4. 3M's expansion into international markets has been successful. How do you explain the reasons for success?

Text: The first steps abroad occurred in the 1920s. There were limited sales of Wetordry sandpaper in Europe during the early 1920s. These increased after 1929, when 3M joined the Durex Corporation, a joint venture for international abrasive product sales in which 3M was involved along with eight other U.S. com- panies. In 1950, however, the Department of Justice alleged that the Durex Corporation was a mechanism for achieving collusion among U.S. abrasive manu- factured, and a judge ordered that the corporation

be broken up. After the Durex Corporation was dis- solved in 1951, 3M was left with a sandpaper factory in Britain, a small plant in France, a sales office in Germany, and a tape factory in Brazil. International sales at this point amounted to no more than 5% of 3Ms total revenues.

Although 3M opposed the dissolution of the Durex Corporation, in retrospect it turned out to be one of the most important events in the companys history, for it forced the corporation to build its own international operations. By 2010, international sales amounted to 63% of total revenues.

In 1952, Clarence Sampair was put in charge of 3Ms international operations and charged with get- ting them off the ground. He was given considerable strategic and operational independence. Sampair and his successor, Maynard Patterson, worked hard to protect the international operations from getting caught up in the red tape of a major corporation. For example, Patterson recounts:

I asked Em Monteiro to start a small company in Columbia. I told him to pick a key person he wanted to take with him. Go start a company, I said, and no one from St Paul is going to visit you unless you ask for them. Well stay out of your way, and if someone sticks his nose in your busi- ness you call me.

The international businesses were grouped into an International Division that Sampair headed. From the get-go the company insisted that foreign ventures pay their own way. In addition, 3Ms international companies were expected to pay a 5 to 10% royalty to the corporate head office. Starved of working capi- tal, 3Ms International Division relied heavily on local borrowing to fund local operations, a fact that forced those operations to quickly pay their own way.

The international growth at 3M typically occurred in stages. The company would start by exporting to a country and working through sales subsidiaries. In that way, it began to understand the country, the lo- cal marketplace, and the local business environment. Next 3M established warehouses in each nation, and stocked those with goods paid for in local currency. The next phase involved converting products to the sizes and packaging forms that the local market con- ditions, customs and culture dictated. 3M would ship jumbo rolls of products from the United States, which were then broken up and repackaged for each country.

The next stage was designing and building plants, then buying machinery and getting it up and running. Over the years, R&D functions were often added, and by the 1980s considerable R&D was done outside of the United States.

Both Sampair and Patterson set an innovative, entrepreneurial framework that according to the com- pany, still guides 3Ms international operations today. The philosophy can be reduced to several simple, key commitments: (1) get in early (within the company, the strategy is known as FIDOFirst in Defeats Others); (2) hire talented, motivated local people; (3) become a good corporate citizen of the country; (4) grow with the local economy; (5) American products are not one-size-fits-all around the world; tailor products to fit local needs; and (6) enforce pat- ents in local countries.

As 3M stepped into the international market vacuum, foreign sales surged from less than 5% in 1951 to 42% by 1979. By the end of the 1970s 3M was beginning to understand how important it was to integrate the international operations more closely with the U.S. operations, and to build innovative capabilities overseas. It expanded the companys in- ternational R&D presence (there are now more than 2,200 technical employees outside the United States), built closer ties between the United States and foreign research organizations, and started to transfer more managerial and technical employees between busi- nesses in different countries.

In 1978, the company started the Pathfinder Pro- gram to encourage new product and new business initiatives born outside the United States. By 1983, products developed under the initiative were gen- erating sales of over $150 million a year. 3M Brazil invented a low-cost, hot melt adhesive from local raw materials, 3M Germany teamed up with Sumitomo 3M of Japan (a joint venture with Sumitomo) to develop electronic connectors with new features for the worldwide electronics industry, 3M Philippines developed a Scotch-Brite cleaning pad shaped like a foot after learning that Filipinos polished floors with their feet, and so on. On the back of such develop- ments, in 1992, international operations exceeded 50% for the first time in the companys history.

By the 1990s, 3M started to shift away from a country-by-country management structure to more regional management. Drivers behind this devel- opment included the fall of trade barriers, the rise

of trading blocs such as the European Union and NAFTA, and the need to drive down costs in the face of intense global competition. The first European Business Center (EBC) was created in 1991 to manage 3Ms chemical business across Europe. The EBC was charged with product development, manufacturing, sales, and marketing for Europe, but also with paying attention to local country requirements. Other EBCs soon followed, such as EBCs for disposable products and pharmaceuticals.

As the millennium ended, 3M was transforming into a transnational organization characterized by an integrated network of businesses that spanned the globe. The goal was to get the right mix of global scale to deal with competitive pressures, while at the same time maintaining 3Ms traditional focus on local market differences and decentralized R&D capabilities.