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North to Alaska: how four successful firms view Alaska's marketplace.

North To Alaska How Four Successful Firms View Alaska's Marketplace

Many Pacific Northwest firms have looked northward to expand sales. Among the stayers that have conquered challenging obstacles and have seized opportunities are these four companies: N C Machinery Co., Alaska Shipping Agents, Fred Meyer and Alaska Maritime Agencies.

We interviewed these Washington-and Oregon-based firms to see how they do business in Alaska. In particular, we were interested in differences they perceived between Alaska and other Pacific Northwest markets. Their views of the 49th state and the histories of how they've succeeded offer useful information for all businesses seeking to make a profit in Alaska.

N C Machinery Co. The Caterpillar franchisee in Alaska since 1926, Seattle-based N C Machinery supplies engines and heavy equipment such as lift trucks, cranes and earth-moving vehicles. Its customers include private and public purchasers in the construction, mining, petroleum, fishing and forest products industries.

John Clearman, president of N C Machinery, says, "We are confident about Alaska's long-term future. Alaska will continue to be a state of great opportunity with a tremendous resource base and long-term need for infrastructure and improvement."

He continues, "Since the downturn in 1986, we have seen nearly every industry begin to come back, though some more gradually than others. In the last couple of years, most of our growth has come from mining, forest products and fishing. We see mining, fishing and power generation continuing to grow in the next few years, certainly in 1991 and 1992. We see forest products on the downturn right now and continuing for a while because worldwide demand is down. The two big |ifs' are construction and petroleum. Our internal forecasts for 1991 and 1992 show some increase in activity in these two areas, but probably not a significant increase."

Alaska Shipping Agents. This family-run freight consolidator, based in Kent, Wash., has been in business for more than a quarter century. The company handles shipment of consumer and industrial products bound for Alaska.

Mel Vangstad, traffic manager, often is involved in long-range planning to deliver construction items for upcoming projects. "The indicators are really good," he says. "We're looking at jobs a year and a half away and bidding on jobs into the third quarter of 1992. The feedback from major (water) carriers is that they are looking at a 10 percent increase in 1991 alone, and they have to do careful research."

Having followed Alaska's economic cycles closely for 20 years, Vangstad feels good about the next five years. Longtime customers whom he hasn't heard from in years are booking shipments again. Vangstad adds, "It's a definite indicator that jobs will be going on."

Dave Flowers, general manager of Alaska Shipping Agents, says he pays particular attention to forecasts from the firm's oil and construction customers. "They get the word first because they're pursuing big jobs that require big investments," he explains. Flowers says that word is that things will be happening.

Fred Meyer. A prominent West Coast retailer, Portland-based Fred Meyer operates 122 stores in seven western states. In Alaska, the chain operates eight stores, a total of a half a million square feet of retail space.

The company's first Alaska store opened in Anchorage in 1977 as a general merchandise store. Today Fred Meyer also operates Alaska stores specializing in jewelry or clothing and a superstore in Juneau that carries groceries in addition to general merchandise.

The success of Fred Meyer's Juneau store convinced the firm to build a similar store in Fairbanks, expected to be completed by the end of the year. Says Norm Myhr, senior vice president and director of strategic marketing, "Our investment in Fairbanks indicates our belief the Alaska market will continue to be strong. We want to be part of that opportunity."

Myhr expects Fred Meyer to see its business in Alaska grow 3 to 4 percent annually over the next five years. He says, "The most striking feature of the Alaska market for us is the young age. It's good for our type of products, because it reflects growing families with children under 12."

Alaska Maritime Agencies. As Alaska's major booking service for steamship and other vessel service, management of this Seattle-based firm has its thumb on the pulse of the fishing, cruise ship, forestry and oil industries. Alaska Maritime Agencies handles arrangements for berths, pilots, tugs, and customs and immigration, as well as advising ship owners on a wide variety of other marine-related details and practices.

Jim Blackmore, president of the company, is optimistic about future prospects: "Our industry, which you can think of as offshore-shipping related, looks very bright for the next five years. The cruise industry appears strong and continues to grow. Fisheries will continue to grow because of the 100 percent Americanization of catching and processing fleets."

