ADAMSTOWN -- Diversification in the defense industry is not as simple as beating a sword into a plowshare, companies are finding as they search for new products and markets.
The struggles have been so widespread that Norman R. Augustine, Martin Marietta Corp.'s chief executive, draws rueful smiles from colleagues when he says: "The industry's record is unblemished by success."
But one Maryland company apparently didn't get the word that it was supposed to fail.
Trans-Tech Inc., a small manufacturer in this rural crossroads of Southern Frederick County, may in fact be a textbook case of post-Cold War restructuring.
The 38-year-old company developed and thrived by supplying ceramic parts used in the Patriot and Hawk missiles, B-1B bomber and the Aegis shipboard weapon system. But it shows no signs of suffering from the Pentagon's deep budget cuts.
The factory floor is humming with activity two shifts a day and sales are growing at a rate of 20 percent a year. And while other companies are laying off workers and consolidating, Trans-Tech is expanding -- recently opening a new plant in Frederick and another in France -- and has added more than a hundred workers.
If it's so simple, then why are so many other companies struggling to cope with defense cutbacks? The answer, of course, is that it was not easy at all for Trans-Tech.
Seven years ago, the company concluded it had to diversify to survive. It meant not just branching out into new markets, but virtually a complete restructuring.
At the time, 90 percent of Trans-Tech's sales came from the military, it's annual growth hovered around an anemic 3 percent and it exported only about 10 percent of its products.
All of that has changed, and almost everyone credits Joseph J. Alberici, the 37-year-old president and chief executive officer, for the remarkable turn around.
Mr. Alberici was hired by Trans-Tech's parent company, Alpha Industries Inc., in 1987 and told to do what many thought to be impossible: find new markets and make sales soar.
Mr. Alberici, who had been with Murata Erie North America, a subsidiary of Murata Manufacturing Co., the large ($3.4 billion in sales) Japanese electronics firm, was one of the few who believed the goals could be achieved.
Even Trans-Tech's employees doubted that success would result. But while the workers grumbled, Mr. Alberici searched for new applications for the company's products.
He found, for instance, that the ceramic insulators used in the radar that guides the Patriot missile could also be used in cellular telephones, global position satellite equipment, telecommunication products, satellite television receivers and wireless computer communication links.
But Trans-Tech learned that the difference between military and commercial markets is like night and day. To succeed, the
company had to greatly reduce the time it took to design and manufacture new products, slash per-unit costs, and significantly increase the number of units produced on each production run.
And some of the biggest obstacles came from within the company.
"I can't remember how many times I heard workers say,'There's no way we can do this. This guy's crazy. He just doesn't understand how we do things around here,' " Mr. Alberici recalls.
Production runs had to be expanded from 500 to 1,000 pieces to 20,000, 50,000 and even 100,000 parts. And it was no longer acceptable to have 30 percent of the parts failing to pass inspection.
"The commercial market doesn't afford the company such a luxury," Mr. Alberici told his employees. "In the commercial market parts are priced so competitively, you make them right the first time or you lose money."
There were other challenges as well. Trans-Tech's parent, Alpha Industries of Woburn, Mass., was having financial troubles and could not offer financial support.
The shift in strategy also put Trans-Tech on a collision course with some fierce Japanese competitors with strong footholds in the market. On top of all this, the company was moving into new markets where the price of its products was dropping as much as 30 percent annually.
It's no wonder that a number of Trans-Tech workers had doubts about Mr. Alberici and the course he had put the company on.
"Yeah, I thought he was crazy," recalled Jerry Hahn, a 38 year-old assistant supervisor in the machine shop. "But I wasn't alone. About 95 percent of the people in the company felt that way."
Mr. Hahn, who joined the company as an assembly line worker fresh out of Frederick High School 18 years ago, said things were much different when the company was primarily a defense contractor.
"We more more laid back. We had a six to eight week turn-around," he said, referring to the time it took between receiving an order and shipping the products.
