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International Engineering Management

This assignment focuses on an Australian engineering and manufacturing company called TNA Pty. Ltd. (TNA). TNA is a global leader in the food packaging and processing industry, supplying turnkey solutions and single systems to customers around the world. Your task will be to familiarise yourself with the company and then investigate and comment on specific questions relating to the company’s international operation and expansion.

Company Background

TNA was co-foundered by Alf and Nadia Taylor in 1982 based on the original idea of Nadia Taylor. When TNA started it spent much of the 1980s installing machines for Australian potato crisp manufacturer Smith’s. In 1989 the company entered the U.K. market by consulting to Walkers, now part of the PepsiCo Group and started to earn its first overseas revenue.
TNA’s business is based on the development of innovative packaging equipment. Alf Taylor the company’s managing director was originally an engineer, who had experience working in the snack food industry. Specifically he worked with biscuit manufacturer Arnott’s which had given him a detailed knowledge of the food packaging business. He worked on developing packaging machines that incorporated a unique stripping action using rotary continuous motion jaws, to generate an output of bags more than double the industry average.
According to Taylor, the decision to go international was made at the same time as this innovation was conceived. It was felt at the time that developing a global business model would be relatively easy. However the development of the packaging machine proved much more difficult than anticipated due in part to a number of design faults in the machine. A break through ultimately occurred in 1986 when Smith’s took a risk and place an order for a large number of the machines. Installation commenced in 1987 but involved major problems for both TNA and Smiths. As Alf Taylor explains:

The paintwork was good, nothing else was good. The software was corrupting every five minutes, the electronics would fizzle out, machines would go on fire, but the paintwork was really quite good. There were all these problems, and it took us two years, from 1987 to 1989, to work our way through and resolve all of these issues.

The prototype machines had been installed in Smiths brand new facilities in South Australia. Smiths were heavily dependent on TNA and continued to fund them for two years to fix the outstanding problems. By 1989 the machines were fully functional and TNA was now a $2M company with 12 employees.

TNA has grown from a small Australian company into a large organisation with operations in over 24 countries across the world. With a history spanning more than twenty years, TNA has grown from a packaging machine supplier initially targeting snack food production lines to become internationally recognized as a leader in packaging technology and solutions.

Offering customers a complete processing/packaging production line, TNA can now not only include the design, delivery and installation of integrated packaging and processing equipment but also fully integrated operational elements such as power supply, voice and data cabling, wastewater management and building design.

“Our goal is to evolve from being a manufacturer of packaging machinery to pioneering the supply of seamless packaging and processing solutions,” said Alf Taylor, TNA Managing Director.

With growing pressure to retain shelf-space and presence in the eyes of the consumer, processors are faced with numerous challenges when it comes to processing and packaging their products. With the availability of a true turn-key process/production line, project managers no longer have to ‘cherry-pick’ and coordinate multiple quotes from multiple suppliers.
As a solutions provider, TNA claims its new division is not just a response to problems posed by customers. It also involves improvements to existing machinery and the company’s philosophy of “Rethink the Conventional”.
Both Taylor and Mario Pino, International Sales Manager of Processing considers that TNA’s defining benefit is one of practical ingenuity. By taking as standard the things that competitors treat as challenges TNA can accommodate the needs of clients and develop machinery to meet those demands. “By accommodating these demands with greater speed, flexibility, quality, reliability and less wastage, TNA delivers lower costs per bag per minute, while reducing ongoing running and maintenance costs,” said Taylor.

‘Not only will we provide the equipment to service any logistical or geographical need, but our equipment is supported by one of the finest engineering and project teams in the world”, Alf concluded.

