The TECH case
Transfer of production imposed by the customers and carried out through external growth in Eastern European countries Financial squeeze due to accelerated transfers from West to East
- Surface treatment for the automotive industry.
- Having worked with the two major French manufacturers for the past 10 years, the company was able to capitalize on its technological know-how.
- The 2 main French car manufacturers
- Tier 1 automotive suppliers (to the detriment of their internal capacities)
- Foreign manufacturers
- 4 production units in France
- 2 units in Slovakia
- 1 in Poland
- 83% held by the founder and 17% by two investment funds
To meet the requirements set by long-standing customers, the company must follow simultaneously three courses of action:
- Follow its customers in their relocation strategy
- Become recognized by Tier 1 automotive suppliers, to facilitate the transfer of R&D programs from the manufacturers to their Tier 1 suppliers
- Gain access to foreign manufacturers (including in Germany) to maintain its strategic supplier status
The company bought three other companies, one each in Slovakia, Poland and Germany (former GDR)
- Financing these acquisitions : medium-term loans, which were to be easily reimbursed owing to the companies’ steady profitability
- Technical upgrade and subsidiary management plan, which turned out to be efficient in Slovakia and Poland, but not in Germany.
The French manufacturers transferred their production more quickly than planned:
- The company’s French factories were forced to operate at excess capacity
- Management implemented cost reduction and downsizing plans, which were rendered inefficient by the collapse in earnings in France
A financial squeeze
- The company has not been able to bring the income from its foreign subsidiaries back into France: excess liquidity is abundant and financing capacities are insufficiently used.
- French lending institutions refused to follow the company’s move to Eastern Europe, while local banks were reluctant to see excess liquidity being sent to France.
- In this context, the business manager started negotiations with his French banks to make it possible to restructure the group, and asked Dirigeants & Investisseurs to support him in this endeavor.
The action plan focused on four main goals:
- 1 – develop an industrial plan, including a purchasing plan
- 2 – implement performance-monitoring management tools
- 3 – restructure the company to make it less centered around its president
- 4 – reduce infrastructure costs
Within nine months, plans delivered improved earnings of € 4.1M (evaluated each month and confirmed by the accounting income):
- reduction of purchasing and materials consumption costs: - € 1.3M/year
- non-quality costs were reduced by € 0.4M/year and customer complaints by 35%
- increasing of direct labor efficiency: € 0.6M/year
- reduction of factories’ and head office’s infrastructure costs: - € 1.8M/an
- These savings are in addition to those achieved in fiscal years 2006 and 2007, and to the increase in profits due to the growth in revenue in the non-automotive activities (operating income of €1.4M/year).