A pocket-sized multinational

Photo Georges Jobard / Chairman, F2i, Innovation and Strategy Consultant / November 10th, 2015

SYNDICATED FROM

L’Ecole de Paris

Clextral is an engineering company located in Firminy near Saint-Etienne, France. It employs 275 people including 80 engineers, sells its machines in 88 countries and has subsidiaries and offices on every continent. What's the secret?

In 1956, the company which was later to become Clextral acquired an operating license for twin-screw extrusion technology. Using this technology and sharing its growth with its clients‚ Clextral was able to conquer markets as varied as industrial equipment for making cornflakes, and banknote paper pulp production (a sector in which Clextral is now world leader). Despite several changes of majority shareholder, Clextral has managed to forge a very strong identity which it has been able to share with its shareholders and is based on respect for the product, and the company’s clients and employees. Growth has taken place as a result of innovation and internationalization.

Starting small, thinking big
Clextral designs and produces specific machines for various industries. These industries include the food industry (for example cornflakes, aperitif snacks, fish feed, pet food for dogs and cats, and couscous), the paper industry (paper pulp for manufacturing bank paper and special paper), plastics (manufacture of compounds), chemicals (reactive extrusion), and the nuclear industry (safety equipment).

The technology behind most of these machines is twin-screw extrusion. This involves an engine, a speed reducer to transmit power from the engine to the two shafts, a set of screws with complex shapes, technology which subjects the matter to both thermal and chemical reactions, and finally cutting systems which give the product its end shape. The advantage of this flexible technology is that transformation of the product is non-stop: for example, a twin-screw extrusion machine can produce up to 25 tons of fish food every hour.

Other technologies are used, for example to transform wheat flour into semolina and to dry it out in different aggregate sizes, or to clean, bleach and cut cotton fibers in order to produce paper pulp for bank notes. Finally, Clextral manufactures safety equipment which supplies all the EPR (European Pressurized Reactor) nuclear power stations in France, and it has sold this equipment in Belgium, South Africa, Korea and China.

In 1956, one of the divisions of the Compagnie des Ateliers et Forges de la Loire (CAFL) acquired an operating license for the patent of twin-screw technology which had been invented by Roberto Colombo, an Italian engineer, to produce plastic products. For years, this was the application which the CAFL used when selling machines intended to manufacture PVC profiles or polyamides to Rhône-Poulenc, for example. In 1970, the CAFL merged with the Société des Forges et Ateliers du Creusot to form Creusot-Loire.

In 1971, the Centre technique de l’union des céréaliers (CTU) commissioned a study in the United States to analyze what products can be made from corn. They discovered a process perfected by Wenger, a family-run company, during which a single screw machine cooks the corn grains under pressure (like in a pressure cooker), and when the corn comes out of the machine, it instantaneously expands and becomes crispy.

The CTU tried to find a French single-screw manufacturer with whom they could collaborate to make innovative products based on cereals. Since they did not find one, they chose the twin-screw extrusion technology perfected by Creusot-Loire. This company was iconoclastic enough to agree to put flour into a machine normally used for manufacturing plastic. The result was a flat crispbread, and it was a huge success. It was marketed in France under the name ‘Cracotte’ and has spread throughout the world ever since under various names and using a variety of recipes. Creusot-Loire developed this process jointly with Diepal, a company which was bought in the end by BSN (now Danone).

From this moment onwards, the company was recognized in the food industry as possessing a technology which allowed it to create innovative products using very advantageous manufacturing conditions, in other words, non-stop production using very little water.

When the Creusot-Loire management realized that the company was about to file for bankruptcy, they wisely decided to divide up some of their activities into subsidiaries to give them some chance of survival. One such company, Clextral, was created in 1984. Its name comes from CL (Creusot-Loire), EXT (extrusion) and AL (alimentaire: food industry). In 1985, Clextral was bought by Framatome (now Areva) and became a subsidiary in its industrial machinery division.

From 1976 onwards, Creusot-Loire worked with the Centre technique du papier (CTP) to try and make paper pulp using twin-screw technology. The person in charge of CTP came from Grenoble with a bag of shavings which he poured into a machine used to make cornflakes. The result was something which looked like paper pulp. As a result, it was  decided to launch a pilot partnership with several paper manufacturers and perfect a procedure which used much less water and energy than normal.

