EK Sydney wrote:Knowing these guys pretty well too, that statement just isn't right, again I'm putting it up here because sometimes people read opinions on forums and assume them to be fact. What's being done in Estonia is a very nice story of a successful and smart company who have very strong community roots, not too different to the Valleys of the world, when you look at things objectively. Theyre just a bit bigger and an easy target.
But, I can forgive anyone who mentions beer in their forum persona.....
Maybe I should have explained myself a little better...
The European Union have a grants facility for businesses within the EU. Within that structure they created country-level tiers to identify nations which would qualify for that grant money. As in the example here, Tahe are in Estonia, which is classed as an under-developed nation in EU grant terms, so as a company they qualify for grants in a way that someone like Valley, based in the UK (which is classed as a top tier developed nation) does not.
So through the grant system, tax payers in the EU (including those from the UK and other developed nations within the boundries who pay a raised amount) help fund growth of companies, such as Tahe, through EU funding (which is unavailable to Valley).
When I describe the situation as 'unfair', I relate it not to the accusation that it is unfair within the general rules of the EU funding model, but that it is unfair so much as other kayak companies who serve the same area of the market and have existed for a long time (such as Valley) cannot take advantage of the same facility (despite contributing to the pot).
Where does the advantage come in?
Firstly, I would not for one second say Tahe have done anything 'wrong'- quite the opposite. They have seen the advantage available and made the absolute most of it. Fair play and let them be a shining beacon of how to turn a small cottage business into the fastest growing enterprise in the industry.
If you imagine, for example, that Estonia has one of the lowest average wages in the EU. When you're building a composite kayak in a 'wealthy' country, your biggest cost (or at least on parity with materials) is your man hours. Generally your materials are specialist and come from a small pool of suppliers, such as cloths, resins, tapes and gelcoats etc. The costs of these are generally (though not exclusively) fixed from kayak manufacturer to kayak manufacturer. In other words, your geographical location does not really have a massive impact on material costs. For labour though, the opposite is true. Hence manufacturers in many specialist industries moving production to specific parts the Far East.
For example, someone making clothing or jewellery in Thailand would be able to do so considerably cheaper than someone doing the same in Australia, if you know what I mean. ;)
Anyway, back to Tahe...
We established labour as being the majority cost (or at least around parity with materials) in building a composite kayak. Seeming Tahe in Estonia are able to take advantage of lower wage costs, their cost of building said kayak is lower. This part is fair enough, as it's just a natural element of business. In real terms, Tahe should be able to pump out kayaks that retail at around 25% less than equivalents from developed countries like the UK, whilst maintaining the same sort of percentage margins as those other manufacturers.
On top of that, the EU funding then gives Tahe facility not only to sell into the market at a lower price (an advantage it naturally enjoys from lower wages), but at an even lower price that would not be sustainable to a business based on the margins being achieved. In addition, that EU funded cashflow then allows the company to sell at a market-unsustainable margin with incredibly generous terms on top of that (such as long invoice due dates of 90+ days, manufacturer supported 25% retail discounts on old stock in the showrooms, low startup retail pricing and help with payment for sending containers to Australia, for example).
As manufacturers and retailers of kayaks, 'we' know the value in the showroom not only of the brand name, but the price at which that product must be sold and the terms at which a dealer can buy it. For example, a Rockpool Alaw might not make sense to import into Australia to retail at more than $4100 AUD with pretty average buying terms, but a Zegul 520 which is as close as it gets to being the same tool is, when around 20% less, with transport costs to Aus thrown in and long payment times.
Of course, any company is entitled to investment from a whole variety of sources outside of grant funding, but as we all know, the last 4 years has seen commercial lending for businesses all but dry up in the Western World. Finances required versus the risk and small reward makes composite kayak production and expansion of it an unattractive commercial proposition for potential lenders outside of the industry.
So in one sense, the well established and well known brands in first world countries, who are typically lightly resourced financially, would have great difficulty in establishing third party commercial investment into the business over the past 4 years to match that enjoyed by Tahe at the tax payer's expense. Tahe's luck has been in acquiring that EU funding at a time when it gave them most bang-for-buck in the market place. It really couldn't have been better.
What will happen going forward, I suspect, is that once Tahe achieve the market share they need, acquired brands that compete with them (don't laugh, Valley could be on that list) and exhausted the EU funded 'flash expansion', they will then revert to increases in the price of their products to give margin where before it was missing. The competition that prevented them from raising in price will more than likely to be too weak to respond or part of Tahe themselves and be repositioned in the market place accordingly.
The job Janek and others are doing at Tahe is a breath of fresh air in many respects and would be an ideal example for people like Valley to follow in engaging with new and potential customers.