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Back to school with Mr. Baker.

From headquarters in a converted turn-of-the-century schoolhouse, the CEO of Columbus' other Fortune 500 company teaches the advanced class in going global.

Next time you're weathered into an airport for half a day, pray James K. Baker settles in a lounge seat next to you.

Be sure you get the right James Baker, not the defrocked TV evangelist or the shuttle diplomat from State. This one has dark hair, direct eyes with no-nonsense glasses, a straight across the face mouth and speaks in a beefy baritone. He sits tall and emphasizes his words with short karate chops at any available flat surface.

This Baker is chairman of the board and CEO of Arvin Industries in Columbus, Indiana--a worldwide automotive parts manufacturer. He was chairman of the U.S. Chamber of Commerce in 1990-91, is now chairman of the executive committee, is on the U.S. Council for International Business, is a trustee of the Indiana Chamber of Commerce, and is on the board of INB Financial Corp. and chairman of the finance committee of PSI Resources, among a full deck of other organization directorships. His company is #236 on the Fortune 500 list.

With a little encouragement, he'll talk to you about educational reform, about his own and his company's interesting history, globalized marketing, dealing with the Japanese. Hey, he may even give you some hints about where to start whittling on a block of wood to carve it into a graceful mallard decoy.

Baker is ready to speak his convictions. For instance, on the education reforms: "Education is in serious condition in the United States," he says. "How can this country be expected to compete on a global level with businesses in countries like Japan where education is the top priority? My primary concern is with the 26 percent, over a quarter, of the kids who drop out of school and cannot find jobs. In 1958 employees were hired right out of high school. In factories today we can't take on an untrained kid and just have him do physical work. Physical work in the '50s or '60s was substantial. Today it is almost non-existent. Nobody lifts anything. They don't carry anything. Today we need people with an understanding of statistical process control and the probabilities of pneumatic and hydraulic effects.

"We know that dropouts are twice as likely to end up on welfare, in prison or to be pregnant teens. They are an enormous cost to society. We have this welfare climate in our country that no one is paying attention to. The way to get a hold of it, in my view, is to go back to the schooling and show these kids what kind of future they'll have without it."

Baker says we should use available business resources to expose kids to various kinds of manufacturing and technical jobs to which they can aspire for a lifetime of work. Aspiring to these jobs will make it clear to students what it takes to gain employment in them, that is, high school and two years of post-high school vocational study.

And the classes don't end there. It's back to school at Arvin. "We are putting all of our employees into an intense study program. What was good five years ago today is not working. Manufacturing processes have been turned upside down. We are going to spend $5 million this year on one single training program for our manufacturing people. This does not include the training programs that are going on all the time in the company."

Baker ascribes to the theory that life is one long training course, in the classroom and on the job. His own life is an example. He was born James Kendrick Baker in Wabash on December 21, 1931. The family lived in Wabash until he was 10 and then moved to Indianapolis. "Wabash was wonderful," Baker recalls. "I went to Miami Grade School. You could get ice cream, if you hit it on the right days, for 5 cents a dip and 6 cents for two dips at Gackenheimer's. My first job was as a substitute newspaper boy on my new bicycle. I mowed grass, shoveled snow and worked in Wolman's Drugstore at Washington and Ritter in Irvington. I was a bag boy at the Standard Supermarket during World War II. By virtue of being an employee I had a little better access to chocolates when they were delivered." (Here we see early entrepreneurship and measurable incentives.)

"My dad was a veterinarian, primarily with large animals. I didn't follow in his footsteps because he told me not to. Dad said it was a tough business." So Baker picked something easy, like becoming a global auto parts manufacturer.

Baker graduated from Thomas Carr Howe High School in Indianapolis, then DePauw University in 1953 with a A.B. in physics and mathematics. "Then I went right into the Army. I took my basic training at Fort Knox and was assigned to Scientific and Professional Personnel at the Pine Bluff Arsenal in Arkansas where munitions were manufactured. I helped supervise the production-control process.

"My first job at Arvin, 35 years ago, was as a purchasing clerk in the steel department. Later I was given some financial assistance by the company to go to business school." He graduated from Harvard University with a masters in business administration in 1958. When he returned to Arvin, he went into sales.

