Business Finance
Tait Electronics Limited International Business Questions

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- What is the history of the company and how did it grow internationally?
- What methods did the company use to enter foreign markets?
- What worked and did not work?
- How does this case apply to what we have discussed in class so far?
- What are the lessons learned that could be applied to your group project?

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TAIT ELECTRONICS LIMITED This case history was written by Ken McCarthy as part of the CANZ Research Programme at Victoria University The programme is funded by the PGSF under contract VIC806 July 2000 CANZ – Competitive Advantage New Zealand a PGSF-funded research programme at Victoria University School of Business and Public Management P.O. Box 600, Wellington, New Zealand http://www.vuw.ac.nz/fca/research/canz "We aren't doing anything extraordinary. We're only demonstrating what can be done. New Zealand lacks believers." Sir Angus Tait 19971. Introduction In June 1999, Angus Tait became a Knight Companion of the New Zealand Order of Merit for services to technology, manufacturing and exporting. He is synonymous with Tait Electronics, the company he has led for 30 years. Although he recently turned 80, Sir Angus remains the Chairman and the public face of the company; however day-to-day management of the company has passed to a Chief Executive. Since 1997 this had been Warren Rickard. Tait Electronics employs around 1,000 people, including 750 in the Christchurch site, a combined design, manufacturing and head office facility. About 90% of the $150+ million sales are exported to over 80 countries. The company spends around 10% 15% of sales on Research and Development, compared to a national average of 1%. Private ownership makes the high level of reinvestment in R & D possible. As a selfconfessed "Technologist", building careers, respected products and a great company are more important to Sir Angus than a bag of gold2. The company is regarded as a model of innovation gained from generous funding for research and development, and has the largest electronics research and development group in Australasia3. Yet despite Tait's success in world markets and the host of awards received, the message that New Zealand can succeed in high-tech and competitive industries like electronics has not really been accepted. The prevailing mindset is that agricultural exports will continue to provide the backbone of New Zealand's economy. "The root cause of failure (in manufacturing) is that in the Beehive we have not had true believers in industry and the role it could have in our economy"4. New Zealand has fallen victim to continually declining prices for its agricultural commodities. During the time that Sir Angus has been making mobile radios, New Zealand has fallen from third, to third to last on OECD rankings of income per head5. What is Mobile Radio? The main purpose of Mobile Radio is to enable communication with fleets of vehicles such as police cars, ambulances, fire engines, taxis and couriers. However applications 1 Technology Scheme Targets Private Sector; David Armstrong. ; The Christchurch Press 02/09/97 P38 2 Adapted from - School Hobby Blooms Into Boom Industry. By Neill Birss.The Christchurch Press 14/07/98 P7 3 Modest Knight Who Neglected His Homework NZPA 7 June 1999 4 Sir Angus Tait as report by Mark Reynolds; Growth is Not A Dirty Word Say Export Leaders; New Zealand Herald 22 April 1999. 5 The Independent 21 July 1999 page 24, Angus Tait - Making Money Wasn't The Objective Of The Exercise. By Rebecca Macfie. 2 RELEASED FOR PUBLICATION JULY 2000 for mobile radio exist wherever dispersed teams of people work on a common task, examples include security staff and oil exploration. In some situations the intended coverage is very limited, such as servicing an airline departure, while at the other end of the spectrum, Tait is supplying a system that will cover the Canadian province of Alberta. This system includes features like one-to-one and group calls, interconnection with the telephone system, messaging and mobile data services. Mobile radio offers a complete communications network on its own, and as such continues to have special attractions in applications where channel integrity and security are important such as fire and police. Mobile radio is used in situations where instant communication is needed, for example in dispatching taxis, police, ambulance and concrete trucks. They are installed in vehicles, worn by individuals and take the form of static base station systems6. Mobile radio is not cellular telephones. In mobile radio the communication is usually one-to-many or many-to-many, whereas in cellular communication the relationship is typically one-to-one. With a signal strength of 25 watts, mobile radio has much greater coverage than cellular phones, which have a three watt maximum. "Other benefits include: the ability to speak to multiple users at the same time; having to push just one button to make a call; the capacity to send text messages to drivers; and an automatic vehicle location function for vehicles fitted with GPS (Global Positioning System) units" 7. Company History To 1968 A.M. Tait Ltd. Angus Tait was fascinated by crystal sets while at school in Oamaru. This led to work as a radio serviceman prior to World War 2. In 1940 he joined the RNZAF, who sent him to Great Britain, where he studied at the RAF radar school in Scotland. He stayed on as an instructor working initially on Radar for coastal command crews hunting Uboats. 