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Most of this is old info, but it is interesting reading nonetheless.
From Issue 28 of the Croner Digest (UK Trade industry rag), titled "Quality has improved since we started shifting tooling and manufacturing to China"
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From Issue 28 of the Croner Digest (UK Trade industry rag), titled "Quality has improved since we started shifting tooling and manufacturing to China"
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--------------------------------------------------------------------Few readers will not have fond childhood memories of Hornby plc's Scalextric slot racing cars and Hornby scale model trains, writes Antony Shepherd. Once languishing, those brands now make a strong export story.
After a difficult period in the 1990s, sales in the UK today have reached £31m and profits are up 33% since 2001. Exports at £8m (2004) have tripled since 1996 and are achieved through distributors in over 30 markets.
Between 1997 and 2002 Hornby moved UK manufacturing to China, shedding 350 jobs but safeguarding the company's future for the remaining 150 employed in the UK. Imports of UK-designed models amount to HK$160m or HK$20m annually. They are assembled in the main by Hornby's partner, the hobby model giant Sanda Kan in China.
So Hornby moved manufacturing to China but 75% of the added value stays in the UK, according to Hornby. Vital R&D is retained in UK, as is export marketing, licensing and development.
Pre-tax profits for FYE 2004 were around £6.5m, and during this calendar year Hornby was able to purchase its competitors Electrotren in Spain and Italy's Lima. Lima did not source from China and therefore became an acquisition target when it became uncompetitive, says finance director John Stansfield.
The future looks bright now for Hornby, which has signed a new Ferrari Scalextric licence. This permits various Ferrari models to be marketed with global appeal, but at the cost of royalties.
Add to this a successful launch of the new Scalextric Digital Track System and readers will be wondering why they failed to buy Hornby shares up from £1.50 to around £14.00 late in 2004.
UK in-store concessions have grown from 70 to 121, giving UK sales growth of 60%. How was this achieved?
1995 strategy change brought Hornby back to health
Up until 1995 the company was struggling with a business trading dolls, plush toys, radio-controlled models, toy figures, etc and was competing poorly with big US players like Hasbro and Mattel. The UK market was too small to win critical mass. Acting as distributor consumed 80% of executive time but earned only 20% of profit. The Hornby and Scalextric core manufacturing business earned 80% of sales but was neglected.
During the period 1996-1998, the company gradually ditched the non-core trading and began to re-focus on developing Scalextric and Hornby, whilst moving manufacturing to China. This was much disapproved of by the toy model trade press. Meanwhile Hornby sensibly targeted quality improvements rather than exploiting cost advantages. Previous UK R&D costs had meant a punitive £120k tooling for just one Scalextric car and £200k for one Hornby train. In China, corresponding tooling costs are slashed by 60% whilst customers benefit from 100% improvements in model intricacies, quality of moving parts, and detail faithful to life scale. Hornby spent £2m on tooling in 2004 and can afford to launch three new locomotives each year, beginning in 2005.
Marketing the brands overseas - managing distributors with just two staff
TV advertising in the UK is funded 100% by Hornby who also contributes to retailers' catalogues. In France, New Zealand and Australia, distributors plan and fund TV exposure with some contribution from Hornby. Attractive annual catalogues have been a Hornby marketing hallmark since 1954. Their painstakingly designed literature is now itself collectible.
"We start the annual show cycle in January with Hong Kong, then Paris, Nürnberg, and finally the New York Toy Fair. Most distributors are visited 4-6 times per year and are selected or retained if they position our brands in their top five lines."
Just two export sales specialists manage the £8m exports. The profitability of doubling the sales force is untested. "We are coping well" says export director Frits Passet. Passet is Dutch, and industryhardened, being ex-Mattel toys and ex- Hasbro. He speaks four languages and travels constantly. Market visits are divided with export manager Jackie Fisher who covers parts of the EU, Germany, Scandinavia and the USA.
He says, "Our 40 or so distributors are treated like a family. We spend £10k on our annual distributor conference. 2004 was in Paris, and previous years have been Amsterdam, Brussels, and Valencia. We have ditched using formal contracts, which we found added little value. We change distributors if their performance proves poor and expect initial orders to be a third or half of annual targets, which distributors themselves elect to meet. We do not impose targets, but trust our dealers to know their own markets."
Passet always ensures he cultivates two other replacement distributors for each market for commercial reasons, but maintains that "partnership" with local distributors is a key strategy.
In Spain, the world's largest slot car racing market, the Hornby brand is Superslot because the Scalextric brand belongs to a competitor for quirky historical reasons. The Spanish are very keen on the sport, supporting other indigenous competitors: Tecni-Toys Scalextric, Fly and Ninco. Fly and Ninco still retain manufacturing in Europe.
Intellectual property, licensing and design stay British but all manufacturing shifted to China from UK
Hornby pays £1m annually in royalties to car manufacturers like Ferrari and Renault for the rights to model driver Alfonso, the first Spanish F1 driver for fifty years. Important sources of competitive advantage for Hornby come from licences such as Thomas the Tank Engine, Batman and Ferrari. These make products relevant and compelling to younger customers, and, most importantly, across borders. According to financial director Stansfield, "We secure brands worldwide, but not product patents, they are too easily broken".
The newly launched digital multi-car lane changing system relies on technology from Cambridge-based UK supplier, Scientific Generics Ltd.
Sanda Kan hosts a factory within a factory for Hornby's activity, which represents 20% of its total capacity. Again this relationship is contract-free, based on trust. Tooling and moulds remain the property of Hornby, which in the event of default could switch to an alternative Chinese manufacturer.
Three UK Hornby staff work from its Hong Kong offices and a further three Chinese Hornby QC staff are based at Sanda Kan's manufacturing units in China. Here, monthly wages are around US$50 but Hornby ensures conditions protect labour, and child workers are not used.
What next - the China market?
Russia is an untapped market. Chilean, Argentinian and Brazilian distributors are active and surprisingly China and the Far East are tipped to be the next growth market. Hornby knows that Ferraris are now more common on wealthy Shanghai streets.
Frank Martin, chief executive of Hornby, must be content with results since Passet would not admit to any corporate mishaps. When pressed, he did mention a 1980s Hornby model development of the APT tilting train that, unlike the BR version, did actually tilt. Although this was before his time, Hornby models continue faithfully to mirror the real thing.
Hornby plc world sales 2004 -
£ millions
UK 31.0
USA 3.0
France 1.0
Germany 0.9
Australia 0.8
Spain (biggest slot car market) 0.5
Scandinavia 0.7
Rest of world 1.1
