Tidal wave of success may be killer

By SELWYN PARKER

Beware the gusher! That's the advice of researchers from Victoria University, Wellington, in World Famous in New Zealand, a study of how 12 New Zealand-born companies managed their way to global competitiveness.

As in an oil strike, the gusher is the big success which can perversely ruin a company, say the researchers.

The gusher happens when a breakthrough product cracks a big market and precipitates three or four years of sales that double and re-double every year, but also subjects the company to serious strain.

"It's like being in the middle of the Pacific Ocean," recalls the chief executive of one of the 12 companies studied, which included Tait Electronics, Gallagher Group and Formway Furniture.

"You're out there on a surfboard and what's coming behind you is a great big tidal wave."

There is no manual to tell managers how to handle orders which may be 20 times bigger than anything the company has ever had before, and with a value representing several years of total normal revenue.

So what to do? In this case, management swallowed hard and just said, "Yes, we'll do it."

Although every able-bodied employee was put on the job, the products were delivered a year late, which would normally be disastrous.

"[The company's] entire international reputation hung in the balance for a while," says the university's Colin Campbell-Hunt, co-author of the study.

This time, the company was lucky. It was saved by the uniqueness of its product. Some firms which were studied for World Famous in New Zealand, but not included in the final version, never quite rode the wave to shore. They lacked the essential "coherence," the integration of all-round capabilities, that the authors say underpins sustained high performance - and got dumped by the wave.

For example, a company became the victim of a brilliant marketing plan in Australia that sold its product, a branded consumer durable, all too well.

Demand was so great that the firm could not meet it. Eventually, poorer but wiser, it had to close down its manufacturing operations.

Six of the firms in the study are worldwide leaders in their field, selling to 50 or 60 countries.

On average, 95 per cent of their trade is overseas.

"By comparison with exporting companies in, say, America, the domestic base of these companies is tiny," says Mr Campbell-Hunt.

Interestingly, seven of them are still privately owned - which might gIve the New Zealand Stock Exchange food for thought.

The report, a valuable contribution to the export crusade, raises some challenging issues for venture capitalists, bankers, management theorists and Prime Minister Helen Clark.

It argues that the flexible work practices which flourished under the Employment Contracts Act have been an important ingredient in the success of the 12 companies.

"Current revisions to New Zealand's labour law should be sensitive to the strategic importance of these practices," the authors say.

All 12 companies had "exceptional leadership," especially in the vital early years.

The founders stayed at the helm for at least 10 crucial, culture-shaping years and worked like steam engines.

The firms did not do things by the book; rather they wrote their own manual as they adjusted (often furiously) to circumstances.

"These companies have gone global in ways quite different from the stages model of internationalisation developed from European and US experience," the report says.

For example, they still do most of their manufacturing at home, even after decades in some markets. The foreign ownership route to global expansion has had mixed success, partly because overseas parents want to run the businesses their way.

Venture capital from the late and much-maligned DFC Corporation gave several of the 12 a vital leg up, as did protective tariff barriers.

Although the study recognises that the clock cannot be turned back, it raises the issue of some form of government support.

"Countries like Ireland and Germany provide all sorts of assistance," Mr Campbell-Hunt says. "Even America is much more interventionist than we are."

The authors regret the likely loss, in today's much more open markets, of the peculiarly Kiwi character of these firms and especially their adaptability. Having mastered multiple technologies "within a rugged competitive landscape," they are often more flexible than bigger, global competitors.

But while being quintessentially Kiwi, the companies are unusually outward-looking.

Next, the authors plan to study a later era of companies, those born in the fires of deregulation in the post-1980s and in the age of the internet.

Is that another tidal wave approaching?

* Selwyn Parker is available at wordz@xtra.co.nz