Before Baker arrived, the corporation was a consumer-goods manufacturer and even turned out television sets. Two of its oldest products were radios and heaters. Those were both started in the 1920s and 1930s. After World War II Arvin was best known as an appliance manufacturer. "When you produce a part for an automobile it is not very visible to the buyer," he says.

The year Baker rejoined Arvin, the company was doing about $3 million sales in new car parts to the Big Three U.S. automakers--Chrysler, Ford and General Motors. A parts manufacturer could make money in those days selling to Detroit, but over the years auto-parts firms sprouted in Europe and the Far East. Heavy competition developed.

Baker's personal benchmark in the company is November 1981, when he took over the day-to-day control of Arvin as CEO with Eugene I. Anderson as chairman. It was obvious to both men that the growth potential was outside the country. He explains, "The U.S. and Canada were only 25 percent of the world market. To expand, we had to enter other markets too. We adopted an attitude that America is but one player on a field that encompasses the entire world, and planned our strategy accordingly.

"In those days our consumer electronics amounted to about $175 million. We had recently acquired a research laboratory and it was doing about $75 million in sales, almost 98 percent for the U.S. Government. We crash tested automobiles for the Department of Transportation and did some secret work for the Department of Defense." The other two businesses were automotive parts, he continues. Arvin had $225 million in parts going onto new automobiles during the assembly process. It was beginning to become a factor in the replacement-parts industry with sales of $25 million. Total sales were $500 million.

"To grow, we needed an enormous amount of resources and an enormous commitment. We couldn't export all of our businesses. We knew we had a weaker position in the consumer electronics field. Even though our heater business was the largest in the United States, we didn't feel it was a business we could easily globalize, so we sold it. We brought those resources to bear and had good results."

Today, Arvin is a global company whose products are sold in North and South America, the European Common Market, the Pacific Rim and in the Third World. The firm has 3,100 employees in Indiana manufacturing plants, 7,600 in others locations around the United States and about 5,700 employees abroad for a total of 16,400 employees.

Of the company's 11 operating units, North American Automotive, Arvinyl and Roll Coater are Indiana-based and have most of their operations here. North American Automotive produces exhaust systems and parts as well as engine and fuel tubes. Arvinyl is a producer of vinyl-metal laminates, which show up on products such as electronic components that may have metal cabinets with wood-grain appearances or other textured finishes. Roll Coater applies finishes to metal used in appliances and other products.

Arvin sells to more than 20 auto companies including Honda, Toyota and Volvo. It manufactures in 16 countries and ships to 100. An industry analyst predicts that Arvin's earnings will grow at least 20 percent per year through 1995. Sales have more than tripled since 1981.

So, what happened to convert Arvin over 10 years?

Baker says, "Our expansion began in the Americas because the countries are close and seemed to be easier to understand than other markets. We decided to enlarge our business and do so in Canada, Mexico and South America, specifically in Brazil."

Arvin began to buy companies that were in the same product lines. It acquired Maremont Corp., maker of Gabriel brand shocks and struts. And that situation was dicey. "In 1986, we were an $800 million company. In five years we had grown by 60 percent. One of our acquisition criteria was that we would never buy a company more than 15 percent of our size. Maremont Corp. was $500 million. But it was number one on our list. It was very strong in replacement parts, suspension and exhaust systems. It also had a network already in place for distribution around the world. So we violated our criteria and bought Maremont Corp. at 62 percent of our size. We stuck our neck way out and spent $300 million dollars at that time."

Then followed the purchase of Schrader Automotive, with a world share of 30 percent of the tire-valve market and $80 million in sales per year. And Arvin bought Bainbridge Silencers and Cheswick of Britain, Amortex of France, and AP Amortiguadores of Spain. Catalytic converters were a new item in Europe, so Arvin built factories to produce them in the Netherlands and England. There were pairings with Japanese companies. A 20 percent owner of Arvin's Spanish shock absorber company is Kayaba, Japan's largest producer of shock absorbers and struts. The company's Madison operation unites Arvin North American Automotive with Sango Co., Japan's largest muffler marker, to build exhaust systems to sell to the Toyota plant in Kentucky.

"We learned a great deal from forming the two joint ventures with Japanese companies," Baker says. "There is no question that they are the best in the world at manufacturing processes. They give us very high compliments at being the best in the world in product development. So the two together really makes a winner."

