F&P's healthcare recipe: stick to knitting and control brand

By Nick Stride

Friday 6th June 2003

If only there were more stories like this one.

In the late 1960s, a doctor at Auckland Hospital, seeing a need for a new type of respirator, teams up with the government-funded Department of Scientific and Industrial Research and develops a prototype.

Looking to develop and commercialise a product the two approach the founders of an appliance manufacturer, who agree to fund further research and development, set up manufacturing facilities, and find distribution channels.

Thirty-five years later the company making the latest generation of the product, and a range of offshoots, has revenues of $208 million from more than 90 countries, employs 720 people and makes an annual profit of $73 million.

If there's a problem with using the Fisher & Paykel Healthcare Corporation story to inspire the country's entrepreneurs, it's that the company makes it look too easy. Asked how F&P overcame the huge obstacles building a large-scale export base entails, chief executive Mike Daniell is positively laconic: "With an innovative product and better outcomes for patients."

There was, he concedes when pressed, a little more to it than that.

For starters, pushing products into huge markets where the competition has local knowledge, local contacts and usually a far bigger chequebook took a lot of perseverance, canny marketing and distribution, and plain commercial common sense.

The company was fortunate, Mr Daniell says, to have been part of a strong New Zealand group until it was ready to stand on its own feet.

Underlying the company's development has been a clear, consistent strategy.

Mr Daniell has worked there for 25 years, starting as a product design engineer.

In those days the team was fewer than 15 people so they had to "multi-task," which equipped him with management skills. He became the R&D manager after five years. In 1990 he became general manager of the healthcare division within F&P Industries and got the chief executive's job when Healthcare and Appliances became separate companies in 2001.

Healthcare has stuck closely to its core humidification technology throughout, ignoring the temptation to diversify into areas where it has no expertise.

Ten years ago it broadened the application of the basic respiratory humidifier technology it developed for Dr Spence, which had been used only in the hospital critical care area.

The addition of its own design "flow generators" allowed it to move its technology into the home in the shape of respirators to treat obstructive sleep apnea.

Next came temperature control technology, which took the product into post-natal care, and then into a product suitable for general patients. On the drawing boards is a product designed for use in the treatment of the smoking-related chronic obstructive pulmonary disease, from which an estimated 25 million people suffer in the US alone.

Healthcare manufactures all its own units and components including masks and hosing so it's able to have complete control over quality.

Another fundamental strength of the business, Mr Daniell says, is its relatively low capital needs.

Most of its products are shoebox-size or smaller. Because each new product has been a development of core technology it has rarely had to spend more than $2 million on an individual product.

Its biggest expenditure item has been the $40 million East Tamaki plant with factory-wide air conditioning and filtering, a "clean" assembly area, and R&D facilities.

Because of the relatively light reliance on capital the company was last year able to make a pre-tax return on shareholders' funds of 61%.

The focus on Healthcare's product innovation has overshadowed an equally important ingredient of its success, its distribution strategy.

The company started on the traditional export manufacturers' rounds, visiting markets, exhibiting at scientific and trade fairs, and working with OEMs (original equipment manufacturers).

About 20 years ago it started placing its own people in the larger markets it sold to the US, Britain, continental Europe and Australia to build up direct sales, and now has about 200 sales staff worldwide.

It still has about 100 distributors and still deals directly with OEMs; the more channels, the more sales.

With each new product it starts at home, working in hospitals with doctors and nurses, then moves on to Australia, the US, and beyond.

Underlying the distribution strategy has been the key policy of at all times maintaining its own brands, a policy that has enabled it to control pricing.

Mr Daniell says there is "a pretty good opportunity" to continue doubling revenues every five years for quite some years to come.

"It's a pretty clear strategy improving products, adding complementary products, looking for opportunities to move the technology into new medical areas, more people and more places around the world," he says .

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