Small company takes it easy and stays in the driving seat

Frederick Metz Shepperd is managing director of the Quadral Group, a consulting firm with offices in Europe and North America. www.quadralgroup.com

Friedrich Graepel has steadily cornered the market in components for buses, trucks and industry. The secret of its success, argues Frederick Metz Shepperd, is a prudent approach to expansion, a loyalty to its roots and a willingness to seek outside advice

You don't have to be big to survive. You don't have to have facilities in many countries and you don't have to have the employees to carry out the growth. But in the big drive east with European expansion, the thought is that it is for the big players and a private mid-sized family business can't compete. Friedrich Graepel AG has demonstrated that this is not correct. In fact, mid-sized German businesses can be quite successful against major competition that may be 10 times their size. As for plants around the world, the company is proud of being located in the small town of Loenningen, Germany that is in northwest Germany. In this small town they also have assembled a superb management team that manages the challenges of a global supplier, plus keeping the company in the family.

Friedrich Graepel AG is a supplier of perforated metal systems for the truck and bus, agricultural and architectural markets. It was established in 1886 in Budapest, Hungary by Hugo Graepel. In 1905, the company moved to Hannover and started to produce sieves, radiator grills and other types of perforated parts for industry. Some of the sieves produced at this time are still in use in farms around Germany. Friedrich Graepel joined the company in 1923. In 1948, the entire facilities moved to Loeningen. In 1961 Friedrich Claudius Graepel joined the company as the third generation of Graepel in the business.
 
In the 1990s, the world changed and so did Graepel. In 1991 the company bought the company Stahltechnik und Verzinkung Seehausen (STUV) in the eastern part of Germany. This was a new experience for Graepel and they brought management from outside the family to help develop the acquisition and to confront the new global demands on their business.
 
The company at the time concentrated mostly on Europe and supplied perforated metal parts to their customers. The new management knew that the company had to supply other markets, global customers and to develop systems for supply and ­support. This was kicked off with supply of several parts to John Deere in Germany and the US. Graepel developed a patented design for steps, which can now be seen on most John Deere tractors. They followed other customers to global markets as well. While they were in the door with their parts, they quickly adjusted to the sale of metal systems, and technical solutions for the customer. Investing heavily in engineering, tool building and design, the company adjusted to be a global systems supplier far earlier than their competitors. It focused on design, fabrication and logistics to develop door systems to the German truck and bus market. In 1992 they started supply of door systems, exhaust panels and other systems and it is now their largest business segment.
 
The company changed dramatically in the nineties as John Deere, Case, Mercedes-Benz Truck and Bus division, MAN and the like demanded more technical support and supply solutions. Major competitors moved into the global market. In fact, one of their major competitors in the US was owned by the family behind the ownership structure of Fiat and New Holland Tractors. Major competitors with global financial backing presented a daunting challenge to Graepel, but it did not lose its focus. It knew its niche for supply, kept a technical and quality advantage over the competiton and was proactive in designing logistics support to integrate with the production needs of the customers. Today sales to the agricultural vehicle sector accounts for approximately 25% of the total sales and the truck and bus market accounts for almost 50% of sales.

At the end of the 1990s, Friedrich C Graepel appointed Klaus Mecking to continue the transformation of the company and to handle the transition to the next generation of the Graepel family. Mecking was formerly in the senior management of Claas, the market leader in supply for farm equipment and a major customer. He was also heavily involved in the co-operation between Claas and Caterpillar in the production of harvesters in the US. As a result, Graepel was able to gain hands-on experience in joint ventures, global supply and extensive knowledge of foreign markets. It was a great move.

The company immediately took on a robust, new perspective. It focused on three areas of supply, design, safety and performance. That means supply of perforated metal systems for architectural design, system solutions for workplace safety, including steps, platforms and so on and performance solutions as integral components for truck, bus, agricultural and other vehicle supply. Its initial efforts with John Deere's tractor division met with continued success to the point where Graepel has become one of the largest suppliers of metal weldments on a global basis.
 
The truck and bus supply has also grown to where the company supplies finished door systems, sequenced and transported just in time to most of the major truck and bus manufacturers in Europe. The growth continues as Europe expands. Many manufactures in Central Europe have established new plants in the countries that entered the EU in May, 2004.