Mike Wiitala, vice president of operations, says, "The cruise industry will grow by 5 to 10 percent a year in terms of the number of ships and passenger berths headed for Alaska. Further turmoil in the Middle East would cause ship owners to bring additional cruise ships from the Mediterranean to Alaska."

Wiitala is guarded in his forecast for the fishing industry, though, citing the intensifying competition for groundfish that could produce a shakeout. He also notes that reductions of timber acreage available through changes in management of the Tongass National Forest will set the forestry industry back, despite increased timber harvesting in other parts of the state.

Traits of the Trade. Managers of these four companies say that although the businesses have weathered periods of economic decline in Alaska, the state's long-term prospects have continued to provide impetus for pursuing opportunities here.

N C Machinery's Clearman says, "We were certainly pessimistic about Alaska's short-term prospects in 1986 and 1987. But I don't think we've ever been pessimistic about Alaska's longterm future. We've always recognized that, because it's a very resource-based economy, it tends to be cyclical." Clearman adds that other reasons to be optimistic about Alaska's future include the state's role in Pacific Rim trade and in creating bridges to the Eastern Soviet Union.

The executives interviewed for this article expect future growth in Alaska to follow a pattern different from that of the past 15 years. N C Machinery's Jim Kelly, senior vice president of sales and marketing, notes that the companies that had become overextended in Alaska and were forced to abandon the market in the recent downturn have learned important lessons.

"When things were on a roll, those companies were living at the edge and developed an appetite greater than they were able to sustain," he says. "I believe those companies would come back if things got cooking again. Next time, I expect they will do a better job of long-term planning."

Alaska Shipping Agents' Flowers says that even companies such as his that survived the recent recession now know better how to operate in the state: "We were lucky we saw it coming and were able to cut back. Next time around, when business picks up and it becomes necessary to hire more people to maintain our service level, we will, but in gradual way."

Customers have indicated they want to deal with enterprises that operate in Alaska during lean as well as during better times, adds Kelly. He notes that trends favoring a more stable construction market should make it easier for firms to focus on long-term business strategies.

"In previous years, America was built through a large-project mentality. Companies would relocate to wherever those projects were occurring. But in the future, I see more medium-sized projects, more infrastructure extension that can't really justify an organization setting up a whole new operation in Alaska," Kelly says.

Executives of Pacific Northwest firms also point out that Alaskans have good cause to work toward controlled growth. Says Flowers, "The biggest obstacle I see to Alaska's future is this desire for lots of growth, sudden growth - this desire to get as much as possible in 10 years, then leave the state at the age of 50."

The business spokespeople interviewed believe the harshness of the mid-1980s has affected the Alaskan mindset. They agree with one economist who says Alaskans are no longer "receptive to another miracle to an almost irresponsible degree."

Flowers explains that most boom dollars don't stay in the state. Further, surges in local economies often drive mom-and-pop kinds of operations under, because those businesses lack the investment or production capabilities to compete on large-scale projects. Communities also suffer the impact of escalating prices for essential products and services.

Cycles Inescapable. Although booms and busts may become less threatening to a stable business climate in Alaska, managers of veteran Pacific Northwest companies doing business in Alaska also note that market cycles likely will continue.

Vince Addington, fisheries manager for Alaska Maritime, says, "Being essentially a provider of raw materials for the rest of the world, Alaska is doomed in some respects to this cyclical nature." He notes that a manufacturing base would provide stability, but also points out that high labor costs and a transportation disadvantage limit such industries.

N C Machinery's Clearman says diversification is easing the impact of fluctuating demand for Alaska's natural resource exports. He notes that during his company's 60 years of doing business in Alaska, industries such as coal mining and forest products have become broader and more diversified.

Myhr of Fred Meyer identifies another stabilizing force in Alaska's maturing economy: the growing service sector. "As the service sector grows, the economy will become far more stable. It won't be as easily affected by the ups and downs inherent in natural resources," he says.

