Back to All Related Articles
From WSJDN
From Exporter to Local Partner
French Steel-Tube-Maker Vallourec Is Expanding Production Beyond its European Heartland, Says CEO Crouzet
When Philippe Crouzet, Vallourec’s chief executive, joined U.S. President Barack Obama to show off a new plant in Ohio that will supply U.S.-made steel tubes for the American shale gas boom, the French company’s logo was nowhere to be seen amid the Stars and Stripes bunting, symbolizing by its absence a growing reality: local ownership of production.
Vallourec may be an old company in a rather traditional business—manufacturing steel pipes for oil and gas companies—but it is a leading exponent of a new business paradigm, where companies that once focused on exporting goods from their traditional heartland are now also producing them in the markets they serve.
So in Youngstown, Ohio, Vallourec is investing $650 million to be able to supply companies rushing to extract shale gas reserves, a booming sector that Mr. Crouzet describes as a “revolution.”
And in Brazil, the company is investing $1.6 billion in an export-oriented joint venture with Sumitomo Metals, a plant that recently rolled its first tube. The plan is to produce competitive exports at the plant, allowing Vallourec to dedicate existing local capacity to the Brazilian oil boom, in which offshore explorers are racing to exploit vast new reserves.
“The way we address non-European markets was traditionally based on exports,” Mr. Crouzet says. But today, he discerns a “new phase of globalization, where the markets we want to serve are asking more and more to be served by local production.” For example, Brazil’s state-owned oil giant Petrobras is “asking for more local content,” Mr. Crouzet says.
In the wake of such demands, Mr. Crouzet, with a whole career spent contributing to the globalization of French industrial companies, has chosen not just to drum up business abroad but to install more production there as well.
“We are here to grow the business,” he says. “If you’re not willing to accept those changes, then you know that, over time, you will be shrinking.”
In 2010, Vallourec’s mills produced and delivered 1.9 million tons of hot-rolled tubes, an increase of 25.6% on-year, as business picked up steam after the downturn. Yearly sales increased by 1% to €4.49 billion ($6.3 billion), with the downturn’s squeeze on prices acting as a brake, despite the higher output.
In Mr. Crouzet’s spacious office, at the company’s headquarters just outside Paris, antique furniture sits alongside demonstration models of threading on steel pipes—a type of finishing work Vallourec now performs in the Middle East, in response to local requests for more added-value work.
This kind of business transfer “makes sense, but it’s a new step for an old industry like ours,” he says.
In addition to allowing Vallourec to position itself abroad, producing locally is also an opportunity to take the lead against competitors, both current and future, says Mr. Crouzet.
“The Chinese are still 100% involved in the old model of exporting from China,” where the capacity to produce far exceeds local needs. “That’s what we were 20 years ago,” Mr. Crouzet says. “By moving to this global-local strategy, I think we are 20 years ahead of them—and they are our competitors for the future.”
And while the “triggering factor” for producing more goods in end markets are local demands, foreign-exchange considerations also form “a very strong argument in addition to that,” Mr. Crouzet says.
“For us, being local is another way of naturally hedging our sales and profit,” he says. “Some of our competitors are still exporting from high-currency areas but that’s not how you build the future.”
“Today, exporting from the euro zone to supply customers in the U.S., in dollars, is obviously not the best deal in the world,” he says—if Vallourec is still doing so it is to increase its share of a market in which it will soon have a much larger local production capacity.
Looking ahead, Mr. Crouzet expects the euro to remain relatively strong, notably because of the European Central Bank’s hawkish reputation for fighting inflation, in contrast with the Federal Reserve, for which inflation is “clearly not the number-one concern.”
In building up new production centers abroad, Mr. Crouzet is following on from a career spent grappling with globalization.
Managers of his generation, he says, “have spent most of our business life participating in that huge movement.”
“All my career was really to develop new businesses abroad in a variety of countries and that’s exactly what I’m doing here,” says Mr. Crouzet, who worked at the glass and building materials company Saint-Gobain from 1986 until joining Vallourec, as chairman, in 2009.
At Saint-Gobain, Mr. Crouzet’s assignments ranged from being general delegate to Spain and Portugal to taking the helm of large international units like its ceramics and building materials distribution businesses.
Before embarking on his career as an international industrialist, Mr. Crouzet graduated from France’s elite École Nationale d’Administration—traditionally the training ground of the country’s political and economic leaders.
And even as he looks to boost Vallourec’s production capacity overseas, Mr. Crouzet still believes European industry has strengths that will endure.
Vallourec’s history dates back to 1886 in Germany, where the Mannesmann brothers invented the rolling process for seamless steel tubes. The resulting company eventually became part of Vallourec, which today retains substantial operations in Germany, as well as France.
The first of Europe’s “talents,” for Vallourec and its peers, is in high technology, Mr. Crouzet says.
“It will take a lot of time before we are able to manufacture outside Europe what we are able to do in our German or French mills,” he says.
The second, less well-known, advantage has to do with the skilled workforce that is necessary to switch rapidly from producing one kind of product to another, a key requisite for niche and high-quality products made in smaller quantities.
“This requires a lot of expertise,” Mr. Crouzet says, adding: “you don’t get to that point in emerging countries before a very long period of time.”
Moreover, he doesn’t see many countries from which big new competitors could emerge.
“The only real country which is a threat, at least in our industry, in terms of the future potential, is China,” he says. Elsewhere, “the size of their market is such that I don’t think they will be able to offer the whole range of products in a single mill.”
Today, the gap in costs between Europe and emerging economies is “the maximum that it will ever be, it can only narrow,” as costs rise in countries where they are currently low, Mr. Crouzet says.
There is also plenty of scope for raising productivity in Europe, where units are “still way behind the Japanese in the absolute perfect way of managing the flows within our mills,” Mr. Crouzet says.
“We still have room for increasing productivity,” he concludes, adding: “To some extent that’s the benefit of being put under pressure— we discover that we have more resources than we thought.”
