The Challenges of Becoming a Global Company

The Challenges of Becoming a Global Company

A major global company sheds light on key challenges in international corporate management and unconventional success routes.
An interview with Mr. Arnon Eshed, managing director and CEO of Palram Industries Ltd.

Arnold Eshed

From raw materials to thermoplastic sheets: a leading international manufacturer

Palram Industries Ltd. is a leading international manufacturer of thermoplastic sheets by extrusion from various materials, most specifically polycarbonates and PVC. The company ranks third in the world for manufacturing polycarbonate sheet and panel systems, among the top ten in the production of extruded PVC sheets and number one on the global market for corrugated thermoplastic sheeting. These sheets are used extensively in a multitude of industries, from advertising to construction and agriculture, plus the DIY market.

Palram’s extensive worldwide presence includes a network of manufacturing plants, marketing offices, agencies, and warehouses in the US, Europe, Asia, and Australia. The corporate headquarters are based in Israel.

Throughout his twenty-plus years at Palram, Mr. Arnon Eshed has held many key positions, from production manager to CEO. His various roles within the business have allowed him to be involved in all aspects of the industry, including marketing, manufacturing, logistics, and sales. Mr. Eshed indicates that his time as president of Palram Americas, 2001 through 2006, was the most significant period of his career at the company in terms of professional and personal development. Thanks to his varied experience and diverse perspectives with-in the company, he has come to know it deeply and comprehensively at all levels.

“I’ve matured within the company and been through all its processes of expansion and development. The principal one was of course the transition from a private company with a factory in a kibbutz yard to a publicly-held international company deployed around the world,” Eshed explains.

Proximity to the target markets and to the customer

Palram’s marketing strategy centers on expanding its production and service presence by establishing subsidiaries and offices in the target markets, in close proximity to the customer and with an emphasis on providing top quality.

According to Eshed, the company is structured into four independently managed business units. Three cover the regions America, Europe and Israel/Rest of World, while a new, fourth subsidiary has been set up to handle hobby related products, (DIY market).

Each region is managed by a regional manager, who is responsible for all operations carried out in that area, from manufacturing to marketing, finance, etc.

In addition, each region is professionally answerable to corporate headquarters and required to compile consolidated financial reports for that region.

Global management – constantly challenging

Mr. Eshed is quick to admit that global management is never an easy ride, “At a global level, corporate management comes with a constant flow of diverse challenges.”

He continues by explaining some of the specific challenges faced by his company:

“At the strategic level, we have an inbuilt dissonance between the company’s broad and expanding global deployment on the one hand and its status as a kibbutz company on the other. Palram is a publicly-owned kibbutz company, with 73% of the shares held by the kibbutz. As it is, the company is a business operation supporting a community, and as such takes a more conservative stance. Nevertheless, the company has managed to expand significantly over the years.

Another significant challenge concerns the cultural aspect, where even at the company’s limited level of marketing, significant gaps are obvious among the values and mentalities pre-vailing in the various countries. The company faces frequent differences in local society, such as corporate assets, tax structure, labor laws, etc.

In order to successfully penetrate the individual local markets worldwide, it is necessary to adapt the methods used while observing the market’s behavioral, cultural and institutional norms. I must point out that there are countries where our company is still regarded as foreign, despite its many efforts to establish close relations with the target community.

In response to this challenge, the company aims to establish a local agency in each of the target countries. This achieves physical proximity to the local community, in terms of mentality and logistics, and gives first-hand knowledge of that market’s changing needs. The local agencies vary from country to country. In some cases, we create a broad infrastructure of distribution and logistics, whereas in others a small office is set up with only a few employees.

Although this method enhances the company’s stability, it also increases the costs of the supply chain.”

Eshed sums up the status quo: “Each time we address a new market and try to penetrate it, a new challenge arises as to how to deal with the prevailing culture and values. Despite the speed of global development and the rush toward a ‘flat world’, with well-developed and flattened-out aspects such as maritime shipping, there are still many issues and concerns distancing the world from that goal.”

Self-distribution or assistance from distributors?

Before the company decides whether to distribute its own products in a particular region or to employ distributors, it needs to examine a wide range of factors, the most important of which is the nature of the desired activity in the target market.