Outside Operated. Lower salaries and overhead costs, as well as greater opportunities to deal with main or regional offices of other firms and the advantages of being closer to other Pacific Northwest customers, are among incentives cited for basing Pacific Northwest operations in Washington or Oregon, rather than in Alaska.

Alaska Maritime's Wiitala says, "Japanese trading companies are located here (in Seattle). It allows us to produce documentation more quickly, and one day means a lot of interest when you're talking about millions of dollars worth of shipments."

His colleague, Addington, admits there are disadvantages in not being Alaska-based: "Totally Alaska-based companies view Seattle companies as Outsiders. It's also a disadvantage not to be directly on the scene, to witness and keep in touch. We have to rely on our managers to inform us."

Executives of both N C Machinery and Fred Meyer report that, although their headquarters are outside Alaska, they are moving towards Alaska-centered decision-making for operations in the state. Clearman explains that following the last downturn, N C Machinery transfered primary responsibility for critical investment and planning decisions to the firm's Alaska management team. He says that the Alaska managers are able to make better decisions than can be made in Seattle, because they live in the market and are closer to the customers.

Two years ago, Fred Meyer revamped its management structure by creating store director positions and giving them more say in merchandising. Sam Martin, vice president of regional store operations, says the shift in decision-making was clearly an improvement.

He adds, "In fact, it helped more in Alaska than it did in the Northwest. Not only is Alaska more different from the rest of the country, but also within Alaska there is more variation from marketplace to marketplace."

Alaskan Specifics. Executives of the Pacific Northwest firms surveyed say the differences in the Alaska market, in the state's lifestyles and in its history have contributed to widely held misperceptions about Alaska's work force; for example, that extreme individualism hampers the functioning of organizations. Joe Bowen, N C Machinery's Anchorage branch manager, says, "Alaskans like their differences. They like to isolate themselves."

Fred Meyer's Martin calls Alaskans "free-spirited, adventuresome, self-motivated, independent thinkers." He adds that these traits are net assets: "In Alaska, people find a way to get the customer taken care of. They don't take the attitude: "This is a big company; it's not my job. Let somebody else take care of it."

N C Machinery's Kelly says Alaskan employees tend to be more industrious out of necessity. "Employees in Washington would be the same, but they don't have the opportunity to show the same creativity or entrepreneurialism," he explains.

Demands of their environments make Alaskans more resourceful and more flexible regarding work schedules, adds Alaska Maritime's Addington. He says, "In Dutch Harbor, you can get a ship fully provisioned and fueled day or night. That probably isn't possible in a similar-size town of 2,000 people anywhere else in the world."

Alaska Maritime's Wiitala says, "Alaskans work harder than most people down here (Seattle). They think nothing of working 10 to 14 hours a day."

Adds Fred Meyer's Martin, "Alaskans are very diligent and see things through to the end. They become frustrated if you pull them away from a job before it's finished."

Lack of competition in rural markets sometimes produces Alaskans of a different sort, though. Says one Pacific Northwest executive interviewed, "Once you get a hundred miles from Anchorage, a lot of companies are the only game in town and they know it. They're more lackadaisical, unwilling to put out 100 percent."

Some Outsiders are surprised to learn that sophisticated and professional businesses abound in Alaska, note the business spokespeople. Says Martin, "Too many people think living in Alaska means carrying a gun, being chased down the street in Anchorage by a bear."

The lack of formality in Alaskan attire and business situations, although an accurate perception, also has been misconstrued. Alaska Shipping's Vangstad explains that Alaskans generally aren't impressed easily, waiting instead to see if a person will deliver as promised. He notes he can rely on the integrity of his Alaskan customers: "You can do business on a handshake and can trust them. You can talk straight with them."

The Pacific Northwest executives agree that Alaska is changing. Its markets are maturing, and a greater number of its businesses are becoming more like those in the Lower 48.

No longer a remote outpost, Alaska is a player in the global marketplace. N C Machinery's Hopper says, "Alaska is blending more with the Outside. Communications are the same here as anywhere in the world. Turn on the TV and there's CNN news." In addition to the influences of media, he identifies the state's role in international markets - such as the Soviet Union - as a force that's changing Alaska's character.

