Globalization has made it possible for supply chains to link up just about anywhere in the world, from Vietnam to – especially for American companies – Mexico. But as that phenomenon has caused the manufacturing world to heave and flex, it’s brought some growing pains as well. Not least among those pains has been that lumbering Asian giant China, whose low wages and quick turnaround are enough to make any Mexican CEO reach for a drink.
That’s where the inevitable next step has come in: consolidation. It’s not enough anymore to throw up four walls and an assembly line on the other side of the Río Grande. Mexican manufacturers’ labor costs and geographical proximity just aren’t a big enough advantage. Those manufacturers now need the strengths of large corporations, things like economies of scale, slick management teams, and more diverse contract portfolios.
Parker Hannifin – based near Cleveland, Ohio and a global manufacturer of parts for motion control and fluid management systems for (among others) the auto, aerospace and agricultural industries – brings those advantages to the Mexican manufacturing industry. As its smaller competitors have stumbled, Parker Hannifin has embarked on a steady period of acquisitions that are helping bring Mexico into a second generation of export manufacturers.
HUMBLE BEGINNINGS IN OHIO
Parker Hannifin was founded in Ohio back in 1918 as Parker Appliance Company by the ambitious young Arthur L. Parker. The company was handed a rocky start when a year later its lone truck got into a traffic accident, destroying in a single moment all of the small company’s inventory. Parker, however, was ambitious, and though he went back to his post as an engineer, he vowed he would return to the business. He did, in 1924, and soon the company’s good reputation for making high-pressure control mechanisms made aviator Charles Lindbergh specifically request Parker components for “The Spirit of St. Louis,” the plane he would fly across the Atlantic Ocean.
Little did Parker know that would set the tone for an important moment for the company: World War II and the millions in government aviation contracts it brought with it. By 1943 the company was employing 5,000 Clevelanders in carrying out its defense contracts.
ROCKY PATCH, AND REDEMPTION
The end of the war, however, almost spelled the end of Parker. The company nearly had to liquidate itself after the death of Arthur in 1945 and when its defense contracts ceased rolling in. But Arthur’s wife, Helen, would have none of it. She hired a new management staff to get the company back on track toward industrial manufacturing, and by 1957, the company had started its acquisition period.
It purchased Hannifin, acquiring with it a new line of cylinder and valve products, and a new name: the Parker Hannifin Corporation. Soon after, the company began a period of aggressive expansion that soon enough couldn’t be contained in just the U.S. market. The country began reach abroad, looking for new opportunities in those first whispers of globalization. By 1982 the company had entered the Mexican market.
In 1988, the company’s 70th anniversary, the company made another seven acquisitions and was grossing an annual $2 billion in sales. Today, the Parker Hannifin Corp. is a decentralized global company spanning 46 countries and operating about more than 300 plants worldwide. It’s worth $9.4 billion and employs almost 60,000 people. Its more than 900 products mean that Parker parts can be found in almost any piece of machinery that moves.
Arthur would likely be proud.
WORKING HARD IN MEXICO TOO
He might also be surprised that Parker is today so far-flung. Parker Hannifin Mexico is just one example of how broad the company’s reach has grown. Parker Hannifin Mexico operates 11 manufacturing plants in the country. Seven are maquiladoras, factories that make parts exclusively for export to the U.S. market. The other four serve the local market. Miguel Carrillo, the company’s marketing manager, estimated that Parker Hannifin Mexico exports 40 percent of production, while the other 60 percent remains in the Mexican market.
While it’s difficult to estimate Parker Hannifin Mexico’s production numbers as a single figure, Carrillo did point out that the company’s three plants in Nuevo Leon alone produce some 25 million parts per year. The division employs 4,000 people, manufactures 10 percent of the company’s total product inventory, yet has most of the rest available.
On the national level, the company operates 120 distributors and some of its own brands. It also has a strong company philosophy of client service. For example, Parker’s offshoot company Hose Doctor provides on-site service to clients who need help with the company’s hose products.
In the Mexico division, the 10 percent of Parker Hannifin products the division manufactures covers a lot of ground. Carrillo said the division has factories dedicated to the production of grid connectors, hydraulic components, automation parts, instrumentation, seals, filtration, and climate and industrial controls.
All of those are parts that can be used in a variety of different industries, and indeed, Parker Hannifin Mexico manufactures products for many of them. For example, components for the air conditioning systems on cars is an important market for Parker Hannifin Mexico; likewise for the myriad different hydraulics and controls on airplanes and farm equipment.
The division does business with many top-shelf clients, including Playliner, John Deere, Holand, Bombadier, General Motors, and many others.
“We’ve really taken advantage of the plan de maquila,” Carrillo said, referring to the government-sponsored incentives for export manufacturers operating in Mexico.
MORE ROCKY TIMES
But as everyone knows, all is not fine and rosy in the world of Mexican manufacturing. China looms large, and its stiff competition has forced many manufacturers operating in Mexico to re-think their strategies. Most of the small ones have simply gone out of business, sold out, in a continuing process of consolidation of which Parker Hannifin Mexico has been on the acquiring end, Carrillo said.
The last few years has seen several acquisitions of competitors that have both helped Parker Hannifin Mexico broaden its product portfolio and helped the small manufacturers acquired to stay in business. The last acquisition was a small industrial tube manufacturer called Mesa, which Parker bought last year. It didn’t have a broad enough line of products to survive in the face of Asian competition, Carrillo said.
Parker Hannifin Mexico is planning on continuing its acquisition-based expansion in the coming years as it attempts to strengthen its position in the market.
EXPANSION, HIGH QUALITY
That’s not all the division is doing to keep itself competitive. Along with the acquisitions, Parker Hannifin Mexico is putting itself on a diet and turning to lean manufacturing principles to help it slim down its supply line and offer its customers a more svelte bottom line. Increasingly, the division is also looking abroad to mitigate the effects of Chinese manufacturing on its sales.
Carrillo said the company is trying to start exporting to India, the U.K., Brazil, and China itself, in a bid to diversify its markets. That will also help the company deal with what Carrillo calls the “American recession,” the slowdown in the American economy that is expected to continue.
Selling more isn’t the only way to compete with China and deal with the American slump – Parker Hannifin Mexico also places a strong emphasis on quality assurance. Every one of the company’s 11 plants have the ISO-16000 certification. Also, the company has won awards from its customers, including the Master of Quality Supply award from Fairliner, a boat manufacturer.
The company has ongoing plans for steady investment in upgrading and adapting its plants. Carrillo also sees an opportunity for Parker Hannifin Mexico to enter the transportation industry, targeting its goods to manufactures of trucks and trains.
It’s a long way from where Arthur Parker started, way up north in Ohio with his tiny appliance company. History shows that for modern-day Parker Hannifin, you never know where it might end up.