Eshed explains, “Because we are involved in a wide variety of activities, we do not restrict ourselves to a single policy for using either agents or our own distribution network. For example, we saw no reason to use agents in the DIY market. After an in-depth study of this field, we found it more helpful to set up a comprehensive support network. However, in the case of medium- sized agricultural products, where there is not a wide-spread point of sale network, it is harder to address each farmer individually, so distribution via agents makes sense here.

Our company does not limit itself to a single product, niche, or application. Our application spectrum spans so many different sectors with such different requirements that we have decided to tailor our distribution to the individual needs of the local market in each case. The main factors which influence this decision are, as I indicated, the type of product, the sphere of activity, and the market’s behavior.”

The volatility of raw materials requires daily adjustment

As a manufacturing company, Palram’s operations and development depend greatly on its supply of raw materials. These are chiefly polycarbonates and PVC. In recent years, the price of those raw materials has been highly volatile, having an unavoidable effect on the company.

“There is no magical remedy for price volatility of raw materials. It’s the sort of train ride that goes uphill and downhill, and sometimes through a dark tunnel of uncertainty, and it’s not easy to predict when the direction will change,” Eshed explains. “Since I became CEO of Palram, I’ve constantly had to deal with huge price volatility for raw materials and an environment of high uncertainty. True, we emerged in a stronger position from the economic crisis of 2008; but we’re still experiencing the aftershocks and haven’t found any specific financial tools to help us cope with the frequent price changes. Since the financial crisis, the method of coping with volatility has changed greatly. Before the crisis of 2008, we were accustomed to constructing an annual forecast and we would almost always end the year according to plan. In the current era, it is very difficult to construct an annual plan in advance that will match the reality. We use a flexible forecasting model that proceeds from the bottom up. Each relevant echelon in the company adds its estimates and the necessary adjustments are made at each stage. At the end, we advance to the level of aggregation.

Palram looks forward to celebrating its fiftieth anniversary in two years time. Ultimately, our long experience and in-depth knowledge of all levels of the market has helped us greatly to successfully cope with daily changing conditions and boosts our resistance to price volatility.

An example of how price volatility of raw materials influences the company can be taken from 2005, when a polycarbonate shortage threatened to stop production of the company’s sheets. By correctly handling the situation and making appropriate decisions, we avoided significant damage to our output. Palram chose to focus on its local sites, in close proximity to the customer, allowing it to react with greater flexibility to the market and ship small quantities quickly. This helped us to remain strong and successful, even throughout the financial crisis of 2008, which had such a significant effect on both the markets and the prices of materials.”

Concluding the topic, Eshed stresses that “market volatility is given high priority and we monitor it daily. Palram’s broad global deployment gives us advance notice of any changes regarding raw materials. We map and accumu-late the various change indicators from around the world. The company’s conservative policy contributes in this respect to its coping with frequent price changes.”

Identifying opportunities for business development

In a large and complicated marketplace such as the plastics market, it is not easy task to identify business opportunities.

“Until 2010, Palram had no structured system for identifying and developing business opportunities,” Eshed explains. “We expanded our global deployment and entered additional markets by concentrating all the available organizational energy, while taking only limited risks.

As of 2010, the company has changed its approach towards identifying global opportunities. We have defined and outlined a strategic program of corporate development, concentrating on a number of central goals. Today the company aspires to develop its own initiatives and opportunities, while still remaining open to new proposals that it receives.”

Preserving the status quo while striving for progress

Eshed explains that Palram is currently “focused on developing new products. We have our sights on practical products made by subjecting our existing sheets to additional post-working processes. In effect, we take our current product and make it into a greenhouse or a marketing stand for the supermarket. In other words, we are moving from a plain sheet to a finished product.

Furthermore, the company wants to strengthen its position in its current countries, expanding sales where it is already deployed, while analyzing existing scope for expansion in those countries. At the same time, it also wants to expand into additional countries and regions, with an emphasis on a long-term program for developing countries.

Our company is driven by strong ambition and a desire to succeed, which continuously propels it forward to new objectives.”

