Sistema Plastics is successful on so many levels – not least of which the controlled way it goes about conquering export markets. And it takes great pride in maintaining its world-class manufacturing base on these shores. Co-founder and marketing director Allin Russell shares some valuable export lessons.
Allin Russell greets me in the reception area of Sistema Plastics modern Penrose factory and ushers me into a display room of his company’s products. As I look around the four walls I see that their food storage containers and drink bottles come in almost every shape, size and colour imaginable. You probably have their ‘Klip-It’ plastic containers in your cupboard or fridge right now – I do, and I wonder how many people know they are made in New Zealand.
Russell explains how Sistema first came about. It was the early 90s. His business partner Brendan Lindsay, who was (and still is) making plastic coat-hangers, had just returned from the US where, at a football match, he noticed just about everybody drinking from cups with pictures on.
“I can do that,” he said to Russell. “Do you want to give me a hand?”
The partnership was to prove incredibly successful – Russell especially has an uncanny knack for coming up with smart ideas – developing clever new products for food storage. Even their latest product – the world’s first dedicated microwave range for cooking and re-heating food – was his brain-child. It was the middle of launch week in New Zealand the day of our interview and Russell informs me that it’s already selling extremely well via the home shopping TV network in the US.
Sistema started out manufacturing and marketing a range of children’s drink bottles and lunch boxes in 1993. “The big thing was that we introduced colour to the market,” recalls Russell. “While everybody else was still stuck on white.”
Lindsay and Russell went to a fair in Milan, Italy, the home of cutting-edge design, and Russell admits that, surprisingly, they learnt nothing from what they saw design-wise.
“But what we did realise was that our competitors around the world were industrial in their thinking. We set Sistema up as a marketing company that makes its own product, and this still differentiates us in the market today. Most of our competitors are manufacturers who employ marketers; that’s a huge difference.
“Brendan and I still sit down in front of our customers too, which is unusual for a company our size. My upcoming road trip in the US will involve calling on 19 retailers.”
In order to expand quickly, Australia was the first export market on the radar.
“It’s close, has a similar business model, and if something goes wrong we can get there quickly,” says Russell.
He says their initial plan was to take [export] steps every three years. “But everything happened so quickly, we were taking the next step before we’d finished the previous one.
“We’ve had to keep ourselves in check because if you have a relationship with a large overseas retailer and you don’t perform, there’s no second chance.
“As it turned out, 18 months after entering the Australian market we spent $75K we didn’t have and went to Chicago – the world’s premium housewares fair.
“We had a tiny stand and nine products – sat there for four days and never took an order. Then on the last day we met a guy from the UK who was just starting out and held the Pokemon licence. He liked our lunchbox and asked us if we could in-mould label. We said ‘of course’, even though we didn’t know what that meant.
“So we came home and learnt all about it, and ended up selling hundreds of thousands of Pokemon product via that one client – at a time when the exchange rate was very favourable.
“Where we were clever, I believe, was that we poured all that money into developing our capabilities further. We’ve gone from one cavity dies, because that’s all we could afford at the time, up to around 60 cavities. If you’re serious about exporting, you just have to invest.”
Made right here
While many Kiwi manufacturers switched production to China, Sistema dug its toes in and remains committed to its ‘Made in New Zealand’ philosophy.
“It’s about control. Daily there might be 30 or 40 reasonably major production decisions. If that’s going on in China; somebody else will make those decisions for you. Will they be the right ones? Plus you don’t get to participate in the solution.
“Everything is about our brand standard, that’s what drives our success,” says Russell.
Being ‘Made in New Zealand’ has its advantages, he adds, particularly in America where New Zealand is seen as a clean, green, easy-to-deal-with country that invests heavily in new technology and upholds high standards of production.
“Don’t forget we were the first people to produce lead-free BPA product in the world.”
New Zealand undersells itself as a manufacturer, Russell believes. “Manufacturing-wise we’re a lot better than we think we are. The emphasis in this country is on the likes of tourism, wine dairying and forestry. But there’re a lot of other things being made here and if people got the encouragement and help NZ Inc could become much more of an exporter.”
The ongoing debate of taking manufacturing offshore is not just about profit, as most claim it to be, says Russell. It’s about peoples’ lives and livelihoods.
“We have 300 people working here and every single person has bought into the Sistema dream,” he says. “They love the product and the fact that it’s sold overseas. They take great pride in it.” Staff even wear their Sistema tops with pride outside of work hours, says Russell. It’s almost like an All Blacks jersey, it means something to them he says, adding that more than half of Sistema’s employees have been with the company ten years.
