Loyalty above profits
Getting your distribution model right is key to exporting, according to Hamilton-based Gallagher Group. William Mace looks at what has kept the family-owned company in business for 75 years.
THE NUMBERS Staff numbers: 1000 including associates, about 750 in New Zealand. Revenue: About $200m Profit: Confidential Locations: Headquarters in Hamilton – dozens of associates and subsidiaries in Europe, Britain, North America, the Middle East, India, China and South Africa. Exporting to: 130 countries --------------------
"A distributor's fear is that you let him start it and then you take it off him." --------------------
When Kiwi exporters are advised to play the long game, they would do well to look to Sir William Gallagher as a role model. His company, Gallagher Group, will celebrate its 75th anniversary next year, and as chairman and chief executive, Gallagher is just a few years shy of that milestone himself.
An entrepreneurial soul with a quick wit and penchant for making friends, Gallagher took over the running of the company from his father, Bill, who founded it 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 dryly calls “two-legged livestock”.
The company exports New Zealand-made products to 130 countries through nine majority-owned distribution subsidiaries and 13 associated distributors, in which it has less than a 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 his fences cause no lasting damage.
The power and reliability of Gallagher's fences were world class, meaning international distribution and the shared profits ballooned in those years: turnover doubled every year between 1972 and 1976.
Gallagher sought to make use of the entrepreneurial enthusiasm of overseas distributors in the same way that 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 worth on the setting of international electric fencing standards, Williams was startled by his willingness to share valuable information from the experience with his 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 give 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, 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 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 successors.
“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 the mark.
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 71 years old, he spends his days plotting an even more challenging tran sition 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 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 revenue.
Gallagher 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.