The Fridge Story
The company was founded by your grandfather between the wars. Initially a manufacturer of iceboxes in Sydney, the company expanded into electric fridges after the second one (war, that is) by copying a fridge imported from the US and exhorting local suppliers of components to come to the party.
You dad took over when the old man kicked the bucket. And your dad managed to go national and even get a distributor in NZ. And then in the late 1970’s he retired to the Gold Coast, his fishing and his second (and much younger) wife.
So there you are in the 1980’s, running an Australian manufacturer of fridges.
Your company designs and builds them. You have a well-known local brand. You distribute to all the large department stores and electronic goods chains, as well as to all the little retailers (some through secondary distributors).
Your two competitors are both subsidiaries of US companies but also do their manufacturing at the fringes of Sydney and Melbourne, but their designs come from the US.
You also sell a few fridges in NZ and South East Asia where your brand is not unknown.
Then Hawke and Keating famously float the Australian dollar and deconstruct a few trade barriers in order to save us from our fat and lazy selves.
At the same time Japanese and Korean manufacturing really kicks into gear. International shipping gets a lot cheaper as well, after containerization.
Before too long you are facing imported fridges that are cheaper than yours but initially no one buys them because they have weird brand names on them like Lucky Goldstar.
But every year they grab more and more market share especially after they figure out that LG is a much more useful trademark.
Eventually, in order to compete, you are forced to outsource some of your manufacturing to Asia. You get parts made and sub-assemblies assembled overseas and bring them into Australia for final assembly and test.
Due to ever increasing cost pressures one day you move test and assembly to Taiwan and the media has a field day as another Australian icon closes its factories with images of sad and angry workers leaving the premises for the last time.
Towards the end of the 90’s China gets into manufacturing properly. One day you are offered a deal where some Chinese company will make your fridges for you and sell them to you at a price half of what you could make them for.
So you take the deal and your customers find themselves with fridges that leak cold air, stop working in a year or so, with lights that don’t work, and that also occasionally leak water.
You design team is totally disconnected from sourcing and manufacturing and soon lose their way as the old blokes retires. Eventually you defer to designs suggested by your Chinese suppliers and cut the costs of your own design team.
You even outsource marketing to a brand promotions company and put all your sales team on a full commissions basis. Your fixed costs are you, a handful of office staff, and a warehouse of inventory and parts.
By the mid 2000’s your market share is less than 2% and the higher quality Korean products have grabbed much of the market along with well some known US and European brands (that no one is quite sure who owns but they know damn sure they are made in China).
Then you get acquired, for a mix of cash and stock, by an Australian company that has purchased a bunch of retail chains and branded product companies and is heading for a high profile listing. Which they do.
They need to list in to order to raise capital to service all that junk debt they used to do the roll-up. But of course the aggregated business cash-flow is a Furphy; there is no central intelligence to the plan. The white shoe brigade behind the scene cash out early and all the mum and pop investors are left holding the frightened cat.
A couple of years after listing the whole shebang goes into liquidation and your intellectual property, i.e. your brand, cannot be sold by the liquidators (not that they tried very hard) and lapses into oblivion.
The good news – you have been siphoning of dividends from your company for decades and there is about $60m in the family trust. You can retire to Palm Beach and your kids and your grand kids can all go to expensive private schools and then receive stipends for life, solely from the profits from the Trust, which is invested into all sorts of things known as the Australian stock market.
You once tried putting some money into a mate of your son’s new venture and he screwed it up. So you will never do that again.
And this how the proceeds of past innovation are sequestered into islands of useless value-destroying capital in this wonderful country of ours.
Because they did this then it’s self defining; they did the right thing. If they had the skills to do something useful then they would have. Without the skill there’s not much point.
The moral, if there is one, is that oligarchy breeds an inability to adapt. And that is our inheritance.
offshore westerly 