Eaton maintains steady path

Its vehicle division had fewer sales and lower profit in the second quarter of 2012 while other businesses experienced improvements to different degrees.

Sales of Eaton's truck parts business in the second quarter of 2012 amounted to $625 million, a decrease of 7 percent year-on-year. Sales of its automotive parts business declined by 8 percent.

"The truck and car parts business used to account for 70 percent of our whole business 10 years ago but now it is no more than 30 percent," said James W. McGill, president of Eaton's electrical sector in Asia-Pacific region.

The diversified strategy helps to ensure the company's consistent success.

Even in 2007, when sales of trucks decreased by 44 percent year-on-year, Eaton still managed a positive performance, McGill said.

The company expanded its business through a series of mergers and acquisitions, which is how Cutler ended up at Eaton.

In 1979, Eaton acquired the company he used to work for and he was made a division controller.

Eaton acquired the electrical division of Delta Plc in 2003 and purchased Powerware Corp for $560 million for its power system business in 2004.

In order to expand its aerospace business, Eaton acquired the aerospace fluid and air division of Cobham Plc in the United Kingdom and the aerospace division of PerkinElmer Inc in the US in 2005.

Eaton has made acquisitions in many different regions almost every year.

"About 40 percent of Eaton's annual business growth was from acquisitions and 60 percent came from new products and technology," said Cutler.

Now, Eaton has two groups - industrial and electrical - and four business divisions engaged in the electric, hydraulic, aerospace and vehicle businesses.

However, integrating the different businesses is no easy task.

"Every time, you bring two companies together, their cultures are different," Cutler said.

The company has developed what it calls the Eaton Business System to integrate newly purchased businesses.

EBS is Eaton's uniform way of doing business, Cutler said. The company holds a lot of teaching and training courses on how to do things the Eaton way for new staff members. "That is the best process to bring the different segments together," he said.

In many ways, it is not different from hiring graduates from schools and teaching them the company's language, Cutler added.

Eaton entered China in 1993 and its target of $1 billion sales in the country was achieved in 2010. "Our goal is $2 billion sales in China's market by 2015," Cutler said.

According to Eaton's plan, 60 percent of its sales will be generated outside the US by 2015, half from developing nations.

"The biggest element will be from China," Cutler said.

As a supplier for the C919 project, China's first large passenger aircraft, Eaton forecast it could achieve $2 billion in sales. The commercial aerospace project is a long-term business with deliveries of the C919 starting in 2016.

Eaton needs to expand its other businesses besides aerospace in China in order to meet the $2 billion target.

"The electrical business is still our main business in China," Cutler said. "Almost every business segment is growing fast in China."

China's strong demand for infrastructure projects (as partly reflected in the charts above, which highlight the country's outputs of power generating equipment and AC motors in the country) give international manufacturers like Eaton great business opportunities, Cutler said, even though the economy is slowing down this year.

Eaton's rivals are also enjoying good business in developing countries.

Honeywell, for instance, achieved year-on-year growth of more than 20 percent in China in 2011. More than 55 percent of the company's revenues are generated outside the US now.

Both manufacturers have adopted a localization strategy to continue expanding in China.

"We expanded local manufacturing capabilities and service offerings across China," said Shane Tedjarati.

In 2011 and 2012 Honeywell built a friction materials plant in Chongqing, a turbocharger plant in Wuhan, in Hubei province, and a personal protective equipment plant in Chuzhou, in Anhui province, as well as a satellite sales office in Xinjiang Uygur autonomous region.

Eaton's localization strategy is deep. It has more than 10,000 staff working for its 18 main manufacturing bases and four research centers in China.

The company's China innovation hub "centralab" was completed on July 25. Work there will focus on the most advanced technological innovation. It is one of the company's five centralabs worldwide.

"We have localized our business and most of our products are produced in China for the China market," said Cutler, who visits China almost every year.

wangwe@chinadaily.com.cm