Hometown conglomerate 3M Co. is taking a gamble in its quest for global growth, investing in nations where traffic jams, clogged ports and electrical blackouts are part of the daily rigors of doing business.
The Maplewood-based company recently launched an unusual sub-Saharan growth initiative that will create a $500 million empire that flows from Kenya and Nigeria. Its plan, which CEO Inge Thulin calls the company's "newest frontier," differs starkly from typical corporate expansion targets like India and China, where U.S. companies have made significant investments in recent years.
3M is leaning on the sub-Saharan region to tap into a deep well of new customers. Nigeria, which has seen a population explosion over the last 50 years, is expected to reach 390 million people by the year 2050 and is benefiting from a surge in oil production. Meanwhile, Kenya, with more than 43 million people, has the biggest and most advanced economy in east and central Africa.
3M says it is reactivating its presence in Kenya while creating an entirely new unit in Nigeria. The company is also investing in Saudi Arabia, where it expects to generate another $500 million in sales. It's likely 3M will sell its wide assortment of products in Nigeria and Kenya, while it will manufacture, sell products and conduct research in Saudi Arabia.
"With the slow recovery here in the United States, the financial situation in Europe, and the slowdown in China, companies are looking for new markets for their products," said Troy Walters, an economist with IHS Global Insight. Nigeria and Kenya "are very unconventional areas for most U.S. companies to invest in," he said.
3M is counting on increased spending by the Kenyan government and expects to sell its products to health care, IT, and mining and agricultural firms there. In Nigeria, it plans to sell respirators, surgical drapes, bandages, and stethoscopes, as well as anticorrosion coatings for oil pipes.
But doing business in sub-Saharan Africa is risky. Nigeria is plagued with crowded ports, slow commerce, spotty electricity and a brutal infrastructure that thwarts industrial development. Kenya has faced political fighting, a near civil war and an influx of Somali refugees in the last decade. The combination has created headaches for many businesses and for a time thwarted investment.
But those days are over, insists Irfan Malik, 3M's Middle East and Africa area vice president. In order to increase revenue, 3M must look at other regions.
"As the economy of East African region grew, [there's] a positive outlook and increased investments in multiple segments," Malik said. "It is time for us to capitalize on the emerging opportunities."
Adesegun "Segun" Oyedele, a global marketing professor at St. Cloud State University, said 3M may be onto something. Sub-Saharan Africa offers challenges, but also opportunities. 3M just needs to know where to look.
"It's true. Nigeria is nonindustrialized. The manufacturing base is not there like in China or India. And the infrastructure is very, very bad," said Oyedele, who is Nigerian. "But there is a rising middle class in Nigeria, and it is a consumer society."
He said building a plant there wouldn't be a good idea, but importing products that don't require sophisticated or long-term maintenance will sell quite well in Nigeria and other sub-Saharan nations. Oyedele, however, noted that 3M should be prepared to battle it out on price because lots of inexpensive, Chinese-made goods flow through Nigeria. Because 3M already manufactures in China, it might simply export its products from there to sell in Africa, analysts said.
Still, Walters, the economist, said companies looking to make large investments in sub-Saharan Africa may not see the benefits materializing for some time. 3M declined to say how long it will take before its investment in the region will pay off.
U.S. Commerce Department figures suggest there will be a lag. 3M's expectations for sales in the sub-Saharan and Saudi Arabia -- around $1 billion -- is equal to what all Minnesota companies exported to those regions last year.
While 3M's growth plan is unique, it is certainly not alone in scoping out opportunity in unusual places. Bloomington-based Donaldson, which makes air, truck and factory filtration systems, is seeing growth from the Czech Republic. Medina-based Polaris Industries, which makes ATVs, motorcycles and snowmobiles, is expanding in Sweden, Norway and Russia. Snowmobile sales there surged 24 percent last winter, compared to just 0.5 percent in North America.
FBR Capital Markets senior research analyst Ajay Kejriwal said he isn't too surprised by 3M's revved-up mission in the Middle East and sub-Saharan Africa.
Thulin "is making incremental changes and trying to help drive top-line growth. We saw last quarter that they announced these end-market initiatives [around aerospace, oil and gas]. And now he is announcing new geographies," Kejriwal said. "They have not had as much presence as they would like there and they are trying to correct that."
Thulin told analysts that 3M's new stand-alone subsidiary in Saudi Arabia will be operational this month. It will invest in marketing, research, and technology and will "expand its presence by opening branches in East and Western regions of the Kingdom," Malik said. "We would also explore potential opportunities for local manufacturing, distribution centers and technology."
3M already sells its corrosion-resistant coatings to Saudi Arabia. But it also plans to sell facial identification software products, protective train wraps, and medical products aimed at Saudi's health care tourism.
Asked how long it will be before 3M's investments in the region pay off, FBR analyst Kejriwal said: "I don't think they are talking 25 years. For them, long-term is maybe five years."
Dee DePass • 612-673-7725
