Fluor Daniel President Helps Company Diversify, Prosper

As group president of marketing and sales for Fluor Daniel for the past 2 1/2 years, Gerald M. Glenn has been at the forefront of the giant Fluor Corp.’s efforts to diversify and expand its construction and engineering business into non-energy fields.

After obtaining a degree in civil engineering in 1964, Glenn joined Daniel Construction Co. in Greenville, S.C., where he rose through the ranks in operations and marketing divisions.

The Fluor Corp. purchased Daniel in 1977 and later decided to capitalize on Daniel’s breadth of domestic experience in general industrial construction projects after the bottom fell out of the overseas petrochemical construction business, which had been Fluor’s bread and butter.

Fluor decided to combine its traditional petrochemical-oriented construction and engineering operation with Daniel’s, and Glenn was chosen to restructure Fluor’s original construction and engineering division to facilitate the merger, which was completed in 1986.

Industry analysts have credited Fluor’s diversification and an upturn in the overall construction industry for helping the company to emerge from two years of heavy losses. Last week the company reported a $9-million profit in the three-month period ended Jan. 31, contrasted with a $33.3 million loss in the same quarter a year earlier.

Today Glenn, 45, says his job is to identify new construction and engineering markets for Fluor and to make sure the company is staffed, organized and managed to take advantage of new opportunities.

In an interview with Times staff writer Leslie Berkman, Glenn discussed the blending of Daniel and Fluor and the aggressive new drive by the resulting Fluor Daniel organization to export its expertise into the world marketplace. Q: Why did Fluor’s return to profitability take two years after the Daniel merger?

A: I think if you will look back over the last few years, the piece that has been missing is any cooperation at all from the economy. You can’t create a turnaround all on your own. We had been experiencing the longest and deepest low in the construction industry’s history. Only recently have we seen an upsurge in capital spending on plant additions, refurbishment and expansion by the kind of industrial companies that Fluor serves.

Q: Could you explain how diversification helped accomplish Fluor’s turnaround?

A: We have been practicing double diversification. Not only have we been expanding our marketing into areas other than the petrochemical industry that was Fluor’s mainstay before the plunge in oil prices, but we have been diversifying our services. The life cycle of a facility goes all the way from a concept through operations and maintenance. And as the cycle in a particular business changes, the demand for services also changes. For instance, we are now maintaining a lot of refineries, while before we were only doing the engineering and construction of refineries. That’s a big change for us.

Q: I understand the diversification was made possible in large part by the merger of Fluor’s traditional engineering group with its Daniel subsidiary.

A: Yes. Historically you’ve known Fluor for big, energy-related projects around the world. And historically you probably have known the Daniel organization as a general industrial designer, builder and maintainer mostly in the domestic market. We’ve been working side by side since Fluor purchased Daniel over 10 years ago. We each were successful in the markets we were serving. But as the economy changed and the markets changed it became advantageous for us to put all our skills into one basket under one organization called Fluor Daniel. For example, the maintenance skills available in the Daniel organization were teamed up with Fluor’s expertise in hydrocarbons and used in refinery maintenance.

Q: How broad is Fluor Daniel’s scope of business today?

A: We are very broadly diversified into five business sectors: industrial, process, government, hydrocarbon and power. Over time we would like to see each of those five business sectors represent 20% of our sales. And we want to see our domestic and foreign workload split 60% to 40%, tipping in either direction.

Back before Fluor acquired Daniel in 1977, Fluor’s business was 90% international. But since then the balance has swung clearly too far to domestic. Today Fluor Daniel does about 85% of its business in the United States.

Q: Why are you interested in obtaining more international business? Why don’t you just keep growing in the United States?

A: We intend to keep expanding domestically, but we believe there are tremendous opportunities for us in the international arena.

Q: What are some examples of the opportunities you refer to?

A: Suddenly we are seeing around the world real opportunities for our hydrocarbon sector. There hasn’t been a lot of refinery building in the last four or five years, and the existing facilities are starting to wear out. Also, there are going to be oil and gas finds in new areas around the world that are going to be developed by countries for their internal use because they can’t afford to spend money on imported petroleum.

There is a great deal of interest in gold mines today in the U. S., Australia and Canada. We have some projects in those countries that we have not announced yet but that we are real excited about. Also, our mining office in Chile is very busy.

Q: I thought you were reducing your involvement in the mining and and minerals business.

A: We are going to stay in that business, providing technical services, engineering and construction to mining companies. But we are not going to be a long-term owner of natural resources, with the exception of our A. T. Massey Coal Co.

Q: What other areas show promise for Fluor’s international marketing drive?

A: While the European markets tend to be relatively mature, they offer clear targets of opportunity in the automotive, biotechnology and pharmaceutical fields. We are currently pursuing major work for a hydrocarbon processing plant in the U.S.S.R.

Also, I think certainly the Pacific Rim over time is going to be hot. Because of the large population of the Asian countries, they are a tremendous market for the manufacture of consumer goods, from soap and foods to television sets and automobiles. We are also pursuing gas processing projects in Indonesia, Malaysia and Thailand.

In China we have done well over 50 projects that range from oil and gas processing plants to construction of a food plant.

Q: Was it difficult getting a foothold in China?

