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David Thompson Posted:
So very, very true. It beggars belief that we consider ourselves to be a developed nation when so much of our economy is based on selling milk powder or logs. BTW, I own a Plinius amplifier (my second) that drives a set of Theophany speakers.
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David Thompson Posted:
A robust but sobering report. It concerns me that confidence is rising, yet sales and exports are down and "manufacturers and exporters are still lagging behind other sectors". Surely we should wait until we're earning more money before we start spending more?
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siemens Posted:
Yes true! The only thing that will never die in this world is the nature and its science behind it. Great post.
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Kieran Ormandy Posted:
Thanks for the question Steven, Germany has seen increases in manufacturing employment since 2009, and Switzerland has had stable manufacturing employment between 2006 – 2011, even in the face of ongoing Euro-zone issues. Korea has seen increases in manufacturing employment since 2008 and Israel experienced large increases since 1998, while being stable over the last 4 years. Singapore has had increases in manufacturing employment over the last two years. These countries all value their manufacturing sectors and work to protect them, this is reflected in the above numbers and their performance through the GFC. Note data around the above examples was sourced from OECD labour market stats.
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John Walley Posted:
Point one: you should have no doubt what our Association says publically represent the views of our members. Point two: we don’t knee jerk responses, if you trace back our comments around NZPower you will see them link all the way back to our research in 2004 and 2005. All that material is fully linked from our comments above. Point three: you will note our comments on major users, sadly the same advantage does not accrue to smaller industrial users. The perverse incentives of the LRMC approach in all this are well known. Point four: the NZMEA is not like any other Association in New Zealand we admit only manufacturers and exporters into membership, and our public expressions are the views of that restricted membership.
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7/8/13

High value manufacturing article series


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The following is a series of articles written by Brian Willoughby, current president of the New Zealand Manufacturers and Exporters Association and Chief Executive of Plinius Audio and Contex Engineers Ltd.  These articles were featured in the monthly newsletter of Tony Alexander, BNZ Chief Economist.  

These articles are based off interviews with high value manufacturers in New Zealand, to gain insight into their business, successes, challenges and how they see the world.  

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These articles were sparked from a forum thread I started; asking for views on what is it about New Zealand’s business environment that is preventing us from reaching the country’s true potential in economic performance. Can improvement be spurred by a top-down vision, led by Government? Or must this be bottom-up, with businesses taking it upon themselves to create change and innovate? Also raised was the question as to why does New Zealand have such a large proportion of our University graduates leaving? How does this affect manufacturers who require highly skilled staff?

I believe it is becoming more apparent around the world that a strong manufacturing base is crucial to the success of a modern economy. Manufacturing is more than production; it incorporates the whole process, from the idea and design, to final production, distribution and sales, adding value while supporting growth in other sectors. In many western economies manufacturing has been allowed to wither away. Some influential commentators contend that this is an inevitable consequence of a country’s development, wherein activity in services eventually grows to become more important in an economy than manufacturing. Indeed examples of this happening are praised as smart use of the best skills in both the economy losing the production work and the economy that gains it. I think that over the next twelve months you will see the foolishness of this thinking and come to an understanding of the effect of this on our ‘Real Economy’.

Much of New Zealand’s manufacturing is world class in quality and innovation, and this is what allows the sector to compete in global markets. As the President of the New Zealand Manufacturers and Exporters Association (NZMEA), along with my own experience in the area I am privileged to mix with the entrepreneurs, trades people, engineers, scientists and sales people that make all this possible. Personally, I have a shareholding interest in and run two manufacturing companies; one a Christchurch based engineering firm producing metal components, mainly for high tech companies, the other a high end audio company, which exports to more than 40 countries. These two businesses are humble endeavours compared to others we are fortunate to support but you will see similarities in the problems and opportunities we have in common; perhaps the scale of the issues being the only real difference.

Over the next 12 months I am going to interview business leaders from the high value added manufacturing, to share their views and stories. In doing this, I hope to create a more truthful and clearer picture of what firms in the sector face; what are their difficulties? What are their successes? What really needs to happen to provide growth and innovation in New Zealand? Is it the climate for investment that prevents the economy reaching its potential? Or is it the exchange rate that is holding back growth?

We all view the world from the hill on which we are standing, so clearly my view is one where manufacturing is of vital importance to any country’s economy. Further, no developed economy can earn enough to provide the living standards we feel entitled to, the health systems, the education opportunities and the rich variety of job opportunities we want for our youth unless it has a vibrant manufacturing sector in its economy. I’ll leave it to Tony to provide his perspective on that view, from the hill he is standing on.
 