8 On his return to Christchurch after the war, Tait eked out a living selling electronic control devices to industry. It barely provided a living, so to make ends meet he worked part-time in a radio shop9. The need for mobile communication was recognised long before it became a reality. Broadcast radio developed before World War 2, however the limitation of one-way communication restricted its commercial application. It is difficult today to imagine just how bulky early mobile radio systems were. The wartime urgency to put radar 6 Tait leads the way in high-tech success; Export News 27 April 1998 Tait throws off Asian torpor, New Zealand Manufacturer, February 1999, p22-23. 8 School Hobby Blooms Into Boom Industry. By Neill Birss.The Christchurch Press 14/07/98 P7 9 Interview, 1998. 7 3 RELEASED FOR PUBLICATION JULY 2000 into aeroplanes spurred the development of smaller radio-technology units, operating at much higher frequencies than had earlier been possible, between 100 and 500 megahertz. Even so the early systems installed by Tait effectively filled up the entire boot of a car - and were thought to be marvels of compact communication. The Post Office considered radio an important part of communications, accordingly they assumed responsibility for the development of a national network of relay stations. In the late 1940s, the Post Office announced the creation of the mobile radio network. This was unusual, as in other countries the Post Office or regulatory authority usually didn't want to get involved, leaving the development of the network to typically under-resourced companies and individuals. "Only the Post Office had the resource to build a network of stations up and down the country because the fledgling industry couldn't"10. Private industry was left to build the radios that would fit in the vehicles. Tait recognised the opportunity. "I really knew nothing about this, but it seemed to me that it might offer some continuity of work"11. Tait’s mobile radios were the first to be made in New Zealand. The pent up demand for mobile radio meant that business was good. Companies whose business was on the road were delighted that at long last they had the ability to talk to the man in the field and organise him. The first customers were Blue Star Taxis, and Rink Taxis. Other early applications included fire engines and carriers. Early successes led to the formation in 1950 of A M Tait Ltd, funded in part by a 1,500 pound rehabilitation loan. The company grew to employ about 100 people. There was little competition. The business enjoyed good margins and sold a lot of radios, but it was opportunistic and unorganised. "There was no planning. I did most things, I worked ridiculous hours. I had people on the production side. The technology was my prime concern, but I was also the salesman. I spent the day rushing around and I went all over the country selling things and generally dissipating my energy with varying degrees of success."12 Tait had some good advisers, but lacked a mentor capable of telling him where he was going wrong and what he needed to do about it. The business ran on blind optimism. It was headed for the rocks. "There was a competent lady that did the mechanical things like sending out bills 10 Interview, 1998. Tait Electronics: Tuning In to Market Needs; Export News March 1987. 12 Interview, 1998. 11 4 RELEASED FOR PUBLICATION JULY 2000 and getting in the money but other than calling out to me the size of the overdraft and what was I going to do about it, she really had nothing to contribute". 13 "I was convinced that technology was the shining gold that would solve all problems. I'm not a numerate person, I hate numbers. I was over optimistic. I pretended there were no other goals in life other than technology. I very rapidly found out that this thing called payday came round once a week, it was a ghastly experience".14 Tait had preferred to hire engineers, and he had not put in place someone to do the financial management he was not interested in himself. A small economic downturn in 1967 tipped the scales. On Christmas eve, Tait received a phone call telling him the business was being put into receivership. According to Tait, the business failed "because it deserved to fail". 1969-1983 Tait Electronics Ltd. A New Life Tait was 48 years old when AM Tait Ltd was put into receivership. He found it a chastising experience, and thirty years on the memory remains painful. "It was a very dismaying experience to see the work of several years go down the drain, and the assets put together during that period sold off"15. "You find yourself being sold, washed up," Mr Tait remembers. "You have two options. Go and hide from the world, which some people do and never come up again, or you can try again."16 Tait was convinced that his ideas were basically sound and that worldwide development of mobile two-way radio services was still in its infancy. With vehicle, fuel and labour costs all increasing, he envisaged an ever-growing market for communications links, which would improve business efficiency by saving time and unnecessary travel17. Tait decided to start again. The old company traded in receivership for more than a year until the receiver concluded it wasn’t profitable. Tait still has the letter in which he was formally sacked. 