Successful tactics in going global
Wednesday, 17 October 2007
Last Updated: Wednesday, 17 October 2007
By Tim Levien
If China really is a tough place for small Australian companies then someone forgot to tell Andrew Downs (right). While attending a conference on airport construction and management in Beijing last year he picked up a contract to automate a cool drink bottling line.
What Downs discovered is that the reputation of his business, Sage Automation, had travelled ahead of him – a function of today’s world of high-speed communications, coupled with the benefit of doing business with globalised corporations.
The lessons learnt by Downs should be noted by all Australian companies thinking about expanding into the world’s hottest market.
“It was a long shot, but while in China I thought it was worth investigating business opportunities,” Downs told SmartCompany.
“We do work for Coca-Cola in Australia on its bottling lines, so I figured there was no harm in locating a Coca-Cola representative in China. The Coca-Cola business there is Chinese-owned, but the manager said he was already aware of some of the work Sage had done in Australia, so he said why not come and have a look at what’s needed.”
Downs, who has built Sage from a two-man, backyard start-up in 1994 into a business employing more than 200 people and turning over $40 million a year, said he remained doubtful even after paying a visit to a Coca-Cola factory in southern China.
“I was dubious. I said let’s do it as an experiment. It won’t hurt the company to get a little bit of exposure as to how to do business in China.
“‘Let’s put in a price’, I said. ‘We’ll probably get it halved. But let’s just go through the process’. To our total surprise we put in a submission, and we came back with an order, and started work on the job in July,” Downs says.
“That experience really changed my perception of China. It’s not all some of the stuff you hear about getting ripped off, and agents taking 10% of your price, and other bad things.”
Downs experience contains a number of valuable lessons:
- That China need not be a difficult place to do business.
- That a viable entry point is to go in on the back of existing customers in Australia.
- That Chinese business owners are receptive to suggestions from Australia, even in areas regarded as their speciality, such as automation of manufacturing processes.
For Downs, a year 11 school leaver who started his working career as an electrical apprentice at the Uniroyal tyre factory in Adelaide, the China experience represents his first step into the international market.
Until now, Sage has concentrated its operations in Australia where the company handles jobs as diverse as automating car parts assembly lines, hay baling, water treatment, rubber mills, bottling lines, and automated airport lighting for the RAAF.
“When I left school I wasn’t the sharpest tool in the shed,” Downs says. “The highlight for me was simply getting a start as an apprentice.
“It didn’t take long to see that some of work we had done by outside contractors wasn’t up to scratch. I thought if I can’t do better than that myself I’d be very surprised.”
His first freelance jobs, using his skills as an electrician, were helping automate a bottling line, and then a polyurethane foam facility. The objective was simple: “I wanted to earn beer money,” he says.
From that experience grew a backyard business, and a double dilemma for Downs.
His first problem was that his boss at his “day job” would only tolerate limited “moonlighting”. It wasn’t long before the ultimatum came: limit the extra-curricula activities, or face the sack.
The second crisis came largely because Downs was too busy to recognise the importance of some of the mail he was getting from his local council. If he had he would have avoided a crisis that almost brought down the curtains down on Sage before it had a chance to grow.
“After about eight months at home I was faced with an order by the local council to stop work,” he says. “I’d apparently been dobbed in for making too much noise in what was a residential area. I had probably gone past the boundaries as a home business.
“I was getting summonses, but I really didn’t worry about them. The next thing I knew I was in court. Luckily I found a lawyer who got me off the hook.”
From home, Sage moved into a single rented unit in an industrial park in Adelaide. Sage today occupies six units in the same park.
Downs says Sage started as a pure contracting business, fully exposed to surviving by winning more contracts. More recently he has pursued a deeper relationship with clients, including involvement at the early stages of design of manufacturing systems, and a service division that is available 24-hours a day to fix faults.
He has also streamlined the ownership structure into a public unlisted company, which has led to greater financial disciplines and enables him to issue shares to key staff to ensure Sage retains their services.
Future growth, he says, is assured.
“The beautiful thing about the automation business is that it is extremely transferable. We do a lot of work for the automotive industry. We do work for Mitsubishi, General Motors, and we’ve just won jobs for Toyota, and Ford.”
“I could go on for hours listing the type of work we do, because automating is all about making a process more efficient, and that’s something everyone wants.”
Even in China.
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By Laura Cochrane
It was the differences between the Australian and British kitchen retail markets that gave Englishman David Amer the idea to develop Australian Kitchen Industries (AKI).
The market in his homeland comprised 80% large specialist providers and only 20% cabinet makers. In Australia, it’s the opposite. “He saw the potential for a big player to emerge as a national kitchen provider,” says current AKI chief executive Adam Sleigh (right).
In less than a decade, AKI has grabbed a 10% share of the $1.74 billion Australian market and has an annual turnover of $80 million.
It employs 450 staff across more than 20 retail outlets in Queensland, NSW and South Australia that operate under the brand Kitchen Connection (www.kitchenconnection.com.au). It also has bolt-on appliance and wardrobe businesses.
