Dyson: Martin McCourt
The man behind the vaccuum cleaner company's international expansion
James Dyson paid himself well last year. When your company posts pre-tax profits 32% greater than the year before, when its export sales are up 44%, turnover has risen £71m in one year and your product is number one in its market in America, Japan, Ireland, Spain, Belgium, Switzerland, Australia and here in the UK, you’ve made the Premiership and you can afford to do that.
So, what was behind the staggering upturn in Dyson’s fortunes? Globalisation – and the company’s ability to hit previously impossible production levels. That’s the verdict of Dyson CEO Martin McCourt, who spoke at Growing Business magazine’s Growth Strategies Conference about the secrets of the business’ expansion, the impact of the changing world and the emergence of the Far East.
Reining in expansion plans
The past six years have borne witness to some fundamental changes affecting businesses the world over. Back at the dawn of the new millennium, Dyson was faced with a conundrum familiar to many fast-growth companies. It had reached capacity and was reluctantly having to rein in expansion while setting up small production lines in Birmingham to cope with demand – a very inefficient way to manufacture. “We’d got to a point by 1999 and the early part of 2000 where we couldn’t produce one more vacuum cleaner out of our factory in Malmesbury. We were manufacturing just short of 1.5m units a year and were working 24 hours a day, seven days a week. We’d literally run out of space,” recalls McCourt.
Initially the company looked into expanding the site in Malmesbury but was met with a firm ‘no’ from the local authorities. The fear was that the small, already Dyson-dominated West Country market town would lose all its identity.
With the US market opening up for the business – subject to legal wranglings with rival Hoover – plans for a major product launch in Japan, as well as major expansion across continental Europe and increased R&D activities, a solution was needed, fast.
Risking the wrath of the press and local population alike, McCourt and his team started considering alternatives, namely off-shoring, something more and more businesses were beginning to turn to. Any company entwined with its locality, and with a reasonably high profile, will recognise it was not a decision to be taken lightly. But it was hard to ignore the advantages, says McCourt. “If we were to move to a lower-cost production line but also one where there was no limit to our capacity, we could solve two significant problems in one go.” The increased production would help fuel all the planned investments.
In addition, many of the company’s suppliers had shifted their own production to the Far East. Components were being dragged back to Malmesbury only to see the finished product return to that part of the world. “The economics were working badly for us and it was too compelling an argument to resist.”
Taking the Far East option
James Dyson consented to the proposition and McCourt set about exploring the company’s over-sea options,takinganumberofmonthstocarryoptions, taking a number of months to carry out due diligence. Malaysia appeared a strong early candidate, but other parts of the world, and not exclusively the Far East, were evaluated nonetheless.
Crucial factors in eventually opting for Malaysia were the positive early dealings with its government, as well as the pre-existing infrastructure and the fact that English was not a major barrier. On the government side, McCourt’s team familiarised themselves with how various departments worked, ensuring there wouldn’t be trouble organising visas for staff posted to Malaysia. “It was also important to understand how their finances worked in order to respect the local finance and tax regimes. These things are all really important and we haven’t fallen foul,” he says.
On the infrastructure side, Japanese electronics companies and HP had been active in the area, leaving behind a high-quality, reliable manufacturing base. “A lot of these guys had already begun to evacuate and were off to China, so we were able to take up some of the production capacity,” says McCourt.
Red tape has proved relatively light, too. While, inevitably, there’s a level of bureaucracy, the company has been able to expand efficiently, opening new factories within a six-month timescale. It started with two main factories in Johor Bahru, quickly grew to three and now stands at five, albeit including the Dyson Digital Motor Factory, which is in neighbouring Singapore.
Malaysia continues to be competitive, although McCourt keeps a watching brief on China, India and Vietnam, in particular. “A lot of effort is being made to ensure it continues to drive efficiencies and drive cost out of the process and manage the supply chains better.”
