Innovation drives growth for exporters to emerging economies

August 19, 2013 12:03 am

Innovation drives growth for exporters to emerging economies

By Mark Wembridge

In the battle to attract customers in emerging markets and compete with lower-cost economies, British manufacturers have discovered that brains trump brawn. Unable to compete with commoditised goods churned out in cut-price countries, new research shows that UK manufacturers are increasingly targeting innovative niche products which can be exported to emerging economies. According to a study published on Monday by the EEF manufacturers’ association, 71 per cent of British businesses polled said they were planning to use innovative ideas and services to bolster their revenues – up from 54 per cent three years ago.“The rocky recovery that we’ve seen over the past few years has meant that manufacturers have focused on process innovation – taking out costs and delivering items quicker and at a higher quality,” said Felicity Burch, an economist at the EEF, which conducted the poll with NatWest.

By focusing on specialised products and targeting global markets for the bulk of their sales, niche UK manufacturers have managed to thrive amid the economic downturn.

“We are constantly looking to derive at least 25 per cent of everything that we sell from a patented product or a niche field,” said Jim Griffin, managing director of Automotive Insulations, a maker of sound absorption technology for cars. The Rugby-based company has grown its annual UK revenues from £5m to £12m between 2011 and 2013 on the back of the influx of investment into British carmakers.

“For R&D, we are spending in excess of 10 per cent of our annual revenues. But we have to spend that much, because we are going through a change from being an old-fashioned business to something more modern,” said Mr Griffin.

The importance of R&D was highlighted last week in data from HM Revenue & Customs showing a near 50 per cent increase among small and medium-sized enterprises in the uptake of the government’s R&D tax credit between 2008-9 and 2011-12.

The EEF poll of 150 companies also shows that British manufacturers are similarly drawn to high growth opportunities in emerging markets – something also borne out in the latest HMRC statistics. UK trade with non-EU countries rose 4.5 per cent from May to June, to £13.4bn, while trade with EU countries fell by a similar amount to £12.4bn.

Furthermore, almost two-thirds of businesses that responded to the EEF poll said they were collaborating with research institutions, such as universities – up from 44 per cent three years ago. However, the emphasis on innovation and R&D has knock-on effects.

Legrand, the French-owned maker of electrical switches and sockets that has UK operations in Birmingham, has seen the life cycle of its items shrink from two decades in the mid-20th century to five to 10 years today, as heightened competition and consumer demand drives innovation for products that supersede older models.

 

Innovators bank on R&D to boost sales: case studies

 

Johnson Matthey

After starting out almost 200 years ago as a small gold assayer, Johnson Matthey has evolved into a world leader in vehicle emissions controls.

The FTSE 100 company is the world’s biggest maker of vehicle catalytic converters, though it does not create the ceramic or metal bases of the converters; it simply applies a high-tech coating of precious metals such as platinum, palladium and rhodium.

The chemicals specialist spends more than 5 per cent of its £2.7bn annual revenues on research and development, while about 1,300 employees – 12 per cent of its 11,000 total staff – work in R&D.

“All the science is in the washcoat,” says Neil Carson, Johnson Matthey chief executive. “Once a new car is on the road, its catalyst is three to five years old, and by that time you’ve got to have developed a better one. So we have a pipeline of technology leading up to that point.”

Its scientific research is augmented by R&D collaborations with several British universities including Manchester, Cardiff and Warwick. To cope with a collapse in continental European vehicle sales – which last year fell to levels last seen in 1995 – Johnson Matthey has branched out into emerging markets such as India and Latin America.

Elekta

From its UK base in Crawley, Elekta, a specialist in image guided radio surgery and radiation therapy, produces medical devices used by hospitals for the treatment of tumours found in the prostate, lung, head and neck.

By utilising strips of tungsten, industrial rubies and infra-red cameras, the Versa HD is able to direct the beam of radiation to the shape of the tumour much more accurately than previous devices – minimising the damage to the surrounding healthy tissue.

“We can also increase the dose rate [of radiation], cutting the number of treatments for patients,” says Dee Mathieson, senior vice-president of Elekta’s oncology division.

“This is a great benefit for the patient, and has an impact on healthcare costs.”

Developed in co-operation with St James’s University Hospital in Leeds, Elekta spends 10 per cent of its revenues on R&D, and the Crawley operation exports 95 per cent of its sales abroad. Roughly one-third of sales originate from emerging markets such as the leading “Bric” economies and eastern European nations.

The company’s devices range in price from £1m to £3m, and more than 3,000 medical treatment units have been produced at the Crawley plant since 1985.

Sigmatex

Sigmatex, the privately owned British company, utilises high-tech looms to weave carbon fibre into fabrics that can be found in commercial aircraft, US navy vessels and Formula One cars.

Through intensive research and development, the Cheshire-based group has also branched out into 3D weaving of carbon fibre, creating intricate three-dimensional shapes “with some incredibly complex geometries”, according to Chris McHugh, Sigmatex’s R&D technical director.

Such materials are commonly used by the aerospace industry, where higher fuel costs have prompted aircraft makers to seek out ways to lighten their jets. “Collaboration is the key to what we do, and we work closely with our customers as well as developing products with them,” said Mr McHugh, adding that the company had a research project with the University of Manchester.

Sigmatex, which also has operations in the US and China, earned roughly one-third of its £33m turnover last year from overseas sales.

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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