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Sticking to plan in firm with diverse portfolio
Last Updated: 2014-03-06 07:17 | China Daily
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3M Co's booth at an international medical device exhibition in Shanghai. In the fiscal year ending Dec 31, 3M reported overall operating profits had surged 21 percent year-on-year. Provided to China Daily

3M doesn't just produce Scotch Tape: It sees scope in health sector

James McSheffrey, chief executive officer of 3M China Ltd, says, paradoxically, that running a business in China can be "both easy and difficult".

For the record, the industrial conglomerate has a string of well-established brands in the world's second-largest consumer market. Sales in China alone jumped to around 15 percent of its global revenue in 2013.

But to prioritize its more than 50,000 product types, ranging from Scotch Tape to Post-it notes, decision-making requires deep deliberation in a country the sheer size of which predicates varying market needs.

The task is tricky even for McSheffrey, who has spent 31 years at 3M, largely in North America and the United Kingdom.

Unlike many Fortune 500 chief executives, who witnessed the transformation of China from a vast rural land two decades ago into a vibrant economic powerhouse, McSheffrey regards Shanghai, 3M China's headquarters, as the only "highly cosmopolitan" city.

His first China trip - both for business and personal reasons - took place last July, two months before he was appointed to his current position.

"During my five manufacturing plant review tours, I was deeply impressed by the well-designed facilities and the consistent level of global expertise," he recalled.

So such standardization is also "heartening news" for McSheffrey, who has rich experience in managing a full spectrum of 3M companies in mature markets.

"Within a developed economy, you have to make choices. We have 35 product divisions, which means not all of them share the same opportunity at the same time," he said.

Just as China, in the last 10 to 15 years, went through incredible growth in all sectors, so did 3M within the company. As certain sectors slow down or others speed up or remain steady, considered planning is essential, he said.

One recipe he calls upon for overseeing the China market is what is known as the Six Sigma philosophy. Six Sigma is a management method developed by Motorola Inc that emphasizes setting extremely high objectives, collecting data and analyzing results to a fine degree as a way to reduce defects in products and services. As an aficionado, McSheffrey seeks to improve the quality of process output by identifying and removing errors in manufacturing and mini mizing variables in the business process.

Under McSheffrey's helm, the 3M team led a "lean" business process by defining customer needs, measuring key aspects of the current process, analyzing data to investigate cause-and-effect relationships, improving the existing process and controlling the future state of the process.

To that end, 3M's unusually wide portfolio breadth successfully shields it against over-reliance on any market. Its vast product line ranges across high-tech colored film s and dental supplies to mundane items such as glasses, cloths and sponges.

In the fiscal year ending Dec 31, 3M reported overall operating profits had surged 21 percent year-on-year. While two business segments fell short of expectations, robust performance in industry and healthcare helped drive up sales to $30.9 billion, an increase of 3.2 percent.

"3M is good at managing currency risks and sells many consumer staples and healthcare items that tend to hold up well even in turbulent periods," said Deane Dray, an analyst at Citi Research who tracks 3M's stocks.

A research note by Nomura Securities Co Ltd analyst Shannon O'Callaghan stated: "Organic growth is accelerating, capital allocation is turning positive and margins may even have room to rise a bit, all suggesting to us that earnings-per-share growth could surprise to the upside versus current consensus estimates for 2014 and 2015."

Constant decision-making is needed in a vast and vibrant market such as China, McSheffrey said. For instance, one strong growth area of 3M last year was fueled by liquid-filtration products in China, which experienced more than 70 percent year-on-year sales growth in the residential water filtration market.

The smog that has been witnessed in large areas of China drove up sales of protective facial masks and air-purification machines.

A consequent run on face masks lifted profits at 3M and demand remains strong because concerns over the worsening air quality persist.

As the leader in the niche market, 3M is well-positioned to teach basic know-how to the public about choosing masks and the proper fitting of them. When the severe haze lingered in Shanghai at the end of December, 3M's protective respirators sold out in brick-and-mortar outlets as well as on multiple online channels.

"Honestly, I am proud," said the CEO, referring to the ubiquito us 3M logo on the streets of Shanghai. "It means opportunities for us but, more importantly, I'm glad to see we are able to help people improve their lives."

3M's N95 respirator covers the nose and mouth tightly, filtering out tiny particles that can carry viruses and bacteria, said McSheffrey. It is different from a surgical mask, a loose covering that lets air in at the sides and is used to protect patients from any bugs carried by the people treating them.

The importance of product prioritization weighs in here. As a "local-mega trend", air and water quality have become a visible headache. Business growth is thus "accelerated" and, as the business leader, 3M is poised to roll out its extensive offerings and educate the market as an instructor.

"The one thing I noticed is that some people are wearing the wrong masks - either warming masks or other types of respirators that won't prevent particles passing through them. If I could, I would wander around on a Saturday afternoon teaching people how to properly wear a mask," he chuckled.

The desire to teach and guide can be traced back to McSheffrey's earlier days as a laboratory supervisor at a school in Canada. Despite holding a bachelor's degree in chemistry, he found the supervisory element to be more interesting than performing experiments per se. That propelled him to undertake an MBA at the University of Ottawa and later to apply for a job with 3M's Canadian unit.

He then worked at various manufacturing plants across Canada and the Minnesota headquarters, which gave him a full insight into the company's product portfolio and market-specific designs.

He found that in consequence it is hard to identify the most promising business units in China, a challenge he regards as similar to a parent choosing a favorite among his or her five children.

Nonetheless, he picked the healthcare sector as the bright est prospect. As people enjoy a growing discretionary income, there are a lot of applications available to them ranging from the prevention of illness to advanced wound protection and dental products.

 

Creating new business categories is a proven winning formula for 3M in creating and sustaining a healthy growth pace, which McSheffrey said is "1.5 times that of the local economy".

3M's track record, which has produced increasing dividends in each of the past 55 years, suggests it is capable of maintaining its success. However, a focus on a steady yet unspectacular growth rate is something that holds more aggressive profits back.

Nonetheless, McSheffrey is not about to start sprinting toward expansive growth. He regards his role like that of holding the conductor's baton before a massive orchestra, when "you never allow all the instruments to play at the same time", he said.

The only competence required to excel in China has to be localization, he stressed, because a number of companies, including the likes of Honeywell International Inc and Johnson & Johnson "compete here and overseas".

"The only foreign thing you find at 3M China is perhaps me," he laughed, saying he relies on the local management team to co-craft business plans.

"I still have a home in Canada - a town with a population of 400 people. It's almost impossible to imagine the scale of everything here - and that includes opportunities," he said.

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