The Will To Power
When CTC Global announced last summer it had entered into a joint venture with a little Chinese Ma and Pa operation called the State Grid, it was a very big deal.
State Grid is not only the largest electricity utility company on Earth but ranks as one of the world’s 10 largest companies, with more than 1.5 million employees and annual revenues approaching $300 billion. The fact that CTC, an Irvine, CA-based company that manufactures high-capacity transmission line, had been in business less than 15 years when it landed the deal suggested a kind of quicksilver game-changer, the international trade equivalent of an overnight success. But the fact was that as soon as it started selling its product, CTC had been trying to sell it in China. The reasons are as obvious in the electric utility game as they are in so many others—a quarter of the world’s population was feverishly playing a game of consumer catch-up, most of it fueled by transmission cable such as CTC delivers.
“China has a scale that no other country has,” says CTC Global CTO Jason Huang. “We’re talking about $50 billion U.S. dollars of transmission-line investment each year. They’ve been doing that for the past 10 years. If you have an economy that keeps growing, electricity [usage] keeps growing.”
While the potential prize was understood, so were the slew of pitfalls that can present themselves to any company trying to break into an economy and business culture that sometimes resembles the Wild West … East … you know. Fittingly, CTC’s initial experiences in China were often the pits.
CTC’s innovative carbon fiber core transmission line quickly made the company one of the hottest players in the electric transmission conductor field, ironically in part due to how well its product stood up to the heat. That product—a stabilizing carbon fiber core jacketed by an aluminum conductor—was considered somewhere between cutting-edge and other-worldly technology less than a decade ago; today, if not the industry standard, it has become an industry standard. CTC holds nine different patents on technology, construction and manufacturing techniques for its product, which carries twice the capacity of a traditional line and also makes it resistant to thermal sag, thereby delivering power more efficiently.
It was a product the likes of which had not been seen in China, and the company had high hopes when it entered the market in 2005, not long after it began selling the line. Then, well, the pits started. An arrangement to give a local outfit exclusive rights to sell the product soon went south when CTC officials discovered that the local outfit was putting more effort into copying the product than selling it. Stranders—companies that hang transmission wire—that were supposed to install CTC’s line soon decided they would instead become competitors. It went like this for years, until, in 2011, CTC could count at least three dozen players trying to rip off their patent while their sales had completely flat-lined.
The company knew it was faced with not only a pivotal moment in its young history—CTC was formed in 2001 and developed its technology in 2004—but one that might affect its very survival.
“What made it so critical to us is that we realized if we didn’t re-establish ourselves in China to be the dominate player with our technology, any one of our competitors would,” Huang says. “Not only would they become the dominate player in China, they would be able to leverage that to take that to a global market. We had a choice: Do we succeed with our product, our technology, or do we turn into a company whose business is litigation?”
Huang and company COO Marv Sepe ultimately decided to go all in on China. Not content to be in the business of suing people, they decided to forego smaller partnerships and shoot for something big.
Huang assumed direct responsibility for the China market and almost immediately started pursuing negotiations with State Grid, a pursuit he charitably categorizes as “challenging.” Huang and Sepe knew well that working successfully in a global market was not only about moving through free trade zones but being willing to move out of your corporate comfort zone. They knew to make it in China they would have to be okay with doing some things differently, some very basic and important things, oh, like say, manufacturing.
“We knew that if we were going to get anything done we’d have to have a local manufacturing presence,” Huang says. “You’re just not going to see major adoption of your product [in China] without that. Out of necessity we needed to do that to give our partners, and customers, peace of mind.”
Understand this was not CTC’s first global rodeo. As Sepe points out, 85 percent of the world’s transmission market is located outside the United States, which is why, he says, “we made a conscious effort to take our product international.” The company has had 280 projects going on in 28 countries on every continent but Antarctica. In fact, about 70 percent of CTC’s business is done overseas.
The company understands very well that every country, each market, is different, requiring not only different approaches but sometimes a whole new way of thinking. Sometimes that can be good. Sepe says that one of the best things about doing business overseas is that, while there are numerous utility entities to deal with in the U.S.—all with their own set of requirements and regulations—most countries have nationalized electricity.
“That’s a key fact, that when you go into a foreign country, the transmission grid is owned by the government,” Sepe says. “They have one body, one regulatory body. They approve it and you’re able to use it anywhere. In the U.S. you have thousands of bodies that have to analyze, test; it’s a very slow process.”
But, as you can imagine, the winner-take-all approach in other countries has, in the past, invited rampant corruption which, in turn, led many countries to demand complete transparency at every level of negotiations. It’s a level of transparency that demands your bid on a project not only be given to a potential client but also provided to your competition—something that, Sepe says, makes many of CTC’s American competitors very uncomfortable. But CTC recognized long ago that “you always need to know the culture, always need to know the market space, need to know the restrictions and need to be able to adjust to them, even if it’s uncomfortable,” Sepe says.
