Machine tool company moves to Romania

greenspun.com : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread

Business moves half a world away Machine tool company shifts its focus from Wisconsin to Romania By RICK ROMELL of the Journal Sentinel staff Last Updated: June 4, 2001 You won't hear many apologies from Patrick Cherone about relocating his manufacturing operations to Eastern Europe, only a set of hard business arguments, the heart of which is this:

Machine Tool Corp. At a Glance

$50,000 Annual salary for engineers at Wisconsin Machine Tool Corp.

$1,800 Annual salary for engineers in Romania

$12 million Amount Patrick Cherone and his partner invested in Romanian factories

$200 million Amount he says he would have needed to get the same result here Quotables We're really proud of Wisconsin. The problem is it just got too expensive in North America. - Patrick Cherone, Wisconsin Machine Tool Corp. What he makes here he can make there - all expenses of doing business included - at half the cost.

"We're really proud of Wisconsin," Cherone said last week after filing a plant-closing notice with the state. "The problem is it just got too expensive in North America, and we have to compete globally."

So Cherone is transferring virtually all the manufacturing done by his company, Wisconsin Machine Tool Corp., to a pair of factories he and a partner have bought in Romania.

The move will cost about 40 people their jobs - good-paying ones, too. Production employees average about $18 an hour, engineers about $50,000 annually, Cherone said.

That's many times the pay their counterparts receive in Romania, where production workers get about $120 a month and engineers about $150.

"We find it rather discouraging when American companies move their production overseas and then try to use us as a market," said James Robinson, recording secretary of Brewery Workers Local 9, a unit of the United Auto Workers that represents employees at Wisconsin Machine Tool.

But Cherone said that without the relocation, his company wouldn't survive in an increasingly globalized market. With the move, he'll keep about 25 people here for such things as sales, engineering and service, and embark on a course he hopes will take his firm from $15 million in sales today to $250 million in five years.

Whether that happens will depend on Cherone's success in running a 600-employee business, halfway around the world, that he established by overcoming foot-dragging bureaucrats and would-be blackmailers and making dozens of trips - 48 since 1996 - to Romania.

Unusual career path It's an unusual adventure as business dealings go, but Cherone's career is marked by unusual or adventurous underpinnings.

By his account, he's a high school dropout (he got his GED in the Army) who now speaks at forums on doing business outside the United States. He started as a forklift driver at the old Kearney & Trecker plant in West Allis, ended up running the place and, eventually, executed the corporate order to shut it down.

He's a proud and decorated Vietnam veteran. His bronze star, with a "V" for valor, hangs on one wall of his office. The opposite wall holds a framed battle map of areas around Saigon where Cherone served with a tank crew. On his left forearm is the insignia of the Army's 1st Infantry Division and the word "Vietnam."

Cherone, 54, got the tattoo just two years ago. He had the work done mainly to cover a heart tattoo dating to his unfinished stint at Riverside High School. But he also said his Vietnam experience has shaped his approach to business and life.

Cherone believes that Vietnam veterans fall into three groups: those traumatized by the war, those who keep their experiences inside and won't talk about them, and those who are proud they served and learned from the war.

"I'm one of those," Cherone said, referring to the last category.

Among the lessons was a keep-it-in-perspective attitude to problems. Business stress pales beside the life-and-death stress of combat, Cherone said.

He said he also acquired deep appreciation for the importance of leadership, and for a team approach. And Cherone, a plainspoken man, said he came away from Vietnam with something else, something he isn't necessarily proud of but which he acknowledged was useful in business - the ability to divorce himself emotionally from people if circumstances dictate.

"I know that sounds cold but, believe me, it has been important in my management style," Cherone said.

One ex-employee described what sounds like that style in action. Robert Suwyn, a 53-year-old machinist laid off in April after 34 years with Wisconsin Machine Tool and its predecessors, said Cherone used to meet regularly with workers and talk about the company's direction.

That largely stopped about a year ago, and it seemed Cherone "kind of distanced himself from the employees," Suwyn said.

Suwyn isn't happy about losing his job and has yet to find another amid the economic slowdown, but he doesn't blame Cherone. He said the shutdown of the manufacturing operation here was unfortunate but probably inevitable.

Building relationships In Cherone's view, business still involves relationships, but they will quickly dissolve unless both parties benefit.

He relies on business relationships involving what he, using an old term for a gambling IOU, calls markers, and he has used them to help build his Romanian enterprise.

