Minnesota company's revival comes from overseas

By JOHN WELBESAssociated Press Saturday, April 24, 2024

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When much of the global economy crumbled early last year, it took 3M Co. with it. The Maplewood-based manufacturer's stock price melted, 40 percent of its value evaporating in just a few months as one-fifth of its sales disappeared along with nearly half of its profit.

By year's end, 3M had clawed its way back. Its sales growth revived and quarterly profit jumped nearly 75 percent. The company's rebound from the depths of the historic recession inspired investors to snap up its shares, returning 3M to the top spot in the Pioneer Press 100 annual ranking of the state's most valuable companies for the first time in half a decade.

The comeback was no fluke. Analysts say the company has been laying the groundwork for this sort of uptick for decades.

"In a word, it's diversity — their products and geography," said Dan Ortwerth, an investment analyst with the investment firm Edward Jones. "Relative to so many other companies, they are not so dependent on any one customer, or product, or place."

The maker of traffic signals, dental equipment, Post-it Notes and more than 50,000 other products may have been born in Minnesota, but the future of the 10,000 jobs at its Maplewood headquarters campus is increasingly tied to how 3M grows around the world.

And as its sales growth tilts overseas, so do the benefits of that growth.

3M trimmed U.S. jobs by about 1,500 between 2005 and 2009 as it ramped up employment outside the country by some 7,000 in the same period, with the most robust growth in Latin America and Asia. For headquarters employees, the rounds of layoffs and early retirement packages that accompanied the recession were another sign that the "old" 3M of lifetime employment and secure benefits isn't around anymore.

But the recent recession illustrates the benefits of having growth in your business — somewhere, anywhere — instead of counting on only the domestic market, experts say.

For a company that's as global as 3M, counting jobs by geographic location doesn't make sense, said Alfred Marcus, a professor of strategic management at the University of Minnesota's Carlson School of Management.

He said 3M's "global reach is protecting the jobs they have here in Minnesota," particularly the high-tech research jobs in 3M's labs. "If they didn't have the global reach, the jobs we have here would begin to disappear at a much more rapid rate."

As with countless companies trying to cut costs during the recession, 3M embraced a restructuring plan that eliminated jobs.

From early 2008 through the third quarter of 2009, a combination of layoffs and early retirement deals trimmed 3M's payroll by 6,400 jobs. The company saved another $100 million last year by revamping its policy on banked vacation time.

Because it makes everything from products used by roofers to those for automobile manufacturers, 3M couldn't help but be exposed to the slowdown in real estate and car sales in the U.S. during the latest recession, experts say.

But the company saw some bright spots, too, as it managed to benefit from the outbreak of the swine flu. Sales of 3M's specially designed respirator masks skyrocketed last year and its manufacturing plants ran around the clock, trying to match consumer demand.

3M has boasted in recent years that international sales were nearing 66 percent of total sales. In 2009, international sales accounted for 63.2 percent of all 3M sales, a figure that was down slightly from 2008 levels.

Still, investors believe the company is better off doing business in places as diverse as Latin America and developing countries in Africa than it is focusing solely on developed nations in North America and Europe.

3M's stock is up about 60 percent in the last year, while the Dow Jones Industrial Average is up about 40 percent.

In the long run, maintaining that growth means churning out new products that leave competitors playing catch-up. And observers say that necessitates happy employees.

"You're dealing with a lot of creative talent in a company like 3M," Marcus said. Because of that, 3M "depends on people making a strong effort. They have to be passionate about it."

He believes CEO George Buckley has helped improve morale since taking the helm in late 2005. The company stepped back from a focus on efficiency championed by former CEO James McNerney, recommitted itself to producing innovative products and began investing millions in the company's manufacturing plants.

3M's global push has also meant more research jobs overseas, including 35 international lab sites. The most recent opening occurred in India in November. And in a presentation to investors in March, 3M Chief Financial Officer Pat Campbell noted that 40 percent of the company's new products are developed locally, meaning in labs near the final point of sale.

But for 3M's research and development efforts overall, "the core of the knowledge is still really here in the Twin Cities," Marcus said.

3M's work force, now heavy with baby boomers, produces a regular wave of retirements that translates into 100 to 200 openings each year on the Maplewood campus for scientists and engineers, said Jacqueline Berry, a company spokeswoman.

While more of 3M's "new" jobs will probably be created overseas and not here, that doesn't mean existing U.S. jobs are threatened, Ortwerth said.

"I wouldn't expect 3M to shift jobs overseas," he said. "The core research and development function they have (in Maplewood) is not going away," he said. "It would cost an awful lot to pick that up and move it. There's no reason to do that, as technology knows no bounds."

Domestic manufacturing jobs are less secure. Between 2003 and 2008, 3M closed about 50 manufacturing plants worldwide. But Buckley has made it a priority to upgrade overseas manufacturing facilities and build new ones to put 3M's production lines closer to customers in fast-growing markets such as China and India.

Large numbers of new jobs on the Maplewood campus may be hard to come by. But one way the Twin Cities area could see job growth from 3M's presence is through more spin-off businesses developing niche products coming out of the company's laboratories, Marcus said.

Imation, a maker of data-storage devices, is one example, he said, even though the company has gone through tough times in recent years. Once a company is spun off, the business model for those specific products gets more attention and has the potential to grow more quickly, he said.

"There should be spillovers from 3M's business that have a positive impact," Marcus said.

___

Information from: Pioneer, http://www.bemidjipioneer.com

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