Business Development: Despite Economy, Many Remanufacturers Project Growth
- By Brent Hoskins
- Jul 01, 2002
Conventional wisdom in the remanufacturing industry states that remanufacturers
thrive in a slow economy. According to Recharger Magazine’s recent Business
Development survey, it is true the entrepreneurial spirit is alive and well.
A majority of those responding to the survey said they are planning to grow
their remanufacturing businesses. They have a key source of motivation —
on average, they are reporting greater gross revenues than they did in 1998.
And while many others say they have no current plans for growth, they would
consider expanding their business if they could overcome certain obstacles.
The survey results provide an insightful look into the growth of the remanufacturer’s
business. They serve to highlight the return on investment and the relationship
between the size of a business and expectations for continued growth. The results
also serve to identity the market and financial obstacles that sometimes stand
in the way of growth.
Recharger last surveyed readers on the topic in 1998 — when the world,
the economy and the industry were somewhat different than today. However, as
noted, most remanufacturers appear to have an eye on new opportunities. They
entered the business to make money in a growing industry, and they see no reason
to abandon that goal.
On average, the survey respondents have been in business 10.1 years, produce
1,041.5 laser cartridges and 1,308.9 inkjet cartridges each month, and outsource
393.5 laser cartridges and 241 inkjet cartridges during the same time frame.
In addition to the 3.3 percent located outside the United States, they represent
every geographic region in the country: Midwest (32.5 percent), Southwest (19.5
percent), Northeast (17.5 percent), Rocky Mountains (13 percent), Southeast
(8.4 percent) and West Coast (5.9 percent).
Perhaps the responses to the survey questions listed below will guide you in
setting new benchmarks and provide a more thorough understanding of how the
development of your business compares to that of your colleagues in the industry.
1. What is the legal structure of your company — sole proprietorship,
partnership, for-profit corporation or non-profit corporation?
The percentages reported in this year’s survey results reflect little
variation from the 1998 results. A majority of the survey respondents (52.3
percent) indicate that they operate for-profit corporations; in 1998, the number
stood at 54 percent. See Figure 1. To some degree, this may be an indication
of a continuing trend among remanufacturers to grow their business through the
acquisition of other companies.
Figure 1: Company legal structure
Sole proprietorship continues to be the legal structure of choice for the second
largest group of respondents — 38.6 percent, only slightly more than the
38 percent in 1998. Only 3.9 percent of this year’s respondents indicate
they operate a partnership, a decrease from 8 percent in 1998. None of the respondents
operate non-profit corporations.
Companies producing a greater number of laser cartridges are more often for-profit
corporations. This group produces an average of 1,616.7 laser cartridges. In
comparison, while not all small companies, sole proprietorships produce an average
of 296.2 laser cartridges. The smallest group of respondents (partnerships)
produces an average of 615.3 laser cartridges monthly.
The legal structures most commonly cited by the 5.2 percent of respondents
who selected “other” were S corporations and LLCs.
2. Is the company a branch, division or subsidiary of another firm?
Among those responding to the question, most (90.8 percent) indicate that their
companies are not a branch, division or subsidiary of another firm. See Figure
2. This reflects a slight decrease from 1998, when the number stood at 95 percent.
Figure 2: Is your company a part of another firm?
3. How much capital was needed to start the business?
Many of the survey respondents (43.1 percent) answering the question indicate
that they started their business with between $0 and $4,999 in capital. See
Figure 3. Looking at the next question (Question 4) as well, a sizeable majority
(67.6 percent) of these respondents report gross revenues last year of $499,999
or less; only 16.8 percent of this group reports gross revenues of $1 million
or more.
Figure 3: Capital needed to start business
It is clear that in most cases, the more the initial investment the greater
the annual gross revenues. Among those respondents who started their businesses
with $5,000 to $19,999 in capital, 31.6 percent report $1 million or more in
gross revenues last year, and 53.5 percent report less than $499,999 in gross
revenues. Of those reporting an initial investment of between $20,000 to $49,999,
39 percent report $1 million or more in annual revenues last year; 52 percent
report $499,999 or less in gross revenues. Finally, at the higher end, we find
that 48 percent of those respondents investing the most in their business at
the onset — more than $50,000 — report that last year’s gross
revenues reached $1 million or more; with only 30.3 percent of this group reporting
$499,999 or less in gross revenue.
