When asked to identify good quality hi-fi brands, most Britishers are likely to pick mass-market Japanese brands such as Sony or Panasonic. It would be news to them that British hi-fi brands are at the top of the tree when it comes to audiophile cognoscenti around the world. One company that has taken advantage of the high standing of British brands in international markets is Audio Partnership, a medium-sized British electronics firm that is attempting to exploit globalisation’s opportunities in its march for growth. M Institute co-founder Jyoti Banerjee investigates.
It was in the 1990s that Audio Partnership realised that although British hi-fi companies were being beaten by the Far East when it came to low-cost manufacture, their reputation was built largely on good design and excellent sound quality. The company took over struggling British brands such as Cambridge Audio and Mordaunt-Short, strengthened their design prowess but outsourced all manufacturing to China – possibly the first Western audio company to do so. Plus, they built strong marketing campaigns that enabled them to sell these British-designed products across the world.
Today the company reports annual revenues in the region of £25 million with 60 employees in the UK and a number of strong relationships with Chinese electronics manufacturers. Although the audio market world-wide is in steady-state mode – it is flat screen TVs and iPods that are the growth engines in consumer electronics – Audio Partnership is still able to grow at a consistent rate because of market concentration in traditional audio markets where its combination of British design and Chinese manufacture is proving to be a winner, and because of entry into new international markets, where traditional British audio companies never trod.
Strategic intent
Audio Partnership may never analyse its strategic posture in quite this way, but I think it is reasonable to think of the company’s development in terms of globalisation. Of course, globalisation is something that seems to have passed most medium-sized enterprises in the UK. Yet Audio Partnership’s story is one that shows how globalisation can be taken advantage of, no matter how large or small a company. In strategic terms, Audio Partnership analysed its strengths and weaknesses, and concentrated on creating further competitive advantage in the area of its strengths (British design and branding) but chose to go to a network of suppliers / partners that had strengths in the areas that the company was weak in, namely low-cost, reliable manufacture.
Of course, the situation is a dynamic one. Over the past ten years, almost all other Western audio suppliers have had to follow Audio Partnership in sourcing products in the Far East, eroding the company’s cost advantage. At the same time, China’s own hi-fi brands, such as Shanling and Eastern Electric, are gaining maturity in world markets. Plus, Japanese giants such as Pioneer, Marantz and Denon are returning to the audio market after a decade of concentrating on video-based surround sound systems, as profit margins are low in those hyper-growth markets. And a Chinese company called IAG has grown to double the size of Audio Partnership by vertically integrating British brands such as Quad and Mission to IAG's own factories in China.
Looking ahead
What can Audio Partnership do next? Here are some possibilities.
One, good business practice in globalisation starts with effective outsourcing, but progresses to strong partnerships where buyer and supplier sharpen each other by creating new sources of dynamic advantage across their networks. Audio Partnership needs to learning from its Chinese partners and vice versa, so that the effective strength of the network is leveraged on both sides. The company is now learning how to design for manufacturability, but as yet the movement of information between it and its Chinese partners is not yet a two-way flow, something that very few Western companies have achieved as yet – or want to achieve!
Two, globalisation puts a microscope to the working of business processes in an organisation, traditionally an area where medium organisations are still finding their way. Already, Audio Partnership has started integrating its ERP systems in the UK and in China but the drive towards greater integration in forward planning, visibility of the manufacturing cycle, greater vertical integration with partners, and stronger customer relationship management are all areas that medium businesses like Audio Partnership are figuring out.
Three, the real drive towards the flat world has come from the way the Internet has created direct relationships between the seller and the buyer. Traditionally, audio gear has been sold by a network of dealers that are taken care of by international distributors. Has the time come for companies like Audio Partnership to build direct digital relationships with their customers, even though dealers may still be involved in the relationship in terms of fulfilment and support? The audio market has been too dependent on dealers for too long. Audio companies need to learn the power of brand marketing. No Porsche or Lexus or Ferrari buyer is seeking to become a customer of a local car dealership – they want to own the brand that delivers the product they are seeking. Yet, in audio markets, dealers often hold immense power. No wonder those markets are struggling to hold their own in a world that has gone brand-crazy.
Four, the worlds of audio, video, computing, wireless and mobile are all converging together. Every company involved in one of those streams has to learn about the other streams. And the only way to do that is in good flat-world mode: partner with others who have skills in areas that you don't. Audio Partnership will need to learn new skills from others, even while it brings domain expertise in audio to others in the convergence market.
Audio Partnership is the case study at M Institute’s forthcoming globalisation seminar – I, for one, am keenly awaiting the talk by Stuart George, finance director of Audio Partnership, to understand the decision-making process that went on inside the company, and to hear about his perceptions of the challenges lying ahead.
Comments