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I recently met with Hans van der Voorn and Lloyd Bahlmann from Izon Science LTD, and had the chance to tour through their labs, see their impressive products and sit down for an interview.

Izon is a manufacturer of high value particle analysis systems, used mostly in the medical testing and research arena. Based in Christchurch and New Zealand owned, Executive Chairman Hans van der Voorn has no intention of leaving town. Izon exports to over 34 countries, with the US being the biggest market. The company was originally formed with a vision to sequence DNA, driven by the founding scientists, but it became obvious there was no business strategy suitable for that market. “We needed a product that people could buy immediately, and we came up with counting viruses”, says Hans.

The product has gone through various iterations, much of which was fueled by customer requests, being achieved by offering loan devices to institutes around the world, getting feed back on how research went, what features could be improved or added. Customer focus is important, providing support above and beyond the norm. Their system is a very technical platform offering many different solutions, so they need to ensure they fully understand what their customers are actually looking for, helping to build credibility with the science community. “We need to look past the immediate measurements that we do and aim to understand the wider context of what customers need. In addition we all feel good about helping medical science.”

Securing ongoing investment is one of the biggest challenges Izon has had to overcome. The investment culture in New Zealand doesn’t really favor companies offering unfamiliar highly technical solutions. They have received some Government grants. “These grants are very helpful for small companies like us, not only because they help us financially but they also serve to validate the firm to investors. However once a firm is large enough and profitable there should be less need. When we are worth $100m we would like to be handing out the grants.”

They also question the amount of funding public science bodies such as the Callaghan institute receive for commercialization and innovation. A firm that relies on generating revenue to survive will typically use the investment much more efficiently; more quickly create products to sell, fueling employment and wider economic benefits. 

The world economic climate has been an issue, squeezing funding to institutions that desire their product; this general shortage of Government funding throughout Europe and US means scientists can no longer “snap” and buy. “The customers will eventually buy but the sales cycle is much longer than it was.” They are in a fortunate position to not be much affected by the exchange rate, as the margins are quite high and they have been able to partly adjust the price of the product upwards as capabilities keep improving. The products are the diametric opposite of commodities so not as price sensitive as selling into a mature industry sector.

Izon is a young persons company, providing a place to attract talented youth and provide further positive benefits. “Young people like it, they want something different. It provides an eco system where it attracts people. We are lucky in having a lot of very bright people prepared to work hard. I hope someone who works here may eventually want to start their own company, having seen how it works. One day they may even get funded by us.”

Looking towards the future, they are hoping to achieve their first $1 million quarter, signaling they have clearly crossed the profitability line. They are also looking into floating the company, “I quite like the idea of floating, because shareholders need some way of measuring value and selling if they need to, not everyone wants to hold onto shares forever.” 

www.Izon.com

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I recently met with Dr Steve Kerr and David Lovegrove of Kerr Scientific Instruments, to discuss their product, the challenges faced and what they have learnt from the journey.

Kerr Scientific Instruments (KSI) sells one product, their brain slice & tissue recording system, which can be used to assess the effects of drugs and toxins on living, electrically excitable tissues. It sounds technical and it is. The product looks high tech, beautifully made and looks right at home on a laboratory bench. The device was created by Dr. Steve Kerr, a faculty member in the Department of Pharmacology and Toxicology at the University of Otago, through the desire to be able to run hands-on class room experiments in electrophysiology on living brain slices. Existing equipment was expensive, large and unsuitable for a realistic teaching environment.

Steve designed his own compact and easy to use solution, which was then improved and designed for manufacture by David Lovegrove, of 4ormfunction. “An initial prototype was developed in the US, but even then I decided early on I would rather see it manufactured and assembled here in New Zealand. The reason is I think local things should be kept local for the benefit of the NZ economy; think global, but act local.” says Kerr.

Although their intention was, and still is to sell whole class sets of the device, many systems have been sold to individuals for research purposes. It has been especially useful for those with little prior experience in electrophysiology, due to its simplicity and ease of use. These research users have served as a marketing and validation tool for potential customers, because the device is now being listed as a key part of published research. Word of mouth recommendations have proved to be an important part of the selling process.

Their most successful market is the US, but a number of units are spread through New Zealand, Australia, UK, Canada, Japan, Germany and Thailand. There have also been units sold to large Pharmaceutical companies in Europe and USA. Kerr’s own department at Otago University has adapted the use of the device. “It has been a great success. Our own personal student numbers doubled within 2 years, largely on the back of this and some other innovative things we did in our teaching labs which really thrilled the students” says Steve.

KSI has a very niche product with their sales and access to the market mostly being developed through trade shows. Fortunately KSI has been able to internally fund development and sales operations, through a mix of founding investment and sales revenue.