Products

TNA is a leading supplier of complete turnkey solutions to the food packaging and processing industry with the packaging and distribution systems, robag® and roflo® being benchmark products in the industry. TNA products include:

• Product transfer & distribution
• Vertical Form Fill & Seal (VFFS) systems
• multihead scales
• checkweighers
• date coders
• metal detectors
• case packers
• case erectors
• palletizes
• shrink wrappers
• seasoning systems
• complete processing equipment

The company sources most of the parts for its machines from overseas. Japan provides most of the parts in dollar terms, with the U.K. the second largest supplier. The Uruguay Round of the General Agreement on Tariffs and Trade (now WTO) was particularly beneficial to TNA. In particular, the agreement extended the life of patents from 16 to 20 years. TNA has approximately 30 patents overall, but this extends to several hundred patents in the patent family worldwide.

The Organisation

In Australia, TNA runs offices in Sydney and Melbourne. The company’s products are manufactured and distributed from its Melbourne office. Sydney is its corporate support office, which houses all of the administrative functions required to run the global business. Research and development (R&D) is carried out in Sydney, as is marketing, corporate finance and human resources management. This structure ensures that the international offices run as smoothly as possible with the majority of control exercised in Melbourne and Sydney. Of the functions carried out in Australia, R&D remains a key function of the corporate support office. The majority of staff involved in R&D are employed in Sydney, although there are one or two R&D staff in the U.S. and U.K. The R&D team receives feedback from TNA’s overseas sales, particularly regarding opportunities that have arisen in overseas markets such as the Middle East, China or the U.S., and is then able to incorporate this into the product design.

Current Locations
Americas: Dallas, Pennsylvania, Mexico, Brazil, Chile
Europe: Birmingham, Warsaw, Venice, Lyon, Barcelona
Indian-Pacific: Sydney, Melbourne, New Zealand, Manila, Dubai, South Africa.
Agents: South America, Indonesia, Germany, Russia, Thailand, Korea, Greece, Israel.

The company has approximately 200 staff.

Going International

TNA realized early that as Australia had a population of only 20 million there was a limited domestic snack food market and therefore that they would need to look overseas for expansion. The company therefore approached Austrade for assistance, and was provided with a small development grant which enabled them to set up TNA Europe. In 1991Taylor established a small office in the U.K. and spent the next six years in the U.K. trying to ensure that the European operation would be successful. The U.K. office was involved in sales, support, logistics and administration, a model that TNA has continued to follow as it expands globally.
The company’s reason for choosing Europe as its first overseas expansion was that the technical specifications of TNA’s products were more suited to this region than to others. In particular the British market offered the fewest hurdles for TNA. It was similar to Australia in terms of organizational culture and consumer preferences for snack foods. Also since Taylor originally came from Scotland he understood the U.K. environment. Continental Europe presented more challenges for TNA, but the company went on to launch successfully in Spain, Germany and the Netherlands.

TNA’s expansion into the U.S. in 1995 was much more difficult, owing to the lack of technical compatibility between TNA’s system and those prevailing in the U.S. snack food packaging industry. Additionally, Taylor found the U.S. staff at the time far less industrious and committed than workers elsewhere. The terrorist attacks of 11th September 2001 also caused a dramatic reduction in the supply of financial capital. Furthermore, TNA had made a change of management that proved disastrous for the organization. In the space of twelve months the company’s total sales in the U.S. dropped from $US 18 million to $US 6 million. Fortunately for TNA the U.S. market started to pick up some 12 to 18 months after the terrorist attacks and prompted by its difficulties in the U.S. TNA extended south to establish operations in Mexico, setting up an office in 2001. In the same year, the company also established offices in South Africa and China.

