Employee-owned UBH International looks to China for strategic partnership
This article by Andrew Bibby, in a slightly different form, was first published in the Financial Times, 2003
Mike Himbury, managing director of the Lancashire-based manufacturer UBH International, reaches across the table to find the set of colour photos of the impressive new purpose-built 10,000 sq metre factory. The building is to specialise in the production of stainless steel tank containers used to transport liquids and gases, the product on which UBH Internationals reputation is based. At full capacity, the factory will produce at least 2500 tank containers a year, far more than the hundreds currently manufactured by UBH International.
The catch, however, is that Mike Himburys firm will not be relocating out of its back-street premises in the small town of Burscough, a few miles inland from Southport. The new factory is in Nantong, China, and has been constructed by China International Marine Containers (CIMC), already a dominant global player in the manufacture of box containers and now all set to dominate the tank container market as well.
Mike Himbury knows the risk CIMC potentially represents to the 120 staff currently employed by UBH International, a firm launched in 1999 as an employee-owned phoenix from the ashes of the liquidated company Universal Bulk Handling. The central problem is that we cant compete in the UK in metal-bashing with low-cost manufacturers, in our case in South Africa and the Far East, he says. A new strategy is needed: Weve decided to trade on our brains, rather than on brawn.
In terms of production, this means that UBH International has chosen to move away from basic tank container manufacture to concentrate more on specialist orders, such as those with particular heating or refrigeration requirements. These demand extra attention at both the design and manufacturing stages, and can therefore command premium prices. But it also means trying to maximise the return from intangible assets, in particular the intellectual property inherent in the companys tank container designs. To do this, UBH International has chosen to offer its accumulated technical know-how and design skills to its potential Chinese rival. CIMC and UBH International signed a global strategic alliance two years ago, under which the British firm licenses the rights to the designs of its standard tank containers to the Chinese. It is also working with its Chinese partner on workforce training, on materials procurement and on sales and marketing issues. Indeed, the gleaming new factory at Nantong which points up rather obviously the shortcomings of UBH Internationals own plant in Burscough was designed in large part on advice from the latters engineers.
The alliance with CIMC has helped UBH International survive a particularly difficult recession which has already carried off a major UK competitor. There is no doubt that the centre of gravity of the marketplace will shift to China. The big Chinese dragon would be breathing down our necks anyway we thought, why not benefit from it?, Mike Himbury says.
The arrangement is initially for a ten year period. CIMC benefits from immediate access to the designs of an established product, and perhaps for the reassurance which UBH Internationals name can provide to its customers. UBH International in turn receives a growing revenue stream from royalty payments on its IP rights and further savings from the joint procurement policy. The British firm also received a welcome initial cash payment of around £400,000 from CIMC at the time the agreement was signed (equity arrangements were ruled out, partly because of UBH Internationals desire to maintain its current employee-ownership structure).
It is clear that UBH Internationals strategy has had other consequences, including the beginnings of a new way of thinking about the firms core business. You have to take off your manufacturers hat, and put on a service providers hat, Mike Himbury says. The emphasis, he explains, is shifting from simply selling manufactured products to trying to solve customers problems. We keep hearing about the buoyancy of the service sector theres an element here of wanting to join in, he adds.
With turnover slowly moving up to around £8m, UBH International still has a long road ahead if it is to thrive as a small independent venture in a climate far from conducive to manufacturing. It may be helped, however, by its second unusual feature, its employee-owned structure. After the collapse of the former Universal Bulk Handling, ninety-one former employees put in £5000 apiece to acquire the old firms capital equipment and intangible assets. Mike Himbury suggests that this ownership structure, as well as helping to encourage a flexible approach from the workforce, also enables the firm to escape short-term demands for shareholder returns.
For the record, the employee-shareholders though they have their jobs back - have yet to receive a dividend: the firm made losses in its first two years of trading, whilst 2002 saw a small trading loss converted into a notional profit only after revaluation of assets. Nevertheless, Mike Himbury is confident that full profitability is not far away. The firm is hoping to gear up shortly for an investment programme, not so much in plant and equipment as in employee training. Its another sign, perhaps, that the company knows where its real value lies in its know-how.
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