Business without boundaries

DavyMarkham and Richard Edward may sound like a music hall double act but, other than in two respects, a manufacturing chasm separates this pair. Neither makes hinges or brackets, but both sing the praises of selling their wares abroad. And both had little choice because, not long ago, both were on their knees. Not that exports were anything new for Sheffield- based DavyMarkham, a proper Northern company engaged in the heaviest of heavy engineering. The 170-year-old engineer has been exporting for the best part of that time. Some 80% of its products are directly exported; add a bit more that indirectly finds its way on to foreign soil and the total is closer to 90% with volume pretty much matched by the percentage of revenue it brings in. "Exporting is what we're all about," says managing director Kevin Parkin. For instance, it's part of a consortium bidding for the construction of the main reactor vacuum vessel of the Û5 billion ITER (International Tokamak Experimental Reactor) nuclear fusion reactor, being built in Cadarache, France. Its place at the table is as a specialist in the fabrication and machining of large structures, sitting alongside precision fabricator Metalcraft with the engineering consultancy AMEC and The Welding Institute providing specialist support. One of the world's largest international co-operative R&D projects, ITER will demonstrate the integrated physics and engineering needed for a fusion power station and is expected to produce 500MW of power. It will be at least twice the linear dimensions and 16 times the mass of the Joint European Torus (JET) reactor vessel in Oxfordshire, currently the world's largest fusion reactor. "ITER represents an exciting business opportunity for ourselves and the rest of UK engineering," says ParkinMiles away to the south and a world away from heavy engineering is London-based Richard Edward. A family-run business born in 1976 as a straightforward 'B1' printing house, it ran into problems in the late 1990s losing £1million. By 2002, Richard Edward had recovered its position and was back in profit. Diversification into making games cards and playing cards and a holistic business improvement plan helped the turnaround.Now, says marketing director Louisa Moger, the cards and games business is a profit centre in its own right. "It's fantastic for us because we're the only wholly-owned UK company with the ability to produce games cards and playing cards." She says it's a very specialised business that requires technical ability and an in-depth understanding of many segments – the needs and wants of a games company, for example, will be very different to those of a casino.Moger says that if a client had taken business off to, say, China six years ago, Richard Edwards would have not been able to compete. But things have changed. "There have been rising costs, closures and fluctuation in the exchange rate, and when you look at the whole cost of producing in China – the effect on cash flow of having to pay as soon as [consignments] leave the shore, reliability of supply, and so on – the whole cost is starting to creep up," she says. "Above and beyond that, particularly in the games market, last year was fraught with all sorts of negative PR around product recalls. There have been question marks about things like ethical conduct and we're noticing more and more that big brand game companies undertake social and ethical audits. A £5 t-shirt you're wearing doesn't feel so clever when you see television pictures of the young Indian child who's been making it." Moger also points to her company's environmental credentials. UK production reduces impact in terms of carbon emissions; it's an FSC (Forest Stewardship Council) accredited business buying paper stock for its products from Scotland; and it uses recycled materials. As part of its business improvement plan, Richard Edwards worked with the University of Greenwich on an export strategy, engaged with UKTI, is on the Passport to Export programme and, for the last two years, has exhibited at the international toy fair. "It's been about understanding which markets we can serve," says Moger, "and which companies can deliver the right price point for us and for them. Europe is our main thing but we're doing an awful lot of exports to the eastern European countries. In Russia particularly, there's a burgeoning market in the toy and game sector." Exports from Richard Edwards have crept up from around 5% of its business to 15% and growing. Moger admits that the company underestimated the time it would take to build credibility and profile in its new market because customers are concerned about the risk associated with moving suppliers. Now, 50% of its business is in the cards market. It already provides the cards for Top Trumps, Star Wars, Monopoly, Cluedo and Scooby-Doo, and the aim is to drive for more. In commercial print Richard Edwards has about 10,000 UK competitors; in the cards business globally, there's only one main rival. "A Belgian company that really had world domination – they don't like us very much." Back in the north, DavyMarkham MD Kevin Parkin also has few rivals and also had to win customer confidence. Parkin and finance director Duncan Hay joined the company three years ago when it was on its knees. "It was losing huge amounts of money and we were brought in, either to do something with the business or close it," he says. "We did the usual turnaround activities like getting the cost structure understood, concentrating on working capital controls and talking to customers about giving them what they wanted." That meant increasing prices; something, it turned out, that customers had been expecting it to do for the last 10 years. While DavyMarkham does face competition from low-cost countries and respects the engineering capabilities in the Far East, it has been picking up business. "We've a very big thing about being made in Sheffield and we're very proud of that," Parkin says. "We hear some horrific stories from people who've had components made or work done in China which was great to start with and slowly deteriorated in service, performance and quality, such that they've had to come back to Europe. On pricing, Parkin refuses to play the currency markets. "We will accept a premium in the price so that we don't have to cover currency or speculate on it," he explains. "We're not currency dealers or speculators." In other companies, he and Duncan Hay have seen massive swings in profitability in both directions through clever FDs trying to speculate, "so we have a rule in house that everything is done in sterling. Over the kind of 18-month contracts that we have, currency moves quite substantially and anyone who can tell us what's going to happen next week, never mind in 18 months time is a better man than me." One such long-term contract – due for delivery in the summer of 2010 – is a $20 million order for mining hoists and associated electrical drives and controls, by gold producer IAMGOLD Corporation of Toronto, Canada. The contract includes the largest double drum hoist supplied to North America in recent times. The hoists, which will be interfaced with control equipment from ABB, are being manufactured in Sheffield where DavyMarkham has 200 staff; 100 on the shopfloor, 20% of whom are apprentices. "That's the other big headline," Parkin says. "The relationship with the workforce, the work we were doing with Unite the union and how close the workforce are to the management – it's quite unusual really, even today." Looking across the wider manufacturing economy, Parkin believes that a number of companies have failed through concentrating on too narrow a market segment. Successful companies, now and in the future are, he believes, those that spread their portfolio over a number of industry sectors. Such diversification is also regarded as an important ingredient for international trade success by Graeme Allinson, head of manufacturing at Barclays, a bank which, coincidentally, Parkin holds in high regard for its "not just financial but moral support". As well as standing up for both product and geographic diversification, particularly with the current additional benefit of an advantageous exchange rate, Allinson pushes the idea of international trading a degree further. "We work in a world where there exists an increasing risk of protectionism, particularly in the US," he says. "If you start building up an understanding of foreign markets, if you start selling your stuff, exporting to America, building an understanding of American markets, absorbing the culture, your next step might be to buy something American." It's the sort of action, he suggests, that has the potential to protect against protectionism itself.