Founded in 1989, Spetztekhosnastka is a Kamianske-based (Dnipropetrovsk region) manufacturing company that has been registering exponential growth. An industry leader in plastic packaging manufacturing and experienced expert in tooling and plastic parts production, its components are exported around the world and used in the manufacturing of top-quality German vehicles, medical components and the popular SodaStream machine. Today, the company is looking for new means of financing to support its further expansion. Here, Vladimir Lempert, the company’s founder and CEO, explains what lies behind the company’s success and his vision for STO’s future development
You founded STO in 1989. What have been some of the most important milestones in the company’s journey?
Until 1998 we were mostly producing dies for AvtoVAZ and exporting to Russia. In 1998 there was a crisis in Russia, and consequentially a similar crisis in Ukraine. So, we had to look for new customers and finally started to produce plastic injection molds for Israel. That was a very important milestone since our new partners in Israel taught us not only how to produce molds, but also some basic rules of modern business, unknown in post-USSR economies.
Working for foreign customers with very tough requirements regarding quality and timeliness, we had to ensure, that the final product – a mold – would be delivered to the client in the best working conditions and will work for at least one million cycles. So, we bought several small injection molding machines to test our molds before sending them to the customer.
These machines were underused; molds’ testing required only about 25 percent of the machines’ capacity. So, in 2002, we came up with the idea of thin-wall plastic packaging production for the Ukrainian market. We were a kind of pioneers in this production area, which allowed us to quickly reach 25 percent market share and keep it on this comfortable level until today.
Then our mold customers started thinking about plastic parts production in Ukraine, mainly because of the low labor cost, however, they were not able to find a competent producer here. For us, it was quite challenging to become an automotive supplier – from different contacts with automobile companies we already knew how demanding they are. We went a long way to get in line with the automotive quality standards. Finally, we got our ISO automotive certification, which opens the window for cooperation with companies from EU to supply plastic parts for their products for automotive companies. Now, we supply parts to Belgium, Hungary, Luxembourg and Israel.
What is the significance of the German market?
If we look at Europe, it’s a significant share, but we don’t have direct exports to Germany. Our parts go to Hungary or Belgium for assembly, and after that appear in German cars such as Volkswagen or Audi. For example, we make speaker housings that are used in German cars, but our direct buyer is a company from Belgium.
Between 2001 and 2017, your company has multiplied its levels of net income by around 15 times. What are the main factors that account for this growth and financial success?
The statistics are a bit tricky. In hryvnia, which is the Ukrainian currency, we made four million in 2001, 400 million in 2017, and 480 million in 2018. So, we grew more than 100 times. The picture in European currency is a little different. This year, we will have the maximum level of sales in our history, around €15 million. So indeed, compared to €800,000 in 2001, the growth has been more than 15 times. What are the reasons? First, the constant growth of our tooling division. We have also seen continuous growth in packaging production. From 2010, we added sales in the automotive industry. However, back in 2006, our long-term sales targets were much more aggressive. At that time, we saw that we were able to grow to €25 million by 2018. That was our plan, but we were not able to find a source of financing for our expansion – the Ukrainian banking system is not the friendliest in the world. We did build a new building for the tooling shop, but we were not able to purchase machines. In 2009, it was hard to get funding in Ukraine, so we were unable to develop as we wanted. The same thing is true in other divisions. We had to push the artificial brakes on growth. We now have a project for further development, but we still don’t have the funding. The small pieces of loans we get today are with interest rates of 11 percent in euros and 23 percent in hryvnia.
Some relief is provided by many European companies we buy from. We’ve been working actively with German companies, purchasing raw materials, steel and equipment such as injection molding or milling machines. We believe the best quality machines come from Germany. These companies, having good experience with us, sell us their equipment providing their own financing of the deals.
I don’t think that at 20 percent per year we are growing too fast. We can grow faster. Now, we are at a stalled because of physical space. Another obstacle is equipment, but finally, human resources are not an obstacle anymore. We pay competitive salaries, hire and train good people – a lot of young and middle-aged people. We see great potential for growth.
In what way could more companies in Germany participate in your growth story?
Good, right orders are important. When we get an order for technical plastic parts, we don’t get orders for the molds only; we have the order for the plastic parts production for five to seven years. Whether the orders for Audi, for example, will come through doesn’t depend on us, but, theoretically, we have orders for several years up front in Europe. We cannot transfer these orders into money; we cannot create discounted cash flow to involve bank financing, but for our own security, it’s extremely important. Long term orders or projects give us the courage to invest all our money in capacity expansion.
What would you say is the single most competitive advantage of your company?
Our expertise in tools and parts functionality. The customers come to us, and quite often they don’t know how to manufacture the parts they need. For example, they went to China with a request but China didn’t know how to make it. We do. This expertise is very important. We are also proud of the fact that we always produce within the timeframe that we have agreed upon with the customer. If the customer wants to make corrections, we do them as well. In China, it’s a different story. With us, you always know that we make products which are accepted as high quality by our clients. We make automotive, packaging and medicine molds, and hold expertise in all those areas.
How do you assess the potential of these products in the German market?
I believe that we are pretty competitive. Our German partners evaluate us very highly. There are very few companies in Europe that make molds like we do. In parallel, with such comprehensive solutions, our prices are 30 percent lower than in Germany, particularly with more complex products. For example, we produce a mold for an Israeli customer at between €135,000 and €150,000. The same mold in Germany starts at €220,000-240,000. And our quality is much better, I believe.
In terms of technology, what innovation would you like to achieve?
I don’t consider myself an inventor, but I do see several new markets that are interesting here in Ukraine. I see that co-injection molds are increasingly in demand. Co-injection means we have one single injection point for two materials. It’s quite a new technology, and there are very few companies that can do this. My main task is not to create problems for the customer, but to help them solve their problems. Tell me what you need, and we will arrange the corresponding technology.
Where do you see the company in the next five to seven years?
I believe that we will be as strong as we are now in tooling. We must also remain strong in plastic parts. These are the huge markets where I don’t feel as if I’m swimming in a bathtub, but rather in the ocean. We can talk a lot about technical things, the search for digitization, but it’s all conditional. It’s all within the frame of industry development. We see what’s happening in Europe. We visited a very good plant in Luxembourg that used to have 16 machines and 16 people. But now they’ve brought in automation and created a big area with machines, and have reduced to the point of having four technology engineers. As a result, we saw that they had an increase in defective parts. When there was a person connected to each machine, he was responsible for the quality. The whole production was supervised. Now, we see a big set up, kind of a black box that looks very nice. You put something on one side and a product comes out on the other side. Within it, there are a lot of machines and tools that can create a lot of dimensions. So small mistakes in one of those dimensions can happen. Before, the process was more controlled. We need to invent something that ensures every one of these dimensions is perfect.
We need to look at our German competitors in terms of tooling. They are very important companies. However, I know that their workers are quite old, many around retirement age. Other companies employ mainly foreign workers, who are not necessarily as loyal as a well-paid nationals. That’s not my opinion; it was the example shared with me by our auditor. Every week he audits one plant in Europe. Fifty weeks, fifty new plants. When he came here, he compared our plant to those he saw in Europe. German companies have also visited the Dnipropetrovsk area, and when I asked why they choose to come here, around 2,000km from the European border, they said the transportation is not what’s important; what is important is who will do the job.