Gallagher has enjoyed considerable success in the US market since the early 1970s, when it introduced the world’s first high-powered electric fence to the agricultural sector.
In more recent times, this high-flying exporter has been ramping up its efforts and investment in this important market in order to grow sales.
Key to its business growth strategy in the US is the company’s innovative technology, which spans animal management systems (electric fencing, weighing and electronic identification readers) and security management (perimeter electric fencing, integrated access control systems). This technology is the result of serious money, time and resources being devoted to R&D (around eight percent of the group’s total revenue is invested in R&D annually).
Gallagher recently announced that it is moving its base from North Kansas City in Missouri to a purpose-built 56,000 square foot facility at a new master-planned business park in the city of Riverside, Missouri. Following this announcement Exporter questioned deputy CEO Steve Tucker about the US market, Gallagher’s plans there, and to see if he had any advice for Kiwi exporters eyeing up the States.
EXP: How do you regard the current state of the US economy? Is it a good time for Kiwi firms to be entering it?
ST: I think the US economy is showing signs of improvement from where it was two years ago, but forecasted growth is still relatively weak and slow compared to our part of the world and, as a result, is holding our NZ dollar high. From an exporter perspective at an $0.80 exchange rate to the US dollar it is obviously more difficult than the days of $0.50. But those days are long gone and we need to treat these current levels as the new norm.
In terms of the right time to enter the US market, I think it's currently as good as it is going to be over the medium term. Waiting to ride out current economic conditions is not an option; if you want to be there you may as well start now.
The United States is a large market and for many it probably represents half of the world market for your goods. We share the same language, it's relatively easy to get there, and I think in harder economic times it can create more opportunities as customers look outside the box for solutions.
EXP: What’s your advice for any Kiwi firms looking to establish themselves in the US? Is there anything they can learn from Gallagher’s experience?
ST: When Gallagher started in the US we chose a mutually exclusive distribution model – that is, we didn't sell to anyone else in that market other than our distributor and they in turn only purchased our product and not from our competitors. If you select the right distribution partner, and they have the majority of equity in their business, it can be a very successful model. The upfront investment is much smaller than a direct investment model and it means that you can afford to replicate this model in other countries simultaneously without breaking the bank.
The downside can be less control over your own destiny from a brand perspective and being further from your end customer. This has resulted in us purchasing back our key distribution companies, including our US distributor in recent years. Our Security business has required us to adopt a direct investment approach due to the nature of the products. In this market we are competing with large established players. Our strategy has been to focus on key vertical markets and find strategic local partners to work with to minimise the investment cost.
EXP: What has surprised you the most about working in the US market to date?
ST: Just the sheer size of the market and market potential. There are obviously larger countries in terms of population and growth rates, but not many have the infrastructure and disposable income to allow you to carve out a niche for your products like the US.
EXP: What excites you the most about the market potential there for Gallagher?
ST: Again, the market size. For most of our products the US probably represents nearly half of the world’s current demand – particularly with our Security products where we are in the early stages of establishment, the upside is enormous.
We are excited that the purchase of our US distributor for animal management products in 2008, along with the building of a new facility and the merging of our Security operations in this facility, will allow us to build a strong base.
