A successor’s tale: The road to China

In August 2003, Mark Allenbaugh was happily pursuing his career as an attorney in Washington, D.C., when he got a call from his family in California: Dad is ill. Come home. Allenbaugh rushed to California that day, expecting to support his dad—not to take over the family business.

According to Allenbaugh, he and his father had never discussed a succession plan for the business until that day in the emergency room. That's when Howard Allenbaugh, 68, unable to speak because he had a tube in his throat, wrote his son two notes. The first said, “Take care of your mother.” The second: “Don't sell the business.”

The younger Allenbaugh agreed to do both. Just a few weeks after the emergency phone call, his father, who had founded MAG Manufacturing and had been its only leader, died of lung cancer. Thus began a journey that would take Mark Allenbaugh from Washington to California to China as he struggled to make good on his promise to his father and bring the firm, a maker of home security and architectural hardware, into the 21st century.

Mom-and-pop culture

For Allenbaugh and his siblings (a sister and a half-sister), MAG Manufacturing had always been a backdrop of their lives. But it was never a career plan.

“I remember as a kid going to trade shows with my dad, running up and down the aisles and getting lost in the hotels,” he recalls. “It was a part of my childhood. My mother was a flight attendant, and when she was gone on weekends, he'd take us into work with him and we got to play around on the machinery.”

Howard Allenbaugh had founded MAG in 1968. The firm grew, building locks, doorframes and other hardware, much of it created by the founder. At the time of his death, Howard Allenbaugh owned 36 patents. As Mark Allenbaugh remembers it, he and his father did not always see eye-to-eye on career goals. “I was pursuing a Ph.D. in philosophy, and I think he was impressed but he couldn't quite see how you could build a professional life around philosophy,” he says. “I think he was relieved when I decided to go to law school.”

But Allenbaugh, now 36, didn't realize just how far apart he and his father were on business issues until he moved with his wife, their infant son and two cats out to California in the winter of 2003. When he took over leadership of MAG Manufacturing, he found the business on the brink of obsolescence. The company, which had never shed its mom-and-pop culture, had many longtime employees, a host of antiquated business practices and—as Allenbaugh discovered when he was finally able to sit down with the firm's uncomputerized accounting rec-ords—looming financial trouble.

The company, which generated about $20 million in annual sales, was “barely breaking even,” he says. And that wasn't the half of it.

“One of the first things I noticed,” Allenbaugh recalls, “is that the company had no voice mail. The message system was this: The receptionist would take the call and then page the person over the company loudspeaker. We had 50 employees, and we got hundreds of calls a day. The paging was going on every 30 to 60 seconds. I was going mad by 3 p.m. on my first day. And that was just the beginning. There was no e-mail. Everyone had a different computer, and they were not networked. We had dot-matrix printers—which I hadn't even seen since I was in high school. It's like I had walked back in time.”

Allenbaugh spent the first few months cleaning house. He made the painful decision to cut staff and hire new blood. And he began sorting through his father's old projects, looking for a new direction.

In his search, he came upon Kleer Drain, his father's last invention—an instant drain opener that featured patented air-burst technology. The product was going nowhere, Allenbaugh recalls. But he talked Home Depot into giving it a test run. He spent $100,000 on cable TV ads.

About halfway through the test, Allenbaugh got a call from Home Depot: Kleer Drain is a hit. The retailer wanted to put it into 1,700 stores in the U.S. and Canada in 30 days. That news put Allenbaugh on a plane to China to check his manufacturing partner. And it put the company on a new track to profitability.

The trip to China was “a life-changing experience,” Allenbaugh proclaims.

The road to growth

When he got to China, Allenbaugh discovered that “This country is unlike anything I had expected. It's not the backward country you read about in the papers. It is the United States on steroids. Looking at all the manufacturing going on was just incredible. Everywhere I looked, construction cranes were up, new apartments were being built. I thought: This is where I want to be selling product.”

Turns out, Allenbaugh's timing couldn't have been better. In that year—2004—China began allowing wholly foreign-owned enterprises to operate. Before that time, doing business in China required a joint venture with a local company. In December 2004, thanks to lobbying by the World Trade Organization, direct foreign investment was possible. And MAG was one of the first. The company secured a business license and rights to import and export from its Chinese operation.

