Best-selling czech business magazine prints interview with Tomáš KolářA recent issue of the magazine Euro flooded newspaper stands across the nation. The front page, featuring the headline “It’s yours” and a photograph of Tomáš Kolář and Zbyněk Frolíka, leaves little doubt that the reins will soon be changing hands. Read about the long-anticipated handover and more in the extensive interview with LINET managing director Tomáš Kolář.
You entered the American market in 2010 after three years of preparation. You were the one responsible for the entire process. What all had to take place in order for a Czech company to begin selling its products in the USA?
The United States was our last blank spot on the map. For me personally, it was the most important project I’d ever worked on. The actual entry into the market was very trying; the US has completely different regulations both in terms of legal aspects and requirements for healthcare equipment. In fact, the rules are so strict that they extend all the way over here to us. In other words, the USA has its FDA system, which regulates the production of healthcare equipment. Officials from the FDA are entitled to come over here, knock on the door, and demand to see all of our documentation and production facilities. They might even want to see how we weld, for instance. I only offer that as an example of a particularity, and the United States has many, many such particularities. We had to adapt everything; that’s why it took three years. I’m still responsible for the US market and I view LINET Americas, which we founded, as my own child.
Did officials from the United States actually visit you?
Yes, there was an FDA inspection here a year and a half ago, and I expect another one within a year’s time. Companies in Europe and the USA have a great deal of respect for the FDA because its authority is truly far-reaching. In the US, its agents can even intervene armed with weapons if they have justifiable suspicions.
Last year, you took in 52 million dollars in the United States. How is your business doing in overall terms? Are you in the black?
We’ve succeeded in taking approximately 10% of the US market, which I consider a fantastic result for five years. We have to keep in mind that we entered the market at a time when it was still being very much affected by the financial crisis. We deliberately took advantage of that situation because until then there had only been two other companies in the industry. We began offering an alternative at precisely the moment when customers had a very good reason to start choosing OE: unemployment was going up and wages down, and that had a real impact on health insurance. Nonetheless, in the first year, we sold almost nothing and started wondering if we’d done the right thing. It’s important to point out that we supply large volumes by means of purchasing organizations that partner with healthcare facilities. Contracts generally last for a number of years, and it wasn’t until they began expiring that our contracts took off and we were on our way.
How much did it cost you to enter the US market?
It was an investment of roughly ten million euros that we had to put into operating our company there. Given that the company is still growing at a rate of 30% every year, we see it as an investment. But when I add up the margins we’re achieving, I see that it took us about three years to break even and begin seeing returns.
What plans do you have in the USA? It likely won’t be easy to maintain 30% each year. Growth from nil goes fast.
Obviously, nothing grows forever. Our strategy is to provide LINET Americas with new opportunities and ideas that can help it maintain that growth for as long as possible. We want to, for example, make significant investments into special obstetric beds. There’s no business for that here in Europe, but there is in United States.
Babies aren’t being born in Europe. On average, we’ve got one and a half children per mother; in the US that number is twice as high. And it’s also a question of the systems: Here, a woman has a baby and goes to her room and lies down on a standard bed. In the USA, the bed in the delivery room changes into an obstetric bed and then back into a normal bed after the baby has been delivered. The mother uses the same bed for her entire stay in the maternity hospital. The competition in this area is very limited, and we see the production of obstetric beds as a big opportunity.
When will the bed be introduced and what economic expectations do you have for it?
We’d like to introduce it in America next year. We expect it to generate up to ten million dollars a year for the first three years. We currently employ 75 people in the USA, and the more we give them to work on, the better they are at sustaining growth.
Among your greatest successes is the appearance of your beds in two Bond films and the television series House of Cards. How did you do it?
This is what we call a “super-success.” I get reactions from all over the world; House of Cards must be shown everywhere. They’ve written me from Chile, Australia, Israel... It all goes back to 2011 when we were contacted by the show’s producers. Our beds appeared in previous seasons, but House of Cards wasn’t as popular as it now, and we didn’t have the fictitious president of the United States being treated in the beds either.
