Hornby APPOINTS NEW CEO

[RJS1977]

Which reinforces my point - all those staff costs at Hornby, and nobody actually making anything....

[No Decorum]

Although not identified by name the highest paid Director of Bachmann Europe  received a salary  of £103,444 in 2016 (up from £94,295 in 2015) plus £5,996 pension contribution in 2016 .  Total Director's remuneration in 2016 was £185,000 plus £10,000 in pension contributions - the company had a total of four Directors of whom at least two are also Directors of Kader.  As per their 2016 data submitted to Companies House Bachmann Europe had a total of 70 staff, including 15 involved in 'development' in 2016 - up by 3 on 2015.

 

Total Bachmann Europe sales in 2016 were £15,056,000 of which £11,411,000 were in the UK  (UK sales in 2015 were higher at £11,738,000).  Bachmann's figures are for the end of the calendar year, Hornby works to the financial year and doesn't breakdown its numbers of sales by product stream - its total external sales for the year to 31.3.17 were £47,420,000 of which £37,720,00 were in the UK (plus in the overall amount a further £6.9 million from what are described as 'segmented sales').  Thus on a pretty rough calculation Hornby's Directors cost a bit over 5 times as much as Bachmann's for total external sales which are about 5 times greater.   However if you simply compare UK sales (which won't represent the entire business picture of course) Hornby Group's entire range of products sold only about three and a half times the value of Bachmann's sales.

 

Hornby's total salary bill (including £599,000 redundancy costs and 'compensation for loss of office') was £10,587,000 for 190 staff (including Directors), Bachmann's total (no redundancy or golden goodbyes there) came to £2,451,000 for its 70 staff indicating on a simple division basis a wide disparity in cost per head employed.  Part of this is explained by a further figure in Hornby's accounts referring to 'key management compensation' which includes Directors but adds 'the individuals involved in major strategic decision making and includes all group and subsidiary directors' this lot cost a total of £2,157,00 (including £241,00 for redundancy etc).  So effectively on top of the cost of its board at £1,006,000 Hornby was paying out almost another £1 million for its senior managers and subsidiary directors.  In other words Hornby's decision making and senior management process alone cost not far short (in reality about chief executive's remuneration short) of Bachmann's entire salaries bill.

 

Oxford does not submit full accounts to the same extent as Hornby and Bachmann but its 2016 turnover was over £4 million while its 'administrative costs'  (obviously a wider area than salaries etc alone) were just over £1 million.  

 

Peco's turnover to 30 April 2016 (the most recent figures at Companies House) show a turnover in that year of £9,066,971 (down from £9,512,559 in 2015) and the company has 5 Directors (including the Company Secretary) and the total wages and salaries was £4,326,347, including Directors remuneration and also including - unusually - in its case a defined benefit pension scheme which cost £431,000 in addition to the company's pension contributions.  The Directors remuneration was £199,571 and the highest paid Director received £89,940 (it had been £91,035 in 2015).   Breaking down the staff numbers is interesting - Production, 87; admin and support, 45; sales 4 (yes, four - but it might mean Pecorama counter perhaps?); other depts, 20 giving a total of 156 including Directors.

So Peco are achieving a turnover of £9million with a total Directors' cost of £199,571 -  thus sales are more or less one fifth of Hornby's and the cost of Directors is also roughly one fifth of Hornby's.  But Peco's overall salary etc cost of £4,326,347 for 156 people compares with Hornby's cost of £10,587,000 for 190 people.  And don't forget Peco also paid £431,000 towards defined benefit pensions take that amount out and it could be said that for an extra 34 people on its books Hornby was paying £6 million (yes, I  know - lies, damed lies and statisrics but it's an interesting comparison).  I accept (almost) that the south east Devon coast might just be a cheaper place to live than the south coast of Kent - but not by very much.

 

My general conclusion from these various numbers is that there is somewhere in Hornby something which is driving up the total staff costs when compared with Bachmann and Peco.  Now assuming, perhaps naively, that the specialised general salary and wage levels across the industry are roughly equal for people doing the same work (although there will be some regional differences for the non-hobby related jobs such as personnel dept) the problem does appear to lie with Hornby's top end costs - not just its Board but the managerial/director level immediately below that.  In other words decisions used to manage Hornby's business are lot more more expensive than those for either Bachmann or Peco and massively different from the far smaller Oxford operation.

You do not always get what you pay for. Some of Hornby’s expensively bought “strategic thinking” is on a par with Churchill’s decision to send the victorious British Army in North Africa to Greece.

[ruggedpeak]

Which reinforces my point - all those staff costs at Hornby, and nobody actually making anything....

