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Business in China not written in concrete

A decorative concrete business in Odessa is learning that setting up ventures overseas, especially in China, is fraught with difficulties.

By KRIS HUNDLEY
Published January 17, 2005

ODESSA - Mike Lowe Sr. has run a decorative concrete business for nearly 25 years. But he learned some lessons when he expanded the operation to China.

Lowe, president of Increte Systems Inc., belatedly discovered that his Chinese partners were skimming more than their share of profits from a jointly owned factory. A Chinese-American employee overseeing the foreign operation was running side businesses and taking kickbacks. A pirated version of the company's patented product, called Increate, turned up on the market. And any revenues coming out of China were slammed with a number of unexpected taxes.

But after sinking about $1-million in cash and materials into the Chinese venture, Increte has formed a new partnership, this time with a key supplier.

"It's not profitable, but considering the circumstances, it's on the right track," Lowe said recently. "We haven't given up on it yet."

Increte's experience is a painful reminder that going global is never easy, even for well-established businesses. Lowe, 61, might seem better able than most to handle the challenge, since his products are being distributed in more than 80 countries through a network of distributors and a dozen licensees.

But China, which beckoned with raw materials and market potential, has turned out to be particularly challenging.

"We hired a watchman," Lowe said of the former employee responsible for overseeing the Chinese operation. "But no one was watching the watchman. I can't blame anybody but myself."

Increte's business is all about making plain gray concrete look like something else: brick pavers in a driveway, slate on a sidewalk, boulders in a bridge abutment or an intricate tile mosaic in a hotel lobby.

The company, which has its headquarters, factory and showroom along Gunn Highway just south of State Route 54, is the one behind that plank-like walkway in the concession area at Raymond James Stadium and the fern-embossed aviary at Busch Gardens. Its fake cobblestones line the New York City streetscape at Orlando's Universal Studios. Its sprayed bricks are overlayed on the concrete approach plaza at the Benjamin Franklin bridge in Philadelphia. And its stained concrete designs embellish the floor at the Venetian hotel in Las Vegas.

Known as Inco Chemical when it was acquired by Lowe in 1981, Increte sees itself as a maker of chemicals used in the decorative concrete business. Its Odessa plant makes about 100 different proprietary products - sealers, strippers, waxes, grouts, urethanes and epoxies - used to create the durable faux surfaces. Though it had an inhouse installation crew until about 10 years ago, Increte now works strictly as a wholesaler through independent contractors who have been specially trained in the company's products.

About once a month, nearly 100 concrete or pool contractors from throughout the country come to Odessa for the two-day training, paying $500 per company. Once certified, these specialists promote and install Increte products, charging anywhere from $4 to $6 a square foot to stencil and spray a stonelike texture over a pool deck or up to $10 a square foot to make a patio look like granite.

The family-owned company, which has 85 employees, does not disclose revenues. But Lowe's son Mike Jr., Increte's director of marketing, said sales grew more than 15 percent in 2004 as the economy strengthened.

With most of Increte's U.S. business coming from residential projects, Lowe Jr. said sales have been boosted by concrete's new cachet as a hip building material. A rash of home improvement shows has also sparked renovation fever among consumers.

"We've got decorative systems for new concrete construction as well as existing concrete," Lowe Jr. said. "And when new housing is down, people tend to spruce up what they have. So we're almost recession-proof."

About a decade ago, Increte began developing licensees to handle its products overseas. Today it has 12 such agreements, from Chile to Greece to Russia. Licensees pay a fee to buy rights for a certain territory, then agree to buy a minimum volume of Increte's products over the life of the agreement.

Japan has been the company's most active licensee, landing contracts for decorative concrete projects at several theme parks and hotels. The award for overcoming the most engrained resistance might go the Increte's licensee in France, who persuaded a small village to replace its deteriorating cobblestone streets with the company's stamped concrete.

The company's move into China was gradual, starting with a handful of distributors. But about three years ago, Lowe Sr. decided to expand the relationship by finding partners who would run an Increte factory in China. The allure: cut shipping costs and gain a foothold in a growing market.

"We had been buying iron oxide, which is used to color concrete, through brokers in China, but our company had grown to the point where we needed to tie that relationship down," the elder Lowe said. "And I wanted to sell as well as import material from there. The growth in China, from a construction standpoint, is phenomenal. And it opens the rest of the Asian world to us as well."

A group of Chinese investors joined with Increte to build a factory in Shanghai in record time.

"They didn't follow completely to the letter how they were supposed to do it," Lowe Sr. said. "But it was amazing how industrious they were."

The plan was for the Chinese factory to produce just a handful of Increte's products, with key ingredients coming from the United States. That way, Lowe Sr. said, he hoped to keep tabs on the overseas manufacturing. Lowe's son Scott also spent nearly a year in China, training Chinese contractors how to use Increte's products and visiting projects.

Despite having a family member on site, Lowe Sr. said his original Chinese partners failed to keep their side of the bargain.

"We were having trouble getting a handle on finances and getting reports (from China)," he said. "There was quite a bit of material we were owed money on and a lot of excuses. At that point, I just drew a line in the sand."

Jettisoning its initial partners, Increte signed a joint venture agreement with its Chinese iron oxide supplier and moved production into another Shanghai factory.

Instead of taking cash out of the new operation, Increte takes raw materials from its partners in trade.

And a new international sales director, based in Odessa, monitors the foreign operation, replacing the employee who had been taking kickbacks from contractors and selling Increte's products through a separate company.

"We've replaced almost the entire staff over there in the last six months," Lowe said. "It's an ongoing saga."

But it's not one Lowe regrets. Because of its efforts in China, Increte is being considered for several major construction projects for the 2008 Olympics in Beijing. And it recently signed a contract with a large Chinese supermarket chain that plans to use Increte in its stores.

"Even though language and cultural differences may have contributed to our problems in China, business is really the same the world over," Lowe Sr. said. "I didn't spend as much time watching it as I should because China is a long way away. But today, with e-mails, it's not really that far."

Kris Hundley can be reached at 727 892-2996 or hundley@sptimes.com

HEADQUARTERS: Odessa.

PRESIDENT: Mike Lowe Sr.

EMPLOYEES: 85.WHAT IT DOES: Manufactures products for decorative concrete surfaces used in commercial and residential settings.

WHERE IT HAS BEEN USED: Raymond James Stadium and Busch Gardens Tampa; Universal Studios Orlando.

DISTRIBUTION: Increte works through more than 400 independent contractors in the United States and is distributed through licensees and partners in dozens of countries, including Chile, Greece, Russia, Japan and China.

[Last modified January 14, 2005, 23:50:06]