diesel_max

JCB PROVES BRITISH MANUFACTURERS CAN WIN ON THE WORLD STAGE.

World market share rises from 9.6% to 10.4%. What's the secret?

It has become an established mantra in the press and financial markets that manufacturing is 'old fashioned', best left to developing countries or Japan/Germany, which are stuck in a time warp. The future, assert the pundits, lies with services and the financial markets.
In Britain, this has become a self-fulfilling prophecy. British manufacturers, especially the bigger ones, have crumbled in the face of foreign competition or been sold abroad.
See Decline, Full Description
So it is surprising to find that JCB, which mainly manufactures boring old construction and earth-moving equipment, has invested over £120 million over three years in new factories in Germany, China and India. Says JCB CEO John Paterson: "The investment in manufacturing capacity has been one of the drivers of our growth along with innovation, the continuous development of new products and a strategy of increasing our focus on emerging markets where the potential for growth is enormous".

The impressive facts about JCB

• Sales growth from £1.42 billion to £1.75 billion
• Profits increase 35% to £149 million
• 17 factories in UK, Brazil, North America, India, China, and Germany
• Nearly 8000 employees world-wide
• 550 dealers
• In the world top three of construction materials manufacturers.

JCB's range of products include the familiar diggers and construction machines, engines, power-packs, generators, insurance, finance - and Dieselmax, the world's fastest diesel-powered car, holder of the world record at just over 350 mph. Who says manufacturing is boring?

What is different about JCB? Why does JCB thrive when so many British manufacturers have failed?

It is by now a commonly accepted fact that UK quoted companies invest less in R&D, innovation and capital equipment than their international competitors. By comparison, they return more to their investors and pay their managers continuously burgeoning compensation which is not connected to real performance. As a consequence, there are few technology or manufacturing companies left in the FTSE 100. Rolls Royce is one of the few high quality UK manufacturers in the top index of companies. BAe Systems is another, but has rather blighted its prospects by involvement in dubious deals with some Arab states and a questionable strategy of putting many of its eggs in the US defence industry, whilst selling out of Airbus, which has placed thousands of highly skilled jobs at risk.

The clues to JCB's success - in it's own words

The following is taken from the JCB website:

The question: 'How many global brands are still run as a family business?' The dictionary definition: JCB n. Trademark. A type of construction machine with a hydraulically operated shovel on the front and an excavator arm on the back (named from the initials of Joseph Cyril Bamford, its English manufacturer).

JCB is a unique company where unique people produce unique products, but it shares one vitally important characteristic with many other successful global brands. It never stands still. JCB may have an exciting future because of its illustrious past but it never takes anything for granted. It is constantly seeking new horizons.

Today's successful businesses satisfy the needs of their customers. Tomorrow's successful brands have to exceed their customers' expectations. JCB is always looking for a better way. It is always prepared to go that extra mile, always determined to do whatever it can to help its customers to do a better job.

The real JCB difference is that it is a global operation that is run like a family business. It retains a sense of family and continuity within a highly sophisticated corporate structure. It is still family owned with no outside shareholders.

In the final analysis, JCB isn't about machines. It's about people. People who believe in the business, and in the product. People who consider themselves to be part of the JCB family.

JCB is a company with a basic belief in the merits of hard work. At the core of this modern manufacturing giant is an old-fashioned work ethic. Nobody works harder on behalf of their customers. Nobody tries harder to improve their products and their service. JCB people believe their products are the best but they still want them to be better. That's why JCB is unique.

The vital difference

JCB has managed to create a powerful alignment of interest between the Bamford family, its employees and its customers. This benign relationship is not contaminated by distant external investors, with their own agendas that inevitably have little to do with the long-term well-being of the business.
Thus JCB can be single-minded in its focus on product, innovation, customers and people and invest heavily in modern facilities and keeping at the forefront of technology.
Publicly quoted companies cannot do this - it is almost inevitable that at some time the objectives of institutional investors to maximise their returns and companies' best long-term interests will conflict. The carnage of the FTSE 100 over the last 20 years demonstrates this clearly.
See The City doesn't like investing in technology, The City Section, and FTSE 100

Institutional Investors are a source of competitive disadvantage

Family companies account for about 60% of UK firms - other configurations such as Partnerships and Not-for-Profit social enterprises account for a substantial additional slice. US research indicates that the performance of family companies is significantly better than quoted ones.
It is probable that the ability of family businesses to focus for the long term on the core of the business and its people lies at the roots of their good performance.
The presence of a significant institutional equity holding opens companies to a continual barrage of comment from investors, analysts and the media. One chief executive described the effect as akin to being followed by a "poisonous swarm" of insects. Many boards do not the fortitude to resist such pressures, despite the fact that much of it will be based on investors' portfolio concerns and ignorance. Following up behind will be the tender attentions of Hedge Funds, gambling on short-term share price movements, arbitrageurs, hoping for takeovers or break-ups, pressures from investment bankers', producing and selling 'ideas' for mergers, acquisitions, spin-offs and break-ups. And lurking in the background, there are always Private Equity investors looking to extract value by complex financial engineering schemes.
Of course, all companies need sensible strategies to ensure that they are financed in the most efficient manner, but they do not need financial engineering solutions driven solely by the needs of external investors and bankers. These people have nothing at all to do with the core business, nor do they know or care about it. Proper engineering, rather than financial engineering should be the watchword, and this is where dedicated companies like JCB win every time.
Family businesses can have their own problems - it takes a lot of effort and skill to succeed down the generations, and of course it goes without saying that any management needs to be committed, competent and to know their business. But when they get it right, they are a far superior model of enterprise than the classical publicly quoted company.
We need more diversity of enterprises to compensate for the quoted sector and its new offshoot, private equity, which now represent an out-of-date route to secular decline and competitive failure.