That is modern business. Highly successful firms like ARM and Dyson have their high value R&D divisions in the UK and manufacrture overseas or outsource/licence. As indeed Oxford Diecast do. The key for Hornby is to make sure that the product development, R&D, distribution etc functions, as well as the management of the supply chain are world class and profitable.

 

Peco is not in any way making the same products as Hornby - one is track and accessories with minimal labour inputm the other complex locos and rollling stock with significant labour input. Hornby is facing a significant increase in direct competition from new entrants which Peco is not. Rapido et al are not entering the low marging high volume track market, they are entering the quality rolling stock market using a variety of risk reducing approaches to avoid being stuck with stock, such as pre-ordering. With a precarious financial position and growing competition it makes little sense for Hornby to be carrying the burden of manufacturing facilities unless it provides a decisive competitive advantage. It may be that this is what Oxford can bring to the party.

[Fenman]

... Some of Hornby’s expensively bought “strategic thinking” is on a par with Churchill’s decision to send the victorious British Army in North Africa to Greece.

No, it really isn't. One has led to some hard times for a small business; the other led to mass deaths.

 

I know the web encourages hysterical over-reactions to everything, but it's probably more helpful to keep a sense of perspective.

 

Paul

[RJS1977]

That is modern business. Highly successful firms like ARM and Dyson have their high value R&D divisions in the UK and manufacrture overseas or outsource/licence. As indeed Oxford Diecast do. The key for Hornby is to make sure that the product development, R&D, distribution etc functions, as well as the management of the supply chain are world class and profitable.

 

Peco is not in any way making the same products as Hornby - one is track and accessories with minimal labour inputm the other complex locos and rollling stock with significant labour input. Hornby is facing a significant increase in direct competition from new entrants which Peco is not. Rapido et al are not entering the low marging high volume track market, they are entering the quality rolling stock market using a variety of risk reducing approaches to avoid being stuck with stock, such as pre-ordering. With a precarious financial position and growing competition it makes little sense for Hornby to be carrying the burden of manufacturing facilities unless it provides a decisive competitive advantage. It may be that this is what Oxford can bring to the party.

 

Both make track, point motors etc, and rolling stock (in Peco's case 009) though admittedly Peco aren't currently making any RTR locos.

 

If you can control your production lines (i.e. curtail production of a model that isn't selling well, or delay a new model, to enable production to meet demand for a model that is selling well, I would say that is a definite competitive advantage).

[jjb1970]

No, it really isn't. One has led to some hard times for a small business; the other led to mass deaths.

 

I know the web encourages hysterical over-reactions to everything, but it's probably more helpful to keep a sense of perspective.

 

Paul

Indeed, a few days ago there was a particularly asinine comment from one of the political party conferences that something would be just like the Battle of Stalingrad. Unless we really are expecting cities to be flattened and something like 2 million casualties in one of the most vicious battles of a particularly brutal war I think the comment was ever so slightly over the top and probably in very poor taste.

[Mike Storey]

https://www.bloomberg.com/quote/180:HK

 

@mike storey

See above. Assuming I’ve got the right entity, I don’t think Kader is a much bigger entity than Hornby

 

David

 

David

 

Thanks, but, this link does not show turnover (as Not Available) but on market capitalisation which it does reveal, at just under 10HKD to the GBP, it is roughly three times the size of Hornby. It is also paying dividends, albeit pretty small. Bachmann Europe on the other hand, is significantly smaller than Hornby, on turnover, product lines, market segments and distribution network..

 

On the other hand, an FT site (https://markets.ft.com/data/equities/tearsheet/profile?s=180:HKG) shows Kader Holdings revenue at about £73 million (which is a fall of 16% from the previous year, much like Hornby's and only about 1.5 times the size of Hornby), but with 2,500 employees approximately (about 12 times the size of Hornby). In that respect, Hornby looks seriously efficient!! But that disregards the relative pay rates between the two.

 

It is not clear from the FT site whether the Kader numbers include those of its subsidiaries, in Europe and the USA, so without paying a fortune to subscribe to the necessary info, we are left wondering about true comparison. But such info as we have is instructive, n'est-ce pas?

 

Mike

[Mike Storey]

Both make track, point motors etc, and rolling stock (in Peco's case 009) though admittedly Peco aren't currently making any RTR locos.

 

If you can control your production lines (i.e. curtail production of a model that isn't selling well, or delay a new model, to enable production to meet demand for a model that is selling well, I would say that is a definite competitive advantage).

