Collaborating at home and in Asia to succeed in global markets

For Sir Peter Maire, Director of Fusion Electronics, Asia has been an important part of his life and the business success of his former company, Navman, and the other high-tech companies he has been involved in. “Its a big part of who I am and part of my business,” said the Auckland-based entrepreneur and investor to an audience of exporters and importers in Auckland on 6 October 2009.

Sir Peter talked about how collaboration and effective team-building at home to build scale and to leverage manufacturing capabilities in Asia has enabled his companies to succeed in global markets. The high-tech companies involving Sir Peter have all succeeded in developing overseas markets for their products by locating parts of their value chains in Asia. His role as owner manager with Navman, Fusion Electronics and Rakon, has taught him the value of collaboration when manufacturing in Asia and building a global sales structure.

The story of Sir Peter’s success in the electronics business begins in the pre-Navman days of the early 1980s when he and a group of electrical engineers began making electronic depth sounders. However, when the government deregulated the economy, doing away with import licensing, they discovered the model they had been using no longer worked. Although they could develop product successfully, they couldn’t produce their VHF marine radio units competitively. To address this problem they began using cheaper components from low-cost manufacturers in Chinese Taipei. The technology industry, Sir Peter says, “is built on importing and exporting, and Navman became successful by leveraging Asia’s manufacturing advantage.”

Narrowly avoiding the 1987 crash, they sold their original company during the stock market boom and built a new factory in Auckland with the proceeds. From Auckland’s North Shore produced new products in small quantities until they were ready to manufacture offshore in larger volumes. The strategy was to “get things right in New Zealand and then transfer production to offshore manufacturers [in Asia].” At that time they weren’t focusing on marketing into Asia, as consumer markets were much smaller, instead they were selling to the US, Europe and Australia.

Experience has taught Sir Peter that business in Asia is based on friendships, and that they don’t just end with the conclusion of a business project, as they often do in the West. From the outset relationships are important for winning the confidence of business partners and later for riding out the bad times together. As a small company wanting to do business with the best companies in Asia, Navman had to work hard to convince potential partners that there was a long term future with them and that together they would be successful.

To illustrate his point about the importance of relationships, Sir Peter explained that as the financial crisis started to impact sharply on sales in late 2008, Fusion Electronics found themselves with mounting inventories and debts owed to suppliers in China. When they visited China to explain the situation, all three suppliers agreed to keep selling on terms, and as market conditions improved, they managed to repay 95 percent of the debt they owed. Sir Peter described the experience as, “very humbling; if the suppliers had not helped us, we would have been in trouble. In New Zealand we would probably pull the plug in such a situation. We don’t know exactly why they were able to do this - you often don’t understand everything that goes on in China - but they have credit support available and export incentive programmes as part of their integrated national strategies.”

Sir Peter much admires the economic achievement of countries in East Asia such as Japan, Chinese Taipei, Singapore and Korea, whose national strategies fostering manufacturing have enabled them to become high-tech nations. “Part of the reason companies in East Asia are able to do this is because of their vertical integration strategy. Singapore, China and Taiwan have vertical integration strategies and this gives their economies great strength.” Sir Peter cites Japan as an example of a country where companies have been encouraged with incentives for developing and protecting intellectual property to go into high-tech manufacturing. “It doesn’t happen by accident,” he says. By way of another example, “The Singapore government steered investment in manufacturing with suspensory loans at 3 percent interest over 15 years.” Because of vertical integration strategies in China, companies like Huawei are rapidly starting to dominate global markets for telecoms equipment. Whereas firms like Siemens and Nokia were the dominant customers for Rakon’s components 18 months ago, their second biggest customer is now Huawei in China.

On the topic of protecting intellectual property (IP) in Asia, Sir Peter has found that, rather than losing your ideas to competitors in places like China and India, a greater threat to the business arises from not paying close enough attention to the manufacturing costs of your suppliers. “It’s more important to know what things cost to make [in Asia], rather than being concerned about whether your partner is on-selling your ideas. Your IP should be embedded in the process you use to make your products.” He cites Rakon as a good example of a company who manufacturing processes are difficult to understand.

“Companies should be diligent in analysing the costs of manufacturing products in Asia. It’s important to deconstruct and work out the cost of making a product in precise detail,” advises Sir Peter.

Highlights of Sir Peter’s presentation:

• New Zealand companies aiming to work with the best companies in Asia need to be able to convince potential partners there is a long term future with them.

• Building good teams that include people responsible for product strategy, hardware and software engineering, managing and the financial details are essential for succeeding in Asia.

• Successful internationalisation involves having knowledge of potential partners, developing market understanding and the ability to network.

• It’s important to know the difference between the manufacturing cost and selling price of your business partners.

• The best purchaser is a good salesperson because he/she understands the psychology of selling and is therefore able to buy at a good price.A country of many markets, it will be a long time before China becomes too expensive to manufacture in, because as costs rise companies will head further inland.

• The credit crisis in Asia is over and the number-one issue now is increasing sales.

• New Zealand needs a national strategy to foster the development of its high-tech sector.

• Business needs a goal-oriented strategy and a basis on which to measure progress to achieve those goals; a haphazard approach doesn’t work.

Asia:NZ would like to thank Cranleigh Merchant Bankers for sponsoring this event.