The plunge into globalization has not been all champagne, toast and caviar. Earnings that were $2.43 per share in 1986 dropped to 69 cents in 1988. They have been on the mend since then and are expected to hit $1 this year. The company decreased the basic wage from $11 an hour to $8 in 1989. Baker says, "We had to globalize our wage structure." Debt was up to 60 percent of total capital but is now down to 43 percent.

Was it worth the struggle? The breakdown in business today looks like it is paying off. Baker says, "In 1991, we had $1.7 billion in total revenues. That is up from $513 million, or a 326 percent increase since 1982. We sold our consumer business. Original equipment has doubled to $750 million. Replacement parts is very significant, the second-largest segment of the company today, at $625 million. Our technology business, research and testing, has grown to $225 million. Part of our production is sold into the industrial market and that amounts to $100 million. In 1992, we anticipate a nice increase in business. First quarter sales were up 17 percent versus the first quarter of 1991."

So, if someone said Arvin was quickly nudging toward the $2 billion barrier, would it be accurate?

"The two billion level, yes. We started in 1919. We crossed the one billion mark in 1987. In 1993 we expect to cross the two billion mark."

About here the subject might turn to selling to the globe, and Baker will tell you, "It is something we had to learn. I remember in the 1960s we thought, perhaps, Arvin might be able to export some products to Mexico and we gave that a kind of a Friday afternoon type of effort. If we had a little extra time we might think about exports. Now 37 percent of our business is beyond our borders.

"We have had to adapt to customs in many countries. For instance, there are important differences between ours and Japanese business practices. Even though we are both free-enterprise systems the Japanese system includes government."

Japan is very supportive of business, he notes. "The communication between business and government in this country is not as open and clear. We are certainly overregulated. It is interesting to note that state governments, by and large, are very supportive. Indiana is. But when you get to the federal level you don't have the same support. Why? Big business has always been a bogey man. If you were in big business you were a robber baron. The more important side of big businesses is that they are the ones who are creating jobs, in many cases the $10 and $12 jobs, and not the $5 hamburger-flipper jobs."

Japanese culture is a key to that country's success, Baker says. "As children they are instructed that Japan, not religion, family or self, is the most important thing in life. That feeling is not nearly as strong in the United States. Americans are not taught the value of international trade, particularly the value of exporting. Japanese youngsters learn this at a very early age."

Another difference is found in business negotiations, he says. Baker was given a lesson in their philosophy by a Japanese friend. He points out that many American businesses' first interests are in legal questions, then financial questions and finally, personal relationships. In Japan the order is reversed.

Closer to day-to-day activities, Baker talks about the future for Arvin Industries. "We have to stop and ask ourselves, 'Have we changed enough?' We are not what I consider to be a world-class company today. We are accomplishing the things we set out to do, but we are not there yet. We have a lot left to do. We have other geographic regions to penetrate as well as improving manufacturing and product quality in every country where we are. If the globalization process takes 10 years we are really only five years into it. I feel this is my personal charge, to get this done."

How about Baker as a business statesman? "An ex-chairman of the chamber has no function. My duties there have ended. I'm the exhausted rooster. I see myself as continuing to work in public K-12 education in Indiana, and I'm on the president's New American School Development Corp., a national program in every part of the country. There are a lot of personal things I love to do. I have a lot of fun playing doubles tennis. Beverly, my wife of 33 years, got me involved in duck carving. That's something I enjoy."

As chamber chairman, Baker projected an upbeat message, and he still promotes it. "Not long ago," he says, "the challenge to American business was to be either a low-cost producer or a high-quality, high-technology producer. Now, the challenge is to be both, and that is a very difficult challenge indeed. Nevertheless, I think that challenge is being met by American manufacturers one product at a time and one customer at a time around the world."

Maybe they won't call your flight for awhile. You two can linger in the lounge and dig into the North American Free Trade Agreement, maximizing R&D management or inventory control in the Commonwealth of Independent States. Baker thinks. Baker speaks. Better listen.
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Title Annotation:James K. Baker, chief executive officer of Arvin Industries Inc.
Author:Johnson, J. Douglas
Publication:Indiana Business Magazine
Article Type:Cover Story
Date:Jun 1, 1992
Previous Article:Indiana leads the way to recovery.
Next Article:Indiana's hot spots.

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