Plowing ahead Featured

9:12am EDT June 24, 2005

Martin Richenhagen speaks English well, although with a heavy German accent, and he insists his French is second only to his native tongue. Those language skills come in handy for the man who leads one of the world's largest agricultural equipment manufacturing companies.

"We have factories all over the world," Richenhagen says. "Our main factories are in Finland. We have a factory in Germany. We have a little factory in Denmark and in The Netherlands. We have a big factory in France. The language skills and international management experience help me in the job I'm doing."

Richenhagen, who has worked both in the United States and Europe throughout his career, is president and CEO of AGCO Corp., a $5.3 billion manufacturer based in Duluth. AGCO was formed in 1990 with the management buyout of Deutz Allis Corp. from German-based Kloeckner-Humboldt-Deutz AG. Twenty-three acquisitions later, Richenhagen leads a company focused solely on agricultural equipment.

While AGCO is relatively new in the agriculture world, through acquisition the company traces back to the mid-1800s.

"We have certain companies that we took over that are much older than we are," Richenhagen says. "If you look at Massey Ferguson (acquired in 1994), they are about 100 years of age. They have a huge tradition and a lot of very experienced people. That needs a certain diplomacy with regard to those businesses. We didn't just overrule them. When you talk about synergies, you have to make sure everybody in those companies buys in. In addition to that, we have the different cultures -- not with regard to company culture, but with regard to nationalities.

"It's very helpful that I worked in France, I worked in Switzerland and I worked in Germany. I think I pretty much know how to handle that."

What he has to handle are different the work ethics, cultures, attitudes and laws in every country in which the company has operations.

"The laws are different in every country; the traditions are different," he says. "Unfortunately, in my home country, Germany, people are used to working only 35 hours per week. In Finland, it's pretty normal they work 40 to 42 hours. We have different work councils and different situations with unions. We have a different approach how to do business. Finns are typically less outspoken. Germans can be pretty tough and straightforward. The French love to discuss everything in big meetings. Every country has a slightly different tradition and culture."

His international experience may give Richenhagen an edge in dealing with different cultures, but the former high school teacher's main challenge is managing a company that has grown from $200 million to more than $5.3 billion in less than 15 years.

"What I try to do is go to people with regard to the international approach to business, and I try to focus very much on how to become more profitable," Richenhagen says. "We are big now; we are certainly No. 3 in the world (among competitors that make not only agricultural equipment, but other types as well) and we are very close to the No. 2 and not too far away from the No. 1.

"You have to take out from Holland and John Deere the revenues generated by their construction businesses. We are the biggest single agricultural manufacturer in the world, but we have to become more profitable. That would also be reflected immediately in a higher stock price. I think AGCO is a little undervalued."

Stock price is one way to measure the company's value, but Richenhagen uses a number of other metrics to gauge the health of the organization as well.

"We are regularly measuring customer satisfaction, quality, warranty costs, inventories, and this year, we will, for the first time, also interview all of our employees and do an employee satisfaction survey," Richenhagen says. "All of our almost 16,000 people have a chance to give their input. We want to establish a baseline. We want to know where we are today. We want to be in a position to agree on a target and to improve. You can only do that by measuring."

Sowing the seeds

Some of brands under the AGCO umbrella follow their lineage to the mid 1800s. Each of the 23 acquisitions had its own network of dealers and manufacturers. Today, the company operates more than a dozen brands on six continents with about 3,900 independent dealers.

With dealers and manufacturing plants scattered around the globe, fluctuating currencies and an ever-changing global economy, AGCO is constantly restructuring to improve effectiveness and maximize profits.

"We started to do that in '90 and' 91, but we do that basically every day," Richenhagen says. "This is normal operational business. We have major initiatives we work on, and the main reason is we suffer a little bit - we bring product over from Europe, and we bring product over from Brazil and Mexico, and we suffer from the weak dollar. In order to be sure we still generate margin here, we need to reduce our cost of manufacturing.

