Rivalry drives group to niche success

Ashton Group is all too rare a success story among New Zealand manufacturers. The Hamilton-based process engineer and maker of packaging equipment has achieved four things many others have not:

* It used one of the country's few large-scale industries (dairying) to build first a service and then a manufacturing customer base.

* It applied lessons learned in its demanding core business (making machines for packing milk powder) to start to capture other markets (machines for packing fine chemicals for US companies).

* It spends more than 10 per cent of its sales on research and development.

* It made the transition from entrepreneurial to professional management without losing its flair for innovation.

But Tom Ashton, its founder and managing director, has no illusions about the hard road ahead given his international competition.

"If it comes down to a straight drag race in cost cutting and productivity, the big boys will win. They have the horsepower." The company's counter-strategy is to focus intently on innovation and niche products.

The issue came to a crunch some three years ago.
Ashton's annual sales had grown to some $100 million, but profits began to suffer as foreign competitors caught up with its products.

"We were taking on larger and larger jobs, each with more risk and less profits."

In response, Ashton reorganised with help from consultants KPMG into a manufacturing side run by a chief executive and an innovation arm run by Mr Ashton.

The two sides, very different in culture, work closely together. The innovators hunted around Ashton's customers for manufacturing problems to solve. The result was four big development projects for new niche products with leading technology. By design, sales have fallen sharply but profits have soared as it switches from commodity to specialist products.

Customers pay $1 million for a typical piece of Ashton packaging equipment. Yet in a strict sense it is not a manufacturer. Its strengths lie in deep knowledge of the products its machinery handles, in design and engineering and electronics for controls. It is an assembler of components made to its specifications by subcontractors.

New Zealand's engineering infrastructure is "very good but not very large," Mr Ashton says.

He says he's tackling foreign competition with one hand tied behind his back. He has lost a few orders in New Zealand to Australian companies benefiting from government subsidies.

His exports are also disadvantaged by the lack of Government-backed export finance.