A space half the size of a rugby pitch in East Tamaki tells you a lot about the history and future of Fisher & Paykel Appliances.
Built 20 years ago, the cavernous building on its Auckland site first housed electronics manufacturing for its healthcare division. Back then, that was the height of product and technology sophistication for the company.
In 2001, healthcare was spun off as a separate, and highly successful company. Meanwhile Appliances took a big strategic gamble of its own. Seeking to turn itself into a global maker and seller of kitchen appliances, it bought or built plants in Mexico, the US, Thailand and Italy.
But the strategy was still far from paying off when the Global Financial Crisis hit, saddling F&P Appliances with half a billion dollars of bank debt it couldn’t refinance. Teetering on the edge of collapse, it was rescued by Haier, the Chinese appliance maker, taking a minority stake in 2009. Three years later, Haier bought full control.
Today, the cavernous space is F&P’s sleek global design centre for refrigerators, laundry appliances and kitchen exhaust hoods. Adjacent areas in the same building house its testing facilities for prototypes and production models made overseas, and its global customer service and support centre, staffed 24 hours a day.
Down in Dunedin in the Wall Street Mall on Castle Street, a space almost as large houses F&P’s global design centre for cookers and dishwashers.
These two facilities are at the heart of F&P’s mission to become the world’s leading designer and maker of premium kitchen appliances. It’s gunning in particular for Miele, the German company that claims the role today.
“Haier have bought into our vision, and have told us to go faster,” says Stuart Broadhurst, F&P’s chief executive.
There’s far more to the relationship, though, than high-end products. F&P is designing appliances for the Haier brand, and contributing R&D, manufacturing, quality control and other intellectual property widely across Haier, which is the world’s largest maker of kitchen appliances.
F&P was Haier’s first foreign acquisition, which helped the latter to learn how to buy and manage other companies, beginning in Japan and continuing elsewhere. Last year Haier extended its global leadership by paying US$5.6 bn for GE’s appliance division. The 125-year-old business has a one-third share of the US market.
“We’re the favoured son – the one that helped them go global,” Broadhurst says.
The past decade has been a hard slog for F&P. The go-it-alone global strategy had starved it for resources. “We’d had a lot of muscle cut out of the business. The new product cupboard was bare,” Broadhurst says.
Under Haier, it sold its finance arm and reinvested in the proceeds in appliances, and phased out a year ago the last of its NZ appliance manufacturing, while it continues to own and run its plants in Mexico, Thailand and Italy.
This year it sold its East Tamaki operations for making appliance production lines to a Haier subsidiary. But it remains very involved in its parent’s contributions to China’s “Made in China 2025” and “Industry 4.0” national strategies.
SmartDrive motors and their electronic controls was the technology crown jewel Haier acquired with F&P. A revolution in compactness and performance when F&P brought them to the market in the early 1990s, they’ve kept evolving as a key competitive advantage. For example, their use in DishDrawers redefined dishwashers, and in the past few years a SmartDrive-equipped front load washing machine designed by F&P for the Haier brand has captured 75 percent of the Chinese premium market.
While SmartDrive R&D is still done in Auckland, a US$50m state-of-the-art plant in China opened last year to produce 4m motors a year for all of F&P’s appliances and the top end of Haier’s range worldwide. And there’s a lot more development to come, says Sean Robinson, chief executive of F&P’s components and technology division. Potentially new forms of the motors could power drones and cars.
This big transformation of F&P finally paid off last calendar year. On sales of $1.15bn, it reported a net profit of $77m, compared with a loss of $57m on similar sales the year before.
Today, F&P employs some 1,000 people in New Zealand, with some 40 percent of them in product development, and a further 3,200 people overseas in its own operations and Haier’s.
Sales, though, are still concentrated in New Zealand ($209m last year) and Australia ($447m), with North America ($202m), Europe ($123m) and the rest of the world ($107m) accounting for the rest.
“To get scale, we need to grow in the US and make a big push in Europe,” says Broadhurst.
Towards those ends, F&P achieved a critical milestone in September at IFA in Berlin, one of the world’s biggest consumer electronics and appliance trade shows. Its presentation of its product and brand was “our first proof-point in their backyard,” Broadhurst says of F&P’s German competitors.
In design and brand terms, F&P plays strongly to its origins here and to New Zealand culture, history and innovation. It talks of “The Social Kitchen” at the centre of life in the house. This is not just a place to cook and eat but “a meeting place for the family”, and a place to entertain and to “communicate social status”. Part of its design philosophy is “Turning routines into rituals”.
To help market such ideas it highlights luxurious F&P kitchens in award winning houses in dramatic New Zealand locations. It is also creating “experience centres” in major cities, with for example, the one in New York designed by Fearon Hay, a leading firm of Auckland architects.
As F&P goes further upmarket in quality and brand, it ultimately expects that only 10-15 percent of New Zealand homes would have its appliances. This presents a very difficult marketing challenge to it. As the leading brand here, it has to encourage loyal customers to switch allegiance to the Haier brand, which is number two in the market.
Consequently, F&P seems rather reluctant to talk with consumers here about it being Chinese owned. You can see how F&P modifies its message by going to this page on its website. Down at the bottom, you’ll see a “Change Location” button that will take you to its websites for 10 other countries or regions. The messages aren’t contradictory, just carefully targeted.
Behind F&P’s reticence lies a deep distrust in New Zealand of foreign acquisitions. Far too often buyers kill off the very ingenuity, technology and creativity they identify as desirable. They fail to integrate and develop those attributes into their own businesses so the NZ company quickly withers and dies, or at best its intellectual assets are exported.
Concerned that F&P could suffer the same fate, I wrote this column in the form of an open letter to Zhang Ruimin, the founder of Haier and still its chairman, when it was bidding for full control of F&P five years ago.
I’m very glad to report my fears were unfounded. Haier has achieved a very rare thing. F&P is thriving under its ownership to the benefit of both companies and both countries. And F&P says its keen to share with New Zealand companies its experience of Chinese ownership, the knowledge its gaining developing premium products and brand for global markets, and of running plants overseas.
There is plenty more upside to come. Zhang has developed an ambitious vision for Haier. He wants it to be a major global business, but one which is as nimble and as close to each customer as a far smaller business.
This is well explained in this article in May in a journal of MIT’s Sloan School of Management, and in this report on Zhang’s visit to Stanford’s Graduate School of Business in March. There are messages here for all NZ companies seeking to go global.
However, the second point I made to Zhang in my 2012 column is even more valid now than then, especially as the NZX is pushing for more foreign-owned listings as a way to ensure the survival of our stock market.
I urged Zhang to keep F&P on the NZX: “..you will find Kiwi shareholders will enthusiastically co-invest alongside you. Together we would build great relationships and wealth in F&P and between our two countries.”