The most interesting application of this process, the manufacture of banknotes, was perfected with Banque de France. After three years of collaboration, a three-way patent was registered, owned by Clextral, CTP, and Banque de France. The latter inaugurated its site in January 1991 and a marketing agreement was signed. For several years, Banque de France showed potential clients the fruit of this collaboration and each time that this resulted in a sale, Clextral paid the Bank royalties. Thanks to the patent and to this exemplary co-operation, the firm’s market share was close to 75% in global banknote production.

Towards the end of the 1990s, Framatome wanted to get rid of its diversified subsidiaries. Along with other managers, I realized that Clextral was going to be sold to the highest bidder and we noticed that several of its competitors were potential buyers. However, we wanted the company to continue its adventure and so we anticipated a different solution, an LBO (leveraged buyout). We met with several investment funds, but we realized that we could not work together as their expectations in terms of return on investment were incompatible with our trade.

We found two other investment funds, the Union d’Investissement and AtriA, whose approach and vision was closer to ours. In 2001, we signed the LBO contract with these two funds and with GIMECA, the Fédération des Industries Mécaniques’ investment bank.

Fourteen of Clextral’s managers invested their own money to be part of the company buyout, and 5% of the shares were offered to employees via an employee savings plan. This plan included 50% of Clextral shares and 50% of diversified shares in order to limit risks for the employees. All of them became shareholders.

In 2007, the investment funds announced that they wanted to withdraw their capital. The firm had to find a new shareholder. Legris Industries, a diversified, family-run group, was chosen.

Clextral currently employs 275 people including 227 in France and 48 in other countries. It had a record turnover in 2012 of 62.1 million Euros. The 2012 operating profit was 8%.

Its activity covers about twenty niche markets, each one with different clients and competitors. The markets are often very small with a reduced number of competitors (one to three) except for plastics where about thirty firms compete.

Clextral has global market shares of 30% for cooking/extrusion in the food industry, 70% for couscous production, and 70% for the manufacture of paper pulp for banknotes.

The company’s success is the result of two growth motors, innovation and internationalization, and two other factors which I will mention later.

Innovation
If Clextral had concentrated on two-screw extrusion in the plastics sector, the company would be in serious difficulty today. Plastics manufacture is standardized and everyone uses the same procedures. Competition therefore is mainly centred on costs and the capacity to manufacture very large machines. Clextral’s German competitors are leaders in this sector.

This is why, since the start, Clextral’s main growth engine has been innovation. Of our 275 employees, 80 are engineers and 3 of them have PhDs. The company has 3 R&D centres in France, the United States and Australia, and it is technically sound in industrial property with 17 patents. In 2012, it spent 3.6 % of its turnover on R&D.

When Creusot-Loire sold its plastic products to Rhône-Poulenc, it did so according to Rhône-Poulenc’s specifications and therefore remained a supplier. The client alone controlled the process. The fact that Clextral launched itself into the food industry was the reason it became an innovative company. Its first food industry clients did not know about twin-screw extrusion and so this gave time to develop process skills, and allowed Clextral to present its innovation to its clients.

Whereas at this moment in time the firm generally employed mechanics, electricians and a few automation engineers, it started recruiting engineers for the food side of the business so that they could ‘speak the same language’ as clients and were able to understand what was happening inside the machines. Likewise, when Clextral started its paper pulp activity, an engineer from École française de papeterie was recruited. In 1994 arrived a professor from Compiègne Technology University, Jean-Marie Bouvier, who was an expert in twin-screw extrusion and who had spent a sabbatical year working in the United States and knew the well-known American companies specializing in cereal technology. He has been managing R&D teams since 1994.

It is important for the firm to work with its clients. When it makes a few trial runs by itself, they are invited to look at the samples to see their reaction. They know their markets and they alone know whether they want to risk launching a new procedure or a new product.

When the company first started out in the food industry, it had a pilot machine which helped attract manufacturers in the sector. They came to Firminy with their raw materials and their engineers to work with Clextral’s teams and equipment.