The major shareholder, Kestrel Capital, recently became the company’s investor after Colonial First State Private Equity sold its share to concentrate on infrastructure.
With the slogan “innovation to inspiration”, Sleigh says the company is a one-stop shop for kitchens. “We install between 700 and 800 kitchens a month, and our aim is to make the process hassle-free for the customer,” he says. AKI also aims to increase annual turnover to $150 million within the next five years.
First launched in 1995 with private equity backing, AKI’s initial market growth was slow. “We were concession selling through BBC Hardware House, but they were taken over by Bunnings and kitchens were taken off the shelf,” Sleigh says.
Then in 1997 AKI turned to acquisition and snapped up Nobby Kitchens in NSW, followed by South Australia’s Wallspan in 1999. This gave the company an instant avenue into local retail and manufacturing markets because both had 10% to 15% market share in their respective states.
Sleigh, however, says the acquisitions were the toughest part of AKI’s primary development. “It was a challenge to find the right people to go into these companies with their own history and culture.” On top of this, it was difficult to find professional tradesmen who were dedicated to the “hassle-free” business principles of the company.
First, AKI aimed to minimise segregation across states by developing a manufacturing base at Geebung in Queensland, now the company headquarters. From this a start-up chain of retail stores in Queensland was launched in 2001. At the same time, Sleigh, then Queensland general manager, introduced a business model based on British kitchen retailers such as Magnet.
Sleigh says the key to the model is also AKI’s biggest future challenge – an effective operating system. “There are thousands of components needed to build a kitchen, and if we get one thing wrong then we rip the heart out of that home,” Sleigh says. “It’s the same with our business. It has to be efficient and effective from designing and manufacturing right through to distribution.”
In July this year, AKI will implement a new national operating system that has cost millions to develop and test. It’s based on having standard processes for key business areas, which has fewer steps and simpler measures.
It comes on the back of the launch of a staff intranet system called HEART (Human Excellence and Recourse Tool kit) which Sleigh says is designed to combat the company’s other major challenge: staff retention.
It includes accredited professional development courses in retail and management, and allows employees to chart a career path through the company. “The system actually drives professional development rather than always relying on management.”
Sleigh is adamant that market growth is also dependent on design innovation. Sleigh spends “half his life” in Europe following the trends and is working on plans to develop trade selling with a European business. He is also researching acquisition targets in Victoria and Western Australia. At this stage, the company is not considering a public float.
“No one in Australia has set the benchmark for design or built a platform to drive it to customers,” Sleigh says. “If we can do this, it will be good for the industry.”
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Lynda Slavinskis blog from Sept 19, 2007
As a lawyer who spends a lot of time advising business owners on exporting, there is one phrase that sends a shiver down my spine: “What contract?! I’m a handshake kinda guy!”
I have heard that doozey from more than one prospective exporter grappling with the idea that having proper legal documentation to support his or her export relationship is as important as attending trade shows and marketing.
International trade law can be defined as a set of loosely connected rules governing trade between two countries.
With the breaking down of trade barriers between countries and the advent of international trade organisations in the 1960s such as the UN and the World Trade Organisation, we now have a system of more uniform rules of international trade in the form of international conventions/treaties.
The “Vienna Convention” which governs the international sale of goods is one such convention, and important to know about when you are exporting. The problem is that many exporters believe that international trade law will cover them in any situation and therefore they don’t need a contract.
So why do you need contracts even if you have conventions?
Conventions don’t cover everything – the Vienna Convention doesn’t cover the following:
- Sale of services, skill or labour.
- Contracts for processing of goods (one of your most important relationships will be with your manufacturer).
- Legal issues such as the validity of the contract (if you haven’t signed it, is it still valid?).
- Legal issues regarding the effect of passing of property (so when does the importer take title?).
You can exclude the operation of conventions
Not every country ratifies the same conventions. For a convention to apply, the country ratifying the convention must also draw it down into their domestic law. Sometimes this doesn’t happen, but also sometimes countries change definitions when incorporating conventions into domestic law.
It is important to tailor contracts to reflect the particular terms of your relationship with the importer.
If you’re still partial to the handshake deal, think about this…
Contracts will clarify those deals you are making over the email or phone at 2am with an importer that speaks little English and the only words you know in French, are “Bonjour, je m’appelle John”.
What have you promised the importer in that sleep-deprived window of opportunity? Did they understand what you meant? Remember that for there to be a valid contract you must have “offer” and “acceptance”, and it is safest to get this in writing.
Contracts clarify your rights and obligations – what type of agreement are you entering into? Are you appointing a distributor or an agent or are you licensing your intellectual property to the importer and letting them run the show? Different types of export relationships give rise to different legal rights and obligations, so you must be clear on what that relationship is.
Contracts clarify other rules such as “Incoterms”. You may have heard of FOB, EXW, CIF – these are recognised international trade terms that govern the liability of each party in relation to delivery of goods, insurance and liability for the goods. They tell you what your price covers and it is crucial that you stipulate which Incoterm you are trading under. Go to www.icc.org for more information on Incoterms.
Contracts clarify when and how you will be paid and what happens if you don’t get paid.
