Currency Change Unlikely to Break ‘Buy Local’ Habit
To do business across Europe, bigness undeniably helps. But in many industries, size is no substitute for local market savvy and production facilities. And the advent of the single currency won’t alter that or entice French consumers to act like Germans.
“The question of location is still very important in Europe,” said Roland Rick-Lenze, president and general director of Trilux, a family-owned German lighting manufacturer. “Americans are always a little bit naive on this question. They think that once the euro [currency] comes, everything will be equal in the European Union. But consider that even after 1999, there will be hundreds of different laws in the different EU member countries.
“If you want to expand to another European country,” Rick-Lenze summed up, “you have to be present there.”
That philosophy explains why, four years ago, his company in northern Germany’s Ruhr Valley decided to purchase a bankrupt factory here in Sayat, a rural hamlet amid the apple orchards and pastures of central France.
In six months, Trilux pumped in about $2 million, installed robots on the assembly line and retrained employees according to Japanese kaizen methods, which advocate taking small, incremental steps to implement change.
From only 11 workers and zero output in November 1994, the payroll at the French affiliate, Cetek, expanded to about 100 and production went to 1,300 fluorescent fixtures daily.
Annual sales were forecast to surpass $11.5 million for 1997, and this year Cetek plans to widen its product line and increase both it factory floor space and payroll by 50%.
Couldn’t Cetek’s German parent have achieved identical results by expanding its facilities and 1,300-strong labor force back at headquarters in Arnsberg? No way, replies Joachim Zimmerhackl, a German engineer who took charge of production at Cetek after 11 years at Michelin, the French tire maker, in nearby Clermont-Ferrand.
“The Frenchman prefers products made in France,” Zimmerhackl said.
And though for four decades Western Europe has been mutating into a “common market,” what sells on one part of the Continent may not suit people on another. That’s true for the modular lighting units that Cetek makes, which are designed to nestle in the false ceilings of offices and other public buildings.
In France, the square cases that hold the fluorescent tubes and reflective aluminum baffles measure 600 millimeters, or 24 inches, on each side. But in Northern and Eastern Europe, the shallow metal cases must be 1 inch longer. And that’s just one quirk.
Labor in the sparsely populated Auvergne region of France is 20% cheaper than in Germany. So being in France has enabled 86-year-old Trilux, which thinks of itself as the Rolls-Royce of large-scale exterior and decorative lighting, to head resolutely down-market and produce cheaper fixtures.
“The top-of-the-line market is saturated today,” Zimmerhackl said. “We needed the complete range. We couldn’t do it in Germany. Labor costs are too high.”
Sayat, virtually in the geographic heart of France, is also an ideal location for shipping to customers in France--40% of Cetek’s market--and Italy, Spain, Switzerland, Britain and the Netherlands.
Cetek is competing in a cutthroat niche market in which winning or losing an order for its fixtures, which retail for the equivalent of $58 and up, can turn on the price of a single franc--about 16 cents.
The euro will make the lives of managers such as Zimmerhackl easier by eliminating exchange rate fluctuations among European currencies, which can erode profits on foreign sales or raise the cost of raw materials. In May, the first pool of countries eligible for the new money will be chosen, with both France and Germany virtually certain to make the cut.
A single currency, though, is not going to paper over all of the differences among the countries.
“We used to say, ‘We make lights in Germany, and the French will buy them too,’ ” Zimmerhackl said. “Now I go back to Trilux and say to the engineers, ‘Tsk, tsk, the French will never buy that.’ ”
