Examination of Witnesses (Questions 220-239)
DYSON
19 OCTOBER 2004
Q220 Sir Robert Smith: The physical Dyson
presence in-house in South East Asia: is that the 200 people in
the office block?
Sir Richard Needham: Yes, it may
be a bit more than that now. Since you ask, it is very, very important
that the people you send there originally when you transfer the
production—if that is what you have decided to do—have
a feeling and an understanding for the culture of the subcontractors;
because the subcontractors will not find it as easy to understand
you as you will find it to understand them. That is a vital part
of the whole arrangement.
Q221 Richard Burden: Are there any lessons
to be learnt from Dyson's experience on the issue of logistics
both in relation to your relationship with your partners and suppliers
over there; but equally the logistics of transporting and exporting
the finished product whether to the States or Europe?
Sir Richard Needham: Yes, planning
is the absolute crucial aspect. If you get your forecasting wrong
then you are six weeks on the sea and you are not in the stores.
Then you start to air freight and you start shoving cleaners in
jumbo jets and it is not cheap. Logistical planning is of crucial
importance. Clearly, also in a macro sense the freedom of transportation
is important. If the Malacca Strait suddenly blew up because Indonesia
attacked Malaysia, then that of course would be very, very serious
for us. Logistical planning is very important. We have not always
got it right, not least because the growth of our sales in the
United States has outstripped our forecasting. This year I think
we are going to do two and a half, three times more in the United
States than we originally thought. Actually the flexibility Malaysia
has given us, because we have got two subcontractors and two or
three others who are almost as important as the top two, has allowed
us to increase our production which we would never have been able
to do if we had done it here. We could never have got the machines
produced—we could never have done it—and we have done
it while maintaining the quality. There are a lot of heavy rules
about. Best Buy turned up the other day and told us they have
a rule about the pallets you put the vacuum cleaners on. Suddenly
we had to change however many thousands of pallets because they
would only accept such and such a wood and there had to be so
much water in the wood. The logistics element is very important.
That is why, having a big base locally based is crucial.
Q222 Miss Kirkbride: I am new to the
Committee so I did not actually go to Malaysia and see what you
were doing out there but I have been fascinated by the observations
and it left me with one question: are there any reasons left to
do manufacturing in the UK, other than living in Chippenham?
Sir Richard Needham: Where there
are whole areas of manufacturing where regulation, for example,
is a crucial element, sophisticated regulation; in the pharmaceutical
business; in medical devices—those happen to be industries
which I know; where I would have thought there are enormous advantages
of doing it in the UK, where there are complicated elements of
ethics, or law, of legal protection. With the point I was making
to Mr Clapham (and I am sure he will not, looking at him) if he
ever had the need for a stent I would not suggest he bought one
in China. I do think there are lots of areas. I am quite sure
there are whole areas of the defence industry which are not going
to be done in China. I think many of the basic commodity products
which are manufactured will inevitably, under globalisation, go
to—
Q223 Miss Kirkbride: What about counterfeiting?
Do you have a problem in Malaysia?
Sir Richard Needham: No. We do
have problems with Chinese counterfeiting, but one of the things
Dyson have spent an enormous amount of time and effort on is building
up a very, very strong legal team on patents and intellectual
property. If anybody tries to go for us we zap them. I think the
lesson of Hoover, who got fined I think it was £8 million
by copying our patent, [3]was
pour encourager les autres. We do have a series of cases
right now going on with Chinese manufacturers who are trying to
copy us or have copied us; but the problem they confront is the
tooling for these machines is very expensive, millions of pounds,
and they tend to copy the old machines with the older technology.
What you cannot do is keep still. They are copying the two-cyclone
cleaner and we have now got cleaners with 12 cyclones. You cannot
sit still. Could it be a problem in China? Yes. Are we going to
sell masses of £200 vacuum cleaners in China? No. Not yet
anyway.
Q224 Miss Kirkbride: Do you find the
Chinese courts are helpful to you in going after counterfeiting?
Sir Richard Needham: We have not
been in front of the Chinese courts, but I would not put my last
penny on it!
Miss Kirkbride: Very wise.
Q225 Mr Berry: What about IP issues in
South East Asia in Malaysia in particular? Are you happy about
the state of intellectual property rights in Malaysia?
Sir Richard Needham: Yes.
Q226 Mr Berry: Would that also be true
of Thailand?
Sir Richard Needham: Probably
not. I have not thought about Thailand. It has not come on my
television screen. With my knowledge of Thailand, probably not.
Q227 Mr Berry: But Malaysia does not
present any issues there?
Sir Richard Needham: No. As Malaysia
is now the largest manufacturer by value of vacuum cleaners in
the world and they are all Dyson I would hope that they would
see it was sensible to be on our side.
Q228 Mr Berry: I was thinking not just
of Dyson but the broader picture—
Sir Richard Needham: Yes, fair
point.
Q229 Mr Berry: — given it is clearly
a very significant issue for many manufacturers in China?
Sir Richard Needham: I cannot
answer you as far as Malaysia is concerned for products other
than ours. I have not heard of anybody. When I go and talk to
the Kuala Lumpur Chamber of Commerce, or the British Chamber of
Commerce, I have not heard from the High Commission—there
may well be but I am not aware.