And if that still isn’t enough to convince you, let me share a couple of real life stories from my X-Files (X for exporter!) with you…
A handbag designer had her handbags manufactured in Hong Kong. She didn’t seek legal advice because she thought it was too expensive. She had very original designs.
A couple of months into the relationship, she saw her bags rebadged with the manufacturer’s own label being advertised in a global trade journal!
As it turned out, the manufacturer had no concept of the laws of copyright (they thought that for them not to be allowed to copy the bags, the designs had to be trade marked).
They also did not understand that the designs provided to them were confidential. The manufacturer subsequently agreed to enter into a formal agreement with the required restraints in relation to intellectual property, but much trauma and potential lost sales could have been avoided by this being done at the outset.
A fashion designer got one big order from a large department store in Britain. There was no contract in place.
The department store kept ordering for a while, but in time the designer was replaced by “the next big thing”. The department store stopped ordering. The designer, who had relied on the assumption that the department store would keep ordering, manufactured 10,000 garments in advance and was left with stock piled high in their warehouse.
Did they have any recourse? No. The absence of a contract saying otherwise meant that each order placed by the department store had been a separate deal and they had no obligation to continue ordering.
So next time you’re tempted to accept a “gentleman’s agreement” remember Export = Contracts! And, no they don’t have to be 80 pages long and so full of legal jargon they scare your importer back to the plane before you can say FOB.
But they must be properly drafted (preferably by an experienced lawyer with an understanding of export and of your business), clear, formal and cover all the crucial clauses such as payment, minimum order quantities and intellectual property, to name a few.
Lynda Slavinskis is an outgoing, intuitive and commercially savvy lawyer. She has worked in-house at Sussan Corporation and Tattersall’s and now assists small and medium businesses with import, export, leases, franchising, employment and general business advice as principal solicitor of Lynda Slavinskis Lawyers & Consultants. Lynda is on the Victorian State Government’s Small Business Advisory Council. Back to top
It’s now the Year of the Cat in Geelong after the town’s all conquering Aussie Rules team won the premiership in emphatic style, in defeating Port Adelaide by a record 119 points and breaking a 44-year drought. And of course, Geelong has been in ecstasy as the club and the players have celebrating long and hard since winning the flag on the hallowed turf of the MCG on that last Saturday in September.
But there have been some more reasons to celebrate in Geelong off the field as well. Geelong and the neighbouring surf coast area is booming after some lean years economically, following the shakedown of local manufacturing and the financial collapse of the local building society Pyramid.
The Geelong economy is doing well, its manufacturing sector is diverse and the surrounding areas like Barwon Heads, Torquay and Lorne are benefiting from Melbourne expatriates looking for a “sea change” on the coast (in fact the original award winning ABC drama Sea Change starring Sigrid Thornton, John Howard, William McInnes and David Wenham, was actually filmed on location in Barwon Heads).
Geelong is also benefiting from internationalisation. In fact, soon after the Cats won the flag, the town received a visit from the Thailand Board of Investment (BOI). The BOI is interested in linking in with Geelong to supply its ever expanding automotive assembly industry on the eastern seaboard, which is about two hours drive out of Bangkok.
In fact, earlier thus year when I visited the region on a visit to Thailand (also known as the Land of Smiles), I noticed a strong Australian presence there. The region, which has been dubbed “the Detroit of the east” was the epitome of modern global manufacturing. The factories there all had state-of-the-art technology, the workers were highly skilled, production techniques were sophisticated, and over 60% of production was earmarked for export.
Australia is one of the leading investors in Thailand and many Australians have set up major operations on the eastern seaboard. According to Sean Riley, Australia’s senior trade commissioner for Thailand and the greater Mekong region: “Over 2500 Australian companies directly export to Thailand, but this underestimates the increasing numbers that are setting up operations in Thailand to support their businesses back in Australia,” he explains.
The eastern seaboard of Thailand is a hub for the automotive industry and many automotive component makers have a foot in both camps – Australian and Thai – to take advantage of the booming market in the Mekong Delta.
For example, Trimotive which produces automotive components for one tonne pick-up trucks in Thailand sees an off-shore presence as vital for his company’s prosperity back home in Australia. As Robert Saunders, the managing director of Trimotive put it: “Every Australian manufacturer should think globally in order to survive locally.”
Many of the Australian companies have been attracted to the areas because of the BOI’s program. “The combination of the Thai-Australia Free Trade Agreement (TAFTA) Investment incentives from BOI, and Thailand’s strategic location in the Mekong Delta that is driving this investment – particularly from Australia” says Riley. Saunders at Trimotive agrees: “The investment incentives in this country are magnificent,” he said.
So while the footy club has made Geelong the city of smiles in “The Year of the Cat”, the injection of some Thai investment could help the automotive industry get the cream and we could well see The Cat Empire having a touch of Siamese in years to come.
*Tim Harcourt is chief economist at Austrade and author of Beyond Our Shores. www.austrade.gov.au/economistscorner
Thanks to Sean Riley, Jodie McAlister and Sineenart of Austrade Bangkok and their comments and assistance with this article.
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