Distribution key to Gallagher success
Getting your distribution model right is key to exporting offshore, according to Hamilton-based Gallagher Group. In the fourth of our business export success stories, William Mace looks at what has kept the family-owned company in business for 75 years.
Sir William Gallagher prides himself on breaking new export territory for his 75 year-old company, but he couldn't break the language barrier in Russia.
Now turning over $200 million in sales each year in the electric fencing, security fencing and petrol pump business, Gallagher counts his Russian sojourn as a failure.
He got on well with his prospective Russian distributor's English-speaking wife, but on return trips through the Iron Curtain he found himself dealing with a 22 year-old marketing graduate who had no pull with the top dogs.
"Communication at the top is pretty important," says 71 year-old Gallagher.
"You need to find someone who's got English at the top because going through an interpreter, it's very difficult to get philosophy through and integrity is pretty important."
An entrepreneurial soul with a quick wit and penchant for making friends, Gallagher took over the running of the company from his founding father Bill in the early 1970s and embarked on a campaign to take electric fences to the world.
Gallagher Group now has three main lines of export business revolving around high quality agricultural fencing, petrol pump manufacturing, and a security unit targeting what Gallagher drily calls "two-legged livestock".
All up the company exports New Zealand made products to 130 countries via nine majority-owned distribution subsidiaries and 13 associated distributors, where it has less than 50 per cent stake.
It is the world leader in its electric fencing niche.
The company now turns over $200 million a year in sales from those networks which were largely a product of the legwork of Gallagher who was then known, like his father, as Bill.
Attracting buyers and distributors in the early 1970s was as easy as watching a Dutch farmer try to negotiate what he thought was a compromised and ineffective electric fence.
Gallagher says he never tires of watching the hair-raising shock dealt to test subjects, but is quick to point out that the beauty of his fences is that they cause no lasting damage.
The power and reliability of Gallagher's fences in particular were world class, meaning international distribution and the shared profits ballooned in the following years: turnover doubled every year between 1972 and 1976.
Gallagher sought to make use of the entrepreneurial enthusiasm of off-shore distributors in the same way he and his family had run the business in New Zealand, he says.
"My view is to be the most exciting and the most profitable part of the business that [the distributor's] got, and then it's not very long before we become the main part of the business he's got."
Giving the distributor an equity stake in the venture meant it was, in Gallagher's analogy, "mainly his shirts in the laundry that are going to get mangled if he doesn't do it right".
But once the initial investment was made and a market secured, Gallagher says he obviously would have preferred to own all the profits.
That preference was trumped by the need to maintain integrity.
"The guy's got to trust you and he's putting some of his life in your hands, because a distributor's fear is that you let him start it and then you take it off him.
"That's something we don't do and I swore never to do that because if I ever did that even once, everybody talks and the place would fall apart."
John Williams, a contemporary of Gallagher's who sold his petrol pump and security card-reader businesses to him in 1999, recalls Gallagher's generous spirit even towards his domestic competitors.
When Gallagher returned from giving his two cents on the setting of international electric fencing standards, Williams was startled by his willingness to share valuable information from the experience with his local competitors.
He later told Williams that he genuinely wanted to bring the whole New Zealand fencing industry along for the ride.
That's not to say a generous spirit, a strong, loyal handshake and a shockingly good product gives you the right to stay in business for 75 years.
"In the early days I've got no doubt that [Gallagher's exporting success] was due to the sheer drive of Bill Gallagher [junior] himself," says Bruce Munro CNZM, a Gallagher director of 15 years and former Wool Board director.
"He seemed to have an ability to pick people of like mind in those markets. Bill's quite entrepreneurial and I guess he picked people with entrepreneurial capabilities who could drive new ideas for a new product."
But the model has had to change over the past 20 years in order to gain more control of its own distribution and cater more directly to customers' needs, as opposed to merely pushing what was once a revolutionary product.
"If we'd stuck with the traditional entrepreneurial distributor in every market [model] we'd have probably died with it," says Munro.
Having to wrangle with the vagaries of the European Union and cross-border transactions meant an amalgamation of distributors was becoming more sensible in Europe, and the direct distribution model was also adopted in North America and Australia.
But Gallagher's loyalty remained intact over the years - he admits he let his Canadian distributors name their price while two of his European partners are nearing retirement and haven't bothered to anoint their own successor.
"We had a strategy of getting more and more vertical [integration]," says Munro.
"But also waiting for the appropriate time with those key people; I think that loyalty ended up being a two way situation and worked well for us when the time came."
Despite the changing game Gallagher is still travelling incessantly and a passing comment that he's been around the world five times this year is probably not far off.
He cites a study which found the chief executive's willingness to travel influences the whole company's focus towards exporting and creates a more successful impetus than if done by other executives.
Despite his love of scuba diving in tropical destinations, there is no doubt his trips are meant for business and his special brand of relationship building.
Now, at 71 years old, he spends his days plotting an even more challenging transition than he's faced before - into the United States' competitive security and access control industry dominated by the likes of United Technologies and Honeywell.
This too needs a more direct distribution and service approach, hence Gallagher Group's commitment to a new State-side corporate headquarters in Kansas City.
Gallagher is already well established in the security and access sector as "the biggest of the small guys" internationally, thanks in large part to John Williams' Cardax card-reader technology.
The sector makes up half of Gallagher's $200m or so revenue.
Gallagher himself will venture to the US again next week to convince an American oil refinery to secure its premises with a Gallagher system that fits with new Federal identity-recognition regulations for critical infrastructure buildings.
No doubt his track record of loyalty, innovation and customer service will be on show, not to mention a comforting, old-school handshake to seal the deal.
Staff numbers: 1000 including associates, approx. 750 in New Zealand.
Revenue: Approx. $200m
Locations: Headquarters in Hamilton - dozens of associates and subsidiaries in Europe, the UK, North America, the Middle East, India, China, South Africa.
Exporting to: 130 countries
FIVE TIPS FOR SUCCESS
1) Find someone local to manage your overseas distribution - "If you succeed in your own country you're frequently the distributor dealing with the end customer, when you export you've got to delegate that and find somebody to do what you're doing in this market."
2) Be open to enthusiastic, entrepreneurial distributors - "The distributors that find me are frequently better and more motivated than the ones that I find."
3) Make your product visible in every potential international market - "You've got to put your head up pretty high to be found, and that involves attending and exhibiting at trade shows, and it involves a lot of travel."
4) Pay attention to detail - Gallagher writes a "visit report letter" which sets out his view of everything that was spoken about on his visit so there are no misunderstandings.
5) Get paid - always hammer out the details of your payment terms and if you can't trust the customer, make sure to demand cash in the bank before you ship or at least a letter of credit from a reputable bank.