While the trend for international companies expanding into low-cost emerging economies continues, some firms are still choosing the lower-risk option of sticking closer to home.

One such company, Lisi Aerospace, is a major supplier of parts to the global aerospace industry with more than 250 customers in 40 countries including Airbus, Boeing, Bombardier, Eurocopter and Rolls-Royce. Chief executive Jean-Louis Colders says expansion over the next couple of years will be firmly focused on the company’s existing international sites in Turkey, Canada, the US and France. “Asia is still a question mark for us,” says Mr Colders who believes expansion into the continent is a matter of critical timing. “We are not convinced that for a company of our size the time is right,” he says. Lisi ranks third globally with a 15% world market share for aeronautical fastners and assembly components – a market estimated to be worth more than $2.7bn.

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In 2000, the company had its first foray into the Asian market when it launched operations in China which were subsequently scaled back after it decided instead to refocus expansion plans on Turkey. At the time, the company was valued at less than $270m and the rationale was that it could not bear the risk of pursuing two overseas projects simultaneously. “So we focused on the initiative with the lower risk and the best chance of success,” says Mr Colders.

 

Challenges in China

Lisi’s challenge with the Chinese market was somewhat sector specific. Delivering to the local market requires factory production of a wide range of products in small quantities which is complex to run and not economically viable for a company of Lisi’s size. Raw materials must be imported and export costs for 90% of output (10% being produced for the local market) adds further costs. “Then you add some administrative risk as well as the culture gap and the project becomes costly and difficult compared with the Turkish one,” says Mr Colders.

Despite the difficulties of operating in Asia, the company will eventually look again at the continent. Asia is an emerging market and Lisi cannot afford to ignore it, but the lead time to for China supercede the European and US market is long enough that revenues for the next five to 10 years are expected to originate from the West. But for now Lisi’s two largest sales markets remain 40% in Europe and 40% in the US.

In terms of new factories, the three locations which are going to expand in the next two years are Turkey, Canada and the UK. “We are expanding a number of people everywhere – some of our manufacturing plants do not need expansion in terms of square feet but rather in terms of equipment and expertise,” says Mr Colders.

In Canada, the firm would like to offer a specific range of products for the North American market. The Canadian factory was a greenfield project started in 2005 because the company had an opportunity to acquire an existing team of experts. “We started from nothing but we had a local team which makes things much easier because the team was knowledgeable in our field of products, in the community, knowing the industrial network, the customers, all the relationships needed to start a new business,” says Mr Colders.

 

The Lisi strategy

When establishing a company overseas, Lisi Aerospace philosophy is to find a local partner, whatever form that may take; it can be through a joint venture, by acquiring an existing business or by integrating an existing team into the company. “Our belief is that you need deep, established relationships – that’s what happened in Turkey,” says Mr Colders.

In Turkey, Lisi bought a company in 2001 that had been founded in 1993 for offset purposes between Lockheed Martin and a Turkish businessman. The company had long fulfilled its offset obligations and had ceased to grow. After Lisi acquired the company in 2001, it relocated to a new building in preparation for a period of aggressive growth and development which has seen the company become the supplier to almost all of the big original equipment manufacturers and employ 320 people, with plans to expand over the next year to 500 staff. With future expansion plans in full swing, the company’s Turkish site in Izmir will become its fourth largest site by 2010.

The Turkish plant serves as a remote factory for the company’s Villefranche headquarters, which is the firm’s central sales office in Europe, allocating worldwide orders to satellite factories. Along with Villefranche, the factory in Izmir

is focused on manufacturing operations and technical support. The management team operates across Villefranche and Izmir, with Turkey managed by one-third French staff and two-thirds Turkish. All social, financial and administrative matters are managed locally by the Turkish management.

 

Eastern promise

In 1999 and 2000 the company recognised the need to create capacity for the future and began investigating several opportunities. When the Turkish acquisition opportunity presented itself, the fact that Turkey already has a tradition of industry meant acquiring the company would also mean acquiring some local customers. Added to that, geographically it was not too far from France, which meant the import and export of goods could be carried out via the road network which is much less expensive than by air.

Turkish workers also have a reasonable grasp of the English language which means they can follow plans and instructions. “The culture is obviously different but you are not lost like you could be in some Asian countries,” says Mr Colders. With all the advantages that Turkey could bring, it wasn’t, however, all plain sailing; as the company grew quite significantly in the early months the workers went on strike for one month. “It was the first step for us in dealing with local issues, but since then we have entered into a contractual way of managing the relationship between the unions, the workers and us,” he says.

Despite pressing ahead with expansion plans, the company has not escaped the economic downturn. “Like the whole aerospace industry, we are cutting costs, letting go of temporary workers and cutting overtime,” says Mr Colders, who adds that all operations are affected, at various degrees depending on each local situation. But on the whole he remains optimistic that the company’s measured approach to expansion will hold it in good stead for riding out the downturn and beyond.

 

COMPANY PROFILE

LISI AEROSPACE

2007 sales revenue

$486mWorkforce

3240Parent company

Lisi GroupSister companies

Lisi Automotive, Lisi Medical, Lisi Cosmetics