13 Interview, 1998. Interview, 1998. 15 Tait Electronics: Tuning in to Market Needs. Export News 3/87 pp 14 & 15 16 School Hobby Blooms Into Boom Industry. By Neill Birss.The Christchurch Press 14/07/98 P7 17 Tait Electronics: Tuning in to Market Needs. Export News 3/87 pp 14 & 15 14 5 RELEASED FOR PUBLICATION JULY 2000 The new company, Tait Electronics Ltd., started in 1969, while the receiver continued to operate the old company. The two companies had a good working relationship as the new company bought stock from the old. Initially Tait Electronics sold hybrid radios, bought from the receiver at a modest price. These radios incorporated both valve and the emerging transistor technology. Arrival of the Transistor Just as the wartime development of airborne radar had spurred the valve based mobile radios of the 1950's, the American space program of the 1960's spurred the new transistor technology. Tait engineers had been working with transistor technology in the old company, trying to tame the transistor’s tendency to slip into feedback loops, an instability which made transmitting unreliable. By the time that transistors suitable for transmission were becoming available at commercial prices in the late 1960's, Angus Tait was ready to apply the new technology to mobile radio as he had applied World War 2 derived technology twenty years earlier. The work had started in the old company. Tait targeted 12 former staff with experience in the new technology as the key people for the new company. At that time there was no all-transistor mobile equipment in New Zealand. Tait seized the opportunity and began work on what became the first all transistorised mobile radio in New Zealand. The transistor revolutionised mobile communications as it permitted much smaller units and required far less power. The new units could be installed under the dash, and could be left on all day without running the battery flat. The Tait engineers did the best they could with what they had, money and resources were in short supply. For example they couldn't afford $20,000 for a spectrum analyser to allow specific measurement of the amplifier output so "they worked by trial and error". Fortunately most of this work had been done in the old company. "Fortunately the design ideas were in our heads and I was able to raise a modest amount of money - enough to buy back some equipment from the receiver".18 CB Radio - Ten Four! Citizen Band (CB) radio was a short lived consumer craze in the early 1970's. In comparison with mobile radio where equipment specifications were demanding and enforced by the Post Office, CB was something of a toy. It produced less than a quarter of the power output of mobile radio, had much shorter range, and was less reliable. However it provided a lifeline for the young company, which was quick to realise its potential. Producing an 'all transistor CB' was much easier than producing an 'all transistor mobile radio'. Strategically it generated the cash to keep the company alive. A small production line was established in 1969, capable of producing a few 18 Award-winning company has firm RT niche in world market; New Electronics November 1987 p30 6 RELEASED FOR PUBLICATION JULY 2000 thousand radios, which was extended in 1972 and 1973. The experience with CB taught Tait how to control transistors. Both the cash generated and the experience enabled them to develop their VHF mobile radio. Tait was first off the mark with a very small, completely transistorised radio. The Miniphone released in 1973, and named after the mini-skirt, became the industry standard. The Mini-phone was the genesis for the new firm. 19 Tait was not the only player with the new technology. There was another Christchurch producer, and two or three more in the North Island. Tait admits that some of these were building better radios. There was also imported equipment. But Tait pursued the opportunity with more vigour, and in a year or so had captured 70 percent of the New Zealand market for mobile radio. “We were quick off the mark . . . They were a bit slower and needed to work 23 hours a day”20 The new industry was protected from offshore competition by import licenses and a 45 percent tariff. In addition, the NZ Post Office required participants to meet local technical standards so that all radios would work on the Post Office’s network. "It was not an enormous amount. It would still only be a few thousand radios a year, it was still only 40 or 50 people, but to a small company, it was a gold mine".21 Management Although the shareholding in Tait Electronics had started to spread, Sir Angus retained a majority shareholding. Control remained firmly in his hands. Having learnt his lessons from the failure of the first company, Tait was determined to employ competent people in those fields, such as finance, where he lacked skills. "The philosophy was, if you don't know, get somebody who does; or if you don't want to do it, get somebody who will do it for you. On that basis you've at least removed some of the probabilities of doing it [going into receivership] again."22 "I mightn't always agree with the advice they give, but by and large, going in opposition to knowledgeable advice isn't a very bright thing to do."23 19 Working Knowledge; Bruce Ansley Listener 26 June 1999 p23 Interview, 1998. 21 Interview, 1998. 22 Interview, 1998. 