Q230 Judy Mallaber: Sir Richard, The
Economist published an article earlier this year which highlighted
corruption in South East Asian countries. I think it suggested
that although a number of those countries had come to power on
anti-corruption manifestos, partly as a reaction to corruption,
it was still endemic and very little action had actually taken
place. Has Dyson encountered problems with that?
Sir Richard Needham: No.
Q231 Judy Mallaber: You are not a company
that has ever been offered a bribe for getting planning permission
or dealing with any planning regulations?
Sir Richard Needham: No.
Q232 Judy Mallaber: Have you heard about
any of your fellow companies out there, any other businessmen
coming across this? What is your view from what you know about
the area?
Sir Richard Needham: As far as
Dyson is concerned the answer is absolutely no. If you are asking
me in another life as the International Director of GEC or as
Minister or Trade or you want to go back to the Pergau Dam, the
answer is, yes, of course, but that is a different discussion.
Q233 Judy Mallaber: Do you get the impression
that corruption is still a problem? You obviously have a wide
range of business contacts, do you get the impression that is
still a difficulty as The Economist suggested?
Sir Richard Needham: I think the
very fact that the new Prime Minister of Malaysia says he is going
to crack down on it means he thinks there is a problem. I have
not completely forgotten how to be a politician!
Mr Berry: I was wondering how we were
going to get the Pergau Dam into the minutes of this meeting!
Q234 Mr Hoyle: Obviously, we have touched
on a lot of reasons why Malaysia, but people say, "What about
India?". You have mentioned "Why not China?", but
we also went to visit Thailand where they are all muscling for
the hub of the economy in the ASEAN area. Did Thailand feature
and are there any rumours that you may be looking to put production
in countries other than Malaysia at this stage?
Sir Richard Needham: No, there
are absolutely no plans to put production anywhere else other
than in Malaysia, Singapore. As I said, as a long term ambition
we would certainly like to think that we could bring something
back to the United Kingdom at some stage but we do not have anything
on the drawing board at the moment which falls within the criteria
I was explaining to you. We did not look at Thailand. We did look
at Indonesia, Batam and Bintan are very close to Singapore. I
happen to have an adopted Indonesian son and I know Indonesia
very well and I love Indonesia and I would have been keen to consider
Indonesia, and Batam and Bintan were a possibility, although at
that time it was just after the overthrow of Suharto, so it was
very difficult. In terms of corruption in Indonesia, that was
of altogether a different order than it is elsewhere in South
East Asia. The delegation of powers within Indonesia to the regional
governments has if anything in my judgement made that worse, so
there is a big issue about Indonesia, although we employ in Malaysia
quite a lot of Indonesian workers, I am glad to say. To talk about
corruption, I think Indonesia, because it is such an important
part of ASEAN and so crucial to the stability of the area, is
the great political, social and economic problem in South East
Asia, which has to be solved. It is too big not to be solved.
Q235 Richard Burden: How do you see South
East Asia developing, not just as a potential base for manufacturing
operations but perhaps more as a market for UK goods and services?
Where do you see the areas of untapped potential?
Sir Richard Needham: The first
one is Malaysia because although at the back of one's mind one
has always got to have some consideration that if things went
terribly wrong what would happen between the Chinese and the Bumiputera
in Malaysia. As long as that does not happen, and there is no
reason to think it will,—and there is a problem in southern
Thailand as well—Malaysia/Singapore has to be the beacon
or, if you like, the roots on which South East Asian prosperity
can help develop. There are enormous opportunities for British
investment there going back over history. Although their young
men and women do tend to go more to the United States for their
education, there are still tremendously close family links, property
links, social links between Singapore, Malaysia and the UK. I
know I started the British Singaporean Business Council. That
has been a great success in developing links between our two countries.
That to me seems to be the foundation of it. The next block is
Indonesia and in Indonesia at the moment it is very difficult
to get foreign investment except for oil. Indonesia has to clean
its act up. In the end it has to be Indonesia that cleans up its
own mess and one hopes the new president will set about that.
Nevertheless, if they can move towards a less corrupt, more transparent
society—and they have taken some steps; there are some big
changes in Indonesia now, as you know. If you go there, there
is a free press, there is a parliament, it has made extraordinary
strides in the last three or four years, but if you can get at
the roots of economic corruption then I think there will be enormous
opportunities for Britain there. I think Thailand aims to be the
centre of automotive production. Yes, Britain has very close historical
links there but you have got to work at those things. You have
to work at making sure that their young people come to our universities
and our schools and we keep up the links there and when their
ministers come here, our ministers look after them. You have to
work at those links.
Q236 Richard Burden: Longer term what
about Vietnam and Cambodia?
Sir Richard Needham: I do not
know Vietnam. Yes, fantastic. The other one, the unspoken one,
which has to come right in the end is Myanmar. That is a fantastic
opportunity.
Q237 Richard Burden: But there are some
issues there.
Sir Richard Needham: You are quite
right but there is nothing to be done until the colonels see some
sort of light somewhere. Long term though it has to be another
Tiger, does it not?
Q238 Mr Clapham: Can I ask for your views
on the UK's trade facilitations, for example, UK Trade and Investment?
Have you used the service?
Sir Richard Needham: Yes, of course.
Q239 Mr Clapham: Did you find it good?
Sir Richard Needham: Yes.
3 Note by witness: Dyson accepted a compensatory
payment of £4 million instead of damages (plus costs). Back
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