3M's global growth

3M may stand for Minnesota Mining & Manufacturing, but the company's future is fast taking shape overseas.

Whether measured by revenue, employees or investment in new plants, the Maplewood-based company's growth is being directed to its foreign operations at an accelerated pace.

International sales now account for 63 percent of annual revenue, up from 53 percent in 2001. At its current growth rate, those sales should reach 65 percent of the total this year and 70 percent by 2012.

Employment, equipment and factories outside the United States also have risen significantly. Half the company's workforce was in the United States as recently as 2001. Now it's 44.7 percent, with the drop just as pronounced in Minnesota, with only one in five 3M employees now working in the state, down from one in four in 2000.

In becoming a more truly global company, 3M is following in the path of many other Dow Jones industrial components, such as Honeywell (48 percent of sales overseas), Coca-Cola (72 percent) and General Electric (89 percent). The tradeoff is a more stable, growing business, but one in which the headquarters city is increasingly devoted to planning, research and development and administration, rather than manufacturing.

3M still makes chemicals in Cottage Grove and all the Scotch tape in the world in Hutchinson, but those Minnesota roots now are attached to operations in 64 countries.

Citing the growing importance of the rest of the world to 3M, CEO George Buckley said during last week's earnings conference call that "3M is, in fact, a broad-based international company that seems to be masquerading as a U.S. company."

Inge Thulin, a native of Sweden, runs 3M's $15 billion international operations from a 14th-floor perch in Maplewood where, fittingly, a large globe sits in the corner.

"International is the company's biggest growth platform. No doubt," Thulin said. About 40,780 employees work for Thulin, or 54 percent of 3M's workforce, up from 49 percent just six years ago.

3M is pumping millions into new factories, research and technology centers in Brazil, Russia, India, China and Poland and planting seeds for future growth in Turkey, Kazakhstan, and Ukraine.

The idea is to put factories and research centers closer to customers and suppliers to reduce costs and to increase sales opportunities, said Chief Financial Officer Patrick Campbell. More than 43 percent of 3M property and equipment is based outside the United States, up from 35 percent in 2001.

Move a division?

For the first time, some 3M officials have raised the possibility of moving one of the company's six business divisions outside of the United States.

"As for our business unit operations, all are in the U.S. today. Yet half have over 60 percent of their sales from outside the United States," Campbell told analysts last fall. "So one of the things we have to look at is, should some of our business units actually be located outside the U.S.?"

That possibility, and the loss of Minnesota jobs over the past few years, has rankled some longtime workers and shareholders who argue that the company's roots are becoming meaningless. They point to the shedding of about 900 jobs in Minnesota in the last 14 months, more than any other region of the globe and affecting everything from pharmaceuticals to LCD films, auto products, janitorial and office jobs.

Thulin disputed the idea that the overseas growth translates into an abandoning of the United States or Minnesota and noted that Europe has had its share of downsizings. 3M's mission is to grow everywhere, not just overseas, he insisted.

Spokeswoman Jackie Berry noted that 3M has invested in Minnesota, creating a central R&D center in 2002 and expanding Alexandria and Hutchinson plants in 2005 and 2007.

But the sales data reveal how much 3M's growth and stock price is being determined outside the United States: Sales doubled in the past five years in Asia, rose 44 percent in Europe, 39 percent in Latin America, but just 17 percent domestically.

"In my opinion that [global growth] is also good for the United States and Minnesota because the anchor is here," Thulin said. "We have the headquarters here. And international growth strengthens our operations for 3M U.S." Partnerships and corporate problem-solving around the globe stem from work done at the Maplewood headquarters, he said.

He also sees it as unlikely that 3M's research work ever would be moved overseas.

"At 3M in St. Paul, we have some incredible knowledge and we have some incredible technology platforms that we utilize for many businesses. And we have to be careful when we start to think about moving that stuff. You cannot do that. I mean, knowledge transfer is important ... but you cannot replicate that around the world. So you do that at the central place. That is better for the company. And you probably have to do that still here,'' Thulin said.

3M's commitment to Minnesota remains strong, he insisted.

Looking around his Maplewood office, he asked: "Are you not surprised that you are meeting the international executive vice president sitting right here in the headquarters of 3M, in Building 220?''

'Miraculous' change

University of Minnesota management and technology professor Alfred Marcus describes 3M's transformation as "pretty miraculous.''

"At its core, 3M is still a Midwest company that is made up of engineers educated here in the Midwest," Marcus said. "That is its core. It probably still lacks a total global perspective.

"But it speaks to the usefulness of its products on the global front. Whenever a road is constructed anywhere in the world, the [reflective] road signs are 3M's. They have a huge lock on that market."

Alan Tonelson, a research fellow at the U.S. Business and Industry Council, worries about the trend toward less domestic manufacturing, however.

"Most or many of their suppliers are overseas, and that also reflects the great flight of manufacturing from this country. In the short term, it makes perfect sense for them to want to be near both customers and the factories that supply them," Tonelson said. "I am sure that 3M is making capital goods as well and putting factories in places like China and India. But here is my great fear: that they add to these global [trade and dollar] imbalances and global excesses by helping to strip the U.S. of its earnings capacity.''

Marcus disagrees, saying the headquarters of international firms are the ultimate beneficiaries.

"More of the growth and profits come back here because the headquarters is here,'' Marcus said. "It is important that the headquarters is here. This is where the decisionmaking lies and even the global flows of funds."

Thulin is not willing to predict 3M's global footprint 10 years from now. But the trend is clear. International sales grew roughly 3 percent a year between 1998 and 2002. They've since averaged 12 percent growth, thanks to the hottest emerging markets that investment aficionados affectionately call BRIC, short for Brazil, Russia, India and China.

Buckley is staunchly bullish on emerging economies, predicting they will "continue adding significantly to 3M's revenue expansion."

China and India are a particular focus. 3M's cherry-red logo now beams high above an LCD film factory in the bustling city of Suzhou, China. That factory and factories in Shanghai, where 3M first set up shop in 1984, account for $300 million in 3M investments and nearly $2 billion in revenue.

"China is huge for us," Thulin said.

In Bangalore's gridlocked Electronic City, 3M's perfectly manicured campus oversees a thriving $180 million Indian business stemming from plants that make motorcycle decals, auto abrasives and adhesives. 3M India has 1,100 workers and more are expected to be hired this year.

"And we have 1,400 contract employees in addition to that," said Bert O'Donoghue, managing director of 3M India.

"It's an exciting place and it's a country whose time has come economically," he said. "We celebrate 20 years in India this year so we can truly say that we are an Indian company."

Dee DePass • 612-673-7725