Designing the manufacturing process and shipping out equipment and moulding tools took time, which is why working with a strong partner was crucial. “We worked together to meet all the quality controls. But what we knew was that we were going to be working with people who understood the role quality has in manufacturing. The quality and reliability of our products has actually increased considerably.”
He’s also quick to add that conditions for the factory workers were high on the agenda. “Far from being sweat shops, our factories are bright, airy, air conditioned, with nicely painted floors, and very clean,” assures McCourt. “All our workers are immaculately dressed and turned out. They don’t work ridiculous hours and are paid above-average for the area.”
Where extreme heat was generated by the moulding processes, Dyson removed the manual element, creating robots to pluck components from the presses and place them on conveyor belts, which pass through glass windows to sitting operators.
Any ethical employer would do the same, particularly when you consider the importance of public image. “We were conscious when investigating options in the Far East that we didn’t want to be associated with any manufacturing that had those connotations to it,” adds McCourt, who applied himself assiduously to the task.
Throughout the set-up phase he was visiting sites for a minimum of a week every month, often longer, and he, James Dyson, and other senior managers still spend considerable time in Malaysia each year. It’s not because the company is Dyson and a global brand, it’s because McCourt and Dyson are fearful of becoming an organisation where the “aloof guys are up there running the business from a distance”.
Dealing with UK employees
Domestically, McCourt was just as concerned about the impact the decision would have on employMartin ees and general morale, where it was reported that more than 600 workers were to lose their jobs. The aim was to achieve “a very orderly, professional and caring cessation of manufacturing from our UK base…and ensure we did everything we could do to help those workers leaving us or to make sure they secured jobs elsewhere in the area or with us”.
Predictably, the press seized on the decision and the number of manufacturing jobs that were being laid off. “There was a big reaction to it because people couldn’t really understand at the time what it was we were trying to do. We did say at the time, but it gets lost in all the noise,” says McCourt, who clearly still resents some of the coverage and the implication that Dyson was letting UK manufacturing down.
Dyson, himself, was particularly stung by the criticism. “He used to walk that factory floor and knew the majority of his workers on first name terms. He’d set the business up from grassroots. It was a major decision but one that we were forced to make.”
What didn’t make the press in any detail was that 505 workers were re-assigned within Dyson. The company also set up a task force with local authorities, councils, manpower services commission and employee bodies. And it offered interview and job application workshops. “It was all there if they chose to use it,” says McCourt.
The business effect
Most companies will inevitably experience some teething problems when pursuing such an undertaking. The transfer itself bore witness to the odd headache, such as cargo going missing, but given the large-scale transfer of tools, equipment and engineering drawings, McCourt claims it was remarkably smooth.
The company now has around 160 workers in Malaysia and, overall, it’s been an unqualified success, he says. “Frankly, I’d be quite dramatic about it and say that Dyson wouldn’t be anywhere near where it is today had we not made that judgement call.” The US market opened up in timely fashion, too, with Dyson getting its rights for North America back from the Toronto Courts in December 2001. It launched there in October 2002, just as the transfer completed.
Japan, too, has rocketed. The company spent seven years and a good part of $20m researching and developing a more powerful and smaller product, the DC12, specifically for that market. “We shifted 200,000 vacuum cleaners in Japan last year. Western domestic companies don’t usually do that. And we made money – and they don’t usually do that either.”
McCourt estimates that Dyson now has around twice as many products as it had pre-transfer, all funded by earnings in the US and the other 39 countries it trades in. “Everything has doubled since that time – volumes (3m units), revenue, profits (more than doubled). So all the key factors in the business have responded brilliantly. Before the move, less than a third of our business came from overseas; now it’s two-thirds. We’re also holding the one or two slots in the majority of markets we’re in, including America. It was obviously regrettable we had to take that decision, but it has propelled us onto the world stage.”
Focus: Domestic appliances innovator
Founder: James Dyson
CEO: Martin McCourt