F&PA to shift laundry plant to Thailand
I’m amazed that Fisher&Paykel Appliances has waited so long to shift its NZ laundry appliance factory to Thailand. But although it’s sad to see NZ jobs lost, remember that this is in the context of F&PA having become a real global company. It is NZ-owned and its design and development capability, finance, strategy, supply chain and distribution channels are still managed out of NZ. We need more F&PA’s building global businesses headquartered here.
Here’s an OpEd piece I wrote on the subject several years ago for the DominionPost’s Infotech:
Exports are not enough
13 August 2001“Export or die!” We have heard that message so often - and for many companies, it is the right message. Getting the world to buy a New Zealand product or service is an important milestone for a developing business. Lots of successful exporters are needed for a healthy economy - but they are not enough. The world’s most successful companies do not just export globally - they operate globally. That means having sales, service, logistics, production and development operating around the world. Look at the world’s greatest companies. How many do things only at home to ship out to the rest of the world? I can only think of one - Boeing. The others made the leap from exporting to international operations. Our own Dairy Board/GlobalCo (Ed. that’s Fonterra) has substantial and growing offshore development, procurement, manufacturing and logistics. More Kiwi companies need to recognise when to make that change.
Why? To minimise the cost of distance - freight, duties, foreign exchange risk and in-transit inventory; to reduce production costs, through greater volumes, lower material costs and lower manufacturing wages (an unpleasant reality); to get closer to customers for more efficient service and faster reaction to changing needs; to build critical mass for future investment; and to build credibility with large global customers.
I speak from personal experience. Deltec developed an advanced antenna technology for mobile phone networks - Teletilt - that enables network operators to adjust their cell coverage remotely and with improved signal quality. We began in New Zealand and Australia, explored SE Asia, and then expanded sales rapidly in China. Our products were key components of large infrastructure projects. We were the world leader in our niche. But as we grew and started to explore Europe and the Americas, our larger customers demanded the cost and service benefits of in-market operations. By mid-2000, we were getting a consistent message from global customers like Motorola and Nokia: “Set up full-scale sales, service, manufacturing and logistics in North America, Europe, China and Brazil. Do it now. Or don’t expect to get our business in future.”
The time had come to switch from a Kiwi exporter to a global business.
The capital requirements and the risks were large. Then the tech sector went into meltdown, and technology investors took fright. So we decided to sell. Andrew Corporation, a global competitor with complementary products and a similar vision for the future, recognised the value of Teletilt and our expertise. Our Wellington development facility will become their worldwide centre for developing advanced antenna systems. New Zealand will continue to play a key role in the technology. It won’t save the mainstream manufacturing, which would have gone to China eventually anyway, but we can reinvest in new opportunities.
My point is that New Zealand should not wistfully expect its companies to export everything from home. Global companies like Nokia, Vodafone, and Nestlé operate in many countries. The interesting thing is that large numbers of their high-value jobs are still at home- in development, marketing, and corporate administration. They are surrounded at home by a plethora of supporting organisations- in banking, IT, law, accounting, advertising, travel, short-run early-stage manufacturing, research, education, etc. Together, they bring home huge revenue and profit streams.
If New Zealand wants a high-value economy, it needs more than just exporters. It needs global businesses that operate offshore in all facets of their business. New Zealand should encourage its businesses to invest offshore, not deride them for it. Without global operations, we won’t get a Kiwi Nokia or Vodafone. With global operations, we look like getting a Kiwi Nestlé. We could sure do with some more.
PS. At the HiTech2000 Awards, Deltec won the High Growth Company of the Year Award, the Investing in People Award and the Supreme Award. When the tech-wreck got even worse, in late 2002, Andrew’s NZ R&D centre went too, but that could happen under any owner, and only validates my argument that we need our own global players based here. The home R&D is usually the last to go.
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April 28th, 2007 at 3:32 pm
Jim - I like what you are saying - I’d be keen to engage in dialogue about what we need to do to stem the tide. I’ll have an article in the June unlimited issue specifically about this but in the meantime feel free to check out some of my writing at http://www.cactusclimbing.co.nz/index.php?option=com_content&task=category§ionid=1&id=35&Itemid=91
Best regards-ben
April 28th, 2007 at 8:18 pm
Thanks Ben. I’m not advocating we should stem the tide of mainstream manufacturing moving offshore. I’m saying we need more NZ-headquartered businesses that have global ops, which can still mean offshore manufacturing - e.g. Icebreaker.
My preference is to own brands, design, and control of channels of supply and distribution. NZ manufacturing has a role to play, but it’s a complementary one, not a primary one, except in businesses where scale isn’t an advantage or where ‘Made in NZ’ is at the heart of their appeal. NZ lamb has to come from NZ, but only as long as it has brand value. Look how the French lost their dominance in wine. For most things, it’s the product/service offer that counts, and not where something comes from. By the way, I can think of several electronic, financial and professional business service opportunities where being trustworthy, honest, and uninvadable NZ could be significant (but they require major legislative change and financial clout).