Adds Hopper, "Alaska is not at the end of the world anymore. It may be at the center."

Strategies For Success

The Alaskan business ventures of N C Machinery Co., Alaska Shipping Agents, Alaska Maritime Agencies and Fred Meyer have succeeded largely through diversification and adherence to long-term operating strategies, says managers of the Pacific Northwest-headquartered companies.

The firms generally offer a variety of products or services in their Alaska operations - more so than they typically do in Lower 48 markets. In addition to such horizontal diversification, the companies also have diversified vertically, incorporating personnel and equipment to handle support services that vendors often provide Outside.

Alaska Maritime Agencies' Mike Wiitala, vice president of operations, says that some of the services provided by the company's ship chandlers - such as procuring safety equipment, providing transportation between airports and ships, and delivering payrolls - are provided by other businesses in more developed markets. "There just isn't enough business in Alaska for such a business to survive, whereas in Washington you might find more than one competitor in each of these markets," he explains.

Similarly, Joe Bowen, N C Machinery's Anchorage branch managers, says that his company trains Alaska employees to handle technical support services that in Lower 48 markets are more widely available from other businesses.

In addition to the smaller service sector, the relatively small size of Alaska's customer base shapes the way firms do business in Alaska, requiring them to carry a wider selection of products or offer a wider range of services. Bill Hopper, N C Machinery's vice president for Central Alaska, says, "We have 30 uses a year for our 416 tractor in Alaska. In Washington, that might be around 800 uses." He notes that in Washington, but not in Alaska, sales of the tractor alone could support a medium-size company.

Another characteristic of the Alaska marketplace - and one that successful firms have learned to use to their advantage - is the importance of long-term business relationships. Wiitala says, "In Seattle, there are 25 companies in our market, and customers switch to other suppliers on occasion. Here in Alaska, there are only three operators, and they all have long-standing relationships with their customers. Most of our marketing trips are maintenance trips, because there aren't that many new projects or customers to compete for."

NC Machinery's Jim Kelly, senior vice president of sales and marketing, says, "You need to be self-sufficient, to anticipate needs and to have that skill in your organization. You need critical mass to play long-term." He explains that in many kinds of businesses, the size of an operation and its ability to generate a substantial return on investment is critical, particularly in Alaska, where costs of providing competitive services or products often are higher than in other markets.

Expenses are one reason why businesses operating in Alaska must invest for the long term and not overbuild to take advantage of short-term peaks in demand. Mel Vangstad, traffic manager for Alaska Shipping Agents of Kent., Wash., says, "We've seen a lot of consolidators over the years come and go. They thought blindly that Alaska has a lot of profitability. They overlooked costs in warehousing, equipment, people power, fixed overhead and such."

Alaska Maritime's Addington adds that expansion in Alaska often entails higher cost and greater risk than it would in Lower 48 markets. To open the firm's Dutch Harbor operation, Alaska Maritime had to build its own buildings for homes and offices.

Land acquisition was particularly difficult, Addington notes. He adds, "The high costs of any missteps, in rural Alaska in particular, make expansion something a small- or medium-size company must approach with extreme caution."

PHOTO : Fred Meyer's Norm Myhr, Jon Bowman, and Alex Lelli Jr. discuss marketing plans. Posing by one of the N C Machinery's Caterpillar products are company executives Bill Hopper and Joe Bowen. Managers Mel Vanstad and Dave Flowers survey the Kent, Wash., terminal yard of Alaska Shipping Agents. Alaska Maritime Agencies' workers set the gangway for World Explorer Cruises' Universe in Seward.
COPYRIGHT 1991 Alaska Business Publishing Company, Inc.
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Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Title Annotation:NC Machinery Co., Alaska Shipping Agents, Fred Meyer, Alaska Maritime Agencies
Author:Kaufman, Robert
Publication:Alaska Business Monthly
Date:Apr 1, 1991
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