 

It is only an advantage if you can maintain a reasonably competitive cost base, and you can utilise all your resources at or near full capacity. Relatively simple (though still requiring a great deal of nous to get right, as the demise of many other, similar firms has shown) compared to the mass production of high spec, complex "toys". It is of note that Peco are attempting to enter the more complex areas of point control, for which they have entirely outsourced, or re-badged under licence.

[Clearwater]

Mike

 

I’d view any company with a market cap of Sub £500m or equivalent as a tiddler in the grand scheme of things. It’s rather like saying a 200 sq from flat is twice as big as 100 sq ft one. Both are still small! Yes Kader appears bigger but I don’t really think they are any more robust than Hornby. On the employees, they may well employ manufacturing staff - one of the pitfalls in doing comparator analysis is that you never really know if you’ve done an apples for apples comparison.

 

The way I’d think about it is the ability of the company to withstand a financial shock. Say a £5m hit (10% of Hornby turnover or 7.5% of Kader’s). That sort of hit would be material to both in a way that it wouldn’t be to a £2bn entity

 

David

[Mike Storey]

Hornby don't do any production in the U.K. It's all contracted out to suppliers.

Airfix's UK produced Quick Build range is made by Plastech in Newhaven, East Sussex and not by a Hornby's owned company.

Similarly U.K. production of Humbrol paints is also outsourced. Enamels are made by Rustins (Cricklewood, London) and Acrylics are made in Manchester (not sure by who - possibly by HMG Paints Ltd?)

 

Depends what is meant by "production" these days? Getting to CAD stage is a pretty serious part of manufacturing production now, and one that can often set the seal for the final success of a real train, let alone a model one. Actually working out how to build the thing, on a budget, and then making that happen, is the least profitable part of the equation. Note how real train builders actually make most of their profit from after-sales services and spares, not the original sale, something not really available to the model variety (although I could really do with a Bachmann, Heljan, Roundhouse and Accucraft maintenance team in my shed).....

[RJS1977]

Depends what is meant by "production" these days? Getting to CAD stage is a pretty serious part of manufacturing production now, and one that can often set the seal for the final success of a real train, let alone a model one. Actually working out how to build the thing, on a budget, and then making that happen, is the least profitable part of the equation. Note how real train builders actually make most of their profit from after-sales services and spares, not the original sale, something not really available to the model variety (although I could really do with a Bachmann, Heljan, Roundhouse and Accucraft maintenance team in my shed).....

 

But that's something which only happens once - it's not something that's repeated umpteen thousand times. Therefore the costs of designing a model are spread over the expected sales volume, whereas the process of turning raw materials into finished models is followed through for every model made. You can reduce the contribution of the design costs to the purchase price, by extending the production run (assuming you can sell them of course), but you can't reduce the manufacturing costs themselves without streamlining the process in some way.

[Mike Storey]

Mike

 

I’d view any company with a market cap of Sub £500m or equivalent as a tiddler in the grand scheme of things. It’s rather like saying a 200 sq from flat is twice as big as 100 sq ft one. Both are still small! Yes Kader appears bigger but I don’t really think they are any more robust than Hornby. On the employees, they may well employ manufacturing staff - one of the pitfalls in doing comparator analysis is that you never really know if you’ve done an apples for apples comparison.

 

The way I’d think about it is the ability of the company to withstand a financial shock. Say a £5m hit (10% of Hornby turnover or 7.5% of Kader’s). That sort of hit would be material to both in a way that it wouldn’t be to a £2bn entity

 

David

 

No disagreement from me! The point was to show comparisons of risk, management and other costs within the model railway, or at least hobby, industry, or at least I thought it was? That shows comparison between Hornby and Bachmann Europe to be IMHO not terribly relevant, but that with Kader to be more so, but still skewed. Hornby is one of those oddities that has become independent from a much larger player, compared to the history of some of its constituent parts (such as those bits that used to be part of the giant Mattoy empire, and so on) and so it is difficult to say what success looks like in terms of comparative companies, unless we look further afield. Piko may become instructive, but the likes of the Fleischmanns etc are not. If we look outside the world of model railways, it is hard to find a successful company that is not part of a much larger concern, unless it is trading in a particularly niche, and very high priced, market. If we go outside the 3D hobby industry, we start to see independents, in for example the software gamers, who get snapped up by big fish when they become any sort of threat or cheap opportunity. I am struggling to see just what comparisons we can make other than in very broad terms of similar sized industries in the AIM listings, and to that degree, Hornby looks reasonably typical.

 

The debate should then move to whether Hornby might benefit from

 

a) going private, but I see investors, debt and covenant problems with that.

 

b) adopt its own manufacturing capabilities again, in line with the Oxford tie-up.

