How a Detroit machine maker wound up in Chinese hands

November 04, 2018 01:00 AM

PHOTOS BY CRAIG GORKIEWICZ

Turnabout: John Malane, right, bought VGage from Swedish owners and then connected with Sam Jia, left, to get a foothold in China. Jia now runs the company that Malane sold on Jan. 1.

DETROIT — So how does a company with roots in suburban Detroit end up with Chinese owners?

In the case of VGage, it was more about the demands of automakers in 2006 than decades of corporate twists and turns that pulled the company through a line of owners that included Digital Techniques, Valeron, Cincinnati Milacron, GTE and Sweden's Sandvik.

To hear John Malane tell it: "From day one, all the major customers were very concerned about our presence in China."

Detroit ties

It's not always about the U.S. market. For one Detroit business owner, a joint venture meant access to China.

Day one, in his case, was 2006. And the concern was VGage's lack of any presence in China.

Malane, now 56, had been hired by Sandvik to run its Valenite Gaging Systems unit in Oak Park, Mich., and prepare it for sale. He ended up buying it himself.

He quickly found out that he was at a disadvantage. Automakers building engines and transmissions across the globe favored suppliers that had some international chops. Especially in the nation that was on its way to becoming the world's biggest auto producer, China.

Those expectations even applied to specialists such as VGage, which builds custom machinery that measures with exacting precision the valves, pistons, gears and other parts that go into engines, transmissions and braking systems.

So Malane went to China.

There, he connected with two sales representatives, Sam Jia and Kelly Wu. Together, in 2009, they formed VGage Wuxi, a 50-50 joint venture.

PHOTOS BY CRAIG GORKIEWICZ

VGage builds machinery that measures with exacting precision the parts for transmissions, shown.

The Chinese-American combination gave VGage a foothold in the world's two biggest auto markets.

"You can't get on the bid list until you prove you have a global footprint," Malane explained. "It made us stand out versus smaller gauging companies."

Bridging the Pacific

Language: About 5 VGage employees in Oak Park, Mich., speak Chinese. In Wuxi, China, it's much easier to find engineering students who have some command of English. Hiring translators who don't have technical expertise hasn't worked.

Travel: General Manager Sam Jia spends a week each month in Oak Park. U.S. leaders go to China less frequently. At any given time, there typically will be a few Oak Park engineers in Wuxi for visits of up to 8 weeks.

Culture: Cultural immersion is considered important, but there's no attempt to mix cultures. "You shouldn't manage China from the U.S.," said former owner John Malane. He says he learned how not to operate by watching other U.S. companies.

Communication: Early on, the iPhone was embraced as a company-funded tool that could bridge cultures and a 12-hour time difference. Policy dictates that colleagues' emails get a response within 24 hours. Said Malane: "It's been critical for communications."

VGage produces pricey, software-intensive equipment that has become more critical over the years amid the industry's push for quality. Malane says his typical order tops $200,000. Some units can go for $1 million.

Today, about 60 percent of VGage's business is automotive. That's up from about 50 percent during the Great Recession. Key to its success in the U.S. has been a culture of support.

Customers are encouraged to call around the clock when problems arise. In the U.S., most of the calls go directly to Malane or U.S. CEO Jim Nantais.

One recent Sunday, Nantais fielded a call from an American Axle plant in Bluffton, Ind. A mistake had been made. A gauge was out of order. Nantais immediately dispatched a colleague to travel from Michigan to Indiana, where a software fix was made the next day.

Malane says his Chinese counterparts in Wuxi initially struggled with such a customer-first philosophy but eventually embraced it.

PHOTOS BY CRAIG GORKIEWICZ

VGage's in-line gauges communicate with a CNC lathe to adjust measurements. Some models can cost up to $110,000.

Changing tides

Tides have turned in other ways. Sales for the China arm have risen in step with a booming Chinese auto industry. It now commands more than half of the company's $40 million in revenue and about two-thirds of the 210 employees.

And in the biggest shift, Malane decided to sell. The ownership, as of Jan. 1 this year, is now 100 percent Chinese.

Nantais is the only American to sit on the company's five-member board. The rest are Chinese. Among the directors is a representative from Guojing Capital, a principal investor.

Malane operates without a formal title, but he still comes to work every day and plans to for the foreseeable future.

His main role, he says, is to ensure that common procedures are followed globally at the company he bought from Swedish owners that is now in Chinese hands.