“The fact that we can go anywhere in the world and say that this product is made in New Zealand really means something.”
Unique market approach
Sistema has a unique approach to the market with its products. “Our point of difference is functionality and simplicity – two clips, not four – people find them extremely easy to use,” says Russell. “And the quality assurances are paramount – all our products are thoroughly tested as required by retailers of course. A lot of thought also goes into the labelling – for which we have won numerous awards.”
Russell says many people thought they were crazy when they first started out. “But it would be no different if we were starting Sistema today – the same elements are still against us.
“Our strengths are innovation, flexibility, our response to market trends, and the fact that we still front up to buyers in person.”
Another key to their success has been a thoroughly market-tested product. “You’ve got to know that it will sell and go on selling and that there is future development potential,” says Russell.
Another hard lesson learnt was don’t just head off to international trade fairs and expect that big customer to turn up and answer all your distribution prayers.
“You must source local distributors who can provide thorough local market knowledge.
“We now own most of our overseas operations, but in all of them we’ve employed local people. They understand local demands, seasonal and ethnicity aspects, and so on.”
The global recession has helped fuel demand for food storage containers as people look to save money, says Russell. “Obviously we’ve been challenged with exchange rates. Swings and roundabouts is the only way to look at the market. When things are good you grow well and invest in technology. In a recession you may not develop quite so quickly. Developing eight to ten new products a year is not cheap.”
The reason why they are so successful, Russell firmly believes, is that they first come up with the idea for a product, make that product, then extend it into a range. “Retailers often get offered products, but seldom a whole range of products. It all makes sense to them.”
Russell isn’t sure exactly where Sistema sits in terms of size in their market niche – but thinks it’s around number three, four, or five in the world. That makes them a significant business. So has Sistema received any assistance over the years to reach world markets?
Russell says in the early days it was too much hard work to apply for government grants, and he eventually gave up trying. But there has been assistance through NZTE in more recent times. Russell acknowledges how daunting it is for many fledgling exporters to break into markets, and believes there’s a requirement for much more funding assistance on things like travel and attending trade shows.
He says they use a consultancy to liaise with funding agencies, but believes a lot of small businesses would love any easier connection between themselves and NZTE.
The road ahead
Lindsay and Russell still drive most product development. But nowadays there’s a major contribution from ‘a team of clever technical people’.
“We’re much better at analysing the outcome these days,” Russell admits. “People can get frustrated with us because they think we over-analyse. We thrash things out mercilessly – sometimes for months. And if we can’t see a way forward, we’ll park the idea and wait until it’s appropriate to resume work on it. It might be frustrating, but if you get things wrong it’ll cost you a lot of money.”
Looking back over Sistema’s 18-year journey, Russell describes it as “a fantastic ride, and we’d do it all again in a heartbeat.” His advice for other exporters is to not make the same mistakes twice. Expect the little trips and stumbles – and be realistic in your expectations.
“Be market-ready before you make that move,” he says. “The only times we’ve had to take corrective action is when we’ve taken a step before we were ready.”
Sistema was named Westpac Exporter of the Year with total sales over $35 million at the 2011 Air New Zealand Cargo Auckland Export Awards. It currently exports to 19 countries, and the next big push is continental Europe – a complicated series of smaller sub-markets, Russell says. “We’re currently identifying distributors that successfully cover all of Europe. There’re only a few and there’re many factors to take into account – so we’re taking our time to select partners. We’re still in the learning phase. The key is to know where to enter continental Europe in order to best serve the market.”
Brazil is also on Sistema’s radar. “Brazil has a higher GDP than Australia and a strong currency. It’s a complicated market – there are some powerful retailers and a huge licensing structure that discourages importing.”
As for China, Russell admits there are IP-related issues, but they intend to crack that market eventually too. “We’ve learnt that if your product is being copied, you threaten the retailer with litigation. The offending product is very quickly removed.”
Has there been a stand-out export milestone over the years?
“Securing The Container Store in the States was incredibly satisfying,” says Russell. “We battled away to break into that market for a long time. The major retailers already stocked recognised competitor brands, so why would they take on an unknown?
“So we went to The Container Store about six years ago and offered them exclusivity for 12 months. They agreed to trial us on that basis. Well, after just two months the retailers who had turned us down came back asking for product. We had the satisfaction of telling them, sorry, they would have to wait.
“That was a defining moment for us. We had the belief that we would be successful in the States if we learnt the local dynamics of product.”
Glenn Baker is editor of Exporter.