For Neapco Holdings, an 87-year-old American maker of car and truck drivelines, opening its first office in China this fall was a very big deal.
Giant global parts makers with deep pockets and big product portfolios are investing in China. Now Neapco, a relatively small company with a management team of just five, will be among them, fighting for a toehold.
Its new office in Shanghai employs two people, one of whom does not speak Chinese. But bigger things are coming, including a Chinese manufacturing plant.
It doesn't hurt that Neapco has a Chinese fairy godmother.
In 2006, Chinese supplier conglomerate Wanxiang Group acquired a majority interest in Neapco for an undisclosed sum, with Neapco's senior management also taking an equity position. At the time, Neapco was in Pottsville, Pa., and was being sold off by its private equity owner, Carlyle Group.
Neapco doesn't intend to hide behind Wanxiang's skirts in China -- although it did think about it. Wanxiang is already in the driveline business in China.
"We floated that idea initially," says Bob Hawkey, the 64-year-old aerospace executive who came in as CEO in 2003. He and the executive team work out of office space in a Neapco factory in Belleville, Mich., about 20 miles southwest of Detroit.
"My initial idea was that we would take the overall global order, and then kind of subcontract the production in China."
But the idea was short-lived. Hawkey recalls that one of Neapco's U.S. customers told him point-blank, "We will not deal with someone who has a virtual company. You have to be there in substance, not just in name."
And so, Hawkey makes clear, in China, Neapco will deliver Neapco-brand components to an expanding base of Neapco customers, managed by Neapco's Michigan team.
The eventual plan, he adds, will be to build a Neapco plant in China through an ownership joint venture with Wanxiang. But the plant will be operated by Neapco.
"We can have a very effective joint venture that we manage, that gives our customers the confidence that they're getting the same technical capability from us, whether our part's manufactured in Germany or it's manufactured in China," he says.
So what good does it do to have a rich, well-connected majority owner if that owner can't play rainmaker in its home market?
Plenty, Hawkey says.
Wanxiang's involvement over the past five years has freed management to remake Neapco into a profitable, growing company with a new global strategy and a widening customer base that includes BMW, Audi and Volkswagen, he says. Neapco has been thriving in the U.S. market since 2006.
The private company was operating with less than $100 million in revenues in 2006. This year, it will come close to $600 million, Hawkey says.