Global Report

How one Orangeville firm mastered the Mexican market

Skirting corruption pays off

Paint spraying robots in car factory

(Monty Rakusen/Getty)

Brad Sparkman launched his company, Innovative Finishing Solutions, on the shoulders of a classic value proposition: Making a complicated task into an easy one. He’d worked for two firms that sold robotics-based systems to autoparts manufacturers. A dozen years ago, some customers approached him with an idea: They required highly automated paint shops in their plants, but the components—booths, ovens, robotic sprayers, conveyers, etc. —came from various suppliers, and were cumbersome to assemble. What they wanted was a turnkey solution, someone who could come in and deliver the whole paint shop operation, from stem to stern.

It didn’t take long for Sparkman’s customers—both original equipment manufacturers, tier one suppliers, truck makers and aerospace firms—to begin asking him to build his turnkey paint shops in new plants, in the U.S. and eventually Mexico, at the behest of Magna International.

Initially, Sparkman, whose firm is based in Orangeville, Ont., hadn’t thought about an expanding that far south. His U.S. business was thriving, partially because the quality and safety standards in the two countries were very similar, but also because the low Canadian dollar was delivering impressive margins.

Yet when Magna pressed Sparkman into taking on a large project in Mexico, he realized that the tier one auto parts suppliers were racing to enter that market. “I knew that if I didn’t go there, I’d be on the outside, looking in.”

The Magna contract proved to be successful, and led to others. But it also prompted Sparkman to begin radically changing the way he did business.

READ: How Mexican Exporters are Beating Canadians

The most drastic shift was that he began to strip his company down, outsourcing as many tasks as possible. Today, Innovative Finishing, whose revenues are in the $4 to $5 million range, has only three full time employees, although it’s had as many as 280 hired installers working on a particular project. The company ranked 493rd on the 2014 PROFIT 500 and generates 45% its revenues from exports.

Given the distances and travel costs, Sparkman decided to hire local installers to build paint shops. That meant he didn’t need to pay travel and living expenses. “We shed a lot of costs by outsourcing,” he says. “The labour rates are very affordable.” While he says the quality of the workmanship is high, he still needs to have a project manager on site to make sure the job is finished in a timely way.

Because the automotive parts sector is intensely competitive and cost-conscious, he sought to pass on the savings that flowed from outsourcing back to his customers. Finally, he struck deals with the installers he’d hired to build the paint shops to provide ongoing service and maintenance for the plants. “We’ve gone away from the old days when we try to doing everything ourselves.”

The push to reduce costs through outsourcing was also driven by the recognition that the firm was incurring extra expenses associated with doing business in a corrupt environment. Indeed, Sparkman says, the firm had to take drastic measures to deal with the theft of thousands of dollars of its equipment and tools from its job sites.

As Innovative Finishing gained customers and experience in Mexico, it began to look further afield, also at the request of its clients, to markets in Asia and Europe. But Sparkman says he’s deliberately opted not to move into China and India, despite the fact that he’d almost certainly win new business. The reason? “Unfathomably” high taxes on foreign corporations trying to repatriate their profits.

He took on a couple of small auto sector projects in Argentina, but found the corruption to be oppressive. As for Europe, exchange rates and sluggishness in the market has prompted European firms to come trawling for contracts in North America. “It’s not a market we could be as competitive as we need to be, based on the current value of the dollar.”

So despite the physical and financial risks of doing business in a country overrun by drug cartels and crime, Sparkman has opted to focus his export operations on Mexico, hedging his bets whenever possible with pragmatic workarounds. One of the most straightforward is simply making sure that he’s dealing with existing customers that already had U.S. or Canadian operations which could process his invoices. “It really simplifies a lot of things.”