Their biggest challenge has been closing sales, largely due to tighter budgets at institutions, an increasing trend since the Global Financial Crisis (GFC). “The capital just isn’t available and a lot of institutional budgets and spending is frozen. Consequently there is not a lot of money going into blue sky endeavors such as scientific research.” said Steve. This has not been helped by the strength of the NZ$ against the US$. “Obviously the higher US$, the lower our margins, and that affects our business. But we cannot constantly push up our price. There is a set global price in US$, so we just have to live with what the market will support.”

“I am a big believer that science is a big driver of industry in a good stable economy. I think around the world, those countries that have strong programs in science are better off. It may not be the only thing, but we can’t neglect science”.

www.kerrscientific.com

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I was able to sit down with Doug Hastie from Syft Technologies, to discuss the company, as well as his views on the New Zealand economy and business culture.

Syft Technologies evolved from research conducted at the University of Canterbury in the early 2000’s. They produce a world class mass spectrometer device for trace gas analysis. This has a wide range of applications and operates within a multi billion dollar market. To date, around 98% of their sales have been exported into areas ranging from container air analysis, environmental research, medical analysis and food and flavour applications.

The nature of selling scientific instruments means the customers tend to be very conservative; creating a barrier to entry Syft needed to pass before becoming generally accepted as a reliable, capable and quality option; meaning converting sales can take time.
They have a great product and staff but their issue now is boosting their sales focus; “getting out there and knocking on doors.” Previously, they have lacked this sales focus and it has been one of their biggest challenges. In the past most of their sales have been direct but they are in the process of building a distributor network around the world to fuel sales. “This is how the big competitors in the market operate and it makes sense to do the same, especially operating out of isolated New Zealand.”

Doug sees this lack of sales focus as a common problem throughout New Zealand, “The New Zealand mentality has too much focus on making and building, rather than selling; ultimately though that is where the money is made. New Zealand has great engineers and scientists, but the worlds worst sales people. People look down on sales people, when in reality we need them to create value and profit. Selling is a skill; it is problem solving, listening and being the filter to provide a solution. We tend to think selling is talking, but it’s more listening.”

Doug is a big believer in aligning all stages of the manufacturing chain, from design to sales. If there is a high level of understanding between each stage of the process they can adapt and organise to be more efficient as a chain. This is a focus that could be utilised more in New Zealand.

Syft’s product has a fixed price in the world market that is determined by where the competition lies, meaning they cannot adjust their price to soak up currency changes; appreciation directly hits their margin. “There is margin in our product, due to being high value, but the higher dollar makes the relative cost of all our staff here a lot higher.” says Doug.

Doug believes investment incentives and trends are a big issue that stops more high value manufacturing businesses like SFYT from forming and being successful. “There is too much focus on property investment in New Zealand. The way you change that is by changing the banking system, as the banks presently are incentivised to lend to property and not to business. We have to change the mentality of New Zealanders to invest in these types of commercial business. There is risk, not all of them will be successful, but if you do it properly there will be some that are successful to pay the way. These things need to be better capitalised, there has to be a realisation that they might lose money in the beginning, but it’s for the long term goal.”

“New Zealand as a country is not aggressive enough in terms of selling and growing. There is a lack of confidence to aim higher. We have a tendency to blame little things, when really there are bigger issues.”

www.syft.com

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I spoke to Leon Toorenburg and Glenn Milnes from ikeGPS about their products, experiences in exporting and ways to grow more high value added firms in New Zealand.

IkeGPS are a Wellington based high tech firm that specialise in creating measurement solutions, used in defense, intelligence and electric utility markets. Their solution is provided through a mix of their ikeGPS hardware unit, which contains a laser, GPS and camera to provide measurement information with onboard analysis and software that can be used to further analyse the information. This essentially means customers are able to measure the dimensions and locations of assets faster, more accurately and safer than competitors. The product received the award for Innovative Hi-tech Hardware Product at the 2013 Hi-Tech Awards.

Recently, much of the new value they have been able to add to customers has been through software improvements, allowing customer to measure and model things, such as power poles, based on pictures and data taken on the ikeGPS unit.

They operate globally, exporting 99% of their products, with the U.S being the biggest market due to their large electrical utility and defense markets. This means they have a global price point, set in US dollars. The appreciation of NZ dollar has had direct adverse effect on margins and cash flow, hitting them like a tax; although they planed for the exchange rate staying at the high levels, has helped to mitigate some of the impact.

In some markets, such as Australia, sales are made via distributors, whereas in the U.S, most sales are direct to customers.

