The boss of the luxury flooring firm on how it has competed with China and found success, despite the UK’s industrial strategy
“Most government industrial policy is designed to kill off industry.” It’s the brutal truth according to Jonathan Duck, chief executive of Coventry’s largest manufacturer – luxury flooring firm Amtico.
Duck damns the lack of real business experience in government, and that no minister has a STEM degree. “Consequently, given the lack of knowledge and understanding, there are a variety of policies that are completely incorrect,” he says.
He goes on to list them – singling out the apprenticeship levy as “a stupid system” rejected by both the last Labour government and the coalition government as being too business unfriendly. He calls progressive increases in National Insurance rates a tax on employment and green levies “just plain daft”.
“The green levy caused me to take my most energy intensive processes and close them down in the UK and move them to the US,” he says.
“And I’ve tried exposing my new American owners to the UK investment support, and they actually think it’s a joke.”
A new factory in the US, he explains, will get land for free, support on labour costs, a 50 per cent discount on power, “which is already three times cheaper than the UK”, and free shipping for five years.
“At an international level our industrial policy, compared to what you get in the States or in the Far East, is non-existent – and in some areas actually damaging.”
Protecting the middle ground
Duck also argues against the current emphasis on high-end, specialist manufacturing.
“It’s backward logic, because what you’re saying is that I can only survive in the most value-added manufacturing areas in order to offset all these other disadvantages I’ve got, such as very high labour taxes and energy costs,” he explains. “But when you sit right at the very top of the pyramid, you actually don’t employ many people – and that’s problem number one for the economy.
“The second problem is you’re going to run a massive current account deficit, because you’re going to be having to import most of your manufactured goods.”
Amtico was heading in this upwards direction when Duck joined in 2003, as only the second chief executive in the firm’s 50-year history. But he decided to “turn around and fight” in order to keep to the middle ground and protect the company from the vulnerability that he felt would come from losing economies of scale.
We chose to compete with China rather than running away from it
It has meant selling to overseas owners in the process, something that Duck suggests is almost inevitable for all companies trying to do the same, as long-term capital is easier to find outside the UK. But, he adds, the sale was achieved from a position of strength, as Amtico’s sale to US flooring company Mannington Mills in 2012 came off the back of a strong performance in the US – its biggest export market – which had led to building a factory there.
It is also testament to the fact that Amtico has worked hard to ensure its manufacturing capability is internationally competitive.
The company was an early proponent of reshoring, nearly eight years ago. “We chose to compete with China rather than running away from it,” Duck says. “A lot of what we’re about is actually tackling cost competitiveness head on.”
In doing so, Amtico has posted growth every month in its history, even during the recession, and has had a long run of double digit growth each year. Around 420 staff in the UK – and a total of 900 worldwide – are now responsible for a turnover of more than £150m a year.
The company has also doubled its capacity in both Coventry and the US over the past couple of years – and is looking to expand again in the UK.
Competing with China
Duck explains that there have been several strands to achieving this. “The first is to define your manufacturing as not being just about factories,” he continues.
By putting equal emphasis on design and research and development, direct sales and marketing, as well as manufacturing, Amtico has three chances of beating the competition – and far more if you combine strength in the different elements.
“Having two or three things you excel at rather than just one is so important,” he adds.
Thanks to its strength in design, customers are also willing to pay a 20 per cent price premium. “And when you combine that with being cost efficient with China, then you start to have a business model that will work well and will be sustainable,” he says.
But how has Amtico managed to be cost efficient with China?
We tried to learn how they approached manufacturing in order to get the costs down. Then we nicked all the best ideas
The company introduced a new, cheaper product line, Spacia, and decided to contract the product out to China. Although that meant some restructuring and redundancies in the UK, it gave the management team chance to visit the Chinese factories to see how they did it.
“We just tried to learn exactly how the Chinese did things and how they approached manufacturing in order to get the costs down. Then we nicked all the best ideas,” Duck says. “It’s no different, frankly, from what they had done to us. We just returned the compliment.”
The rest of the job has been about using “practical production engineering skills” to improve efficiencies. It has involved eliminating complexity, range management, using automation where it makes sense and better use of IT monitoring.
And as the technology improves, driving further gains in productivity, Duck believes everyone will realise the concept of offshoring is redundant.
Duck also places great importance on devolving responsibility.
“I talk about Auftragstaktik, which was a German military philosophy in the 1850s, adopted by many armies, particularly after the Second World War,” he explains. “The principle is to keep telling people what the goal is, but you consciously do not micro manage them. You give people the responsibility, and crucially the numbers, so they can see how they’re doing.”
In order to work, this requires clear, long-term focus for the business strategy. “You have to decide what you don’t do as much as what you do do,” says Duck, who adds Amtico is not interested in “chasing the instant buck”, or moving into “certain distribution channels” or the growing do-it-yourself sector.
There's tones of knowledge out there, and people really behind what you're trying to do if it's explained to them
But within certain guidelines, Amtico sales people can make their own decisions about pricing, range and mix, informed by their own profit and loss account.
“I want them to be like mini chief executives of their own area,” says Duck. “We extend that to the factory as well. And in the manufacturing context that’s one of the UK’s strengths, because you’ve usually got a very involved shop floor in this country. There’s tons of knowledge out there, and people really get behind what you’re trying to do if it’s explained to them.”
With Amtico’s success – and the appealing ability to combine production with design – Duck says he has never had a problem in finding the skills the business needs. But the chief executive’s passion for the UK’s overall manufacturing potential means speaking out about the issues, and frustrations, preventing the sector’s growth.
“Our mission in life has been not just to make Amtico successful, but also do our bit for standing up for manufacturing in Coventry and the West Midlands,” he says.
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