A: Not really. We have an excellent relationship there, which has been aided by our chairman Dave Tappan’s background, since he was born there and acquired a knowledge of the country. We’ve got a joint venture engineering company in China called Sino Fluor that was profitable in its first year of existence. That’s very unusual. Many U. S. companies will tell you they are in China and trying to take a position there, but they are really looking to the future for a return on investment.

Q: Does the Chinese government prefer that you form joint ventures with Chinese companies and use Chinese workers?

A: Yes. The Chinese construction brigades do the actual construction, and we bring the technical and engineering expertise to do the design work. We also have someone (from Fluor) overviewing the job to make sure it is installed and operates as it was designed.

Q: Is there a trend of overseas companies establishing manufacturing arms in the United States?

A: Yes. There are a number of reasons for that. One is that they want to avoid the protectionism sentiment against imports that is running real high in the United States now. Also because of the relatively low value of the dollar, United States-made products are very competitive around the world. So, for instance, the Japanese can build cars here and export them more economically than they can build the cars in Japan.

Japanese manufacturing companies are investing heavily in the U. S., Europe and other areas outside Japan. Our recently announced association with Obayashi, one of Japan’s big-six contractors, should greatly enhance our ability to win these projects.

Also, certain European countries, such as Germany, the United Kingdom and Switzerland, are looking to invest outside their own countries, for example in the field of biotechnology.

Q: Are you helping overseas clients find the most appropriate building sites in the United States?

A: We have a group in the company that recommends the right place to build a facility for both international and domestic clients. The costs of building and operating a manufacturing plant vary greatly across the country. There are non-recurring costs like the cost of construction and recurring costs like taxes, water, power and raw materials. We also look at the political and labor climate and potential markets for the manufactured product. All those kinds of things come into play in selecting where a company ought to be.

Selecting plant locations is the kind of service that can help us build a relationship with a client. We ultimately are interested in managing projects during their construction and operation. We favor a partnership where we are retained by major industrial companies for whom we will build and design all their new plants and plant expansions so they will not be obliged to maintain an in-house engineering and construction staff.

Q: What are the advantages of such full-service contracts?

A: There is less competition for those contracts because there are fewer companies with broad expertise in planning, management and scheduling than there are companies who can just build buildings. So the profitability is better. We are not really interested in going out on the street and competitively bidding every single construction project that comes around the pike.

Q: What are advantages of partnership contracts for your clients?

A: It is far more economical for them. If you are a large chemical company, for instance, you otherwise would have to maintain a big engineering and construction management staff year in and year out, even if you are going through peaks and valleys in your workload. But Fluor Daniel has the ability to shift resources. If a particular client’s business is off and he is not expanding, we can put our engineering and construction people to work for another company that is growing.

Also, it is an advantage for companies to keep us aboard long term rather than hire different engineering and construction firms for each job. They don’t have to keep training contractors. We know and understand their business, their people and how they want to be served.

Q: Do you run into any conflicts of interest by doing site selection and plant construction for competitors in the same industry?

A: We work for 75% of the top 500 companies in the country. So we do work for competitors. But we know how to manage that, and it has not been a problem.

Q: Do clients ever raise the issue?

A: Sure. It’s an issue that we address up front. We clearly say this is the way we’re going to protect your information and your position. For instance, we wouldn’t take a guy working on a particular licensed process for one company and put him on a competitor’s job.

Q: In your expansion and diversification are you recruiting employees?

A: Well, we’re definitely in a growth mode. We are in need of good people and hiring in virtually all of our major offices. In Houston, for instance, we were down to about 500 employees a year ago, and now we are back over a thousand.

Q: Are you staffing your foreign offices with Americans or locals?

A: Over time we have moved most of the Yanks out of the overseas organizations and put in local residents. In Holland, for instance, the managing director of our operation is Dutch. The same is true in Canada, Germany, Australia, Chile and so on.

Q: Why do you prefer to staff the offices with foreign nationals?

A: It is more cost-effective to use local resources than to send Americans abroad. It also makes sense to hire people who know and understand the local market and have the language skills. We are an international company whose headquarters happens to be in Irvine, Calif. In Holland we are a registered Dutch company, in Canada we are a registered Canadian company and in Australia we are a registered Australian company.

Q: Are your American competitors also maintaining offices abroad?

A: Yes. But most of our competitors have gone in and out of foreign markets, depending on the economic climate, while we have kept our offices open to demonstrate our commitment. Our clients appreciate that. We have stayed in certain geographic areas even though the hydrocarbon projects that originally brought us there have gone by the way.

Q: Are you going to also keep your current industrial diversification even if certain markets dry up?

A: Yes, because industries come and go and cycle up and down. For instance, even though we might not be building a pulp and paper facility in a particular time frame, we will just hang onto people with that capability and use them somewhere else, and when pulp and paper projects are back we will be able to have them available.

Right now there is a great boom in plastics because petroleum used to make them is so cheap. So you get more and more engineered plastic in automobiles rather than steel or alloys. But as the price of oil goes up, it is possible that some plastic will be replaced by alloys in automobile manufacturing.

Q: Are you devoting more time and staff to predicting industrial trends? I imagine you can’t do your planning by the seat of your pants.

A: Oh no. We do it a little better than by the seat of the pants. Our front-line operating and sales people are in contact day to day with our industrial customers. We learn what they are doing and which way their industries are going, and then we kind of pull that back together and determine what trends we can see shaping up. We also consider other things like protectionism, the relative value of currencies, the amount of plant capacity used up in certain industries and capital spending trends.