Three is the magic number

3M is increasing its presence in the region, as rising sales in emerging markets reduce its US reliance.
Three is the magic number
By Tamara Walid
Sat 02 Aug 2008 04:00 AM

Bellwether manufacturer 3M is increasing its presence in the region, as rising sales in emerging markets such as the Middle East encourage it to reduce its reliance on the faltering US economy. Tamara Walid reports.

When Neil Armstrong took his first steps on the moon, the soles of his space boots were made by the company that is now looking to the UAE for its next great step.

The 100-year old Minnesota Mining and Manufacturing Company, better known as 3M, is famous for its dizzying product range that covers some 67,000 items. It's why the company's financial performance is also often perceived as an economic barometer. And it's why the decision to make more of those products in the Gulf is being seen as a significant development for the region.

The Middle East is one of our biggest markets. We are growing at a rate of 25-26 percent.

"Its tough out there," 3M CEO George Buckley told analysts on a conference call last week, before adding that the company still remains confident of delivering 10 percent earnings growth in 2008.

Much of that will be delivered in the emerging markets that include the Middle East and UAE, where 3M plans to add manufacturing facilities.

The Middle East is one of our biggest markets, and it has grown over the last few years, and that will continue. We are growing at a rate of 25-26 percent," says Irfan Malek, 3M managing director for the Middle East and Africa (MEA).

The move comes as US manufacturing is hurting. The sector is shedding jobs and cutting costs. Companies including Caterpillar Inc, CNH Global NV, Terex Corp, Rockwell Automation Inc and Black & Decker Corp have been facing similar challenges at home.

As analysts predict a rapid slowdown in the Western European markets, the strong growth that US manufacturers have relied on in Europe to weather the storm is no longer seen as a lifeline.

Neither has 3M escaped the downturn in demand. While its second-quarter net income published last week grew 3.1 percent to reach $945m, most of that growth came from overseas markets while at home it prepares to shed 300 jobs from its optical unit.

That has encouraged the group, which makes everything from Post-it notes to safety goggles, to look to emerging markets to boost sales growth.

"If you look at the last five years we've made significant investments in Brazil, Russia, India, China and Poland, the ‘BRICP' countries. They have accounted for a lot of growth in the past and they still are very solid growth subsidiaries."

What's new, explains Malek, is the company's push into MEA as well as Central and Eastern Europe.

"Dubai is certainly one of the biggest bases we have, and we also see a lot of growth in the GCC region," he says.

Five years ago, 3M's international operations were significant but did not constitute the biggest chunk of its business. Today, the tables have certainly turned, explains Malek.

"International is now 65% of the total business, which is worth $25bn worldwide. This is why 3M's strategy is to accelerate international growth."

He adds: "Certainly, MEA will contribute significantly to make up for the shortfall that might happen in the US."

This will mean investment in people, localisation and technical support, says Malek. 3M, however, is not new to the Middle East market. It's been here for over 30 years, with a focus on distribution management. But Malek believes the company has reached a critical point where it needs to localise.

"In the last few years we have come to a point when the comfort level in the MEA business has become certainly higher. We see significant amounts of growth currently taking place. In the future, according to my strategic plan, I see this part of the world doubling over the next few years in terms of the business we do," says Malek.

Malek describes localisation as "putting roots deep into the economy of the region". As part of that process, the company plans to set up a manufacturing plant in Dubai.

3M worldwide is divided into six main businesses including consumer and office, industrial and transportation, display and graphics, safety and security, healthcare, and electro and communications. The new Dubai facility will manufacture industrial, consumer, and healthcare products. Currently, the company is trying to figure out which of its 67,000 products will be produced in the plant.

"We localise from any business model where we have the highest sales potential, but also we're looking at localising where we think we can provide a tailor-made solution to our customers," says Malek.The company's scientists and researchers have been flown into the region to find out exactly what consumers and companies in this part of the world want. The team will be looking into reformulating products and creating new ones if required. Malek is specifically excited about the healthcare sector.

"We have a significant amount of strength in healthcare with the different products we sell, and also the professional services we offer. For example, as hospitals and clinics move into Dubai Healthcare City, we can add significant value by offering professional services to the doctors, nurses and hospitals."

Malek also hopes to establish a stronger presence in sectors such as transportation and hospitality.

We have a significant amount of strength in healthcare with the different products we sell, and also the professional services we offer.

While land has been secured for the plant, the value of the planned investment has not been disclosed yet, nor its location. Beyond the UAE, 3M is also eyeing expansion in Saudi Arabia and Kuwait.

"We already have a presence in all those countries, but we are looking at expanding that presence," says Malek.

"If you look at Saudi Arabia it's a vast country and in order to cover it you need to be present in the different parts of Saudi," he continues. "We are considering expanding that operation."

Other expansions are planned for Morocco where 3M is increasing its employee base. Moreover, the company has also established a significant presence in Algeria and Tunisia.

It's all part of the company's global strategy, according to Malek, which aims to focus on hiring local employees, creating local products, and manufacturing them locally. But it doesn't stop there. The Middle East is particularly important when it comes to servicing global customers abroad.

"We are looking at using this part of the world as our customers in the US, Europe and Asia Pacific move here," he explains.

"With all the construction activity in the region, companies are coming from places like Hong Kong and we want to make sure they get the same level of products, services, and specifications that they are used to in their home countries."

Part of 3M's sales and market strength is that it often helps inform regulations and standards in the markets in which it operates.

"We work very closely with the government departments on laying down regulations. With mining, we've been helping the mining companies lay down the health and safety standards, from safety hardhats to the safety and visibility in the tunnels," he says.

Saudi Arabia's oil and gas sector is also an increasingly big market for 3M, which manufactures products that go into drilling applications and pipeline coating. As Malek explains, the company's strength comes from its specialised product lines.

"We go in and provide solutions," he says. "If you have a glass building and an issue of wanting to maintain its beauty despite fitting in frames around it, we will analyse the situation and recommend a product line."

In addition to its planned investments in new production facilities, 3M is also actively seeking stakes in companies in the region.

"We are looking at acquisitions in the Middle East and Africa and we have a few in the pipeline," reveals Malek.

"With acquisitions, you put a hundred in the pipeline and maybe one will come out. Optimistically, we might close an acquisition this year." Another year, and another giant leap forward for 3M

For all the latest retail news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.

Subscribe to our Newsletter

Subscribe to Arabian Business' newsletter to receive the latest breaking news and business stories in Dubai,the UAE and the GCC straight to your inbox.