"For example, the spare parts business - it does not make sense (to have) two different distribution centers in one market, so we would typically put those two together. When we talk about overhead functions like human resources, legal, finance, things like that, we would sit together and think what we should do and who are the best people (for those positions) and then come up with the optimal solution.

Richenhagen says AGCO is working on several important projects right now.

"This is one of our strengths," he says. "This year, the market in South America goes down in tractors by more than 20 percent, and in combines by more than 50 percent, and we are still in a position to be a little bit better than previous years, we believe. The reason is, very early, we took the right measures and were in a position to reduce our cost of manufacturing, not only in Brazil but also in other countries."

Although he has vast international experience, Richenhagen knows it would be foolish to ignore the local experts, and AGCO eagerly taps the native expertise.

"We try to work with local managers," Richenhagen says. "We don't believe in management from America to those countries. That doesn't mean we don't have an exchange. We have job rotation. We have people coming from all over the world to Georgia and working here in the headquarters. We also have people in America going to those countries. The management team should be local."

Cultivating the business

AGCO has made huge inroads into foreign markets, which are booming, while the home market leaves something to be desired.

"Very important for us is North America because we only have about 10 percent market share," Richenhagen says. "We certainly want to grow here in North America, and we do that by better products and better distribution, better dealers. Very important to us is we came to an agreement with Caterpillar, and we use already the Caterpillar network for the distribution of our agricultural equipment. They will generate about $350 million of additional revenues this year already.

"Second, very important to us, are eastern and central Europe. (On April 11), we signed in the presence of President (Vladimir) Putin from Russia and Chancellor (Gerhardt) Schroeder from Germany an agreement with the leading Russian manufacturer of agricultural equipment, and the idea is, through several joint ventures, to make sure that we get into Russia. The win-win situation is that we deliver the technology and the Russians would deliver local networks and distribution."

China is also vital to the future of AGCO, and the company is in intensive negotiations about a corporation there, as well.

While new business growth is important, AGCO also aggressively seeks the secondary market. No matter how good the products are -- and quality improves every year -- the equipment the company manufactures will eventually break down. And that creates a spare parts market.

"You first create a population of agricultural equipment in a marketplace," Richenhagen says. "And then -- after a short period of time -- that generates additional spare parts business. We see that this year; spare parts are up (about) 10 percent. (The first quarter) parts were $155 million compared to $145 million in 2004. This is pretty typical, so you are somewhat rewarded by the new equipment you sold.

"Our customers are very demanding on quality, so you work on improving quality." Typically a tractor or combine harvester uses fewer parts than the year before, every year. With the growing population, that creates higher volume. Big professional farmers, of course, use their tractors and equipment much more intensively than small farmers did in the past."

As farms get larger, there is a need for new products, and Richenhagen is making sure AGCO stays on the leading edge of technology to meet the demand for those products..

"In 2005, we're going to invest $130 million in research and development, which is about 25 percent more than in previous years," he says. "We will do that for maybe two or three years in a row. We have, worldwide, a little more than 800 people working in research and development.

"Second, from those acquisitions, we get product innovation on top of that. When we bought the tractor business from Caterpillar about three years ago, we got access to the leading technology for tractors. On the basis of this technology, we are in a position to develop a high-horsepower articulated tractor -- in the area of 500 to 550 horsepower -- which is a new product for our dealers. When we bought Fendt, we (acquired) the most advanced technology with transmissions, continuous variable transmission. This CVT transmission is, by far, outperforming all competitors."

The benefit was almost immediate.

"Fendt had it in their German and western European markets," he says. "The Fendt tractor, as such, was too difficult to handle for the typical North American farmer. What we did is we took the transmission and brought it into a typical North American tractor, and that generates a total new market approach. We also work on a big Class 8 combine harvester for North America, which is important because farms are concentrating and getting bigger and bigger. It's not only farms that are getting bigger but also combines."

If he can continue AGCO's successful growth, no doubt Richenhagen will reap a bountiful harvest of his own.

HOW TO REACH: AGCO Corp. (770) 813-9200 or www.agcocorp.com