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Smart driver

By Duncan Bridgeman

Friday 13th June 2003

Text too small?
The huge grey-coloured Fisher & Paykel Appliances factory in Mosgiel near Dunedin looms as large as the company does in New Zealand manufacturing.

The scene inside the vast hanger is similar to something from a science fiction movie. Star Wars-like robots scurry between stacks of high-tech equipment and packaged products, while humans bustle to add their contribution to this ballooning empire.

The company's unique culture has been one of the most talked about in the country. But now all the talk is on the performance of the company ­ and investors are liking it.

It became a separate operation in November 2001 when Fisher & Paykel Industries was split into F&P Appliances Holdings and F&P Healthcare Corporation. Since then both companies have blossomed into global players.

F&P Appliances sold a million appliances in the last financial year for the first time since it was founded by Sir Woolf Fisher and Maurice Paykel nearly 70 years ago.

The company recently announced a net profit of $73.5 million for the year to March, well up on the forecast of about $45 million at the time of the split.

F&P Appliances shares soared to record highs after the announcement ­ moving in tandem with those of F&P Healthcare.

Although F&P Appliances has held a dominant position in New Zealand for some time, the exciting thing about the results is that global sales are increasing.

The company expects similar net earnings next year despite forecasting some easing in New Zealand and Australia. The real growth will come from niche markets in the UK, the US and Europe, the company says.

Conquering the world, as managing director John Bongard likes to put it, is a rare achievement for New Zealand companies and this time there are some hurdles in the way.

One example is the different water quality from market to market that requires the company to modify some of its products.

A key breakthrough in selling its high-tech DishDrawer in Europe was the development of a water softener to remove the continent's notorious calcium stains.

The company had to come up with a different concept from that used in European washers so the softener could fit inside the DishDrawer's slim design. The process took three years.

This shows why some of the company's innovative ideas sometimes take a bit longer to get to the market, explained F&P Appliances' general manager of sales and marketing in New Zealand, Craig Douglas. "We never run out of great ideas, the challenge is achieving them. Sometimes we just have to wait for new technologies to turn the ideas into reality."

There is no doubt F&P Appliances is putting a lot of faith in its designers and the innovations they come up with. The company couldn't afford to take ordinary machines into overseas markets, Mr Douglas said. Giant competitors like GE would quickly snuff F&P out. "So we have to come up with something different and deliver what our distributors can see is worth selling ... our products drive our brand or we die."

Neither can the company afford to market itself on a grand scale. The cost of advertising in the US is excessive for a small company such as F&P.

The answer to that problem lies in brand positioning.

"We behave as if we are in the high end of the market ­ so we are priced in the high end of the market in the US. If we behave that way we can become a premium brand, which is what the retailers want," Mr Douglas said.

More than half of F&P Appliances sales are in Australia but the US is its fastest growing market. The company's export receipts now total more than $540 million a year.

The company's kitchenware is also making an impact overseas. Its Titan ovens have new features, including a unique stainless steel finish and a "Sabbath mode" to enable Jews to observe kosher dietary requirements.

The company has just over 2100 retailers in the US, all focused on the high end of the market.

The recent launch overseas of its latest top-loading clothes drier has met success. The SmartLoad drier, which matches the company's Smart Drive washing machine, will be available in New Zealand later this year.

Another way the company can break the shackles overseas is through signing distribution deals.

Agreements such as a recent three-year deal with home appliance giant Whirlpool Corporation to market and distribute products in Europe have helped the company gain the necessary profile overseas.

The agreements, known as original equipment manufacturer (OEM) partnerships, allows F&P Appliances to bypass market entry costs and capitalise on Whirlpool's established distribution network.

But with the company committed to innovation and driving new technologies, there are further dangers from expanding overseas.

F&P Appliances has been forced into taking legal action against some overseas competitors for allegedly breaching patent rights. The most recent was against Korean competitor LG Electronics, which F&P claimed had infringed patent rights by duplicating its Smart Drive motor technology. F&P Appliances obtained a US patent for this technology in 1991.

Mr Douglas said the patent issue was a concern if a large competitor such as LG was involved but F&P had its own defence against it. "We will always protect what is ours [but] our main defence is to keep outdoing ourselves. Unless we can better our own products we are finished."

The company has been filing patents for years but Mr Douglas said because they lasted only for a certain amount of time, the company needed to have moved on once it lost exclusivity.

Back at Fisher & Paykel's Mosgiel factory the machines are churning out more washers. Staff are in a good mood despite the Highlanders rugby team missing out on the finals of the Super 12.

The company has no plans to relocate overseas or to any other location in New Zealand. Its staff and designers like the southern way of life.

"The fact that New Zealand is small allows us to manufacture a culture that we can thrive in. Designers like the lifestyle the country offers them and they like Dunedin."

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