4. What was the company’s gross revenue last year?
Overall, it appears that remanufacturers have continued to improve their business
practices, and since 1998, as a group, have realized greater revenues. The largest
group of remanufacturers (30.9 percent) responding to the question reports gross
revenues of between $100,000 and $499,999. See Figure 4. This is down from 42
percent in 1998. In contrast, the second largest group this year (20.4 percent),
reporting revenues of between $1 million and $3 million, has doubled in size
from the 10 percent who achieved this level of sales in 1998. At the high end,
the number of respondents reporting more than $3 million in revenues has increased
from 3 percent in 1998 to 8.6 percent today.
Figure 4: Gross revenue last year
Those remanufacturers at the low-end in terms of annual gross revenues should
not despair. As one would assume, revenue growth is also tied to the longevity
of the company. Those companies at the low end ($0 to $49,000 in gross revenues)
have been in business an average of 5.9 years. Those achieving more than $3
million in annual sales entered the business an average of 12.5 years ago.
5. Over the last three years, how would you characterize the company’s
remanufacturing business: starting up, stable, growing or declining?
Fortunately, a majority (55.6 percent) of those responding to the question
indicate that their remanufacturing business is growing. See Figure 5. However,
the percentage does represent a decrease from 1998, when the number of companies
reporting growth stood at 69 percent. With some slowdown in growth comes a corresponding
change in the other categories listed in the question. In 1998, only 15 percent
of the respondents characterized their remanufacturing business as stable; this
year, the number has increased to 30.5 percent. Also, 5.3 percent report their
remanufacturing business is now in decline, as compared to only 3 percent in
1998. The remaining 8.6 percent characterize their remanufacturing business
as starting up.
Figure 5: State of your business
Those companies reporting a decline in their remanufacturing business are
substantially smaller than those reporting growth. Those in decline produce
an average of only 153.1 laser cartridges in each month; 50 percent of this
group reports gross revenue last year of $499,999 or less. Those survey respondents
reporting growth produce an average of 1,406.3 laser cartridges each month;
44 percent report gross revenues last year of $499,999 or less. Nearly 12 percent
of this group report revenues last year of more than $3 million.
6. What are the main opportunities for growth in your remanufacturing business?
There were nearly as many responses to the question as there were respondents.
However, three responses were cited slightly more often than others: “service”
(printer repair), “inkjet” (cartridge production and printer repair)
and “color.”
Here is a sampling of some of the other responses: “taking business from
OEMs;” “schools;” “small manufacturing;” “HP cartridges;”
“combine service with supplies contracts;” “cartridges for machines
at discount stores;” “capturing the African market, which is a virgin
zone;” and the “Internet.” Some respondents simply reflect a
positive attitude, e.g., “endless opportunities,” “unlimited”
and “across the board.” At least one reflected the opposite view:
“no opportunities.”
The numerous responses to the question are telling. With few exceptions, the
survey respondents see a variety of ways to increase business. As noted, the
entrepreneurial spirit remains a driving force in the remanufacturing industry.
7. What are the main obstacles to the growth of your remanufacturing business?
Survey respondents were given seven possible obstacles to select from. A number
of respondents selected more than one choice. No single choice emerged as the
dominant obstacle. However, “OEM competition” was selected by the
largest percentage of respondents to the question (18.8 percent). The remaining
choices and percentage of respondents selecting each are as follows: limited
capital (16.6 percent), cash flow restraints (14 percent), lack of trained workers
(13.1 percent), lack of quality aftermarket (8.3 percent), lack of markets (7
percent) and technical limitations (5.7 percent).
The respondents were also given an opportunity to report “other”
obstacles that they face. Here is a sampling of their responses: “others
selling poor quality at cheap prices;” “time;” “physical
size of work facility;” “qualified sales personnel;” “producing
consistent quality work;” “lack of consistent components;” “lack
of product knowledge by customers;” “superstores;” “large
corporations cutting our products;” “the economy;” “newer
technology and chips” and “hard working, dedicated employees.”
8. Are you planning to expand your remanufacturing business?
Visions of company growth endure. Among those answering the question, 72.5
percent indicate that they do have plans to expand their remanufacturing business.
See Figure 6. In 1998, the number stood at 76 percent. Five years and one recession
later, it appears that the industry will continue its growth. More end-users
are undoubtedly seeing the wisdom of the alternative to OEM cartridges.
Figure 6: Are you planning to expand?
