Little giants: you don't have to be big to be global. Some of the best players are smart and small.

After Medrad decided a few years ago to start exporting its medical diagnostic imaging products to Germany, the Indianola, Pa.-based company stumbled immediately. It had neglected to get German regulatory approval to sell a crucial injector for the contrast media, the liquids that help produce internal images for doctors. That delayed Medrad's entry into Europe's biggest market for a year.

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But when Medrad took aim at the Japanese market shortly thereafter, CEO John Friel made sure the company didn't make the same mistake. Medrad designed an entire new injector system just to meet the Japanese preference for disposable cartridges over the North American practice of refills. That helped Medrad boost its share of the Japanese market to about 50 percent today from 15 percent a few years ago. "We used to design stuff for the U.S. market, and like many companies, we felt that if it was good enough for us, it ought be good enough for everyone else," says Friel. "But we've been humbled and [we've] learned, so that attitude is long gone." Partly as a result, Friel has led Medrad to garner 36 percent of its $294 million in sales from abroad, compared with just 15 percent when he took over as CEO in 1998.

Medrad is one of a growing herd of midsized manufacturers across America's industrial belt--with annual sales ranging from a few hundred million dollars to a couple of billion dollars--that are demonstrating surprising success in international sales. Some have doubled or tripled the share of their overall revenues generated by sales abroad to 30, 40 and even 50 percent. Even though some experts say only large companies can play the international game, these "little giants" are succeeding in taking their specialized, niche products around the world.

No one knows just what percentage of the U.S. economy is represented by these companies, but anecdotal evidence suggests their numbers are growing and that they are critical in generating jobs and combating a soaring trade deficit. "By the time a company gets close to $500 million in sales, they find out generally that they have to go global," says Fariborz Ghadara, director of the Center for Global Business Studies at Pennsylvania State University. "Plus, that's a good enough size that they can usually feel comfortable going global."

Although in pursuit of a common goal, the CEOs of these little giants are taking a variety of approaches to get there. (See table, page 42.) Mike Terzich of Zebra Technologies is following his big American customers for Zebra's bar-code technology into global markets as the customers themselves expand there. Terry Growcock is plunging Manitowoc Cos. into the burgeoning Chinese marketplace by manufacturing there, and Bob Arzbaecher of Actuant is also making products around the world. Mike Ferrara is exporting X-Rite's color-matching devices like crazy, but he won't consider manufacturing abroad.

To be sure, it takes more than a CEO's smarts and resolve to transform a company into a little giant, because obstacles abound. Midsized companies often lack the resources, reputation and brands that help huge American multinationals smooth their paths. Middle-market concerns may lack the speed and agility of the many small U.S. companies that also are carving international niches for themselves. In hotly contested regions like China, smaller companies must prove especially savvy because they have so little margin for error. What's more, CEOs on a mission to globalize often find that they face just as big a task in transforming a domestically minded corporate culture as they do in penetrating new markets. So it's clear why "little giant" can be a hard-earned designation.

Here are eight of the strategies and tactics these CEOs are using.

Make the leap: Many little giants emerged because they faced an unpleasant reality: They were old-line companies whose U.S. markets had matured. Federal Signal, for example, began manufacturing fire engines and other municipal equipment in the 1890s and had secured the No. 1 or No. 2 share in most of its domestic segments. "But our view was that there were markets across the world that we ought to be able to service," says Bob Welding, who became CEO of the Oak Brook, Ill.-based company in late 2003. After all, every civilized country has to put out fires and most sweep their streets. So the 55-year-old Welding has accelerated an international strategy hatched by his predecessor three years ago, which has driven non-U.S. contracts to more than 30 percent of Federal Signal's $1.2 billion in annual revenues.

Follow the customer: Steering into the wake of international moves by major U.S. customers, or "piggybacking," is a relatively risk-free way of going offshore. Zebra Technologies used that technique to boost non-U.S. sales of its bar-code printers and other industrial-identification equipment to 46 percent of its $550 million in 2003 sales. "That's how we went from the U.S. to Europe, and then to South America and Latin America and the Pacific Rim," says Terzich, senior vice president of the Vernon Hills, Ill., company. "We were so penetrated and had so much market share with those companies that when they built in other countries and brought in bar coding, we were the brand they leveraged."

