving attractive margins. The management therefore decided to set up its own location in one of the countries of Central and Eastern Europe. Two production areas were to be relocated. This could reduce approx. 120 jobs at the German site and achieve considerable cost advantages.

Schöller & Söhne GmbH had already gained experience with cooperation in Poland. A company based in the country had been given orders. The results were, However, results were not satisfactory: the deliveries were not on time and the majority of the products showed a lack of quality. Schöller & Söhne GmbH asked DRICON for further consideration and implementation of the project.

In the fist meetings, it quickly became clear that the Czech Republic was the best investment country for our client. The decisive factors for this were the high demands on quality of the production and the geographic location of the German site. Our work program included the following priorities:

1. Planning the investment

First, we prepared an investment plan to assess the resulting cost advantages and the profitability of the project. The documentation was also required for financing interviews with the house bank.

2.Research of location and land purchase

Our client pursued long-term goals with his investment. Therefore, the new construction of a production hall was according to the requirements of advantage. Our task was to find a location and a property in the Czech Republic and to negotiate the acquisition.

3. Management of construction measures

To keep the investment as low as possible, local contractors should be considered in the project. However, the quality of the construction work did not suffer. We have selected suitable suppliers, organized the tender and negotiated the contracts or prizes. The entire construction process was supervised by our consultants.

4. Staffing and organization

In order to achieve the desired quality in production, skilled workers had to be recruited. Our consultants carried out the necessary personnel selection and developed proposals for the structure and process organization.

Today Schöller & Söhne GmbH employs over 400 people at its Czech location. The site has a size of approximately 35,000 square meters and the hall on it covers an area of 8,000 square meters. The required investments for this were clearly limited by our activities.

Initially there had been internal criticism, which predicted a failure of the project. These are now silent. Thanks to the support of DRICON, a modern Czech company has emerged which is in line with German standards. The monthly wage costs per employee are far below the West European standard. This gives our client a considerable cost advantage over its German location. This markedly improved the competitiveness and profitability of the company as a whole. In view of the new situation, the works council is also more flexible and cooperative.

"The systematic approach was decisive for success. Without the experience of DRICON we would have made mistakes." (Managing Director Schöller & Söhne GmbH)

A German company in the electrical industry needed highly qualified local employees for its Romanian location. DRICON developed a concept for personnel training and retention. As a result, employees' qualifications and willingness to perform were greatly improved.

A leading international corporation of the electrical industry intended to expand its activities in Eastern Europe for cost reasons. A company of the group that manufactures electronic components and control elements should be engaged in West Romania. It was planned to hire a total of about 400 employees. The success of the project was to a certain extent dependent on the qualifications of the Romanian staff. In contrast to many other projects in Romania, the vast majority of the workforce had an academic training. A total of about 300 engineers should be recruited. Our client pursued a long-term strategy and wanted to train the employees in a two-year training-on-the-job program. Experience shows that the fluctuation of skilled workers in Romania is high. It was to be expected that the planned training program would increase this danger.

The focus of our activities was on the development and implementation of a personnel concept. The main goals were:

• The search and selection of suitable employees,
• The support of education and training measures and
• The long-term commitment of employees to the company.
• In order to achieve the objectives, our team carried out the following activities mainly on-site:
• Direct contact of executives
• Recruiting and Assessment Center
• Formulation of employment contracts and company regulations
• Definition of salary classes and incentives
• Conception of the training program
• Development of employee retention measures

During the training, our coaches regularly conducted workshops and trainings. In addition, we carried out regular performance tests and semi-annual potential analysis for the evaluation of the employees. Working language during the project was Romanian.

Through our personnel concept, the performance of the young academics was very fast. Some employees could not adapt to this standard and left the company at an early stage. The group's learning progress was above the original expectations. They clearly differed, from the results in establishments, which do not have a consistent personnel concept. After the completion of the training program, the participants were proud of their achievements. This positive feeling was also reflected by the employer. Employee loyalty was significantly improved by the salary and bonus system developed by DRICON.

German automotive manufacturers are expanding their capacities in Poland. A supplier wanted to profit from this and generate sales through a local production facility. With the help of DRICON, a separate location could be planned and commissioned in record time.

Automotive manufacturers are increasingly expecting their suppliers to have their own presence in the most important foreign markets. By this advantages in cost reductions are aimed to be achieved.

Our client, a large medium-sized company, produces vehicle parts for the automotive industry. A well-known German automotive manufacturer asked the company to set up a production facility in Poland. Our client could not close this request because it was one of his most important customers. The proposal was also quite attractive: for the new Polish plant the car manufacturer would guarantee a basic utilization. However, the production site had to be ready for delivery within 12 months.

Our client lacked experience in Poland. In addition, he had insufficient management capacity to successfully implement the investment in the near future.

The aim of our activity was to support the construction of the production plant in Poland. In doing so, risks for our client should be avoided and the investment volume should be limited as far as possible. We chose an approach in which, in addition to strategic aspects such as location selection and capacity planning, operational management was the main focus. The project was divided into the following four phases:

Phase 1: Formulation of business planning

First, it was necessary to create a cost estimation for the planned location. As a result, the capacity was planned and the capital requirement was determined.

Phase 2: Site analysis and real estate research

The future location of the car manufacturer should be supplied just in time. However, a good logistic connection to the German parent company was also required, since a regular movement of goods was envisaged in the sense of an extended workbench. In the second phase, we researched real estate at suitable locations and conducted the negotiations.

Phase 3: Foundation of the company and official authorizations

In order to meet the tight timetable, the required regulatory approvals had to be obtained in parallel. Our task was to submit the relevant applications, to clarify open questions and to ensure a fast processing of applications with personal presence of authorities.

Phase 4: Development of personnel structure

In the final phase of our project, the focus was on personnel development. We planned the personnel requirements first. Production should employ 200 people and twelve German-speaking employees in the administration. Our consultants searched and hired suitable employees. One of our tasks was to formulate employment contracts and to develop a pay and chord system.

Our client was able to start production in Poland within the specified tight timeframe. On the basis of our recommendations, his Polish subsidiary acquired a production hall with an area of 4,000 sqm near Stettin. The negotiations conducted by DRICON with the local authorities resulted a reduced purchase price and also a multi-year exemption from real estate tax.

We have also succeeded in finding excellent employees. The average wage level for local industrial workers is considerably lower than in Germany, which means a considerable labor cost advantage. The productivity of approximately 60% of the German level, which was applied in our planning for the second financial year, was reached after only 14 months.

For the entire investment, a pay-back period of three to four years can be forecasted. Furthermore there is an expected increase in the value of the acquired property. All in all, the new production site in Poland reduced production costs, won new orders, and thus significantly improved our client’s competitive position.