3M’s Model For Global Expansion

3M’s (NYSE:MMM) key strategy to expand in global markets is localization. It complements this strategy with its Supply Chain Centers of Excellence, which help consolidate the supply chain of an entire region. 3M’s wide range of products enable it to cater to markets at different stages of economic growth and also offer solutions to country specific requirements.

By leveraging its global expansion strategy, 3M has been able to earn two-thirds of its revenues from international operations. In the year 2012, 3M generated revenues of $19.3 billion from countries other than the U.S. ^[1] It believes that by 2017, revenues from international markets will grow to $26 billion. ^[2]

See our complete analysis of 3M here

Localization Is The Key Strategy To Penetrate And Grow In International Markets

3M believes in expanding and building a presence in global markets through localization. 3M enters new international markets by exporting its products to that market. After establishing considerable presence, it focuses on localization of the supply chain by using locally sourced raw materials, to manufacture products in local plants and selling through local distribution channels. Once the local supply chain is developed, 3M shifts its focus towards maintaining key customer relationships and improving productivity and efficiency by practicing Lean Six Sigma. ^[2]

Identifying and developing products to cater to local requirements has also helped 3M increase its presence in global markets. For example, 3M sells biodegradable surgical drapes in Europe for its European customers and sells respirators in China that aid in protecting against air pollution. It offers solutions to congestion problems in India through products such as reflective stickers, pavement markers and sign sheets. It is important that 3M identifies such country or region specific needs at the earliest, since its margins may get eroded once local competitors step in.

Consolidated Supply Chains Help Increase Efficiency And Bring Down Costs

3M has deployed ‘Supply Chain Centers of Excellence’ globally to help consolidate and manage its supply chain with a regional focus rather than country by country. These centers of excellence not only help consolidate the supply chain across a region but also promote better management of manufacturing & engineering activities and the distribution channels in a more effective way. As a result, there are improvements in working capital requirements, overhead costs and tax rates. 3M has three such centers in operation in Switzerland, Singapore and Panama that cater to EMEA, Asia-Pacific and the Americas respectively. ^[2] These centers have integrated  and dedicated Enterprise Resource Planning solutions like SAP to maximize productivity and efficiency within the region.

3M’s Wide Range Enables It To Establish Presence In Developing And Developed Markets

3M has a wide range of products that can cater to every phase of a markets’ economic growth. This has enabled 3M to capitalize on opportunities presented by developed and developing countries, so as to establish a global footprint. Developing countries are more focused on infrastructural growth and manufacturing operations, whereas developed countries purchase more consumer and healthcare goods. This fact is also reflected in 3M’s segment revenues. In 2012, developing markets contributed 39% to revenues in 3M’s Industrial, Safety & Graphics, and Electronics & Energy Businesses, and 20% in the Consumer and Healthcare Businesses. ^[3] Consumer and Healthcare segments revenues are primarily from developed countries due to their higher per capita and disposable incomes, which reflects the maturity of their economies.

Growth Opportunity In Global Markets

3M estimates that products developed in the last 5 years will account for $7 billion of the total revenues from international markets this year. By further leveraging its R&D capabilities, 3M will be able to increase the contribution to $10 billion by 2017. ^[2]

Developing economies account for 35% of 3M’s total revenues and the share is expected to grow to 40-45% by 2017. 3M’s major opportunity comes from developing economies like Latin America, Greater China, Southeast Asia, Middle East and Africa. It believes that by 2017, these geographies would together contribute 80% towards the expected growth of $6 billion in the international markets. ^[2] As developing markets progress, their per capita income will increase, leading to increased spending in the Consumer and Healthcare segments, as the population achieves a higher standard of living. This presents significant upside opportunity for 3M’s Consumer and Healthcare segments.

1. 3M’s 10K filling for 2012, February 14 2013, www.3m.com [↩]
2. 3M’s International Operations Presentation, December 17 2013, www.3m.com [↩] [↩] [↩] [↩] [↩]
3. 3M’s Morgan Stanley Industrials & Autos Conference Presentation, September 18 2013, www.3m.com [↩]