By Zohar Yami, Partner, Tefen Israel
Sharon Ginzburg, Consultant, Tefen Israel

A major global company sheds light on key challenges in international corporate management and unconventional success routes.
An interview with Mr. Arnon Eshed, managing director and CEO of Palram Industries Ltd.

Arnold Eshed

From raw materials to thermoplastic sheets: a leading international manufacturer

Palram Industries Ltd. is a leading international manufacturer of thermoplastic sheets by extrusion from various materials, most specifically polycarbonates and PVC. The company ranks third in the world for manufacturing polycarbonate sheet and panel systems, among the top ten in the production of extruded PVC sheets and number one on the global market for corrugated thermoplastic sheeting. These sheets are used extensively in a multitude of industries, from advertising to construction and agriculture, plus the DIY market.

Palram’s extensive worldwide presence includes a network of manufacturing plants, marketing offices, agencies, and warehouses in the US, Europe, Asia, and Australia. The corporate headquarters are based in Israel.

Throughout his twenty-plus years at Palram, Mr. Arnon Eshed has held many key positions, from production manager to CEO. His various roles within the business have allowed him to be involved in all aspects of the industry, including marketing, manufacturing, logistics, and sales. Mr. Eshed indicates that his time as president of Palram Americas, 2001 through 2006, was the most significant period of his career at the company in terms of professional and personal development. Thanks to his varied experience and diverse perspectives with-in the company, he has come to know it deeply and comprehensively at all levels.

“I’ve matured within the company and been through all its processes of expansion and development. The principal one was of course the transition from a private company with a factory in a kibbutz yard to a publicly-held international company deployed around the world,” Eshed explains.

Proximity to the target markets and to the customer

Palram’s marketing strategy centers on expanding its production and service presence by establishing subsidiaries and offices in the target markets, in close proximity to the customer and with an emphasis on providing top quality.

According to Eshed, the company is structured into four independently managed business units. Three cover the regions America, Europe and Israel/Rest of World, while a new, fourth subsidiary has been set up to handle hobby related products, (DIY market).

Each region is managed by a regional manager, who is responsible for all operations carried out in that area, from manufacturing to marketing, finance, etc.

In addition, each region is professionally answerable to corporate headquarters and required to compile consolidated financial reports for that region.

Global management – constantly challenging

Mr. Eshed is quick to admit that global management is never an easy ride, “At a global level, corporate management comes with a constant flow of diverse challenges.”

He continues by explaining some of the specific challenges faced by his company:

“At the strategic level, we have an inbuilt dissonance between the company’s broad and expanding global deployment on the one hand and its status as a kibbutz company on the other. Palram is a publicly-owned kibbutz company, with 73% of the shares held by the kibbutz. As it is, the company is a business operation supporting a community, and as such takes a more conservative stance. Nevertheless, the company has managed to expand significantly over the years.

Another significant challenge concerns the cultural aspect, where even at the company’s limited level of marketing, significant gaps are obvious among the values and mentalities pre-vailing in the various countries. The company faces frequent differences in local society, such as corporate assets, tax structure, labor laws, etc.

In order to successfully penetrate the individual local markets worldwide, it is necessary to adapt the methods used while observing the market’s behavioral, cultural and institutional norms. I must point out that there are countries where our company is still regarded as foreign, despite its many efforts to establish close relations with the target community.

In response to this challenge, the company aims to establish a local agency in each of the target countries. This achieves physical proximity to the local community, in terms of mentality and logistics, and gives first-hand knowledge of that market’s changing needs. The local agencies vary from country to country. In some cases, we create a broad infrastructure of distribution and logistics, whereas in others a small office is set up with only a few employees.

Although this method enhances the company’s stability, it also increases the costs of the supply chain.”

Eshed sums up the status quo: “Each time we address a new market and try to penetrate it, a new challenge arises as to how to deal with the prevailing culture and values. Despite the speed of global development and the rush toward a ‘flat world’, with well-developed and flattened-out aspects such as maritime shipping, there are still many issues and concerns distancing the world from that goal.”

Self-distribution or assistance from distributors?

Before the company decides whether to distribute its own products in a particular region or to employ distributors, it needs to examine a wide range of factors, the most important of which is the nature of the desired activity in the target market.