In 1985 was created a larger research center at Firminy with pilot machines and accessories which made it possible to have small production lines in order to reassure clients about the feasibility of their products, and even to produce small volumes so as to test new markets.

Soon afterwards, a second research center was constructed using the same model in the United States so that the major American companies could use the same equipment. The third research center opened in Australia in 2010 and coincided with the installation of a new process, extrusion porosification technology, which enables the manufacture of porous powders by reducing energy consumption.

Clextral’s team is constantly thinking about extending their scientific and technical network on a national and international level.

They belong to four competitive clusters: IAR (Industrie et Agro-Ressources), to diversify activities based on cellulose and orienting them towards the biomass; Axelera, to develop reactive extrusion; Plastipolis, to develop the production of high-quality compounds; and Viameca, to advance development methods for new metallurgies.

In 2006, to celebrate the 50th anniversary of the twin-screw extrusion process at Firminy, a scientific congress brought together 300 participants from 38 countries. The aim was to discuss future applications for this technology in the fields of health and the environment. At this event was presented an innovation which was developed in partnership with Limagrain and involved a biodegradable plastic made from corn, intended to be used as mulch on fields, and which has the unusual characteristic of disappearing after 40 days.

Internationalization
Clextral’s second important growth engine is its progressive internationalization, in particular in countries where, for obvious demographic and industrialization reasons, the markets will be more dynamic in the coming years. In 2013, the GDP of emerging countries has caught up that of developed countries and the gap will most likely continue to quickly increase thereafter.

The export turnover has increased from less than 50% in 1990 to 84% in 2010. In 2012, export figures outside of the Eurozone reached 73% of total sales. In the knowledge that the Euro has been over-evaluated since 2004, this figure is a good indicator of competitiveness and it also shows that the company is well placed in the most promising markets.

Each year, the company sells between 30 and 40 installations or new equipment, almost everywhere in the world. Since Clextral started, it has been active in 88 countries, and continues to sell services every year in around 70 countries. The important place of services in its activity gives it a sound economic foundation because part of the service business is recurrent, whereas sales of new equipment can be very variable as they depend on markets and the economic climate.

International development would not have been possible without the creation of numerous offices and subsidiaries abroad. Clients who buy machines or a line of production effectively agree to partner with the company for the next twenty or thirty years. Clextral teams need to create close relationships with them if they want clients to trust them and agree to risk working with them. Being close geographically means that the company can provide them with equipment and spare parts quickly and also offer them services, such as making processes reliable, training operating agents, and upgrading machines when the raw materials change or the company decides to change its products, and so on.

Implantations abroad have also enabled us to benefit from other competitive advantages.

For example, when Clextral sells machines to Brazil from Europe, its clients have to pay taxes on the products and these can be as high as 30%. The firm set up a factory in Chile where its machines are assembled and thanks to bilateral treaties signed between Chile and Brazil, Brazilian clients pay less tax when Clextral sells machines which were made in Chile.

There is another example with Algeria. Since this country does not have a very advanced culture of production maintenance, one needs to be available there in order to ensure the correct functioning of the couscous manufacturing lines. A couple of years ago in Algeria it was still necessary to have a letter of credit in order to pay a bill worth 1,000 Euros. It did note make it difficult to buy a manufacturing line worth 1.5 million Euros but it became very tedious when one had to order spare parts. Thanks to its local subsidiary, Clextral can invoice its clients in dinars.

Geographical proximity and very attractive service offer come at a price: Clextral’s products are more expensive than those of it rivals.

The firm has been present in the United States since 1983 and since 1995 in China. However, the majority of its expansion in terms of subsidiaries and offices abroad has taken place in the last 15 years: in 2002 in Chile, in 2006 in Algeria, in 2008 in Russia and Denmark, in 2009 in Australia and Morocco, in 2012 in Vietnam and Brazil. Clextral has become a ‘pocket-sized multinational’. Of Clextral’s 275 employees, 227 work in France and 48 abroad.

