That's What You Call Trying On A New Hat
Hats. Buses and forklifts. The businesses don't exactly scream synergy. Yet South Korea's Baik Sung Hak, who rose from janitor in a cap factory to become the world's leading hatmaker, believes he can achieve similar success in heavy manufacturing. "Money can be made from what appears to be a rotten industrial relic," says Baik, who in 2003 took over bus and forklift units abandoned by conglomerates.
Sure, it sounds like a madcap idea. But so far, Baik's track record on both buses and forklifts is pretty good. When Baik kicked the tires of Daewoo Motor Co.'s loss-making bus plant in the southern city of Busan, he didn't face much competition. General Motors Corp. (GM ) had turned it down when it bought the ailing carmaker the previous year, and Hyundai Motor Co. wasn't interested. So the busmaker's creditors sold it to Baik's Young An Hat Co. for $125 million. Now Daewoo Bus Corp. is in the black. Last year it made a pretax profit of $3.2 million on sales of $397 million, and this year it expects earnings of more than $20 million on revenues of $691 million.
The forklift operation is rolling again, too. Young An bought bankrupt Clark Material Handling Co., a Lexington (Ky.)-based forklift manufacturer, two years ago for $55 million. From a $72 million loss in 2002 and a $300,000 shortfall in 2003, the business last year eked out a profit of $36,000 on sales of $271 million. This year, Baik expects a profit of more than $9 million on sales of $465 million.
The 64-year-old Baik attributes the turnarounds to the knowhow he built up in hatmaking. He sold 100 million baseball caps, cowboy hats, dress hats, and other headgear last year -- about a third of the global market -- earning $11 million on revenues of $220 million. That's a remarkable achievement for an orphan who learned pidgin English from GIs and survived on food scavenged from U.S. military dumpsters during the Korean War. After four years at a factory making caps for school uniforms, Baik set up his own outfit in 1959 at the age of 19 with just $360 in capital. His global expansion took off in the '70s when U.S. baseball teams began buying his caps for promotional giveaways. Today he is the sole proprietor of Young An and is worth some $1 billion. "I've learned to turn a small item into a global business," says Baik.
LEAN AND MEAN
His secret: Each piece of his empire is independent -- and hungry. Baik makes sure output of each of his 10 hat factories -- in China, Sri Lanka, Bangladesh, Korea, and the U.S. -- tops $5 million to benefit from economies of scale. And to keep things lean, each factory competes for orders with other Young An factories and dozens of contractors, which supply half of the hats the company sells.
His move into buses isn't totally unprecedented. In the mid-'90s, the Costa Rican government saw the success of his hat factory there and asked him to take over a failing bus assembly plant. He accepted the challenge and turned the company around, though it has showed losses for the last two years as it shifts its production to the erstwhile Daewoo models Young An now makes.
Now, Baik has global ambitions for his manufacturing operations. Young An has bus and forklift facilities in the U.S., China, Taiwan, Brazil, and Germany. He expects China to account for a third of his group's bus and forklift production by 2010. By then, he aims to be the world's No. 3 busmaker and control 7.5% of the global forklift market, up from 3% now.
It's an ambitious goal, but some say Baik has a shot at achieving it. Cho Yong Jun, an analyst at Daewoo Securities Co. in Seoul, says Baik's success in his new ventures will depend largely on keeping a lid on expenditures. "The hatmaker certainly found businesses where flexibility and tight cost controls are the common virtue," Cho says. And even a rival forklift maker says Baik shouldn't be ignored. "I see the potential for him to become a serious player," says Kong Ki Young, senior manager at Hyundai Heavy Industries Co. Could this hatmaker-turned-bus-manufacturer be teaching Korea's mighty chaebol a lesson?
By Moon Ihlwan in Seoul