Focus on exports: The path of least resistance for some little giants is to find export markets abroad for products they continue to manufacture in the U.S. This approach works best for midsized companies that can take advantage of componentry produced in low-cost countries for devices that require relatively complex final assembly, for which U.S. workers still have an edge in quality and cost efficiency.

X-Rite of Grandville, Mich., for example, has leveraged brisk exports of its high-tech color-matching equipment to a point that international markets account for about half of sales, up from about 30 percent three years ago. The company expects those sales to reach 60 percent of its total by 2007. "We're already the low-cost producer," says Ferrara, CEO of the $117 million company. "And we use language and software to customize our products for each of our markets."

Manufacture overseas: On the flip side are companies that have grown into little giants by manufacturing everything they can overseas. Actuant, for one, spun off from a much larger diversified manufacturer in 2000 and began its corporate existence with 20 plants sprinkled around the globe. About a quarter of its $400 million in annual sales came from foreign-produced goods at that point. Today that share has risen to 40 percent of $585 million.

Linguistic Savvy

But overseeing manufacturing from afar comes with its own challenges and requires leaders to quickly rebound from mistakes. Actuant CEO Arzbaecher learned that when he unwisely hired an American manager for the company's Japanese operations who had fooled interviewers about his fluency in the language. "It was a disaster," Arzbaecher concedes. "He seemed to speak perfect Japanese, but when we talked to actual Japanese people we learned that he had only demonstrated a fourth-grade skill level." So the CEO revamped Actuant's procedures for hiring abroad, loading up with experienced Europeans and Asians. "We're finding that hiring the right people in local markets is how you succeed."

Partner strategically: As sure as a CEO might be that globalization is the right path, some little giants prefer hedging their bets. Two years ago, John Stanik, CEO of Calgon Carbon, decided to get into manufacturing in the Japanese market as a way of increasing the 10 percent market share the Pittsburgh company had managed to garner with exports. So he established a joint venture with three Japanese companies, each of which began providing pieces of the overall manufacturing process for Calgon's activated carbons and other water-purification products. "It gave us an opportunity to learn how to do business appropriately there and how to protect our investment and grow and make good business decisions without too much risk," says the 50-year-old Stanik, who has just begun what he says will be a three-year acceleration of international sales from a 10 percent share of Calgon's overall revenues today. The fact that companies like Calgon are aspiring to increase their non-U.S. sales suggests that the ranks of little giants will continue to grow over time.

Spread currency risk around: The U.S. dollar's record low against many other currencies has prompted CEOs to pay rapt attention to such differentials as they consider global markets. The weak dollar has helped some little giants immensely by encouraging exports. But it also has underscored the strategic advantage that a company can enjoy if able to spread its manufacturing around the world, taking the edge off of currency fluctuations.

Esselte, of Stamford, Conn., is one such company. The manufacturer of paper office supplies began decades ago in Sweden and was publicly held until it went private in 2002. CEO Magnus Nicolin inherited a network of 20 manufacturing plants scattered around the world and sales in 140 countries. That sort of reach comes in very handy as the $1.2 billion company follows big American retailers such as Staples and Office Depot in their international expansions, and keeps in line the costs of transporting finished goods to local markets. "It also gives us natural currency hedges in that we have almost perfect balance between selling currencies and manufacturing currencies," says Nicolin, whose company makes about 40 percent of its sales outside the U.S. "If currencies go up or down, we're pretty insulated to that fact, which essentially means we don't need to do an expensive amount of financial engineering and hedging that a lot of our competitors do."

Innovate locally: Esselte illustrates another method that some little giants use to muscle themselves into more sales abroad: localized product innovation. The company succeeds in part because it plays to geographic differences, such as what constitutes a ring binder in Australia versus one in the U.S., or the fact that Americans love hanging file folders, while Europeans largely disdain them.