They came to you on their own?
Yes. They asked if we’d give them a bed. We said we would, but it would have to be our top model with a big company logo on it. Of course, we didn’t have any say as to whether or not the company’s name would show up in the shot, but in the end it turned out well for us.
What happened to the bed afterward?
They kept it. They have it, and I trust they’ll be shooting other episodes.
I’d like to ask about your future here at LINET. After all, the company’s founder, Zbyněk Frolík, is going to be 63 years old and has begun limiting his management activities. Have you spoken about that?
We’ve worked together for 22 years. Actually, I did my thesis for Zbyněk, so we’ve known each other for a quarter of a century. Back then, I’d come up with an incubator, which we eventually manufactured and successfully sold around the world. Zbyněk is an entrepreneur inside and out, and he’s also a visionary, so even though he’s taking a smaller and smaller role in everyday operations, he still has and will continue to have influence over the company. Of course, we discuss a lot of things – we actually share the same garden – and I know that he’s counting on me in terms of the company’s future. I’ve been the executive head for the past five years now and will be taking over his position as the managing director of LINET Group, which comprises 15 companies.
When will you be appointed head of LINET Group?
It should be this autumn, apparently in October.
Is there going to be any special event to mark the occasion?
I hadn’t thought of that. I imagine I’ll be busy working rather than engaging in any lavish celebration. The group’s headquarters are in Holland, so I might have to do more traveling, but I have to travel now as it is, so that wouldn’t really be a dramatic change for me.
Did Mr. Frolík have a choice? Do you know if he considered other candidates to take over his role?
I don’t know. I did have a colleague who was being considered for the job, but he no longer works at LINET. I’ve been in the role of successor for a few years now.
Are you going to do anything differently at LINET than Mr. Frolík?
LINET has grown to astronomical heights under his leadership. I’ve been in charge of executive management of the company for the last five years, and the methods I use have very much proven themselves. After all, in five years’ time we succeeded in doubling our turnover. I don’t have any reason to make dramatic changes or do something that wouldn’t take place under the leadership of Zbyněk Frolík. In the next few years, I’d like to effectively devote myself to the entire group. Just as we’ve built LINET, I think it could also work at the holding level. It’s really about the passion with which we work here. It’s best seen in LINET Americas; those people are totally fired up, and I’d like for everyone throughout the holding to be totally fired up.
Is Mr. Frolík likely to sell the rest of his share? I suppose that’s a question for him, but there have been delegations from China here, and you must know of their interest.
There are lots of offers on the table. Each month we get at least one; however, that type of deal comes down to the timing and attractiveness of the offer. There aren’t that many companies on the market that would grow as well as we have, and there is lots of liquidity in the market, so it’s not unreal to think that he might sell his share. Moreover, his children aren’t active in the business, which is something that makes selling his share a bit more likely. We’re also considering entering the stock market in the next five years, and an experienced partner is a good thing in such a matter. As far as I’m concerned, I’ll always make the plays that our partners define.
Back to the USA. As a company from Eastern Europe, did you have trouble finding experienced sales associates and managers?
Of our 75 people, approximately half are active sales associates. Plus, we have another 15 people out in the field. Those include nurses, which isn’t very common here. You see, when you’re presenting and evaluating a healthcare product, nurses in the given facility play a very important role in determining what will or will not be purchased. So, our nurses assist the sales associates and speak with the nurses in the hospitals as an expert partner. It works well. But to get back to the question: finding managers was extremely difficult. Americans are a proud nation, and after the crisis there was a lot of pressure to purchase American products and help American companies. They’re also highly fixated on success, which is something we weren’t enjoying right off the bat as a European startup. With its 120 million euros, our company was just a little decimal point for them. The most important thing was to convince them that we were committed and were in it for the long run. We succeeded in persuading Colin Bain, who I’d known previously, to take up the position of director. He’s with us to this day, but we did have to completely replace the sales team within about a year and a half. The good sales associates had good jobs with big companies. Today, three fourths of our sales team is comprised of associates who previously had successful careers with the competition.
