Blood, sweat and knitting

Despite market differences, most transtasman business plans have the dictum 'stick to your knitting' at their core, writes ALAN DEANS.

Ask any Kiwi entrepreneur expanding into Australia about the key to success, and chances are that there will be no clear answer. It is not modesty, secrecy or even ignorance that clouds the issue. Rather - it is all too obvious to state - something so inured in their psyche that it is almost taken for granted.

Sure, CER helps by setting an open trading and investment framework with rules that are reliable. That foundation is rarely won and highly prized. But the true answer lies in simply being focused. It is a fundamental business dictum that successful enterprises stick to their knitting, and that lies at the core of most transtasman business plans.

Fisher & Paykel had been exporting whitegoods to Australia from their New Zealand factories for many years before 1991, when they opened their first plant in Queensland. Well-known brands like Kelvinator, GE and Frigidaire had sat in Aussie kitchens without people knowing where they were made.

"We knew a lot about the market," explained managing director John Bongard. "We had already exported one million units before entering under our own name." Even so, Bongard admits that the move has been a lot of hard work.

F&P's own products, of course, are known for being different. Machines like the Smart Drive washer and two-drawer dishwasher are innovative, fitting into a niche above the mass market. Nevertheless, the expansion came at a time of deep pain for other Australian whitegoods manufacturers, many of which have since closed.

Bongard said that while the product proved to be popular, they had to get good local people and position the brand correctly. "You have to accept that there are differences in the market. You cannot hop across the Tasman and expect to do what you do in New Zealand." F&P had to establish solid relationships, and come to grips with unfamiliar terms of sale. More than a decade later, however, and the group wrings 50 per cent of its sales from the 20 per cent share it holds of the Australian market.

Lion Nathan has been equally as successful, but its path was different. It didn't go through the process of painstakingly building a business from scratch. When former America's Cup hero Alan Bond was going broke in the late 1980s, he turned to Lion for help. After careful due diligence, the Auckland brewer bought Bond Corporation's Castlemaine, Toohey's and Swan beer interests and in one move became Australia's second-largest brewer.

Others, such as Air New Zealand, have failed at such bold, highly leveraged plays. But Lion had the benefit of knowing exactly what it was buying, and its cashflows were more stable. It has taken years to shore up market share and to extract operating efficiencies, but the venture secured Lion's survival at a time when executives believed that it was vulnerable to foreign takeover.

Another truly opportunistic investor is Graeme Hart, who bought into the embattled Burns Philp during the mid-90s. Widely regarded at the time as being on the brink of collapse after rapid expansion in the herbs and spices business and the failure of its financial trustee offshoot, Burns Philp has been revived and pared back to its core global yeast operation.

Hart did his homework and spotted value that no one else saw, although his was not a risk-free move. Now, he is using Burns Philp to take over a well-known local foods giant, Goodman Fielder, in a highly leveraged play that bets on low interest rates and the stability of food industry cashflows during trying economic times.

Another opportunistic group has been Carter Holt Harvey. It identified Australia, with large forests and building materials operations akin to its own, as a prime spot for diversification after having exported there for a long time. Then it snooped around for bargain buys. It eventually latched on to privatisations in South Australia, and later bought wood products divisions from CSR.

"I am not sure that there are any secrets," said chief operating officer Devon McLean. "We have been pretty happy with our investments. The secret is being well positioned, buying assets that were well priced in relation to their potential earnings." Carter Holt is a market leader in many of its products, and its activities are more profitable than other places because it bought well.

McLean says that home-bred expertise meant Carter Holt had the technical background to know how to operate the assets it bought more effectively. It now derives about one-third of its sales from Australia and half of its profits.

In the six years since Whangarei-based jewellery retailer Michael Hill International opened its first Queensland store, the company has painted its name on 82 sites - nearly double the number it operates at home.

Chief executive officer Mike Parsell describes conditions in Australia as "very competitive. It is very price-sensitive, and there are a lot of players." Cut-throat though the sector has been in past years, price wars have eased and major players are reporting increased profits. Michael Hill aims to expand to about 130 stores during the next five to seven years.

Parsell says they simply transplanted their New Zealand formula into Australia. "It has all come about through sheer perseverance. By learning about the market there, and adapting to it."

* Alan Deans writes for the Bulletin.

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