Which means, in some countries, they sell the carbon fiber with its aluminum jacket as a finished product. In others, such as Brazil, they learned that they would have to establish a footprint in the country, partnering with a Brazilian firm that takes the carbon fiber core and finishes the product in Brazil, with significant technical assistance from CTC engineers and technicians. Yes, they have an office in Brazil to maintain relationships, provide assistance and assure quality control, but the projects that CTC equipment ends up on are bid by their Brazilian partner.
“To the customer in Brazil, it’s a Brazilian sale,” Sepe says.
Similarly, in China CTC entered into a joint venture with the NARI Group, a wholly-owned subsidiary of State Grid. The new company is called Jiangsu NARI CTC Composite Material Co., Ltd (good luck getting that on a T-shirt for the company picnic) and is set to begin commercial operations this year. Fifty-one percent of the new company will be owned by NARI, 49 percent by CTC. As the company’s chief technology officer, Yang Yingjian, put it when the partnership was announced, NARI gets access to “the most well-proven conductor technology that will help us reach our transmission and growth objectives.” CTC gets access to State Grid’s enormous customer base, about 75 percent of market share in China.
To do so, CTC has had to do some things differently. Most significantly, it will manufacture its product in China. Until now all CTC product has been produced at the back end of its corporate headquarters in Irvine. Though it might sound surprising that the company is able to keep customers in 28 nations and six continents supplied by pumping out carbon core in, of all places, America’s Suburb, the fact was that having the manufacturing operations there has given company officials a measure of quality control they found critical—“control” being the key word.
Every morning when he arrives at work, Sepe bypasses his rather spacious office and heads directly for the rear of the building to check on production. In a room that is both surgically clean and quiet, he’ll watch carbon fiber cores being spun from 12,000 carbon strands, stretched like taffy and passed through resin before it will find itself wound tightly on a large wooden spool.
Virtually everything that is seen and heard has been produced by CTC. Not just the core, but the machines that make the core are actually manufactured on site.
“We started out buying equipment that was commercially available,” Sepe says. “Then we found that we had to modify it so much it was just easier to make our own.”
In fact, CTC was so fixed on making its innovative product to its exact specifications in virtually every way possible, it not only developed its own proprietary resin but decided it would be best if it actually made both the spools the core are transported on and the skids the spools rest on when stored and moved. CTC does not keep a lot of inventory. The operation operates two 12-hour shifts daily, from which orders can be filled and shipped using such trusted freight forwarders as Unitrans International Logistics to get the product from Irvine to its final destination. The usual turnaround—from time of order to the day the product arrives on site—is about four to five months when shipped by container ship, though there have been instances of exceptional, immediate need, when CTC has utilized air freight delivery.
It’s a system that has worked well and given comfort to CTC officials who believe that the excellence of its product is not only a matter of pride but simply good business.
“We compete around the world against a lot of other technologies,” Sepe says. “Quality is huge for us. In many ways, it’s what we’re selling.”
The new joint venture signed a lease last summer and set up equipment immediately. Huang says they will start by utilizing four production lines but believes that will eventually lead to 20. CTC will continue to manufacture in Irvine for its other international customers and though the China plant is set up to produce exclusively for that market, the company has assured its other international customers that it can be utilized if ever the California facility is overbooked.
Huang believes that CTC will be able to maintain the quality it has produced in the U.S. To make sure of that, he will be traveling to China every two months and spending three weeks there at a time.
“In China, relationships are very important,” Huang says. “The quality of your product does have influence but relationships are quite important. You have to be there to attend to things, you have to have a presence. You can’t succeed otherwise.”
And CTC intends to succeed not only otherwise but in other huge markets. As China gets up and running, the company is also doing business in another gigantic market: India.
“In every market, we’re just scratching the surface,” Sepe says. “Even though we make sales, we realize we’re new technology and there is still a large level of adoption. China is an enormous market because they have so much development going on and they have to put lines everywhere because the lines that do exist are overburdened so they have to be replaced. It’s an appropriate fit for our product because we can double the capacity just by replacing the wire. But it was also an appropriate fit for our company, because we were willing to do the necessary homework and then make the necessary adjustments to do business in China.
“And China is really no different than any other part of the world. It’s bigger, of course, but it’s the same all over. There are lots of rewards but there are issues; go to Europe and you’re going to have to deal with tariffs, for example. The important thing is when you do business overseas you have to go in with not only your eyes open, but your mind as well.”
The World Is His Orchard