The next wave: Japanese money backs NZ developers

By MICHAEL FOREMAN

Anyone seeking an example of a New Zealand business that is succeeding in the "knowledge economy" need look no further than Allied Telesyn Research in Christchurch.

The company, which designs and develops computer networking equipment for its Japanese owner Allied Telesis KK, is expanding as fast as its work space and recruitment will allow.

When it was bought by Allied Telesis in July it employed fewer than 30 people. It will have expanded to 90 employees by the end of the year, including 15 new graduates.

Allied Telesyn moved to a new 2300 sq m building this month with room for 100 people. Further building work will give it room for another 150 staff by next August. The company expects to have a staff of 200 by then.

Managing director Geoff Peck believes the company is unique in this part of the world.

"There are no other similar network equipment companies in New Zealand and none that we know of in Australia. This type of activity is normally done in Silicon Valley."

The company is making a substantial contribution to the local economy. It will have over $10 million invested in buildings alone, yet it has not asked for any incentives from the Government.

"Unlike the heavily publicised Motorola development, which eventually did not materialise, we have quietly gone about our plans."

Mr Peck says it took six changes of ownership to get this far.

The company dates back to a research group formed in 1982 by the DSIR. This group developed a low-cost network connecting the mainframes at five DSIR sites.

"It may not sound much these days, but this was truly revolutionary at the time. In 1988, the Institute of Electrical and Electronic Engineers described it as one of the 10 most notable networks in the world."

When the DSIR was split in 1992 the group became one of nine crown research institutes. It was sold to Christchurch-based Network Dynamics in 1994.

Network Dynamics, owned by two local entrepreneurs, initially thrived by exporting networking equipment to Australia. It grew to employ 40 people by 1995, but the costs of entering the lucrative European market were difficult to fund locally, and the company became overseas-owned when it was sold to British firm Securicor 3Net in 1995.

Securicor in turn sold the company to United States-based Teltrend in 1998. It was during this time that the relationship with its present owner began.

By this time the operation was purely developmental, as all manufacturing and distribution had been moved overseas. Teltrend was contracted by rapidly growing Japanese manufacturer Allied Telesis KK to develop a low-cost router.

"This development was successful and enabled us to be exposed not only to the incredibly tough Japanese quality systems, but also to be known to and be respected by the Japanese company.

"In recognition of this work, Allied Telesis KK purchased the New Zealand team from Teltrend."

Allied Telesis could be described as a Japanese Cisco. Formed in 1987, it has grown at an average annual rate of 17 per cent for the past five years. Its revenue last year was about $800 million.

It is listed on the Tokyo Stock Exchange. A public offering of its US and European components is planned on the Nasdaq exchange next year.

Mr Peck says the detail of the offering has yet to be decided, but the Christchurch facility will probably be included.

Routers and layered switches are the fastest-growing segment of Allied Telesyn's range of networking equipment. It says a lot about the faith the Japanese company has in the New Zealand operation that it is entirely responsible for the development of this product line.

Mr Peck believes the stability of the New Zealand group is one factor that attracted the Japanese company.

In contrast to Silicon Valley, where an engineer will stay in his or her job for less than a year on average, roughly a quarter of the engineers from the DSIR days are still with the company, and only two graduates have left it in the past two years.

Mr Peck says the firm pays "slightly over the odds" but its salaries are nowhere near competitive by overseas standards.

But this has not stopped a couple of expatriate New Zealanders from showing interest in joining the company in a "reverse brain drain," and several migrants have also been recruited.

He says it is ironic that the company will soon be one of the largest development centres in the country, but its very existence was almost accidental.

"It's only while we have been foreign-owned that the business has taken off.

"When we were Kiwi-owned the significance of what we were doing never seemed to sink in.

"As a New Zealander I am disappointed. We were doing this stuff long before companies like Cisco even existed."