International expansion has played a vital role in the success of three very different UK companies
The bright yellow livery of JCB is emblematic of one of the UK’s most successful manufacturing exporters. And while the colour remains the same, the mechanical specifications of its earth-moving excavators are changing as the Staffordshire-based company battles to maintain its market-leading position in Europe and compete against rivals in increasingly lucrative emerging markets.
The company recently launched a range of so-called “skid steer” vehicles aimed specifically at the US market to compete against South Korea’s Bobcat, which manufactures a loader vehicle with an extremely tight turning circle that is popular in North America.
Last month, a design that reduces fuel usage and allows operators to drive faster and get diggers to sites quicker won JCB a Queen’s Award for Innovation – the 26th such award since the company first took the prize in 1969.
Modern JCBs can even offer the operator the option of coffee-making facilities in the cab – another ergonomic feature to help it compete with the global market leaders in excavators, Caterpillar of the US and Komatsu of Japan.
Accepting the Queen’s Award, Sir Anthony Bamford, chairman of JCB and the son of its founder, said the company’s success depended on it continuing to develop machines that enabled customers to “do their job more productively and at less cost”.
A determination to maintain its own market-leading position and enter new segments led to a strong rebound in JCB’s revenues last year as a recovery in world demand overcame anaemic growth in the UK economy.
Much of the rebound has been down to a surge in demand in export markets. While figures from the Office of National Statistics show rising exports and continued growth in UK manufacturing, the company also says it is shrugging off continued weakness in the construction industry.
Booming demand for earthmovers and excavators – particularly in emerging markets – helped the company raise revenues by nearly 50 per cent to £2bn in the year to December 2010, while unit production, which dropped to 36,000 in 2009, recovered to 51,600 by the end of last year. That has prompted plans for an expansion of manufacturing capacity in Brazil and India.
JCB last month confirmed it had enjoyed the best first-quarter sales figures in its history, and while it was forced to lay off 1,800 people during the downturn, a rise in productivity has allowed it to rehire more than 1,000 staff.
Sir Anthony insists that JCB, which exports more than 80 per cent of its UK production, will maintain Britain as its main centre of production and its engineering hub. However, new investments could see the proportion of its production in the UK shift from about 60 per cent to half as the company chases business in emerging markets.
The company’s commitment to manufacturing is also reflected in its sponsorship of the JCB Academy, a school aimed at developing the skills needed for manufacturing employers in the UK.
Though a prominent Conservative supporter, Sir Anthony has proved a persistent critic of both Conservative and Labour governments over their lack of a coherent industrial strategy, which, he says, has led to the long-term decline of manufacturing relative to the rest of the economy.
Most recently, he called for the government to consider a system of wage subsidies during recessions, similar to the German Kurzarbeit, to help protect the country’s skills base. – Michael Kavanagh
Drew Nelson has spent more than 20 years building up IQE, a business that has shifted from manufacturing fibre-optic devices for the communications industry to becoming a leading supplier of wafers used in a range of products, including smartphones and tablets.
Yet having successfully ridden out the latest downturn, the founder and chief executive of the Cardiff-based group remains frustrated by what he sees as the failure of the government to do more to encourage UK businesses, particularly concerning the issue of red tape.
“If, for example, you want to sell to any one of 20 countries, you have to apply for an export licence. It might take two months. Our customers want wafers in two weeks, and when you repeat the order, the same thing happens all over again. You could be talking to five different departments – it’s unbelievably bureaucratic,” Mr Nelson says.
Excessive bureaucracy becomes even more of a problem for small and medium-sized businesses, he notes, which often have less of a cushion to protect them during the down cycles.
Having floated in 1999 after a period of rapid growth that saw it expand into North America, IQE came unstuck when the bottom fell out of the dotcom market. Its headcount shrank from 450 at the height of the 1990s dotcom boom to just 70.
During the most recent financial crisis, IQE “hunkered down”. As customers reduced inventory, its staff took a 20 per cent pay cut, and it introduced short-term working as part of efforts to drive down costs. Sales fell but earnings remained steady. “Everyone’s back on full-time pay,” Mr Nelson says. “We are back to about 400 people but with much higher volumes than before.”
