Croatia Can Be a Good Investment Opportunity

The area covered by 3M is vast as they currently have 100 to 150 thousand products, with the most successful being in the production of healthcare products and electronics.

One of the most innovative companies in the world, with an annual revenue of three billion dollars and a growth rate of 8.3 percent, in Central and Eastern Europe, is seeking new investment opportunities. The companies they would invest in must be profitable, with good management.

Written by: Željka Laslavić
Photo: Dražen Lapić

I Although many people have never heard of this company, we encounter 3M products every day. Floppy disks, video cassettes, magic tape, Post-it notes, are just some of the consumer products that 3M has invented and without which life today is unimaginable. There is not a single computer component, mobile phone, or car, license plate, or traffic sign that does not contain their component. The company, with over 100 years of existence, is divided into six business segments, of which the largest profit comes from the production of healthcare products, while the largest revenue growth comes from electronics. The likable and straightforward George W. Buckley, who has been in the highest position for about a year and a half, during his visit to Zagreb last week, told Lider how to manage a company on which the Dow Jones index has been calculated since its inception and whose revenue of 22.9 billion dollars records an annual growth of 8.3 percent.

• Can you tell us exactly what your ambitions are in this region?
– We are currently looking for markets outside the EU borders, observing fast-growing markets and seeking new investment opportunities. That is why we came to Croatia.

• What are the main conditions for opening production facilities in this region? Is Croatia, in your opinion, fertile ground for production?
– When we buy a local company, we perceive it as a seed that we will grow. That company must possess the skills we need, must be profitable, with good management. This is a prerequisite for growth and opening facilities. After that, investments in the facility and new employees come. I see Croatia as a good investment opportunity.

• Is it true that the average person in the world encounters 13 3M products daily, without even being aware of it?
– Yes, that is a strange statistic. For example, every mobile phone has a 3M component both in the display and in the connections. Every car in the world also has at least six to twelve 3M components, which are again composed of twelve other components, and so on.

• How come people are not aware of your omnipresence? Is it in your interest, or is the existence of these products so normal that no one questions their origin anymore?
– The products that people most often encounter come from the consumer goods sector, such as Scotch products, Post-it notes. Such products are visible to consumers. However, thousands of our products and equipment intended for manufacturers are not available to the average consumer. There is also a cultural aspect to the whole story. We are a company from the central part of America known for our modesty and quiet nature. That is what we are – quiet and modest.

• How many products do you currently have in production?
– Actually, no one knows. It is estimated to be somewhere between 100 and 150 thousand worldwide.

• How many of those products are phased out each year, and how many new ones are born?
– Depending on the markets. The lifespan of Scotch products and electronics cannot be compared. While some last twenty years, others become obsolete in three years. The number of products does not determine the life of 3M. However, if we talk about the average, we can say that each product is replaced every four years.

• Do you have a unique management system over all six sectors, or does each have its own management?
– We have different management models for sectors, such as Office Supplies and consumer goods distributed and used by clients like Walmart and those intended for the industrial world. The market niches are different, but we always strive for a return on invested capital and sales growth. Given that we invent new markets and have many patented innovations, both margins and profits from those products are better.

• What is the total value of 3M’s assets?
– The best indicator of our company’s value is the stock market value, which is around 55 billion dollars in shares. This places us among the top 100 companies in the U.S. by revenue and among the top 30 in market capitalization.

• What is your return on investment, and what percentage of annual revenue do you invest in further development of 3M?
– The return on invested capital is about 22 percent. We invest 1.4 billion dollars in research and development, and about 22.9 billion in sales. We currently have about 27 thousand patents in our portfolio, which will increase to 50 thousand in the next four years.

• What was your biggest task after taking over as CEO?
– I had to find an investment module that would contribute to the further development of the company. 3M was facing a certain lack of production capacity at that time. My job is to create conditions for investing in capacities, and until that investment process is completed, Wall Street will wait and watch. However, our company is very strong, and all those investments will be long-term valuable in the future. Previously, we were a company with slow growth of about three to four percent annually, and now we aim for at least eight percent in the short term, and even more in the long term.

• Does 3M prefer greenfield projects or acquisitions?
– Some think that acquisitions are entered solely for consolidation, but that is not true. Sometimes by buying a company, you also buy the technology you lack. For example, our acquisition of Brontes this year was very important for our healthcare sector, for dental technology production. That company developed a system for intraoral electronic tooth scanning. We could have developed that technology ourselves, but it would take us at least six years to create a finished product. We also bought the company Elyria in Ohio, which we needed for available capacities. We could have built new capacities, but that would take us two years. Sometimes you buy for capacity, sometimes for technology, sometimes for new products. Regarding greenfield investments, we have quite a few new capacities in China, where there is a high demand for our products, so by the end of this year, we will have ten production capacities in China.

• What is your opinion on the private equity boom, especially in the U.S. market?
– I think the private equity market has matured in recent years. Private equity firms were initially viewed very poorly because they bought companies, stripped their assets, and then sold them. Good private equity firms now operate much more thoughtfully. They focus on long-term goals, invest in service and technology, because they realized that when they exit a company after three to five years, they must leave some value behind. Such companies operate differently from publicly traded companies; they take on significant risks. I believe private equity is generally healthy for the business market.

• Do they represent competition in some way?
– They are private companies and do not have as many constraints as publicly traded companies; they have greater freedom. The downside is that they chase contracts and manage prices. However, in the end, our goal is the same, which is a return on investment. Our business does not overlap because our acquisitions are smaller than those that private equity firms are interested in. We buy companies valued between 25 and 40 million dollars, while they target much higher.

• What is your management style, and can you relate it to the leadership qualities that a person in your position must have?
– Most of my time is spent on legal and financial matters and resolving lawsuits, mostly in the U.S., on creating business strategy and acquisitions. I love spending time with customers and employees because I generally love people. The main qualities are – thick skin, a cool head, and a sense of humor. You need to know how to choose good people who will follow you, and that requires your good ethics. A strong stomach is also important because the decisions you make, often based on little information, must be made very quickly. There is also good intuition and finally courage because without it, you cannot make quality changes in the company.

• Have you ever had to ‘step over’ someone to achieve your goals?
– With all the responsibilities, one must remain an honest person. Human values are always put to the test, but I have never ‘stepped over’ anyone to get a job. I never have and never will.

• What is the ratio of rationalism and optimism that you use in business?
– I think you cannot be a creator and inventor if you are not an optimist. To build a company, you must be a dreamer. I often tell my colleagues my favorite quote from the older movie South Pacific…. ‘If you don’t have a dream, how do you expect your dreams to come true.’ Everything starts with a dream, but you need to know the boundary between a dream, fantasy, and hallucination.

• How can someone even compete with 3M?
– Depending on the business segment. In the business world, there are 6 deadly competitive weapons: price, technology, distribution, brand, service, and people. The ultimate weapon is price. You need effective production, little waste, high yield, efficient procurement of raw materials, brilliant engineers and scientists, and finally – people who will devise the simplest way to solve problems. Simplicity is beautiful, fast, cheap, and reliable.