Having a presence in so many markets also helps Esselte make the most of new products and innovative features, because the company can roll out a product in particular markets where it will have the best chances of success or test it in individual countries. For example, Esselte designers last year came up with a new type of storage box that office denizens could place on their desk to house files for short-term projects. The company used the Italian market to test the product. "We got some good lessons from the first launch, made some minor revisions and rolled it out across Europe in February," says Nicolin. "It was great to be able to test this rather complex product in a smaller geography" than, say, the entire U.S. market. Of course, major multinationals roll products from one market to another all the time. Point is, even small guys can do it.

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Mandate a global vision: Almost without exception, CEOs of little giants say that a critical factor in maintaining momentum is overhauling corporate cultures that have been geographically myopic. Changing the America-only psychology of top managers is crucial. That's why Actuant now requires each of its top 100 executives to deal with international operations in some way. X-Rite, for example, moved Joan Andrew, vice president of global sales, to The Hague for two years so that she would better understand how to make foreign operations grow.

And in a thorough shakeup of its expectations of managers, Manitowoc two years ago established an advanced leadership-training program whose candidates must agree in writing that they would be willing to accept international relocation. Getting top managers to move--with their families--has been a stumbling block. "We're really trying to send a message," says CEO Growcock, who has boosted international sales to 58 percent of the company's overall revenues from just 6 percent in 2000. "We want to be able to move people around and, in doing so, across cultural boundaries. That's the best way we can ensure the future of the international thrust that we're making now."

Of course, the techniques that little giant CEOs employ vary considerably because some products lend themselves to local manufacturing and others don't. Some products have to be customized to fit local cultures; others much less so. And some CEOs who start out with export-led strategies find they have to develop assembly or even full manufacturing facilities if they want to sustain their growth over the long term.

But little giant leaders do have a few things in common, not the least of which is their own personal foreign experience--often at larger multinationals--which they say has been invaluable in leading their companies into broader international sales. They also seem adept at sticking to their knitting in their respective niches and expanding into new products only when they have solid expertise they can leverage. Overall, their successes have demonstrated that smaller companies with lofty ambition can emerge as global winners.

LITTLE GIANTS
These eight companies are using exports and manufacturing abroad to earn
at least 30 percent of their sales.

                                                       % from
Company               CEO                Annual sales  abroad

Actuant               Robert Arzbaecher  $585 million  40
Milwaukee, Wis.
Esselte               Magnus Nicolin     $1.2 billion  40
Stamford, Conn.
Federal Signal        Bob Welding        $1.2 billion  30
Oak Brook, Ill.
Gerber Scientific     Marc Giles         $512 million  58
South Windsor, Conn.
Manitowoc Cos.        Terry Growcock     $1.6 billion  52*
Manitowoc, Wis.
Medrad                John Friel         $294 million  36
Indianola, Pa.
X-Rite                Mike Ferrara       $117 million  45
Grandville, Mich.
Zebra Technologies    Mike Terzich       $550 million  46
Vernon Hills, Ill.

Company               Products             Strategy

Actuant               Tools, auto parts    Leverage pre-existing global
Milwaukee, Wis.                            manufacturing base
Esselte               Consumable office    Innovate locally, recognize
Stamford, Conn.                            that each region is a unique
                                           market
Federal Signal        Fire engines, other  With U.S. markets saturated,
Oak Brook, Ill.       safety equipment     export proven model to
                                           Europe
Gerber Scientific     Technical equipment  Capitalize on expanded pace
South Windsor, Conn.                       of automation in Asia
Manitowoc Cos.        Cranes, ships,       Manufacture in Europe, launch
Manitowoc, Wis.       ice-making           Chinese initiative
                      equipment
Medrad                Medical diagnostic   Design for specific foreign
Indianola, Pa.        equipment, supplies  markets
X-Rite                Color-matching       Export only model,
Grandville, Mich.     equipment            manufacture stateside
Zebra Technologies    Bar-coding           Piggyback on expansion
Vernon Hills, Ill.    equipment            moves of major customers

*outside Americas