Savouring the success of Ingersoll Rand's restructuring at the company's 100th Anniversary in 2005, Herbert Henkel Chairman and Chief Executive Officer reflected on his grandfather's favourite expression: You don't have to be bad to do better.
These words have driven Henkel on a worldwide search for new opportunities and markets. The leading diversified industrial company's search has shifted to the Asia-Pacific region in general, but specifically on China.
"China is a key ingredient for our growth over the next 100 years," Henkel says.
Established in 1871, Ingersoll Rand operates 450 facilities in 42 countries with 40,000 employees worldwide. Its five main businesses include climate control technologies, compact vehicle technologies, security technologies, industrial technologies and construction technologies. Nearly 70 per cent of this is carried out in North America, with the remainder in Europe and China. Although sales were up 9 per cent from 2004, the mainland market accounted for less than 5 per cent of Ingersoll Rand's US$10.5 billion sales last year. Yet the company posted record high profits in 2005, up 23 per cent from the year before.
"This does not mean that our markets in China and Europe are unimportant, but there are many opportunities to pursue those in the future," says Henkel.
More importantly, the situation is changing. Henkel predicts that sales in China will exceed US$1 billion, or more than 10 per cent of the company's total.
"We're finding great opportunities for growth in all of our five business areas here," Henkel adds.
In established economies such as the United States and Europe, Ingersoll Rand's growth rate is twice the gross domestic product, but Henkel is even more upbeat about the Asia-Pacific.
"In five to 10 years, Ingersoll Rand's annual business growth in east Asia should increase by 20 per cent," he says, adding that as North America and Europe begin to slow down economically between 2007 and 2009, Ingersoll Rand's business focus will increasingly shift to the other side of the Pacific.
Ingersoll Rand has introduced all of its five major businesses and 250 brands to China since it established its first office in Shanghai in 1922. The company expects strong sales of services and perishable food storage equipment to supermarkets, says Henkel.
China's first supermarket was established in Dongguan in South China's Guangdong Province in 1990. Since then, large supermarkets have spread to cities across the country. Intensifying competition, especially in major cities, has forced both domestic and foreign operators to invest heavily in the latest technology to improve services and ensure the prompt delivery of fresh produce.
Ingersoll Rand recently began working on a project with Shanghai-based Lotus Supercentre. Lotus plans to facilitate faster expansion by shifting its slaughterhouses from the outskirts of Beijing and Shanghai to farms. The company is therefore concerned about how to preserve food quality and minimize losses during the shipping process.
"Ingersoll Rand has Thermo King, a leading international climate control brand that ensures quality from harvest to consumption," says Henkel. The company has strong manufacturing capabilities in Shenzhen, Suzhou and Luoyang, in Central China's Henan Province, to satisfy local demand.
The approaching 2008 Beijing Olympics are also a huge opportunity for the company, which recently met with officials from the Beijing Olympics Committee to negotiate the purchase of Ingersoll Rand's Club Car electrical vehicles for use in the Olympic village.
Bobcat, the company's leading compact vehicle manufacturing brand, generates annual revenues of US$2.1 billion. China only contributes US$100 million, however.
"We expect dramatic growth in this area. We could provide safe travel and pollution-free vehicles for 2008," says Henkel.
Ingersoll Rand's Security Technologies business should also benefit from the Olympics.
"We have experience in providing athletes and spectators with security applications, and we can do a lot of work in 2008," says Henkel.
Ingersoll Rand made three acquisitions in China last year, including two security technology companies. It bought an 80 per cent share in Shenzhen Bocom System Engineering Co, and recently signed a deal to provide traffic monitoring cameras by 2008.
"We expect more applications in the future," says Henkel.
Construction Technologies, which manufactures materials used on expressways, is one of Ingersoll Rand's most established businesses in China.
Within five to 10 years, the country is expected to invest US$20 billion in expressway equipment purchases.
"We are meeting potential partners to manufacture or market Ingersoll Rand's products throughout the country. We want to keep a leading position here," says Henkel. The company has now established distribution sites in Shanghai, Wuxi, in East China's Jiangsu Province, and in Chengdu, in Southwest China's Sichuan Province.
Henkel says Ingersoll Rand's shift into China and other overseas markets has been backed by restructuring efforts that have strengthened the global competitiveness of its core businesses.
In 1994, 56 per cent of Ingersoll Rand's business centred around the production of automobile components and mining processes. Henkel says this lacked potential for sustainable profit growth, however.
After joining Ingersoll Rand in 1999 as its president, Henkel initiated a strategic review of the company by asking employees to evaluate the company's future prospects. The results showed most employees believed more than 40 per cent of the company's business should be sold, so that available resources could be concentrated on areas that could drive long-term growth.
Ingersoll Rand used this to transform itself in the following five years into a leaner enterprise focused on sales and profitability. "The transformation was quite effective," Henkel says.
In those five years, company profits grew an average of 30 per cent a year, which Henke says was dramatic and unexpected.
In 2005, revenues from innovative products increased to US$335 million and services rose to US$2.1 billion.
"Ingersoll Rand has been dedicated to offering innovative solutions to customer needs," says Henkel. "We will become a leader, not only in manufacturing but in services, too."
The company has also orchestrated 60 acquisitions since 2000, generating US$3 billion in revenue.
"We take strategic and financial factors into consideration in acquisitions," says Henkel. "Acquisitions must help the existing growth platform through cyclical extensions. My mission is to leave the company better than I found it. We have to work hard."
The company expects double-digit profitability in 2006, with a projected growth rate of 15 per cent and estimated revenues of 7 per cent. Yet the company is still regarded as a manufacturing enterprise vulnerable to cyclical economic downturns.
"We never receive the recognition we deserve. It's vital to craft an image of a well-integrated company, and branding is a big part of this," says Henkel.
New branding initiatives have swept through the company since 2005. The hyphen in its name has disappeared, the company has been redesigned, and other developments are planned for the near future.
"Removing the hyphen was a symbolic act that celebrates unity, where the whole is greater than the sum of its parts," says Larry Ackerman, group director of consulting for New York City-based Siegel & Gale, a leading strategic branding firm.
"Ingersoll Rand will consolidate further, because fewer brands are better than too many," says Henkel. "Every employee is a brand champion."
(China Daily 03/13/2006 page12)
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