April 29th, 2007 at 9:00 am
Jom - your reply to my last comment doesn’t seem to be visible. I’d be keen to enter into dialogue about where you feel the potential exists for NZ businesses. Obviously IT, Biotech, Tourism and the primary sector are the leading lights but a more broad spectrum of industry is needed. It’s like any investment portfolio - on both the macro and the micro scale it needs to be diversified. Drop me a line sometime - I’d be keen to talk
April 29th, 2007 at 9:46 am
Click on the name in the Recent Comments sidebar or go to the post and click on Comments. They’ll both bring you to the page where the full comment is posted. My technical advisers tell me to keep the Recent Comments sidebar highly abbreviated, so people can scan quickly.
April 29th, 2007 at 11:22 am
Yes I did that Jim - perhaps the options for that particular post are different from previous posts - no matter! Regards Ben
April 29th, 2007 at 8:40 pm
Yep see them now Jim. I agree viz a vis headquatering design, IP and logistics here in New Zealand. However there needs to be some acceptance of the fact that in order to create more Icebreakers we need some degree of local manufacturing. it’s only been very recently that Jeremy has moved manufacturing offshore. He needed a manufacturing base to achieve the scale to be able to move offshore. If we lose all our manufacturing we lessen opportunities for new businesses to start up. But the bottom line is that existing NZ manufacturers need to ad value and move from a low cost/high volume model to a short run/high margin one. And thats something that will take a high level of strategic guidance and upskilling - this is where central government and the EDA’s come into play. Regards ben
April 30th, 2007 at 10:19 pm
Rakon is a good example of a SMART local business manufacturing entirely in NZ. See:http://www.rakon.com/process/index.html. More of these sorts of companies would prop up the NZX nicely.
With respect to F&P, their product development brilliance (Dishdrawer & Gentle Annie) has served them well. F&P will no doubt be able to scale up using offshore production facilities; I just hope that this doesn’t impact negatively on their premium brand values. And that the laid-off local workers find new jobs quickly. Let’s not forget about the human toll in all this business chitchat.
April 30th, 2007 at 10:37 pm
F&PA has a very good reputation as an employer, and I am certain they will look after their people as much as they can, following what has obviously been a painful, but I think inevitable, decision.
Rakon recently acquired C-MAC’s FCP division, including manufacturing facilities in Lincoln (UK), and Argenteuil (France), its engineering and development facility in Harlow UK, plus its sales and distribution centres in Shenzhen (China), Durham (USA) and Crewkerne (UK). Sounds like global operations to me.
May 1st, 2007 at 6:06 pm
One of the questions I have about businesses that manufacture offshore and do the high value things here in New Zealand is - what does the business forecast look like? I am certain that F&P have modeled their future with all manner of variation and contingency and found the economics make more sense (over and above the commonsense of the scenario).
How much extra value and profit will be returned to the New Zealand economy if F&PA are better placed to increase the volume of production and lower the logistical cost of getting the goods to their key markets. I don’t know the facts but I would guess that freight ex Thailand is lower then Auckland or Tauranga due to the volume of shipping and competition in their ports. Intuitively is seems these efficiencies would be good for the brand’s bottom line.
Like the sale of 42 below to Bacardi I get a sense that, in order to fulfil ambitious plans for growth then F&P need to rethink the shape of their business. I would be interested to know how much extra manufacturing capacity their plants in New Zealand have/had and at what point a shortage of skilled labour would have scuppered their growth.
It is easy to become emotionally attached to the idea of all jobs as good jobs but I am not so sure. It would have been tough in the vinyl record pressing business when CDs came along and now I am guessing the Stebbing family - who invested in a CD plant in Ponsonby not so long ago - are feeling the pinch from digital downloading. As Helen Clark has said the workers will be reabsorbed by the hungry job market.
You may be interested in a speech by James Dyson the inventor of the Dyson vacuum cleaner - which is a very successful family of products. Like F&PA Dyson faced the same tough decision to shift manufacturing from the UK to Malaysia. He says:
Moving Dyson production abroad was a tough decision. However, it meant we could cut our costs, and expand our production. We could invest in R&D and employ more staff.
The upshot is that we now have more people at Malmesbury than ever. All of them are in higher-skilled, better-paid jobs. Most are scientists and engineers. They contribute more to the local economy. And as a company we pay much more in taxes than we did four or five years ago.
In Malaysia, the biggest benefit has been that all our suppliers are within 10 miles of the factory.
Our engineers and scientists are in Wiltshire.
For a company that depends on innovation, that’s what counts. The know-how is here.
Thousands of other companies are doing what we were forced to do. From Doc Marten shoes and Hornby train sets, to Sony’s high-tech electronics, they were all failing to make things competitively in their home markets and moved their production to China.
This shift has led to a huge period of wealth creation. …
You can read the nub of the speech on the BBC website or download it in its entirety from the same page.
The elephant in the room for many New Zealand manufacturers and primary producers is the Food Miles - Carbon Footprint argument which will increasingly be used as a stick to beat us where tariffs are not kosher. But that’s another story.
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As an aside, some interesting economic questions are raised by the fact that in some cases international production chains are managed almost entirely within a single multinational corporation (roughly 40 percent of U.S. merchandise trade is classified as intra-firm) and in others they are built through arm’s-length transactions among unrelated firms. But the empirical evidence in both cases suggests that substantial productivity gains can often be achieved through the development of global supply chains.