Shanghaied in Florida
Moltech may have been the first U.S. company to fall into Chinese hands. But it's a long way from global domination.
(FORTUNE Magazine) - ALACHUA, FLA. (POP. 7,020), is an unlikely place to look for signs of Chinese global domination. But look again. Along a lush stretch of U.S. Highway 441 about 12 miles northwest of Gainesville sits a rechargeable-battery factory. Its name: Moltech, or as it's known to its Chinese owners, Motaike, a transliteration whose characters mean "magic power."
Three-and-a-half years ago--before Chinese computer company Lenovo bought IBM's PC business, before Haier bid for Maytag, before the Chinese National Offshore Oil Corp. tried to buy Unocal--Moltech was among the very first American companies, maybe the first, to fall into Chinese hands.
The history of Moltech's Alachua factory is long, twisted, and only occasionally magical. In 1963, General Electric built the facility to make rechargeable nickel-cadmium batteries for products like Black & Decker tools and Remington razors. Later, in 1987, GE sold the factory to Gates Energy Products, which ran it for six years before selling it to Energizer. The Japanese have long dominated the rechargeable-battery business, but for a time the Alachua site was the largest rechargeable-battery maker in the U.S. Orders were rolling in, and hundreds of workers kept the factory open round-the-clock. In 1994 revenue was $204 million.
Then, in 1999, an Arizona company named Moltech bought the Florida facility. Sales were still a healthy $145 million, but in the next year Moltech lost two of its biggest customers, Ericsson and Makita. Sales plummeted to $83 million, and the company declared bankruptcy.
That's when Lee Huston came up with his plan to save Moltech. Not long before the Chapter 11 filing, Huston, an engineer at the company, had been trying to sell some of Moltech's surplus automatic-assembly equipment. A buyer stepped forward from far away: the Shanghai Tyre & Rubber Co., or STARC, looking to start manufacturing batteries of its own in China. Now, with Moltech on the brink of shutting forever, Huston sent an e-mail to the other side of the world. "Why don't you think about a bigger acquisition?" he wrote. The CEO of state-owned STARC, Fan Xuan, said yes.
"I had no idea of any precedent," says Huston, when asked whether he had weighed the global implications of his e-mail. "We were going down, and any straw on the water we'd be grasping for." So the Americans and Chinese met at the MGM Grand in Las Vegas to begin negotiations. The broker for the Chinese, Eric Li, was bilingual, but none of the Americans from Moltech could speak Mandarin, and Fan had a very limited command of English.
And there were cultural barriers to overcome. At one point Fan was ready to purchase Moltech's assets, but he first had to decide whether he wanted to buy the name of the company too. The Americans didn't think anyone would want to keep the name Moltech; the bankruptcy had tarnished the brand and left furious suppliers waiting to be paid. But Fan and Li thought the Chinese characters were an omen too good to pass up. They kept the name, and in October 2002, STARC acquired the company for $5.6 million.
The transition to multinational battery maker hasn't been easy. Between continued losses at Moltech and startup costs at the battery factory in Shanghai, STARC ran through another $15 million. Three-and-a-half years after the deal was announced, battery production in China is only now warming up, and the Florida factory has been all but shuttered.
On a recent morning, Huston walks through what's left of the Moltech factory in Alachua. Hanging on the walls are vestiges of the company's former glory: 40 framed patent certificates and a photo of White Lightning, an electric car powered by Moltech batteries that in 1999 went 254 miles per hour, breaking the land-speed record.
Nearly all the battery-making equipment is now in Shanghai, so the factory is deserted, and Huston is selling off what's left: 40,000-pound containers of unused chemicals that someone in Singapore wants to buy; hundreds of desks and file cabinets no longer in use. "I feel like a ghost being here," Huston says.
Moltech has fewer than 20 employees remaining in Alachua. There are no full-time managers from the parent company at the site; the people who run Moltech are in Shanghai, and the company itself is embedded deep within a bureaucratic maze. Moltech is a part of STARC's soap group (where former Chinese President Jiang Zemin cut his teeth running a factory), and STARC itself is controlled by the Shanghai Huayi Group, a state-run behemoth that makes thousands of products. Edson Kam, STARC's managing director for Moltech, occasionally visits the Alachua factory. Otherwise, the only time the Americans see the Chinese is when they go to Shanghai to train the engineers who have, in effect, replaced them.
Ray Reid seldom ever went west of Texas or north of the Ohio River, but in the past year and a half he has traveled to China eight times. Reid is one of the Moltech engineers who trains Chinese workers. He offers instruction in English, with a bilingual speaker standing beside him. It doesn't help that every time he goes back, there's a different group of Chinese workers. "One of the first things I ask," Reid says, "is, 'Okay, who have I lost since the last time?' "
The central challenge for STARC has been how to replicate a finely tuned production setup that worked in Florida and create the same results in China. The transition goes beyond merely purchasing and moving the battery-making equipment 8,000 miles. "The machines worked properly in the States," a security guard sitting near the gate of the Shanghai factory told FORTUNE last year. "But after they were moved here, they couldn't work."
Many of the engineering snafus have since been resolved, and Reid says the company expects to be shipping samples to potential customers in March. Sooner or later, says Kam, Moltech's Chinese manager, the company hopes to reenter the North American market it once dominated. But Moltech's story doesn't exactly hew with anyone's vision of Chinese corporations taking over the world. If the Chinese are just now taking their first, tentative steps onto U.S. soil, American businesses have made themselves at home in China for years. Shen Xuan, an engineer who used to work at Moltech in Shanghai, remembers meeting the Americans who came to train him. And he liked them. But Shanghai is booming, and there are too many better-paying jobs in the city. So last March, Shen left Moltech for another job, this time at a far bigger company--one that in 1963 built a battery factory in a small Florida town called Alachua. Shen's new employer? GE.