"We were in low gear. The atmosphere was one of being very relaxed," Mr. Hahn said. "We were set in our ways -- we had been doing it this way for 20 years."
Today, Mr. Hahn and most of the other employees credit Mr. Alberici with saving Trans-Tech. "The company would not be alive today if it were not for that transition," said Martin J. Reid, president and chief executive of Alpha Industries.
Mr. Reid describes Trans-Tech as the parent company's "star division" -- more successful in its transition than Alpha's other two operating divisions.
The major challenge was to convert Trans-Tech "from a technology company that happened to manufacture, to a high volume manufacturing company that happens to have good technology," Mr. Alberici said.
It went from producing small volumes of parts that it sold to the military for high prices, to a mass producer for commercial customers who would pay only a fraction of what the military had.
Bringing in new equipment and setting up new assembly processes was the easy part. Changing the culture of the work force was more difficult.
Mr. Alberici realized that the only way he was going to make believers out of his workers was to grow the company. "As the business grew," he said, "more and more people said,'Hey, its working.' "
Fortunately, he said, the change in corporate culture didn't have to occur over night. "That would have been disastrous," Mr. Alberici said. "We were able to make gradual changes over a period of five years."
The company's results since 1987 have been remarkable. In that period:
* Its commercial business has risen from 10 percent to 85 percent.
* Sales have jumped from $8.4 million to $22 million last year.
* Exports have risen from 10 percent to almost half of Trans-Tech's business.
* Employment has increased from 125 people to 270.
In a state where many companies are trying to cope with shrinking federal contracts, Maryland officials like to tout Trans-Tech as a vivid example of how a company can restructure itself and gain profits.
The company is "a good living, breathing example of a defense contractor to successfully make a go of it in commercial markets," said Marsha Schachtel, who monitors defense and federal activity in the state for the Maryland Department of Economic and Employment Development.
What state officials don't say is that they were responsible for almost driving Trans-Tech out of Maryland.
Indeed, Mr. Alberici recalls that it was almost as difficult to convince DEED that his plan could work as it was his employees.
He recalls his meeting with DEED officials several years ago about building a new plant was like "running into a brick wall."
Fed up, Mr. Alberici began talking with officials from West Virginia about relocating Trans-Tech there.
"West Virginia took us very, very seriously. We put together a business plan and showed them what we needed. They came back with a package of low-cost loans, grants and tax incentives."
West Virginia's offer, he said, was very good. But Mr. Alberici recalls thinking about how ludicrous the situation seemed. "I remember sitting here thinking, 'We're a Maryland company. We've got Maryland coming in and out of our veins. We have
our corporate offices here. We've been here for 35 years.' "
The situation was brought to the attention of Sen. Barbara A. Mikulski by an outsider, who told her, "West Virginia is about to eat Maryland for lunch."
The senator called Mark L. Wasserman, the head of DEED, who in turn scheduled emergency meetings with Trans-Tech in hopes of stopping its relocation.
There was a flurry of financial assistance offered, which Mr. Alberici says was a "major force" in helping his company successfully reposition itself.
Since the early 1990s state and federal agencies have provided tens of thousands of dollars in grants and low-interest loans to Trans-Tech to help it make the transition away from a defense-reliant company and to retrain workers and management training. The state also assisted Trans-Tech in its negotiations to open a plant in Lille, France, that was needed to tap into the European market.
"I would have to give them high marks," said John M. Samony, deputy director of the Mid-Atlantic Trade Adjustment Assistance Center in Blue Bell, Pa., a private consulting organization. "They have taken on a major task. They have been dealing with the military for a long time and you can't turn a company around on a dime.
"These guys have taken it to the market place and they're doing a pretty good job."
At Alpha, which ended 1994 with a $3 million loss, Mr. Reid is hoping that the other division can duplicate Trans-Tech's transition.
Mrs. Schachtel of DEED believes Trans-Tech has shown others how to make a successful transition:
"Here is a company that has transformed itself from a defense contractor to make a go of it in the commercial market. They are proof that it can be done."