(FORTUNE Magazine) – WHEN HE STANDS at the blackboard in the renovated schoolhouse that has become his company's headquarters, James K. Baker, the chairman of Arvin Industries, looks like a scholarly small-college president. Sit down in professor Baker's classroom for a moment. He'll give you an authentic course in how to go global. In just over a decade Arvin has transformed itself from a little-known auto-parts maker in Columbus, Indiana, to a worldwide powerhouse with a third of its sales overseas. Back in 1981, Arvin produced a jumble of consumer electronics, portable heaters, laminated panels, and auto parts -- mainly mufflers and catalytic converters. The auto parts accounted for nearly 60% of sales, but almost all went to Ford, Chrysler, and GM. Practically none of Arvin's revenues came from abroad. ''When the auto industry started talking about the 'world car,' '' says Baker, ''we realized we had to change.'' Baker, who was CEO at the time, and then-chairman Eugene I. Anderson decided to concentrate on auto parts, mainly exhaust and suspension systems, while acquiring complementary product lines and spreading geographically. They added Gabriel brand shock absorbers and MacPherson struts; they went in search of new customers and now sell to 17 auto companies, including Toyota, Volvo, and Hyundai. Arvin today has factories in 16 countries and ships to 130. Sales have more than tripled since 1981, making the company No. 235 on the FORTUNE 500 list. Baker began by adding companies in Latin America, ''a market close to home that I thought we could understand.'' Then he saw that the European auto-parts industry, which had excess capacity, was about to consolidate. Judging that the best bargains would go early, he rapidly purchased Amortex of France, AP Amortiguadores of Spain, and Bainbridge Silencers and Cheswick of Britain. Since catalytic converters are relatively new to Europe, Baker built plants to make them in Britain and the Netherlands. In tackling the Japanese market, Baker paid heed to what a Japanese friend had once observed: American businessmen are interested first in legal questions, second in financial questions, and third in personal relationships; the Japanese reverse the order. So in 1985, Baker took his board of directors to Japan for their quarterly meeting and five days of visiting factories and chatting with business leaders at receptions organized by Arvin's Tokyo office, which mainly purchased Japanese components. ''I told the Japanese that we had been buying their products for 20 years and that I hoped they would soon reciprocate,'' says Baker. ''I believe they were impressed.'' To a point. Arvin sells little in Japan, but it does now have two important joint ventures with the Japanese. Kayaba, Japan's biggest maker of shock absorbers and struts, owns 25% of Arvin's Spanish shock absorber company, and Sango, Japan's largest muffler maker, is an equal partner in supplying mufflers to Toyota in Kentucky. The benefits? Arvin is learning tricks for keeping costs down and gaining credibility in an increasingly Japanese- dominated industry. The campaign to globalize has hurt earnings, which reached a high of $2.43 a share in 1986, fell to 70 cents in 1989, and will rebound to roughly $1 this year. Acquisitions were financed with debt, which grew to about 60% of total capital (it is now down to 43%). Arvin's profits also took a short-term hit when Baker rolled back the basic wage from $11 per hour to $8 in 1989. Workers struck some plants, and the company had to stockpile inventories to meet customers' needs. ''We had to globalize the wage structure,'' says Baker, ''but it earned us an additional $100 million in orders last year.'' At 60, Baker, who became chairman in 1986, will be around long enough to see Arvin reap the fruits of its strategy. The drab exhaust and suspension business is undergoing a technological revolution of sorts. Barely a third of ) new cars in Europe are now equipped with catalytic converters, but regulations may force almost all gasoline-powered cars to have them by 1993. Later in the decade electronic suspension systems will begin to appear, and possibly electronic mufflers (which improve gas mileage). Wendy Needham, a security analyst for Smith Barney, estimates that Arvin's earnings will grow at least 20% annually through 1995. That's how the long view pays off.

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