It’s not necessarily the best time to be a parts producer for the auto industry in North America. For the first time ever, foreign imports have overtaken the Big Three in sales in the United States. Likewise, it’s not much better to be a manufacturer of parts for home appliances, as Chinese and South Korean competition get stronger by the day. Some parts producers have cut their losses and headed for the door.
Others, however, have hunkered down and sought out niches, tried out novel strategies, and fought to maintain their slimmer slice of the pie. In the process, they’ve discovered new ways to make their companies – and their industries – grow. Mexican company Industrias Kirkwood is one of those companies.
A medium-sized manufacturer of commutators for home appliances and the automotive industry, Industrias Kirkwood has seen some rough times as of late. But by diversifying its business into other areas and taking on the role as a partner in joint ventures with smaller U.S. manufacturers who want to slip into Mexico, Industrias Kirkwood has managed to both survive and thrive.
Bringing on Joint Ventures
But simply diversifying into other manufactured products wasn’t enough – and wouldn’t be enough for the future. Industrias Kirkwood needed something else if it wanted to both survive and expand. That’s when Industrias Kirkwood’s directors hit upon a novel idea. Many parts manufacturers in the United States wanted to move some production to Mexico. Yet none but the biggest could really afford to pull together the logistics, personnel and infrastructure to make such a move happen, without risking complete ruin.
Industrias Kirkwood had the solution – it began proposing joint ventures to American manufacturers. The manufacturers could come to Mexico and use the facilities, expertise and personnel that Industrias Kirkwood had built up over the years. In return, Industrias Kirkwood had someone to share operating expenses, as well as a 50 percent stake in a potentially successful venture.
Grandio compared Industrias Kirkwood’s role to an incubator: They provide the initial resources and support necessary to breathe life into a new manufacturer and get it moving and – hopefully – out on its own. So far, that has worked with at least one company: M&G Autoparts found its way under the Industrias Kirkwood roof and is now out on its own.
Other companies have also taken Industrias Kirkwood up on its offer to serve as an incubator for their Mexico operations. Right now, Industrias Kirkwood has a joint venture with an Iowa parts manufacturer called Total Component Solutions, or TCS. TCS had been making precision machined products for original parts suppliers based in Mexico, when these suppliers requested TCS to move south of the border.
That was when TCS teamed up with Kirkwood. “If that company opened an industrial plant, for sure it would be a whole lot more expensive,” Grandio said.
Another company, a producer of computer printer cartridges, has also teamed up with Industrias Kirkwood, Grandio said. Industrias Kirkwood maintains a 50-percent stake in this joint venture even when it does the venture out on its own, making it a strategy for long-term investment and diversification, as well as cost-sharing. “It could have a multiplying effect,” Grandio said.
Right now, Industrias Kirkwood is in negotiations with four other U.S. companies to consider new joint ventures, and Grandio said Industrias Kirkwood is interested in entertaining more potential partners.
Grandio also sees the concept as a way to help create a healthy Mexican manufacturing industry. By nurturing new companies and sending them out on their own, Industrias Kirkwood helps
create a diverse market of qualified manufacturers that can meet niche needs that American companies might need to fill,Grandio said.
Growth and New Leads
The strategy seems to be working for the company so far. Industrias Kirkwood grew by 25 percent last year with $30 million in sales, and expects to grow another 15 percent this year. At minimum, Grandio said, the company should get between 10 and 15 percent growth over the next few years. Grandio said the company is continuing to make contact with American companies that it can potentially set up more joint ventures with in the future.
At this point, Grandio said, the biggest challenge is one of personnel – getting qualified people to work for Industrias Kirkwood, and keeping them. Industrias Kirkwood is working on both internal and external training programs to bring up the office and factory workers it will need to meet future growth. At the moment, the company has 500 employees.
In the end, by hitting the market so hard, Asian competition has forced surviving parts manufacturers like Industrias Kirkwood to not only diversify, but focus on niches that were thus-far unexploited. In fact, “it created niches,” Grandio said, “and that’s what we’re taking advantage of in serving this market.”