Will you also manufacture in the USA? I know you’ve thought about it.
Well, we’re going to have to due to circumstances. We’re encountering a logistics problem in which our beds are rocking back and forth on ships for five or six weeks before they arrive at their destination. Our customers would like to have the beds installed within six weeks of ordering. Demand in the US is for our best product, which is made up of 3,000 components and 11 processors. That’s certainly not something we can just slap together and ship out in day’s time.
So, what’s the solution?
We’re seriously contemplating manufacturing, be it final assembly or complete production. Currently, we’re waiting to see how seasonality balances out. At the start of the year, we have very low turnover, but then it doubles in the second half of the fiscal year. This is due to the OE sales cycle – order, production, delivery. And that’s a very hard thing to address in manufacturing.
Do you have specific plans for the construction of a production facility in the USA?
We’re looking at it from the standpoint of what conditions exist in what locations. They vary greatly within the United States; things in the south are different than in the north, for instance. We went to visit Mexico, Tijuana, near the border. For now we’re most closely examining the region of Charlotte in North Carolina, which is where LINET Americas is headquartered. The city has a big industrial tradition; there are several German companies based there.
Are we talking manufacturing or assembly?
Most likely it will be a combination of the two. We have to maintain control over assembly in order to ensure quality, but it definitely wouldn’t be the kind of facility we have here with the Czech LINET. Here we produce a number of components, including motors, which wouldn’t make sense to manufacture in the US.
What about other countries and eventual acquisitions there? France and Italy have been discussed.
I can’t openly speak about acquisitions. They could become more expensive. In a generic sense I can say that we are hungry for acquisitions and are not only looking in the countries you’ve mentioned. We’ve even got our eye on a prospect here at home in the Czech Republic. We’ll be making official announcements by the end of the year, but not just yet.
Can you at least specify the industry you’re interested in?
We’ve got our sights set in two directions. Here in the Czech Republic, we’re leaning toward products for furnishing patient rooms and for general patient care. As far as foreign countries go, it’s a matter of expanding our offering of product services. We’ve done very well in France, Great Britain, and Holland with leasing special antidecubitus mattresses designed to prevent acute pressure ulcers. Hospitals don’t need these mattresses all the time, and they’re expensive – they cost about 3,500 euros apiece. If several hospitals get together, we can ensure that they always have the mattresses when they need them. Not long ago we won a contract for the entire Paris area and another one in the surrounding area.
What about new markets like Cuba and Iran?
Markets like those require flexibility. You’ll recall how popular the abbreviation BRIC used to be, i.e., Brazil, Russia, India, and China. A few years go by and the favorites are suddenly outsiders. Of course, Cuba and Iran are hungry markets. There hasn’t been any investment for years and years, though they do have resources. Cuba allowed us to sell to Venezuela, which is another country burdened with problems. Without a doubt, Iran has lots of potential, huge mineral wealth, but also hefty economic regulation, so they’re not even able to pay invoices directly.
You’re shooting for turnover of half a billion euros by 2020. How do you plan to achieve that?
Our turnover target isn’t a matter of me taking my mouse and clicking around in an Excel spreadsheet and then saying: “Alright, it’s going to be a half billion.” The target is based on the smaller individual targets of our various territories, which all have several different activities. All of the data has come from our managers in the different countries, and they tell us that they’re capable of achieving such growth and they also illustrate to us how they’re going to go about achieving it. We then help them through smaller acquisitions of companies that are related to our business. We still have some open territories out there with opportunities, say Asia and the Pacific. There aren’t wars or other economic fluctuations going on there as there are in the Middle East and South America. But that’s a story to unfold in the coming years.