Eshed explains, “Because we are involved in a wide variety of activities, we do not restrict ourselves to a single policy for using either agents or our own distribution network. For example, we saw no reason to use agents in the DIY market. After an in-depth study of this field, we found it more helpful to set up a comprehensive support network. However, in the case of medium- sized agricultural products, where there is not a wide-spread point of sale network, it is harder to address each farmer individually, so distribution via agents makes sense here.

Our company does not limit itself to a single product, niche, or application. Our application spectrum spans so many different sectors with such different requirements that we have decided to tailor our distribution to the individual needs of the local market in each case. The main factors which influence this decision are, as I indicated, the type of product, the sphere of activity, and the market’s behavior.”

The volatility of raw materials requires daily adjustment

As a manufacturing company, Palram’s operations and development depend greatly on its supply of raw materials. These are chiefly polycarbonates and PVC. In recent years, the price of those raw materials has been highly volatile, having an unavoidable effect on the company.

“There is no magical remedy for price volatility of raw materials. It’s the sort of train ride that goes uphill and downhill, and sometimes through a dark tunnel of uncertainty, and it’s not easy to predict when the direction will change,” Eshed explains. “Since I became CEO of Palram, I’ve constantly had to deal with huge price volatility for raw materials and an environment of high uncertainty. True, we emerged in a stronger position from the economic crisis of 2008; but we’re still experiencing the aftershocks and haven’t found any specific financial tools to help us cope with the frequent price changes. Since the financial crisis, the method of coping with volatility has changed greatly. Before the crisis of 2008, we were accustomed to constructing an annual forecast and we would almost always end the year according to plan. In the current era, it is very difficult to construct an annual plan in advance that will match the reality. We use a flexible forecasting model that proceeds from the bottom up. Each relevant echelon in the company adds its estimates and the necessary adjustments are made at each stage. At the end, we advance to the level of aggregation.

Palram looks forward to celebrating its fiftieth anniversary in two years time. Ultimately, our long experience and in-depth knowledge of all levels of the market has helped us greatly to successfully cope with daily changing conditions and boosts our resistance to price volatility.

An example of how price volatility of raw materials influences the company can be taken from 2005, when a polycarbonate shortage threatened to stop production of the company’s sheets. By correctly handling the situation and making appropriate decisions, we avoided significant damage to our output. Palram chose to focus on its local sites, in close proximity to the customer, allowing it to react with greater flexibility to the market and ship small quantities quickly. This helped us to remain strong and successful, even throughout the financial crisis of 2008, which had such a significant effect on both the markets and the prices of materials.”

Concluding the topic, Eshed stresses that “market volatility is given high priority and we monitor it daily. Palram’s broad global deployment gives us advance notice of any changes regarding raw materials. We map and accumu-late the various change indicators from around the world. The company’s conservative policy contributes in this respect to its coping with frequent price changes.”

Identifying opportunities for business development

In a large and complicated marketplace such as the plastics market, it is not easy task to identify business opportunities.

“Until 2010, Palram had no structured system for identifying and developing business opportunities,” Eshed explains. “We expanded our global deployment and entered additional markets by concentrating all the available organizational energy, while taking only limited risks.

As of 2010, the company has changed its approach towards identifying global opportunities. We have defined and outlined a strategic program of corporate development, concentrating on a number of central goals. Today the company aspires to develop its own initiatives and opportunities, while still remaining open to new proposals that it receives.”

Preserving the status quo while striving for progress

Eshed explains that Palram is currently “focused on developing new products. We have our sights on practical products made by subjecting our existing sheets to additional post-working processes. In effect, we take our current product and make it into a greenhouse or a marketing stand for the supermarket. In other words, we are moving from a plain sheet to a finished product.

Furthermore, the company wants to strengthen its position in its current countries, expanding sales where it is already deployed, while analyzing existing scope for expansion in those countries. At the same time, it also wants to expand into additional countries and regions, with an emphasis on a long-term program for developing countries.

Our company is driven by strong ambition and a desire to succeed, which continuously propels it forward to new objectives.”

By Zohar Yami, Partner, Tefen Israel
Sharon Ginzburg, Consultant, Tefen Israel

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