To develop a close relationship with its clients and be able to innovate with them, the company cannot be satisfied with just speaking English with them as this does not create enough complicity. In each of its foreign facilities, it has recruited a person who already has a thorough knowledge of the country, who wants to live there, speaks the language, shares its culture and even sometimes its religion. Today Clextral operates in 17 different languages.

Innovation and internationalization strengthen each another because innovation creates added value which allows the company to establish itself abroad, and internationalization constitutes a new factor of innovation. Raw materials are not the same from one country to another, and clients do not have the same habits. This constantly motivates teams to look for new ideas.

Working with stakeholders
The profitability of the company is an important prerequisite for long-lasting innovation and winning international markets. A company which does not make money does not last very long, does not inspire confidence in its clients, bankers and shareholders, and is unable to recruit high-quality employees.

When I became deputy CEO of Clextral in 1989, the company had a very strong culture in terms of its products, innovation and respect for the client. However, it had also kept the strong trade union culture of a large group. The five trade unions were very competitive and constantly tried to up the stakes to get most employee support.

I set up an economics training session for all the employees, starting with very simple case studies such as a comparison between the budget of a company and that of a household. The aim was that everyone should understand that regardless of size there are important consequences if one spends more than one earns. When I spoke to the works councils, I also suggested that employees think about the reasons why the firm had become leader in certain markets and lost others, and how we could improve and become more competitive. Gradually we managed to integrate these economic realities into the training program, as well as this idea of competitiveness added to that of quality which was already well established in the company. At the same time, we implemented a profit-share plan which meant that employees could be paid 15% of the operating profit, in other words more than 20% of post-tax profit.

This educational exercise enabled to modernize social relations. After a number of years, I managed to make sure that the five trade unions had to agree on a common position before there was talk of negotiations regarding pay.

When the French law on the 35-hour working week came into force, I managed to make the trade unions agree that this reform would not incur any extra costs for the company. Since all our competitors are foreign, they are not subject to the same constraints as us, and any additional costs would have either forced us to increase our prices (which would have harmed our competitiveness) or cut our margins (which would have compromised our ability to innovate and invest). I obtained this agreement as a prerequisite to negotiations. Our CGT trade union representative got a dressing-down by his departmental delegate but after eighteen months of discussion, we managed to enforce the 35-hour working week in the company without it costing us a penny. The process of going from a 39-hour working week to 37-and-a-half – hour week was financed by spreading the payment of salaries over three years. For the remaining two-and-a-half hours every week, we implemented a break of half-an-hour every day for employees to chat among themselves without this being part of their work time. In the end, our employees are present 37-and-a-half hours every week in the company, and are paid for 35 hours’ work.

Corporate growth also supposes constructing a long-term vision designed by management which is both inspired by clients and supported by shareholders.

Clextral’s clients have always been keen to inform about changes in the markets and have guided the company in developing its strategies. Successive shareholders agreed to these strategies even though this required a great deal of effort in discussing and convincing them. All shareholders are tempted at one time or another to say to you ‘Listen, we’ll already make a profit this year and then we’ll see’. One must be brave enough to answer ‘We are a company and as shareholders you must be able to take risks and be patient. In return, we are going to do all we can so that your investment has a return in the long-term which is better than a savings account.’

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In conclusion, let me mention some of the constraints or barriers to development which the firm has encountered. An apparently minor, but actually major point, is that if one wants to encourage innovation then one must allow clients’ engineers and suppliers’ engineers to discuss with each other. For about the last fifteen years, the relationship between these two has become very difficult because of barriers which have been put up by purchasers and lawyers.

In order to be present tomorrow in 150 countries instead of 88, internal growth will not be enough. When Clextral was a Framatome subsidiary at the time of the LBO, or even today, the financial means intended for external growth have been too small. The success of medium-sized German companies is for a large part due to their capacity to absorb small and medium-sized enterprises (SMEs). French banks are not adapted to financing projects from export companies of our size, unlike German banks.

Finally, it is very difficult to recruit young workers. With bankruptcies linked to the crisis in the car industry, Clextral has managed to hire workers in their mid-forties who are very well trained, but it is very difficult, even when you offer training, to find young people who are both motivated and competent. Without quality workers, France will find it hard to get industry back on its feet.

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