Mittelstand Germany Plugs Into Tijuana

Odu, a German maker of electrical connection technology, has expanded its operations with a new plant in Mexico. The company is undeterred by Donald Trump's threats to impose tariffs on imports from Mexico - but it also has a plan B.
Odu was founded in during World War II with a focus on military technology. Now, it is increasingly shifting toward medical technology and electromobility. Photo: Odu

Sometimes world politics get in the way of long-term corporate planning. For Odu, a medium-sized company based in Bavaria, a plant in Mexico seemed the right stepping stone to further expand into the key North American market. The company, which specializes in electronic plug connector systems, began shipping products from its new plant near Tijuana on December 2, 2016. Soon after, Donald Trump was inaugurated U.S. president and the threat of tariffs on imports from Mexico became very real.

"We are paying very close attention to the situation," said chief executive Joachim Belz. The company, based in Mühldorf am Inn near Munich, is confident it can continue its production plans. Larger companies like BMW are more likely to draw Mr. Trump's criticism. However, the cautious managers at Odu also have a plan B in their back pocket.

If necessary, production in Mexico could be moved relatively quickly to Odu's new logistics center in San Diego. Still, Mr. Belz is so convinced of the company's excellent prospects in the U.S. market he's not focusing on eventualities. The company currently generates almost a quarter of its sales in the US.

The big players rarely deal with customer-specific solutions in medium quantities. Joachim Belz, Odu CEO

Odu is not the only company in the industry with production in Mexico. Technology group Harting opened a new plant in Silao last year. "We deliberately chose Mexico, because it puts us very close to our customers," chief executive Philip Harting said at the plant’s opening ceremony.

Since 2000, the number of German companies with operations in Mexico has almost doubled to approximately 1,900. According to the German-Mexican Chamber of Commerce, that number includes about 450 to 550 small and medium-sized companies with production plants in the country.

While these companies have stood by their commitment, like Odu, they also reserve the right to a certain flexibility. "With new investments, caution prevails in that companies tend to take smaller steps at first," said Johannes Hauser, managing director of the German-Mexican Chamber of Commerce.

Odu is preparing to celebrate its 75th anniversary. Founder Otto Dunkel (hence the company’s abbreviation) created the company to market a spring wire contact, which signified a breakthrough in electronic connection technology in communications.

Since then, Odu’s product portfolio has expanded, as has its number of customers. Defense technology, which played a central role when the company was established during World War II, still accounts for around 10 to 15 percent of Odu's sales of €150 million ($159 million).

Today, future-oriented business involving electromobility is increasingly taking a leading role. Plug-in connections are used in both electric cars and charging stations, and Odu counts leading car manufacturers among its customers. But its most important customer segment for Odu is medical technology, accounting for around 35 percent of sales. There, both the American and Chinese markets play a key role.

Maintaining electrical connections under high strain is particularly important in harsh environments such as the military, or in cars with a lot of vibration. Which is why there is serious demand for high-quality German workmanship around the world. Odu is also able to supply customers with tailor-made solutions, even in smaller quantities. This enables the medium-sized firm to hold its own alongside the three American industry giants, Tyco, Molex and Amphenol, with their billions in sales.

We deliberately chose Mexico, because it puts us very close to our customers. Philip Harting, CEO of Harting technology group

"The big players rarely deal with customer-specific solutions in medium quantities," said Mr. Belz. This is why the company has managed to achieve disproportionate growth in recent years, with sales increasing by an average of almost 8 percent in the medium term. The pace of sales slowed down some in 2016, growing just 3 percent to €150 million. Industry association ZVE recently estimated 3 percent growth for the world market. At Odu, the decrease in growth was a result of declines in shipments for government-controlled projects in China. "Our goal remains to grow by more than 5 percent a year," Mr. Belz stressed.

Despite the new plant in Mexico, and production facilities in China and Romania, Odu's production is still focused on Germany, where about 1,000 of its 1,700 employees are located. In terms of costs, domestic production remains competitive due to constant innovation and further development, said Mr. Belz. While some employees at the Mühldorf plant still peer through a magnifying glass working with wire, production there is also heavily automated.

It has remained important for the company to protect its know-how. Core competencies are all located in Mühldorf, operations manager Robert Klemisch explained. "We do surface finishing here and nowhere else in the world."

Perhaps this is also why the company is regularly approached by potential buyers, especially from China. But shareholders have a clear policy here, said Mr. Belz. "The managing directors are allowed to meet for the length of time it takes to drink a cup of tea. The company is not for sale."

Odu is owned by three families, none of whom are directly involved in management or operations. Instead, they are represented by Christoph Endrös, the chairman of the supervisory board. Structurally, this approach has so far proven successful. The company is debt-free, profitability is "above the industry average," and investments bring in tens of millions of euros a year.

As a result, Odu remains confident the plant in Mexico will be a success story and that a manufacturing location in the dollar zone still makes sense. Indeed, some customers insist that sensitive products, such as those used in communication in defense technology, are produced in North America.

For this reason, Odu refuses to let the current political climate in the U.S. effect its long-term company plans. "Our uneasiness," said Odu CEO Belz, "is limited."

 

Axel Höpner became head of the Handelsblatt office in Munich in April 2008. Contact the author: [email protected]