Still, getting regulatory approval was just the first step. As Allenbaugh discovered, there are many challenges to operating in China.

Perhaps the most daunting was the language issue. China, Allenbaugh found, was like the U.S. when it came to business building: It relied upon networking. “It was very much like I remembered the way you do business in Washington, D.C.,” he says. “It is all about developing relationships.” This meant communication would be a key to making business connections. Allenbaugh immersed himself in language study and made a critical decision to hire local staff. He now has six full-time staffers in China.

Analysts agree that creating a local employee presence is the most important—and often the most difficult—aspect of launching business operations in China. Many Western companies hope technology will help them bridge this relationship gap, says Robert J. Kramer, principal researcher for The Conference Board, a widely quoted source of business intelligence. But virtual organizations will not get the job done. “Many Asians prefer informal, face-to-face forms of communication,” Kramer says.

Another challenge: the mercenary marketplace that is the emerging Chinese economy. Many protections American businesses take for granted are only just developing in China. In his first year of Chinese operation, Allenbaugh was shocked to attend a local trade show and see one of his own vendors illegally using his MAG trademark. He soon discovered this was a common fraud tactic—to register a foreign company's trademark in China and then demand payment for its return. Indeed, consulting firm A.T. Kearney reports that counterfeiting remains rampant in China. “If you're waiting for a complete and immediate solution, don't hold your breath,” advises Laurent Peitzon, a vice president in A.T. Kearney's Paris office and co-author of a report entitled “Staying Ahead of China's Counterfeiters.”

Allenbaugh tried to resolve the issue from California, hiring three attorneys and entering a maze of international legal actions. But in the end, he found his local-is-best theory held true once again. Only by traveling to Beijing and meeting with the Chinese Trademark Office was he able to officially register his complaint. While the response from the Chinese government is pending, Allenbaugh says his actions were enough to convince the fraudster to move on. On his next trade show visit, he saw no sign of fraud against MAG. “That was a relief and a lesson,” he says.

Help for other business owners

Indeed, Allenbaugh says he's learned so much that he's decided to share the knowledge. He and a law school buddy are advising owners of small and midsized companies who want to do business in China. “I offer a degree in the school of hard knocks,” he says.

The first bit of advice he gives to any client: Go to China personally and see for yourself. “You can read all about it,” he says. “You can hire all the experts you want. But until you go and spend time and see the retail and see how this country really is, you won't be ready to take advantage of the opportunity. I would never have guessed how like us China is in terms of the consumer marketplace.”

Allenbaugh now toggles back and forth between his two bases, spending a month at a time at each location. It's not easy, he says, but it's critical to making both sections of the business work. He is studying Chinese and has hired a Mandarin-speaking nanny for his two children (his second child, a daughter, was born in 2005). “I hope they speak English with a Mandarin accent,” he says.

The China expansion—along with other new domestic products—helped put MAG back on a growth track. Its annual sales have doubled to $40 million, and the company expects to put up record profits, Allenbaugh says. About 20% of MAG's revenues derive from its Chinese operations, which include the manufacturing of product for sale in both China and the U.S. MAG's primary customers in China are the construction firms charged with raising the many new buildings across the Chinese urban landscape. “All those buildings need doors,” Allenbaugh notes.

MAG Manufacturing is not the same firm that Howard Allenbaugh asked his son to run. Of the 20 employees who staffed the front office in 2003, three remain. The rest have been replaced by Mark Allenbaugh's new hires. Thanks to technology enhancements, the firm now handles 400 orders a day, vs. about 80 four years ago. “It's not the same, that's true,” says Allenbaugh. But it is a firm pegged to thrive in the 21st century.

Ellen Neuborne is a business writer based in New York.

China, by the numbers

How hard is it to do business in China? World Bank Group has developed a global index to give business owners a sense of what the experience is like.
Among the key business factors:

Source: World Bank Group, “Doing Business,” www.doingbusiness.org