It is interesting to note that those remanufacturers planning to expand are
larger companies than those with no current plans for expansion. Those looking
to expand currently produce an average of 1,292.5 laser cartridges each month.
Those indicating they have no current plans to expand produce an average of
only 428.9 laser cartridges each month.
9. Would you consider expanding if the obstacles mentioned above could be
overcome?
Of those who answered “no” to the previous question (Question 8),
72.5 percent indicate that they would expand their business if they could overcome
the obstacles they face as noted in Question 7. If one assumes that the obstacles
ultimately can be overcome, then the percentage of all respondents to the survey
with current plans or possible future plans to expand their business would increase
to 92.1 percent. See Figure 7.
Figure 7: Would you expand if obstacles could be overcome?
As noted in the results of Question 8, companies with no current plans for
growth tend to be smaller in size. Those companies with no plans for growth
and no expectations of expanding, even if they could overcome current obstacles,
are particularly small in size. These remanufacturers, who account for 7.9 percent
of the respondents to this question, produce an average of only 151.3 laser
cartridges each month.
10. If you plan to expand during the next three years, how much money will
your company need for expansion?
The largest percentage of respondents to the question (47.4 percent) indicates
that they would need a minimal amount of money — between $0 and $24,999
— to expand their business. See Figure 8. This is virtually the same as
in 1998, when the number stood at 49 percent.
Figure 8: Money needed to expand business
Actually, the larger the company, the more money respondents project they would
need to expand their businesses. The largest group (the 47.4 percent) produces
an average of 566.3 laser cartridges each month. The second largest group (29.3)
percent indicates they would need between $25,000 and $99,000 to expand; this
group produces an average of 908.8 laser cartridges each month. Only 9 percent
indicate they would need between $100,000 and $149,999 to expand; this group
produces an average of 1,544.4 laser cartridges each month. Finally, 14.3 percent
project an expenditure of more than $150,000 in order to expand; this group
produces an average of 3,302.5 laser cartridges each month.
11. What do you believe would be the chief obstacles to financing an expansion?
A majority of respondents to the question (51.9 percent) indicate that there
would be no financial obstacles to financing an expansion to their business
— a testament to the increasing stability of many remanufacturers. This
represents an increase over 1998, when 45 percent indicated there would be no
financial obstacles to expanding.
Of course, the remaining respondents to the question do indicate financial
obstacles (most indicated only one obstacle): poor cash flow (14.1 percent),
lack of collateral (11.5 percent), unproven markets (8.9 percent), unproven
technology (5.1 percent), no credit history (1.9 percent) and poor credit history
(1.2 percent).
Another 5.1 percent of the respondents indicate “other” obstacles.
They include: “credit maxed,” “lack of financial know-how,”
“capital, bank rules/guidelines” and “quality personnel.”
12. Does your company need technical or business assistance to expand its
remanufacturing business?
A majority of the survey respondents (53.3 percent) indicate that they do not
need any technical or business assistance in order to expand. This represents
a decrease from the 58 percent in 1998 who indicated they needed no assistance.
See Figure 9.
Figure 9: Assistance needed to expand?
13. If so, what type of assistance do you need?
Of those who answered the question, the largest single percentage (22.6 percent)
indicates they would need marketing help in order to expand their business.
Following marketing, respondents indicate they would need help in the following
areas (many respondents selected more than one area): expanding technical knowledge
(19 percent); training the sales force (16 percent); Q.C. counseling (10.7 percent);
obtaining government grants/loans (10.1 percent); capitalizing on sales leads
(10.1 percent); and recruiting employees (9.5 percent).
Respondents were also asked to list any “other” areas where they
may need assistance. Among the responses: “countering price cutters (losing
sales to the Internet),” “e-commerce development” and “new
hot products.”
14. By what percentage do you plan to grow the remanufacturing portion of
your business during the next three years?
On average, respondents to the question indicate they have plans to grow their
business by 56.1 percent during the next three years. A small number (9.3 percent)
have plans to expand business by 100 percent during the same timeframe. More
than 15 percent have plans to increase their remanufacturing by 10 percent or
less.
As reflected in the results of Question 8, larger companies have the greatest
expectations for growth. Those respondents currently producing 1,000 or more
cartridges each month expect to increase their remanufacturing business by an
average of 64.7 percent during the next three years.
In contrast, those companies currently producing fewer than 1,000 laser cartridge
are projecting average growth of 47.2 percent.
This article originally appeared in the July 2002 issue of Recharger.