It's a Small World

Globalization has come to Williamsburg, Iowa, Salina, Kan., and dozens of other rural American communities that are home to farm equipment manufacturers. Shortliners -- companies that make specialized machinery and electronics -- have set up shop in Europe, Asia and South America. At Agritechnica 2013, the world's largest farm machinery show, for instance, 47 exhibitors from the U.S. traveled to Hannover, Germany, to lure new global customers to their booths and their products.

GLOBAL MARKET

The reasons are obvious: 21st-century agriculture thrives on technology, and it knows no borders. You would expect international giants like John Deere, CNH and AGCO to be selling globally. But shortliners also find foreigners are eager to buy their North American goods, and robust sales in one corner of the world map can balance occasionally slow periods in others. Benefits also accrue to customers back home, because ideas from foreign farmers influence new product development. What works in Lithuania might not work in Louisiana, but some variation of it might be the next big thing in Illinois.

INTERNATIONAL IDEA

For example, Daniel Rauchholz, president of Great Plains International, tells this story of how his company -- based in Salina, Kan., and renown for its drills, planters and tillage equipment -- came to put spiked drive wheels on some of the planters it sells in North America:

Drive wheels here typically employ chain drive shafts and ground contact tires. In some soil conditions, tires might slip, which can adversely affect seeding and fertilizer rates. European farmers, however, typically use spiked drive wheels to control the rate of seeding and fertilizer on drills. Those don't slip. So Great Plains, which has an extensive presence in Europe, took note of its international customers' preferences and started offering spiked drive wheels on some of its planters.

BIG PLAYING FIELD

Kinze Manufacturing, the Williamsburg, Iowa, maker of planters and grain carts, has a long history of international sales, having sold planters overseas for more than 27 years in 35 countries through distributors. Six years ago, it decided opportunities in Europe were so good it would set up its own dealer network there. "It is vital that a planter work and work well for those 20 days or so when the planting season is at its peak. The only way to do that successfully is by having a strong dealer network [to service machines and provide parts]," said Luc van Herle, Kinze's director of global sales and service.

Kinze's dealership network paid big benefits quickly, but it came with a price. "Once we got started there, we found we had a couple of problems," van Herle said. "One, we were essentially out of [manufacturing] capacity; we couldn't build any more machines here. And the second one was: It is really hard to service customers who are eight times zones away. When they need attention, they need it real-time, not eight hours later."

So last year, Kinze built a new assembly plant in Vilnius, Lithuania, and began manufacturing for the first time outside of its home base of Iowa.

"It was a big step for us," van Herle said.

Kinze previewed sites in 11 countries before settling on Lithuania. The new facility ships planters to Russia, Ukraine, Bulgaria and Kazakhstan. Workers assemble one line of planters now but will do more lines in the future, van Herle said. "They build everything there but the heart and soul of our planters—meters and row units. We have no plans to manufacture those over there." Instead, Kinze exports them from Iowa.

Great Plains took a slightly different route to its international sales. Its first venture was a drill sale to a customer in Saudi Arabia in 1982. "They wanted it painted gold," Rauchholz said with a chuckle.

Since then, Great Plains has launched a European invasion. It has wholly owned subsidiaries in England, Russia, Ukraine and Bulgaria. In 2010, it acquired Simba International, a European innovator in tillage tools, and has since set up shop at Simba's factory in Sleaford, England, which has become Great Plains' western European business hub.

The strategy has worked well. Combined sales from exports and from the factory in England comprise 30% of Great Plains' total sales.

CUSTOMER IS ALWAYS RIGHT

A key factor in selling overseas is understanding the local markets.

"The worst thing you can do is think, 'We are Americans, and we know what's best for you. Here is what we have for sale.' Instead, you need to think globally but react locally. You must supply them with the machines they need," van Herle said.

Rauchholz agrees: "When we first got going, we had a kind of Henry Ford philosophy with our foreign customers: 'You can have whatever color you want as long as it's black.' "

Product uniformity across markets isn't usually a good business model. "That's not the way we work in the U.S. We modify products according to our customers' [changing] needs," Rauchholz said. Now, Great Plains employs the same philosophy with its foreign customers. They listen and adapt.

For instance, Great Plains developed the Centurion Drill—a product sold only in Europe—after it looked closely at specific local needs. "We struggled to understand why they want a drill with two rows of disc harrow-style blades up front, followed by tires across the entire width of the drill," Rauchholz said. "Well, we learned they want to have a post-tillage, one-pass finishing seeder. The discs would break the clods of the tillage pass and cultivate across the entire width of the drill. Having tires across the entire width keeps the machine from sinking and destroying the soil structure while simultaneously leveling the field ahead of the openers so that they can have a black, smooth level finish."

The Centurion Drill won an AE50 gold medal for innovation last year from the American Society of Agricultural and Biological Engineers.

CROSS-POLLINATION

The process of new-product innovation can work in the reverse direction, too, said Lisa Prassack, marketing director of Trimble's Agricultural Division. "We've acquired software technology from all over the globe."

Trimble is a technology company based in Sunnyvale, Calif., and also has divisions dedicated to heavy civil construction, building, transportation logistics and forestry. Much of its work involves geospatial-positioning tools.

"We leverage the different industries we serve, and we learn from the different industries and countries we serve," Prassack said. They also learn from their foreign ag operations.

For instance, Trimble last year introduced a new precision irrigation tool from the other side of the globe. "From New Zealand we obtained Irrigate-IQ, which is nozzle by nozzle [control] as opposed to zone by zone."

RISKS ARE REAL

Doing business outside North America involves risks. Both Great Plains and Kinze, for instance, are heavily invested in Ukraine and Russia. Lately, neither have been the most stable markets in which to play.

"Ukraine was our biggest export market, and we expect significant declines in sales," said Great Plain's Rauchholz. "Fortunately, we have already shipped most of our products [for this season] to our customers. So the impact is not going to be immediate."

Kinze is in a similar situation, van Herle said. "There is no question that the current political situation between Russia and Ukraine has affected our business. The issue is not what you think. Business does not stop, but the transfer of monies has become very difficult. In other words, for a customer in either Russia or Ukraine to transfer money to the U.S. or other countries has become very difficult and onerous and time-consuming and filled with red tape even more so than in the best of times."

Even in stable times, foreign trade is challenging. "People want to deal with people who have the same language and culture," Rauchholz said. So it's key to develop local company representatives who understand regional agriculture and local farmers. "Business to me is 50% common sense and 50% culture," he said.

At times, Americans are at a disadvantage when trying to negotiate, Rauchholz said, because businessmen in other countries often know more about American culture than we know about them. "They speak English, they watch American movies, a lot of them go to American business schools," he said.

Americans, on the other hand, often aren't as exposed to other countries' cultures, and many don't speak foreign languages.

China is a special case, Rauchholz said. As an American dealing with Chinese, "You think you have an agreement, but you really only have an agreement for the next round of discussion. It's kind of a circular process."

NO PLACE LIKE HOME

Despite the challenges, shortline companies are still expanding their horizons. Kinze's van Herle is eager to test new waters. "There are essentially four [geographic] market areas in the world where our machines have application … [for] corn, soybean and, to a lesser extent, sunflowers." He lists North America, Europe (especially Russia and Ukraine), South America and Asia (China and India and pockets elsewhere). South America is next in his crosshairs.

Opening new markets and balancing risks on a global scale is key, van Herle say: "As a manufacturer, that is the driving force for going into other markets, to even out the risk of dependency on any one market."

But he would agree with Rauchholz's assessment: "Domestic success is the top priority for us. You have to stay strong in your home market."

(BAS)

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