 

Perhaps others have some better views to share and debate than me? I would have thought so....... I would guess these are exactly the issues that Hornby are grappling with along with what to offer to the market, as regards innovation v just doing existing things a bit better.

[Mike Storey]

But that's something which only happens once - it's not something that's repeated umpteen thousand times. Therefore the costs of designing a model are spread over the expected sales volume, whereas the process of turning raw materials into finished models is followed through for every model made. You can reduce the contribution of the design costs to the purchase price, by extending the production run (assuming you can sell them of course), but you can't reduce the manufacturing costs themselves without streamlining the process in some way.

 

Exactly. You pay once and then milk it as long as you can get away with it. Your whole life costs reduce (as your start up costs are spread over a larger volume of units), as do your unit costs. You make increasing profit on higher volumes, but the people who actually make the things do not (other than for inflation, or if they have a monopoly). That is why concept, design, IP and marketing are the most crucial but most profitable parts of the whole process. Hornby suffered from a lack of production capacity, when Sanda Kan failed. You will notice that Sanda Kan failed, but Hornby did not. That is a key point to bear in mind. That could have been Hornby.

 

The security of manufacturing capacity was a problem, and may indeed become a problem again one day (as it would appear to be at the moment for Bachmann, despite their link to Kader), but it is not right now. That is a future strategic issue for Hornby, and may explain their stated intention to consider investing in Oxford. But they would not do it to make more money. They would do it to make any money at all.

[adb968008]

How is that off topic? It's a direct comparison between directors in Hornby and what the PM gets paid. You may feel that's not typical but it's still a point of comparison

How about a realistic comparison...

 

https://www.bdo.co.uk/getmedia/e280403a-cd23-4e6f-b518-51143b3506d7/AIM_Directors__Remuneration_Report_Final.pdf.aspx?ext=.pdf&disposition=attachment

 

Average AIM listed CEO salary for retail is £375k

 

Remember any person seeking a job (any position in any job) will always seek higher than average.

Similarly any company hiring will want the best, and if that person will settle for less,it’s a warning sign.

Edited October 14, 2017 by adb968008

[jjb1970]

There is another aspect to outsourced manufacturing that works against traditional suppliers, it removes a massive barrier to market entry. Design requires skill but it doesn't require a particularly high capital investment or headcount (we're not talking about certain asset categories and some consumer products for which product development does require a major capital investment and a lot of people) and in the case of trains if you play your cards right you can use boards like RMWeb to outsource a lot of your research. Go to the manufacturing stage however and you do need substantial capital investment, a much larger trained work force and all of the associated costs of manufacture. We would not have seen the huge diversification of model suppliers if you had to be capable of manufacturing models as opposed to paying an actual manufacturer to do that bit. That is beneficial for enthusiasts as it means that almost anybody can take it upon themselves to produce a model if they're willing to take the financial risks of paying the factory (and if you use crowd funding or pre-ordering you can minimise that risk) but it hasn't been great for companies like Hornby and Bachmann. I wonder if Hornby and others realised the implications for their market position when they outsourced production? Something that many in the developed economies didn't seem to quite appreciate was how quickly the balance of intellectual capability and skills would shift to where the manufacturing was done.

The balance of profit and financial reward between design and manufacture is quite complex, and varies both between sectors and within sectors.

[No Decorum]

No, it really isn't. One has led to some hard times for a small business; the other led to mass deaths.

 

I know the web encourages hysterical over-reactions to everything, but it's probably more helpful to keep a sense of perspective.

 

Paul

It was hardly a hysterical over-reaction. It was merely an attempt to highlight poor decision making.

 

Indeed, a few days ago there was a particularly asinine comment from one of the political party conferences that something would be just like the Battle of Stalingrad. Unless we really are expecting cities to be flattened and something like 2 million casualties in one of the most vicious battles of a particularly brutal war I think the comment was ever so slightly over the top and probably in very poor taste.

 Of course, the consequences of one decision were much more grave than the other. I merely meant to compare the poor quality of two decisions, both of which were difficult to recover from. I am sorry that you consider it in poor taste; I don’t see it as such.

[jjb1970]

It was hardly a hysterical over-reaction. It was merely an attempt to highlight poor decision making.

 

 Of course, the consequences of one decision were much more grave than the other. I merely meant to compare the poor quality of two decisions, both of which were difficult to recover from. I am sorry that you consider it in poor taste; I don’t see it as such.

I was referring to the comment about Stalingrad, not yours. I wouldn't really agree with the Greek comparison but it was at least comparing a strategic decision, the one I referenced was trying to compare op-ed articles with mass slaughter.