Competition

Taylor believes that having a strategic mindset has been a key factor in TNA’s ability to move into the world marketplace. In the packaging industry, there are around 20 competitors worldwide, and the industry has a total size of around $1 billion. This makes it a relatively small industry, says Taylor. What TNA sought to do was to gain an advantage over its competitors by employing strategies that were suited to its industry’s particular environment. Importantly, the company analysed all of its competitors and determined that the competition collectively suffered from a lack of vision and an overestimation of its geographic limitations. This gave TNA the confidence to pursue a grand vision that would give the company a decisive edge over its competitors.
In particular, TNA realised that all of its competitors were extremely parochial. The U.S. companies carried out most of their business in the U.S., the Germans operated solely in Germany, and so on. TNA concluded that this parochialism made little business sense: it didn’t matter where in the world a product was being packaged, the packaging requirements were no different. TNA then looked at the packaging products that were being used, and found that they were almost identical worldwide, except in terms of colour. There was very little technical difference. TNA knew that it possessed a serious technical advantage over its competitors, and determined that the best way to succeed was to go global with this technical innovation. Today 95% of TNA’s revenue is derived from offshore business.
Taylor remarks that, in retrospect, the organisation had relatively little difficulty in taking its products worldwide. Some of the greatest difficulties arose when its competitors tried to copy TNA machines, and the company was therefore forced to initiate patent litigation. Additionally, some competitors tried to undermine the credibility that TNA had built up over many years by casting aspersions about the young company from Australia, telling potential TNA clients that it was impossible for the machines to work as quickly as TNA claimed. Thus TNA discovered that many potential clients were unwilling to step outside their comfort zones and consider a new product manufacturer.
To overcome this obstacle, TNA decided to structure its fees around the performance of its products. Clients would pay a certain amount if the machines could bag 100 products per minute, but if the result was only 70 bags per minute they would pay a lesser amount. The company also sought potential clients who were less conservative and more open to new business ideas. Such clients were sourced by Taylor himself, through networks he had built, often by painstaking and unglamorous means. Taylor describes what this process involved:

“Banging on doors……just hard slogging and we hired a van. We had no money and we hired a van, stuck a machine in the back of a van and drove it round and put it in people’s factories and ran trials”.

Taylor compares TNA’s early situation to David fighting Goliath. This situation existed until the mid-1990s, with competitors doing all that they could to prevent TNA entering their marketplace. However, TNA rapidly became the biggest global player in its industry, earning the respect of competitors. There are still highly competitive organisations trying to displace TNA in the marketplace, but there are also organisations that are keen to work closely with TNA.

Financing Growth

Taylor believes that the greatest hurdle that he has had to face is finding money to fund growth. Each new overseas venture has financed the next one. The two sources of funding that TNA has been able to secure have been retained profits and relationships built with various large banks, such as Barclay’s, ANZ and the Bank of America. Taylor quickly grasped the idea that while human capital is an organisation’s primary asset, banks prefer to lend money for fixed capital such as buildings or property. He therefore adopted the strategy of sourcing money from the banks to fund purchasing buildings in key operational centres. The organisation could then go about populating these buildings with its key asset: its people.

Industry Recognition

In 2009 Alf Taylor, the founder of TNA, was named one of Australia’s 100 most influential engineers of the year in the June edition of Engineers Australia. The list, published annually, identifies the country’s leading engineers in academia/research, associations, consulting, engineering expertise, industry, public service and politics.
In addition to this recent honor TNA has made the BRW’s (a leading Australian business magazine) Fast 100 list for the last nine consecutive years and also made the BRW’s list of Top 500 Australian privately-owned companies. In 2003, TNA was inducted into the Victorian Manufacturing Hall of Fame and won two Processing & Packaging Machinery Association awards in 2004.

The Task

It has been suggested to Alf Taylor that Malaysia and Vietnam would be attractive new markets for TNA.

• Carry out a preliminary analysis of these two potential markets to determine their relative advantages and disadvantages in terms of their market profit potential.

• Based on your analysis make an initial recommendation on which of these markets would provide the best option for TNA and identify any other information that you feel would be required to finalise a decision. Recommend some action that you might take to improve the sales and marketing in those countries.

• Taking in consideration all factors you are aware of, outline the main risk associated with these two potential markets. For example you can characterise the level of country risk facing investors doing business in Vietnam.

Your work should be presented in a report of approximately 2,500 words in length.

Please Note

 You should not make contact with the company TNA or any of its personnel in preparing your assignment.

 Your report needs to be clearly written, well structured and well presented. You should acknowledge all sources used and provide references where appropriate. References must be presented in approved standard form (e.g. Harvard) and the reference list presented alphabetically by author. Please note that the software program Turnitin may be used in assessing your assignment.

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