The glass industry is undergoing rapid change. Many of its products, such as window glass for residential buildings, remain commodities that must be manufactured locally as their weight and relatively low value makes it uneconomic to transport them over significant distances. However, at the same time the industry is creating sophisticated new applications for glass that offer opportunities to generate additional value.
Jean-François Heris, president of AGC Building & Industrial Glass Company and president and CEO of AGC Glass Europe, the European arm of the world's largest producer of flat glass, believes the transformation of the glass industry signposts an alternative future for the European economy. “In recent years, there has been a focus on the importance of digitisation to Europe’s future and an assumption that industry will eventually migrate to low-cost locations,” he says. “But the idea that the European economy can be based solely on services is wrong.”
Heris says that there is now a growing recognition that so-called traditional industries are crucial to a balanced modern economy. Nevertheless, to prosper in a globalised world, companies will need to adopt a new mindset. “Ideas like Industry 4.0, which digitises the manufacturing sector, big data analytics and mass customisation are already gaining ground in many industrial sectors. They will be critical if employment is going to be re-shored from low cost locations,” he says.
AGC Glass Europe is leading by example. Recently reorganised globally into two companies, Building & Industrial and Automotive, it has developed innovative products such as an automotive heads-up display, anti-bacterial and anti-corrosion glass and fingerprint recognition glass for smartphones. Rather than simply being a glass producer, it aims to meet user needs for products that offer comfort, energy control, health and safety, and aesthetic value.
AGC is also putting sustainability at the heart of its business. The company is a leader in fast-growing markets such as glass for highly technical applications. And it was recently awarded Cradle to Cradle Certified Silver market standard for its float glass products - one of a number of similar awards its business divisions have received - following efforts to offset greenhouse gas emissions across the product manufacturing process.
Creating a new culture
To develop glass applications for fast-growing, dynamic technology-driven markets, AGC has evolved its business model. “As a global, long-established company we could perhaps be described as a large ship,” explains Heris. “Turning 90 degrees is challenging and takes time. So, instead of trying to change the entire company’s direction, we have instead set up a number of small boats around the ship that have some autonomy and greater agility.”
“For every 10 ideas we come up with, half might fail, three might deliver mediocre results but two might change the company’s future.”
These smaller units effectively act as incubators for new ideas and enable AGC to approach challenges with a ‘start-up mindset’ and the nimbleness necessary to compete in competitive, fast-moving markets, according to Heris. “It is easier for these groups to accept that for every 10 ideas we come up with, half might fail, three might deliver mediocre results but two might change the company’s future,” he says.
AGC’s research and development for the global Building & Industrial group is concentrated in Belgium. “Operating in Belgium has a number of advantages,” says Heris. “There is a strong innovative spirit in Belgium, with open-minded and tolerant people of many nationalities. There is also lots of government support available for corporates willing to invest in new technology. But labour costs are among the highest in Europe. This makes it a difficult place to produce a commodity product, which is why we’re adding value through our R&D activities.”
Bank commitment is critical
AGC has worldwide business lines that operate on a regional basis. This structure determines how the company manages its finance and banking relationships. It has a number of relationships with Japanese banks at a global level because its parent is based in Tokyo. The European Building & Industrial and Automotive businesses are headquartered in Belgium, from where finance and treasury functions, including pooling, cash management, stock options, and banking relationships are managed. The European groups are served by a back office operation in the Czech Republic.
AGC has operations across more than 150 sites throughout Europe, from Spain to Russia, and subsidiaries in many countries. While most functions are centralised in Belgium, local entities have day-to-day responsibility for working capital and maintain relationships with local banks to ensure access to credit lines for working capital and to integrate with the communities where they operate (and more easily access relevant subsidies or grants). “However, the key location for banking relationships at European level is Belgium,” says Heris, who as CEO of AGC Glass Europe is responsible for finance and business services for the region (as well as leading the Building & Industrial group worldwide).
Heris says that the most important criteria for AGC when it selects a bank is its geographical footprint and commitment to a relationship. “Obviously, we need a bank to be present in the locations where we operate so that we can optimise the benefits of the relationship,” he says. “However, equally important is a bank’s willingness to stand by us when times are difficult: some banks simply disappeared during the deepest points of the financial crisis or were unable to lend.”
A further important consideration when choosing a bank partner is their knowledge of AGC’s business. “We expect a bank to understand the dynamics of the glass industry and the challenges we face as a traditional business,” says Heris. “For example, the industry was among the first to be hit during the crisis and one of the last to recover because of the impact on the construction sector.” Heris also expects a bank to be aware that the glass industry is changing and expanding into hi-tech sectors. “We’re not going to end up with Silicon Valley valuation multiples! But as our business model changes so will our financing needs.”
ING has a long-standing relationship with AGC Glass Europe, thanks to its strength in Belgium and across Europe. “We’ve developed a solid partnership,” says Heris. “They take a progressive approach to business and are committed to excellent service and support; pricing is in line with the market.” ING has aligned its service structure with AGC - with a single main point of contact in Belgium - and provides support in French, which in the functional language of the company. ING works with AGC Glass Europe in a number of areas, including interest rate, foreign exchange (FX) and commodity (oil) hedging; ING also recently established a trade receivables purchasing programme for AGC.