September 7, 2009 10:47 pm

Hot prospects for niche producers

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Steam engine: Strix has built a business on making the hidden temperature controls in kettles

In a cramped and anonymous workshop opposite a housing estate in the Isle of Man, a handful of people supervise high-tech pressing machines that stamp out tiny metal parts that form the key components of control switches for electric kettles.

The parts are produced according to a secret formula and are the sensors that recognise when water has boiled in an electric kettle and switch the device off virtually instantly.

The workshop is the nerve centre of Strix, a privately owned company that makes about two-thirds of the world’s output of control switches for electric kettles. An operation with sales last year of about £85m, Strix recently celebrated the manufacture of its billionth kettle control.

It is difficult to imagine a bigger contrast between the tranquillity of the sparsely populated island off the north-western coast of England and China’s Pearl River delta – the hub of much of the world’s manufacturing. There, in a large, modern factory on a bustling industrial park close to Guangzhou, another team of Strix workers assemble the components shipped from the Isle of Man, with other less crucial parts made in China, to make the controls.

The main reason the metal components continue to be made on the Isle of Man, even though much of the company’s production has been moved to China in the past decade, is to protect Strix’s intellectual property.

Strix has spent decades developing its product but fears losing its formula to Chinese competitors if this part of the production process was moved to Guangzhou.

“IP is important to us and it seems safer to keep [this part of Strix’s operations] in a place where we know we can control it,” says Paul Hussey, Strix chief executive.

Strix’s success in kettle controls – which it sells to the makers of the 60m kettles globally produced last year, nearly all of which are produced in China – makes it a prominent member of an unusual but growing group of companies. These are manufacturers of embedded product enhancers or EPEs: devices or materials based on novel technologies, and which transform the function of the appliances they are used in.

Rather than being sold to consumers, these “enhancers” are invariably hidden from view. The only way, normally, to inspect a Strix control is to smash a kettle into pieces. For this reason, many of the makers of the enhancing devices are “invisible champions”, little known outside their specific sectors.

However, the global EPE community does contain some well known examples, among them Intel, the world’s biggest microchip manufacturer, whose products are vital to most forms of electronic equipment. Another maker of enhancers is Corning, the US company that is the main maker of the specialist, highly pure glass used in flat-screen televisions.

Other less well known makers of similar products include Kern Liebers of Germany, a leader in small springs in seat belt mechanisms and knitting machines and France’s Giannoni, which makes stainless steel heat exchangers for central heating boilers.

ETA of Switzerland, owned by the Swatch group, is the main maker of high-tech mechanical movements used inside top-quality watches; and KYB of Japan, is a top producer of hydraulic components for powering products such as excavators.

In each case, these companies have a high share of what is a relatively small market in which they choose to compete.

They focus on key technologies in fields such as electronics, materials or power engineering. Other characteristics include protecting their position both through heavy use of patents and investment in research they hope will keep them ahead of rivals.

Although no one has counted how many of these companies there are, almost certainly the figure is growing as a result of technology developments and as the world of manufactured products splits into a greater number of sub-sectors, many of them reliant on specific enabling technologies.

Stephen Potter, a Swiss-based consultant in intellectual property, says: “If a company can demonstrate that it is a master of its niche [through such embedded devices], it is building in a lot of growth potential for the future, plus some resilience against the impact of the kind of downturn the world is going through now.”

In Strix’s case, the company protects its position in kettle controls through 475 patents. Most of these describe the operation of special thermostats, based on small pieces of metal that automatically turn a kettle off after boiling and are vital to their safety.

The company’s expertise covers areas such as electronics, new materials plus the details of heat flow from surfaces and how water boils.

Mr Hussey believes that Strix’s strong position in kettle controls provides a good base to move into other embedded devices that could improve the operation of related kitchen appliances.

“We feel we have got a good chance to use our engineering expertise to make a lot of kitchen products more compact, more efficient or faster,” says Mr Hussey.

Ideas under discussion include water boiling systems for steam irons, novel heating elements for toasters and new control systems for machines such as rice cookers.

In an effort to use its expertise in kettles controls to move into other fields, the company has joined other makers of product enhancers who are not content to stay in their niche areas.

Corning, for instance, has used its basic expertise in the science and engineering of glass production to move into fields such as optical displays for computer devices and screening systems for drug discovery.

Murata Manufacturing, a Japanese leader in ceramic capacitors that form part of many types of electronic equipment, has expanded into specialist sensors that use similar materials to capacitors.

Somfy, a French company that was originally a maker of unique watch parts, is now a world leader in specialised controls for garage doors, a field that uses similar skills in precision metal working.

Some companies that have expertise in a specific sector – such as Dolby, the US audio technology company – stay out of manufacturing the enabling devices their technologies make possible. Instead, they focus on licensing as a way to build income.

Another advantage for Strix that could help it expand into other embedded devices is its vast knowledge of the kettle supply chain, which overlaps with that for other small appliances.

“Our contacts built up over the years not just with the Chinese appliance makers but with the branded goods companies that take their products. This places us in a good position to use our expertise to move into other classes of products,” Mr Hussey says.

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