Two days before last Christmas, five people from Hong Kong showed up on the Eden Prairie doorstep of MTS Systems Corporation. MTS is one of the world’s leading manufacturers of equipment that customers like GM and Boeing use to test cars and airplanes before they hit the market.
“They showed us pictures of a very large facility they’d bought in Detroit and a distribution warehouse in California,” recalls Sidney “Chip” Emery, CEO of MTS (Nasdaq: MTSC), which has about 1,600 employees and posted $375 million in revenue last year. “They said, ‘Our objective is to enter the U.S. automotive components manufacturing business, and we’re going to establish a development lab. We’ve been told that you, MTS, are the ones that do this, and we want to buy from the best, so tell us what we need.’”
"We're practically unknown in Minneapolis," Emery says. "But every car I bet you've ever driven has at some point been tested on a piece of MTS equipment. Every plane you've flown in, and virtually every major hip joint, elbow joint, knee joint, and most recently spine implants have been developed by those manufacturers on equipment manufactured right here."
MTS is no newcomer to China, having established a sales office there 22 years ago. But Emery had never heard of this particular group’s company, which makes cars and trucks for Chinese, Mongolian, North African, and Russian markets. This didn’t surprise him, though: He’s never heard of many other such companies that are lining up to talk to MTS from developing countries in the Asia Pacific region and Eastern Europe. Because MTS makes equipment that tests conditions such as the structure of rock and soil and the stability and safety of construction materials, it suddenly finds itself on the leading edge of global industrial development.
“In 2001, there was a real big shift in the marketplace for us overseas,” Emery says. “Developing countries spend their money on new infrastructure—buildings, roads, and bridges. They need to test all those things to know whether they’re building them properly, and that’s right in the core of our business.” In 2000, the lion’s share of the company’s revenues came from U.S. auto manufacturers, and exports accounted for just 44 percent of total revenues. Today, more than 66 percent of MTS’s revenues come from customers in Europe and Asia.
If “flat world” means shifting manufacturing to where labor is cheapest, then the world according to MTS is round. It’s selling globally but producing locally, as customers seek it out for its 40-year reputation for Minnesota-bred engineering expertise. “We’re kind of the flip side of outsourcing jobs,” Emery says. “We’re adding jobs here because we’re selling more products outside of North America, and we expect that to continue as far as we can see.”
But the global economy has been demanding significant changes in the way MTS operates, which analysts and MTS itself concede could provide some bumps. The question is, will MTS be able to roll with it?
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