How one manufacturer headed off the Chinese threat

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Ontario maker of pipe machinery obtained Chinese patents as early as the 1980s, and opened
a Shanghai plant in 2006

Alexandra Lopez-Pacheco, Financial Post

Back in 2000, Concord, Ont.-based Corma Inc., which makes corrugated plastic pipe manufacturing machinery and equipment, was facing a number of looming threats to its business in some 80 countries. But as soon as the writing began to appear on the wall, Corma set out to develop and implement a proactive strategy to deal with those threats. Thanks to that, the company’s revenue has not only continued to grow, despite the recession, it has improved its efficiencies while reducing costs, established a presence in a foreign market, protected its patented property and left most of its competitors far behind.

“Corma’s business has always been export driven,” says Stefan Lupke, the company’s executive vice-president, adding that since the company’s inception in 1973, its annual domestic sales have never accounted for more than 5% of its total sales revenue. Despite its geographical reach, Corma’s market is a niche one, with its main competitors based in Germany.

“It was a fairly level playing field,” says Mr. Lupke. “Then the Chinese came on at high speed, and we were concerned. I think some of our German

competitors had a bit more of an arrogant attitude, believing the Chinese wouldn’t have the quality, just have a cheap product no one would buy. They did have a cheap product, but the quality improved each day.”

Corma's activities in China

These new Communist China capitalist contenders were not pulling any punches – and their cutthroat strategy included copying Corma’s products and selling them for a third of the cost. “They copied the equipment right down to the last detail and, yes, the quality wasn’t quite there, but at a third of the price, it did prompt a lot of people in some of the developing markets to buy a lot of their equipment,” Mr. Lupke says. “We had to rethink our strategy and how we’re going to survive.”

Luckily, Manfred Lupke, the company’s founder, chief executive and Mr. Lupke’s father, is a man of foresight. “My father had begun applying for patents in China in the late 1980s,” Mr. Lupke says. “Everyone laughed at him. But we just kept on with that.”

Corma, which has approximately 30 patents issued in China, set out to defend its intellectual property rights in that country and has won several IPR infringement cases there against Chinese copycats.

“A lot of these copycats stopped copying our machinery and started copying the German machinery, which was not patented in China. It decimated some of those German companies.”

Corma’s strategy, however, went far beyond this because it was also looking at threats from the changing landscape in the manufacturing industry. “The playing field has changed and you have to adapt and have a global strategy, because if you’re just manufacturing in Canada or here in Southern Ontario, you’re not going to be competitive any more,” Mr. Lupke says.

He says it was imperative to review the company’s entire operation to find improved, cost-efficient methods and procedures to build its equipment, while maintaining and even improving their quality.

“This was the reason we established Corma Shanghai Inc.,” Mr. Lupke says. That was in 2006, but the company first did extensive research, including consulting with Export Development Canada, the Canadian Embassy in Beijing and Consulate in Shanghai.

Expanding into a foreign market, says Mark Bolger, EDC senior advisor, Asia, “does require taking a serious look at the opportunities, stepping back and applying sound business and commercial due diligence and making the choices that make the most sense. It’s not something a company should blindly rush into.”

Corma, for example, spent close to three years fruitlessly looking for a like-minded joint-venture partner. “Ultimately, we made the decision to form a wholly owned foreign enterprise operating in Shanghai,” says Mr. Lupke, whose company turned to EDC for help in acquiring political risk insurance for its foreign investment. In turn, this helped Corma secure financing from its bank.

“We are convinced that by finding and leveraging the efficiencies in our production process through our activities in Corma Shanghai, Corma Inc. has been able to maintain and, in fact, increase sales and our market position by 13% over the past two years,” Mr. Lupke says. “Given the tremendous pressure on the manufacturing sector, we are very pleased with these results. Corma has a full order book for 2010, whereas our traditional competitors from Germany are experiencing reduced sales and have had to shorten their work week.”

Instead of facing threats, Corma is now well positioned to seize growing opportunities arising from the demand for infrastructure for clean water in India, Africa, and Central and South America.

“It’s really worked out well for us,” Mr. Lupke says.

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