IkeGPS choose to operate in New Zealand due to having a high quality core devolvement team based in Wellington. “We have guys who are truly the best in the world at doing what we do, and that expertise couldn’t be up and moved elsewhere. The cost of these development resources can be higher elsewhere, such as silicon valley.” explains Leon.

Market access has been their biggest challenge; an issue that is an ongoing hurdle. “We compete against multi-billion dollar incumbents, in what is a very concentrated industry. We are one of the very few smaller guys playing in this market. This brings challenges with brand and distribution.”

“The things we battle with everyday are market facing, because if you consider your product management, marketing, sales and corporate, you want to be close to your customers, and for us that’s the U.S. That’s the thing we keep looking at to improve and overcome the distance between us and the customer.” says Leon.

IkeGPS has been fortunate to receive much guidance from experts in the wider business community, facilitated largely through their investment partners. Additionally, they received funding and help with technology and market development through NZTE and Ministry of Science and Innovation (now Callaghan Innovation), which gave them great benefits.
Leon believes to help more high valued added firms, such as themselves, start up and grow, more collaboration is needed. He explains, “Offshore there are clusters of expertise and collaboration to build capability in a concentrated area. If New Zealand could foster these kinds of environments, it would make a big difference for similar business growth.”

Developing this collaboration and clustering is not an easy task, “The challenge in New Zealand is to find the “Gel” between firms that allows these types of cluster to happen, due to the small number of businesses operating in similar areas.” says Glenn.

New Zealand businesses can be very bad at networking, shared learning and collaboration, which hold back the formation of these collaborative environments. These are areas that have potential to provide great benefits if focused and improved.

www.ikegps.com

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This month I want to take the opportunity to talk about my own experience as a high value added manufacturer, through our company Plinius Audio.

Plinius is a Christchurch based manufacturer of high end audio equipment, ranging from amplifiers, through to network audio players. The company was first established more than 30 years ago to serve our domestic market due to import restrictions that existed at the time. Contex Engineers has owned the company for eight years.

We now export 97% of our products to 42 different countries around the world. We sell to music enthusiasts throughout the U.S., Europe and Asia, with the Euro being our major export currency. We own our own distribution in New Zealand and the U.S, but rely on specialist distributors in the rest of the world. Plinius has the potential to become an iconic Kiwi brand as recognised as the Britten bike, and also be a commercial success.

The appreciation of the New Zealand dollar has had a huge effect on us. Like most manufacturers, we have fixed price points in our various markets, meaning any appreciation in the currency directly affects our margins. Even the effects of vast productivity improvements we have been able to make in recent years have been stamped out by the increase in the value of our dollar. If the dollar had been at a sustained lower level we would be in a far better position for our future, as we would have had an ability to reinvest into product development and brand positioning.

The China Free Trade Agreement has been a disaster for Plinius. Like many other closed or developing territories China has their own quality system and a pre-qualification and testing requirement for electrical goods entering the country. To take advantage of the FTA we need a special New Zealand Certification Body to comply with the FTA and we still don’t have one; so any company wishing to sell electrical goods into China can’t take advantage of the FTA. This is a New Zealand bureaucratic mess of epic proportions and despite some recent efforts from MFAT and NZTE we are actually hindered in getting into China by our own government bureaucrats’ various actions and inactions.

New Zealand doesn’t understand about selling elaborately transformed manufacturing, and over six years successive government ministers have done nothing to push their departments into getting this fixed. Incredible though this may seem, in the spirit of the FTA, the Chinese Government quality organisations are presently, as a short term fix, helping us overcome New Zealand deficiencies.

This biggest challenge we have faced is building a worldwide distribution network to allow us to be successful in our export markets. Travelling the world, going to trade shows and finding new distributors is a very time consuming and expensive process, but one that is vital for export success. We have been fortunate to be owned by Contex which has been able to support Plinius during this process; had we been a fresh start up company, in the face of these market and distribution costs, product development costs and a highly overvalued dollar, Plinius would not have survived.

For all exporters of high value manufactured products, product development and brand profile are equally important since brand trustworthiness and quality is a big factor in success. Without it we often can’t even get our technical excellence through the buyers’ door, or in a shop window.

This phenomena doesn’t exist with commodity exports and our firms and our government agencies that are supposed to assist exporters don’t understand the marketing associated with complex products, simply confusing it with selling, which is very different. Therefore we fail to make the most of our potential in exporting high value technical excellence; which New Zealand has plenty of.

http://www.pliniusaudio.nzld.com

 


 
 



tags: plinius, brian willoughby, izon, ikegps, syft, ksi, manufacturing, exports, high value

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