IQE has sought to tap into the UK’s high level of technology expertise, buying NanoGaN, a Bath University spin-out, in 2009. Yet Mr Nelson remains frustrated at how many of the UK’s best technology experts head for Silicon Valley.
For the year to the end of December 2010, IQE reported a trebling of pre-tax profits to £6.3m on sales up 38 per cent at £72.7m. But while the wireless market still accounts for three-quarters of sales, Mr Nelson says he sees scope for growth in other areas, such as satellite technology, laser printers, barcode scanners and solar cells.
He adds that as manufacturers look to gain additional efficiency and performance from their chips, IQE’s semiconductor wafers will be increasingly favoured over more traditional silicon types.
With 99 per cent of its products going to customers outside the UK, IQE is also increasingly making use of plants gained via acquisitions in the US and Singapore. About half its production is based over three sites in the US, with plants in Singapore and the UK accounting for 25 per cent each.
The next round of expansion is likely to take place in the US and Singapore. While Mr Nelson says that a move overseas is not on the cards, he admits the idea does exercise the board’s minds “from time to time”. – Mary Watkins
This year marks the 140th anniversary of the Weir Group, which provided pumps that were crucial to the development of steam ships in the UK.
The Scottish engineering group, which employs more than 11,000 people and operates in more than 70 countries, is now focused on the mining, oil, gas and power markets. It is still based in Glasgow, but last year only 10 per cent of its sales and workforce were in the UK, with 39 per cent of sales coming from emerging markets.
“Although most of the group’s profit is now generated from outside Scotland, we are proud to recognise and celebrate our engineering heritage,” says Lord Smith of Kelvin (below left), chairman. “Weir is almost the last of a long list of notable companies established in the 19th century to retain its independence.”
The group, which entered the FTSE 100 last year, reported a 58 per cent rise in pre-tax profits for 2010 and a 39 per cent increase in orders.
Weir has built its business through a combination of organic growth, acquisitions and strategic partnerships. Last year, it bought five businesses: Petroleum Certification Services, in Adelaide, expanding its presence in the oil- and gas-producing areas of Australia and south-east Asia; Linatex, a Malaysian producer of rubber products; BDK, an Indian valve manufacturer; American Hydro, in Pennsylvania, which makes turbine components; and Ynfiniti Engineering Services, operating principally in Spain and Portugal, which Weir said would strengthen its position in the fast-growing wind and solar energy markets.
It also established joint ventures and alliances with partners in Germany, Japan and China.
Keith Cochrane, chief executive, says demand for minerals, energy and power is being driven by population growth and the industrialisation of economies such as India, China and Brazil.
“In North America, as conventional resources are exhausted, the proportion of oil and gas sourced from unconventional sources continues to grow, with other international markets also emerging,” he says. “Ageing power plants and environmental concerns will accelerate demand for new plants or alternative forms of energy.”
Working overseas is not without its risks. In December, Weir was fined £3m after pleading guilty to breaching UN sanctions on oil-for-food contracts in Iraq that it was awarded by Saddam Hussein’s government. The fine was imposed in addition to a confiscation order for £14m.
Following the fine, Lord Smith said: “What happened back in 2001 was wrong and we accept full responsibility.” Weir launched its own investigation in 2004 and all staff involved in the illegal payments have left the company, he says.
“Since 2001, Weir has been transformed. We have a different board and a different management team, all of whom are committed to doing business at all times in an ethical manner,” he says.
One reason Weir’s shares have risen sufficiently for it to enter the FTSE 100 is because it supplies equipment for the extraction of shale gas, which has surged in North America. The US Energy Information Administration estimates that technically recoverable shale-gas reserves outside the US are eight times the reserves within the country.
Vidya Adala, an analyst at Morgan Stanley, says: “While the timing and the cost of tapping these reserves remain uncertain, initial estimates highlight the potential growth opportunity for equipment manufacturers such as Weir Group.” – Andrew Bolger