Doctrinaire John Key is not. His musings on the government being prepared in a worst case scenario to help an "iconic" New Zealand company through a debt crisis have been widely discussed from all parts of the political spectrum over the past days.
There is much that can be used to build up a case for F&P being a New Zealand commercial icon. The wonder is that it has lasted so long. It is a whitewear manufacturer (fridges, freezers, washing machines). It is a business line in which New Zealand has no immediate or glaring competitive advantage.
Well, F&P have tried to create one. For a while they succeeded admirably. But the problem with competitive advantages is that your competitors are always trying to leapfrog your advantage with one of their own. The company sought to create a barrier to competition by intellectual property--through technological advances and design engineering, so that the electronic controls and engineering features of their appliances were always a step ahead of the competition.
Once the technology was invented, and the manufacturing began, however, the company constantly ran into headwinds. The steel boxes in which the appliances sat were brute commodities. The manufacturing plants had little competitive advantage, if any, but the biggest input was always labour costs. And here New Zealand was competing against labour rates in Asia and South America that were a fraction of those in New Zealand. In the end, F&P simply could not compete. The number of technological advances possible was finite; competitors were always imitating and coming up with their own.
It is a credit to the company's management that they held out for so long. They have had a reputation for being good and loyal employers. They were proud of their New Zealand heritage. They fought long and hard to retain the business in New Zealand, even as they expanded and set up manufacturing plants and markets offshore. But years of a speculatively high currency was the final nail. So, last year the company capitulated, started shutting down manufacturing in New Zealand, and moving it to Thailand and Mexico. Labour rates there were far cheaper.
Now, the company has been caught short. The rationalisation measures have yet to come into full fruition, so costs have not yet been supplanted by restored and increased earnings. But the global economic slowdown had dried up its markets, so sales are slowing rapidly. (Whitewear demand is closely correlated with the housing market.) The king hit has been its debt, denominated in foreign currencies, which has ballooned as the New Zealand dollar has fallen. Mark-to-market accounting rules mean that it has had to be reflected in New Zealand dollar values on the balance sheet.
So, should the government let the company fail--if it cannot find a new cornerstone shareholder, or if its existing shareholders will not put more capital into the business? Our belief is that it should. There is no shame, no ignominy in such a company failure. If anything, it should have happened a long time ago--or at least the company should have moved its manufacturing operations offshore years ago. It struggled on (and did OK for a time) in the face of inevitably relentless international competition in vital areas of the business in which it had a severe competitive disadvantage.
If there is blame, it is in the company having a misguided loyalty to its New Zealand work force for far too long. Now the move overseas looks to be too little and too late. The real test of whether the company should survive is whether its existing shareholders are willing to put more money into the company. If they are not, then it would be irresponsible and reckless for the government to use taxpayers' fund and risk them for emotional or sentimental reasons.
It is the existing shareholders who need to be convinced that the company's troubles are temporary, that the restructuring is the right thing to do, and that the company will be able to compete and trade its way out of the current difficulties. If they are not convinced and are prepared to write off their existing investment in the company, rather than throw good money after bad, then it is the worst kind of commercial fool who would rush in where existing shareholders fear to tread.
While there may be no shame in having F&P fail after having worked so hard for so long, there very definitely is shame attached to actions which put off the inevitable and throw precious money away for emotional and sentimental reasons--such as the iconic status of a company.
What will the shareholders decide? We await with interest. There is one disturbing note to be added. At least two bloggers have given customer feedback on their recent experience with F&P products. Whaleoil, in his normal understated and reserved fashion provided the following assessment:
They used to make good products and now they don't. I used to buy exclusively Fisher & paykel Products but this is a list of the crap problems we have had with "iconic" products from an "iconic" company;
* Washing Machine lid caved in and no longer activated the switch to turn it on
* The relatively new drier we have has just shit itself
* The Dish Drawer was a piece of shit we basically just ripped out and threw away.
* The Brand New Oven Quantam Series we got arrived and didn't have a thermostat resulting in a severe burn to the missus and never working right since.
* Fridge went on fritz after only 10 years....used to be you could use a fridge for ever.
As far as I am concerned Fisher & Paykel Appliances are crap and they deserve to falter. If and when any appliance craps out in our house the rule is NO F&P to replace it.
Then, the only slightly more delicate Lucyna has this to say:
Ironically, my only just over one-year old Fisher and Paykel dishwasher broke 20 minutes ago. You see, all the stress of the opening action was directed to two points on the plastic panel strip at the top of the door. Both of these plastic points were attached by metal screws to the metal door on the inside of the dishwasher. So, the plastic at those two points just couldn't take the pressure anymore and broke when I pulled on the door. Most likely the only things stopping the whole panel from coming were all the wires in this area that directed the control information back to the dishwasher. Who ever designed this dishwasher did a really crap job of it if they expected today's plastic to last very long at all.
The dishwasher actually still works as none of the wires were pulled out when the panel came off, but I'm not sure I'm going to be able to open it again when it's finished washing my current load of dishes (there was no way I was unloading the dishwasher and washing by hand, unless it was really broken). Maybe levering it open with screwdriver might do it...
So, not very happy with Fisher and Paykel right now. Nor am I buying another Fisher and Paykel dishwasher to replace it if part of their design is to put cheap plastic into major stress areas such as the door and expect the damn thing to last.
Maybe John Key's dishwasher is a Miele, so hasn't noticed that Fisher and Paykel is cheap crap.
That is the most worrying indicator of all.
Since F&P is such a small company in the global scale of things, and since, therefore, the long term potential market for its products is huge, an obvious competitive advantage would be to build appliances that would last for decades. Robust, enduring quality is essential. Technological gimickry is not. "Buy quality and buy it once" should be the brand.
Twenty-five years ago we bought a Maytag washing machine. It is a solid, well-made, quality piece of equipment. It is going as well today as it did when it was first bought. It has been used daily and often twice a day for decades. We would have bought another (if we ever had to) in an instant. Sometimes we think it will outlast the house. Now that is real product differentiation and competitive advantage.
By the way, the company's brand slogan: "Maytag: built strong to last long." As Harvey Keital would say, "I like that." But there is a kicker to this story. In 2006, Whirlpool bought Maytag out. The brand would is still being used, but it is clipped now onto Whirlpool appliances. The real Maytag is no more--it is apparent that Whirlpool made them an offer they could not refuse, essentially to take a successful competitor out of the market. They indeed did have a real enduring competitive advantage. Whirlpool could not outcompete: in the end it had to pony up with the dinero. We are sure that Maytag shareholders are more than happy.
Maytag lasted 112 years as an independent company.
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