Others, including MAN, have ­established production in countries looking to enter the EU. Graepel established a company in Turkey in 2003.

In North America, Graepel has supported their growth in supply of step systems to the major tractor manufacturers. To aid in the growth and to take advantage of the low dollar, Graepel has also entered into an agreement with a partner near Omaha, Nebraska to assist in some of the production and assembly going forward. The site of Nebraska is interesting because of its close proximity to the Claas-Caterpillar combine production plant in Omaha and other customers like John Deere, Case New Holland and other manufacturers in the agricultural vehicle market.
 
Today, Graepel's combined sales are approximately $40 million with production in Germany and Turkey, an assembly partner in North America and a network of suppliers throughout Central Europe. Their representative network is spread throughout Europe and North America.

How have they succeeded? They knew they had to change their company and reorient their markets early on in the 1990s. They focused on quality, innovative technical design and logistics support. The company was transformed. The early meetings with major companies focused on global supply and the customers were ready to respond. They adapted to the needs of their customer, not the internal capabilities of their company. Then, it joined other companies to help with supply in Western Europe, Central Europe and North America.
 
They are also following their customers further to the east in Europe. As for the move to east Asia, the company is cautious. "In China, you may not know if your production plans for the market are a success for several years." Then, you have lost time and a considerable investment. "Concentration on our new eastern European markets are yielding much faster results and greater returns," says Mecking.

The explanation for their success also includes the ability of the company to look outside the family for expertise and support. In the early 1990s, they knew they were financially strapped and needed to change. However, that change had to come from the outside. They hired a non-family member to lead the company and two more thereafter culminating with Klaus Mecking and his special industry and global business expertise. They also hired the Quadral Group in the early 1990s to work with them on development of a global strategy for supply and for the North American market and continue to tap their expertise as needed. Each time, they were able to continue a growth in sales and profitability.
 
Another Graepel advantage is in the development of personnel within the company. The area around Graepel has forced the company to rely on company based training and education of local employees and this has met with success. Engineers have developed a world class perspective with key account relationships that are developed over a long period of time. The low turnover in employees also creates loyalty within the company that reflects positively with Graepels customers.

As for the competition? Companies like Magna International, a global supplier of automotive component systems is just too big to be flexible for the market. The competitor with global backing? It was eventually sold off by the family investors. In the meantime, Graepel remained in the market with reliable supply and product innovation.
 
The ability to look beyond the family did not mean that the family took a back seat in the business. Friedrich C Graepel remained a significant figure in the ­company as it managed its transition in the 1990s. He was the last word on how the company would grow and prepared the way for the next generation. He was stricken with cancer and fortunately had the time to hire Klaus Mecking and prepare for the transition. He died in 2001 and the next generation of the Graepel family is just starting to get involved in the business. The professional management has protected the company and continued the Graepel family tradition.

An innovation in the ownership structure took place in 2004 with the creation of an employee stock ownership program. Employees and longtime representatives of the company can participate in ownership of a small percentage of stock. As the company grows, so does the value of their stock. It is one way to include the employees and representatives in the growth of the company and share in the rewards. It also is a way to raise capital for equipment and expansion without the normal bank scrutiny and financial cost.
 
Graepel presents an example of yet another trend in business. Having successfully engaged in the global supply to its customers, it is also returning to its roots. It started in the 1880s in Budapest. The investment in eastern Germany and the creation of the subsidiary in Turkey demonstrates the ability for a mid-sized German ­company to come west, then go back east with focused production and supply.
 
Many family businesses, including the Porsche family, have their origins in somewhere other than Germany, yet it is hard to think of the Porsche other than as a German car maker. Graepel also moved with the history of Europe. Their acquisition of STUV in Seehausen is one of the more successful acquisitions by German private companies in the eastern part of Germany. Their move into Turkey for local production and supply is working in a similar manor. They are returning to the East. "It was necessary for us" says Mecking. "If we didn't supply our customers in Turkey, someone else would supply them in Turkey, then ultimately in Germany."
 
As a result, Graepel continues its success and profitability through a real focus. The focus on quality, technical innovation, on the business process and supply requirements, but most of all, on the needs of the customer and solutions for their business. Competitors have come and gone from the market, including some major global players, yet Graepel and the Graepel family remain successful from their location in North West Germany and specific, customer driven locations throughout the world.