How and Why HP Is Making a Long-Term Bet in Greece. Yes, Greece.
When you consider all the troubles you read about in Greece these days, it might be hard to imagine a case where any major American company would be making a long-term bet within that country. But, then, you haven’t met Tony Prophet.
Prophet is the senior VP for operations in Hewlett-Packard’s Printing and Personal Systems Group, the sprawling $60 billion business unit that, as of July, was producing 16 percent of the world’s personal computers and more than half of the world’s printing devices. He’s the man responsible for three major exercises in HP’s complex industrial ballet: Getting the parts that go into those PCs and printers, getting them built and shipping them out to the world.
He’s also the man responsible for the creation of the so-called HP train, a 7,000-mile railroad delivery route running from HP-operated factories in Chongqing, China, across Kazakhstan, Russia, Belarus and Poland, and finally ending up in Germany. (See this fascinating story in the New York Times for more on that.)
Prophet can tell a story about supply-chain dynamics and, rather than nodding off, you sort of want him to keep talking. Every PC or printer carries with it the weight of the deeper political and economic implications endemic to the source and destination of their components. Then there’s the added weight of the environmental impact involved with getting them where people and companies buy them. As consumers, we rarely think about these effects. Prophet wakes up thinking about them every day: The costs to HP, plus the carbon emissions that impact the world.
Greece, widely seen as the economic train wreck of Europe, and known for its fiscal bailouts and political turmoil, is Prophet’s latest move on the global logistics chessboard, and he’s making it in Piraeus, a Greek port city about seven miles south of Athens, that dates to the fifth century B.C. The enemy, as Prophet sees it, is air freight. It’s costly and uses up a lot of environmentally unfriendly jet fuel. “When we switched to railroads, we reduced our carbon footprint by 30 times over air freight,” he told me. “With cargo ships, we reduce it by 57 times.”
It’s also cheaper, but he wouldn’t say by how much, because HP’s competitors would just love to know that. “When notebooks cost $1,000 and had bigger profit margins, it made economic sense to ship by air,” Prophet said. Product cycles were so quick, you had to move the the product into end markets as fast as you could, regardless of the cost. Now that the profit margins on PCs are in the single digits, it makes sense to save on the transit costs, he told me.
In shifting its operations to Piraeus, HP is taking advantage of a bigger bet on Greece by COSCO (not the U.S. retail giant; that’s Costco), the state-run Chinese shipping company formally known as China Ocean Shipping Group Co. In 2010, COSCO spent about $650 million to lease the port of Piraeus, the largest in Greece and one of the largest in the Mediterranean Sea, for 35 years. It then set about upgrading it and building up some world-class infrastructure. (The Wall Street Journal covered the deal and its long-term implications last year, and, in 2011, NPR’s “Morning Edition” covered it in a radio piece that examined the labor implications.)
China sees Piraeus as the gateway to Eastern Europe. And, Prophet said, it just so happens that HP sees long-term opportunities in Eastern Europe, Russia and the former Soviet states; the Maghreb region of Northern Africa (Morocco, Tunisia, Algeria); and the Levant (Israel, Lebanon, Jordan). In its last quarter, HP reported a little less than $10 billion in sales in Europe, the Middle East and Africa, a.k.a. the EMEA region. That works out to about $40 billion a year, give or take, which amounts to about a third of HP’s 2012 revenue of about $120 billion.
It used to be that pretty much all HP products sold in Europe and the Middle East were distributed in Germany or The Netherlands. HP notebooks and printers would traverse a complicated route from factories in Asia — coastal China, mostly — across the Indian Ocean, up the Arabian Sea, through the Suez Canal, then across the full length of the Mediterranean, into the Atlantic and north to The Netherlands, where they would finally end up in Rotterdam.
Turning Piraeus into a European logistics hub cuts as many as 10 days off the shipping time to growing markets, which lowers costs. It’s also bringing badly needed economic stimulus to Greece. HP said it will continue to use Germany and The Netherlands to serve Western Europe and the Nordic countries, and will push as many as 10,000 shipping containers of its products a year through Piraeus. It conducted a pilot shipment in May. The first live shipments will begin in early November.