23 Tait Electronics: Tuning in to Market Needs. Export News 3/87 pp 14 & 15 20 7 RELEASED FOR PUBLICATION JULY 2000 Despite the appointment of competent people, Tait had something to learn in terms of management concepts. The idea of creating a management group who would meet regularly and discuss all aspects of the business came from the staff, it had not occurred to Tait. The management group was initiated in the late 1970s. It included Ben Rumble, founder of the Ben Rumble Communications retail chain, who was International Sales Manager from 1972 to 1982. New Markets With limited potential for domestic growth, the company looked overseas. The first target was England, as Tait had spent six or seven years there during the war and understood the culture. He visited the UK and researched local prices. He was pleasantly surprised to find that the company could profitably sell into the new market. Tait production costs were much lower than those in the UK, and possibly the New Zealand company accepted lower margins too. In 1976 Tait appointed Dymar Ltd. as its UK agents. Dymar placed the Tait product at the bottom end of their own product range. “We built a rather utilitarian little box, which … didn't look as pretty as their radio. It worked as well and cost a little less. By and large we were [selling] them as fast as we could make them”24. When Dymar went into receivership about 1978, Tait formed its own subsidiary, Tait Mobile Radios, and appointed Dymar's sales manager Harry Griffiths, manager. Initially Harry worked from his caravan parked in the garden. The logistics of supplying the new market from 12,000 miles away were daunting. People needed to be employed, infrastructure needed to be established and stock put on the shelves. Customers wouldn’t wait while the stock came from New Zealand. Taits needed $100,000 for the set-up expenses and for the additional production. The finance companies wanted to charge 20% interest and security. That wasn’t viable. Fortunately the Government had established an Export Guarantee Office which operated within the State Insurance Office. Under this scheme exporters could receive payment from their trading bank once their goods had left New Zealand. However the situation was complicated in the Tait case because the intended recipient of the goods was a Tait subsidiary, and that wasn’t allowed under the rules. But Tait already had a relationship with the Export Guarantee Office following their earlier exports to the UK. "Trading relationships with people ultimately comes down to personal 24 Interview, 1998. 8 RELEASED FOR PUBLICATION JULY 2000 relationships. I had a good relationship with [the Manager of the Guarantee Office]. We had a cup of tea and he hummed and hawed. He said, ‘I’ve never done this before but I’m going to do it. I’m going to give you $100,000’. Well he didn't give me $100,000 but he guaranteed to send up to $100,000 worth of stock to my own company, present the invoices to the bank and get them to give money. You could have knocked me off my chair with a feather because it was slowly sinking in to me that this was the cornerstone that made the business possible. Without that I don’t know how we would have coped”25. Support for exporters was a political priority of the time. New Zealand’s historical dependency on the UK market for dairy and meat products was threatened by the UK joining the European Economic Community in 1972. Export incentives were introduced to encourage new sources of export income. Tait described these as “7league boots”: fairytale boots that would let their owners walk 7 leagues with a single stride. Like many other exporters, Tait also received export development loans from the government-owned Development Finance Corporation. PYE, GEC and Kosser were the three most important competitors in the UK market, and there were a number of smaller firms as well. Tait’s clear focus on mobile radio was an advantage. "These other companies did a wider range of things but virtually all of t ...
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Running head: TAIT ELECTRONICS LIMITED CASE

Tait Electronics Limited
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TAIT ELECTRONICS LIMITED CASE

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Tait Electronics Limited
What Is The History Of The Company And How Did It Grow Internationally?
Tait Limited was founded in 1969 by Sir Angus Tait, who is an innovator and a
businessman from New Zealand. By 1947, Sir Angus was designing and assembling mobile
radios. The company had only 12 employees when it was formed. His experience in designing
airborne radar for Great Britain during the world war played a major part in the company's line
of work. In the 1970s, the team developed a lightweight, compact mobile radio that helped the
company to gain the largest market share in New Zealand. In the mid-1970s, the company
developed a Mini-phone series of mobile radios, and the company was exporting over 25% of its
product. In 1979, the company opened its first whole subsidiary in the United Kingdom, and in
1980, the company opened another subsidiary in the United States and Singapore (Taitradio.com.
n.d.). The company later introduced T500 series of mobile radio which saw an increase in new
investment and four new subsidiaries in Australia. In mid-198s, the company decided to invest
and use trunking technology. The use of technology aided in the increase in investment. In the
1990s, the company introduced the T800 series of the modular-based...

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