He went to Romania in 1996 knowing little about the country. Having decided that his business' future lay in Eastern Europe, he first tried more developed countries, such as Poland, the Czech Republic and Hungary, but ended up in Romania.

It took him four hours to clear customs, sweating in 90-degree heat and being harassed by petty officials in blue suits and dirty white shirts who demanded every five minutes to see his passport. That was a foretaste of coming frustrations in negotiating with the government to take over a pair of mismanaged, state-run factories.

"It took another year and a half to really understand the game," Cherone said.

A key, he said, was developing a network of trustworthy people, and the most trustworthy proved to be a man named Vasile Scortanu.

They met when Cherone was on his third trip to Romania and was struggling. He felt he was being manipulated and that some of the companies he was dealing with might be controlled by organized crime.

"I knew that if I were going to stay in Romania I needed somebody," Cherone said. "I needed my Man Friday for everything and anything I needed to do."

Scortanu, whom Cherone initially used as a translator for a business meeting with a factory manager that disintegrated into a shouting match, became that person for the price of a refrigerator.

The ill-fated meeting behind them, Cherone asked Scortanu to show him something of how Romanians lived. Among things Cherone learned was that Scortanu, his wife and their baby were packed into a two-room apartment with a relative because the couple had no refrigerator in their own place and couldn't afford one.

Cherone asked how much a refrigerator cost ($1,000) and how much Scortanu earned ($50 a month). Over the translator's protests, Cherone bought him a new refrigerator and had it installed.

Today, Scortanu runs one of Cherone's factories, manages Romanian business development for the firm and, at about $13,000 a year, is the highest-paid Romanian employee.

In buying the refrigerator, Cherone said, he changed Scortanu's life, "and for that I created a marker, because I believe the world revolves around markers."

Buying factories Eventually, Cherone and business partner Laird Cleaver succeeded in buying two state-owned companies and their factories - a small plant in Bucharest and a million-square-foot complex in the city of Targoviste.

The larger factory, Wisconsin Turning Systems, is marked by a 50-foot-long sign painted Badger red and white that says, "Welcome to Wisconsin Country."

About 60% of sales are in Europe. Less than 20% are going to the United States, but Cherone hopes to build those sales significantly.

His and Cleaver's investment in Romania totals less than $12 million. To build the same capacity here, Cherone said, would cost more than $200 million.

And he said skilled labor and engineering talent, besides being cheap, is more plentiful than it is here - a legacy of the huge Eastern European machine-tool industry established largely to feed the former Soviet Union. With the fall of communism, the industry has moved into the international market.

Machine tools are power-operated machines that cut and shape metal, often to tolerances far narrower than a human hair.

They range from relatively simple lathes to one-of-a-kind, computer-controlled devices that can cost more than $1 million, and they're at the heart of any manufacturing economy. In fact, analysts consider demand for machine tools a reliable indicator of the strength of the manufacturing sector and the overall economy.

Three decades ago, most machine tools used in the United States also were made here. Today, about 60% are imported, said Malcom Mason, international marketing director for the Association for Manufacturing Technology, an industry trade group.

Robert Forrant, a former machinist who now studies the industry as a historian at the University of Massachusetts at Lowell, said the import percentage might be even higher.

Patrick McGibbon, vice president of industry services for AMT, agreed that the machine-tool market had become more global, and said many U.S. manufacturers had struck partnership deals with Eastern European companies. But actually buying factories in Eastern Europe, as Cherone has done, is not a trend, McGibbon said.

He sees Cherone's strategy as applicable only with less-sophisticated machine tools - essentially commodities where the basic design doesn't change much from customer to customer.

But Matthew Coffey, the head of a trade group whose member companies are buyers of machine tools rather than producers, has a different perspective.

Cherone "reads the trends almost right on as I see it," said Coffey, president and chief operating officer of the National Tooling and Machining Association.

Among those trends is the growing need for companies to compete internationally, a need that is accelerating as the Internet allows even small firms to establish a global presence at relatively small cost, Coffey said. The same communications technology, he said, also gives customers easier access to price and product information.

"Smart entrepreneurs are out there moving around the world because they recognize they've got to be global," Coffey said.

Appeared in the Milwaukee Journal Sentinel on June 4, 2001.

Personal Note: Another one bites the dust. Eventually very little is going to be manufactured in the U.S.

-- Guy Daley (guydaley1@netzero.net), June 06, 2001


Moderation questions? read the FAQ