[Mike Storey]

. I wonder if Hornby and others realised the implications for their market position when they outsourced production? Something that many in the developed economies didn't seem to quite appreciate was how quickly the balance of intellectual capability and skills would shift to where the manufacturing was done.

The balance of profit and financial reward between design and manufacture is quite complex, and varies both between sectors and within sectors.

 

I don't quite understand your justification for the first sentence above. I can only see its application where the laws of IP are ignored. I do see that happening in other sectors, for sure. If it happened in the model railway world, it is too small to go unnoticed and unchallenged (bar the huge bags of electronic bits people buy off flea-bay).

 

I agree on the second sentence, but it appears to be quite simple for model railways. Manufacturing per se is not (usually) as rewarding. But the security of manufacture can be critical. See my posts above.

Edited October 14, 2017 by Mike Storey

[jjb1970]

I don't quite understand your justification for the first sentence above. I can only see its application where the laws of IP are ignored. I do see that happening in other sectors, for sure. If it happened in the model railway world, it is too small to go unnoticed and unchallenged (bar the huge bags of electronic bits people buy off flea-bay).

 

I agree on the second sentence, but it appears to be quite simple for model railways. Manufacturing per se is not (usually) as rewarding. But the security of manufacture can be critical. See my posts above.

Did Hornby properly appreciate that transferring manufacturing (and that includes a good part of design too, as I suspect design of the manufacturing process, tooling etc is with the factories) would remove the most important market barrier to entry, opening the way to the proliferation of model suppliers, all of which appear to have much lower cost bases than Hornby? In other sectors the massive cost of research and product development is a massive barrier in itself which provides some protection from new entrants but in the case of model trains you're not doing technology development or advanced research or anything. Would we be seeing several model shops developing their own model ranges (including plenty of locomotives), DJM going solo, two enthusiasts going into model production and even the entry of companies like Rapido if they had to own the production process and make the in-depth investment needed to build a capability for producing tooling, manufacturing design, production staff, managing supply chains etc?

In the case of transferring the expertise, I remember 20 years ago that many people in Europe and America seemed to assume that China would just do the manufacturing and all the expertise would stay in Europe and America without really understanding that those companies doing the manufacturing would develop the expertise needed to design and develop their own products. At that point they own production and have the expertise to just go in it for themselves if they decide that is more lucrative for them. At that point there is a subtle shift in the balance of power as although in many cases the factories prefer to manufacture for others as before they can secure much better terms as there is always the implied threat that factories will just bring everything in house and go into competition if the deal isn't good enough for them. I work in an industry where although many of the brand names and design expertise is still in Europe, those European companies are acutely aware that their Chinese and Korean licensees could develop their own products almost overnight and dump their former licensors just as quickly if it was to their advantage. What tends to happen is that from time to time they'll develop a product as a shot across the bows as a reminder as to who wears the boot.

[Mike Storey]

Did Hornby properly appreciate that transferring manufacturing (and that includes a good part of design too, as I suspect design of the manufacturing process, tooling etc is with the factories) would remove the most important market barrier to entry, opening the way to the proliferation of model suppliers, all of which appear to have much lower cost bases than Hornby? In other sectors the massive cost of research and product development is a massive barrier in itself which provides some protection from new entrants but in the case of model trains you're not doing technology development or advanced research or anything. Would we be seeing several model shops developing their own model ranges (including plenty of locomotives), DJM going solo, two enthusiasts going into model production and even the entry of companies like Rapido if they had to own the production process and make the in-depth investment needed to build a capability for producing tooling, manufacturing design, production staff, managing supply chains etc?

In the case of transferring the expertise, I remember 20 years ago that many people in Europe and America seemed to assume that China would just do the manufacturing and all the expertise would stay in Europe and America without really understanding that those companies doing the manufacturing would develop the expertise needed to design and develop their own products. At that point they own production and have the expertise to just go in it for themselves if they decide that is more lucrative for them. At that point there is a subtle shift in the balance of power as although in many cases the factories prefer to manufacture for others as before they can secure much better terms as there is always the implied threat that factories will just bring everything in house and go into competition if the deal isn't good enough for them. I work in an industry where although many of the brand names and design expertise is still in Europe, those European companies are acutely aware that their Chinese and Korean licensees could develop their own products almost overnight and dump their former licensors just as quickly if it was to their advantage. What tends to happen is that from time to time they'll develop a product as a shot across the bows as a reminder as to who wears the boot.

 

Ok. I get the logic in the first part of that. But it assumes that Hornby would have retained a near monopoly on the skills and ownership of manufacturing, had they stayed in that game. The reality is that the Chinese developed a manufacturing capability across a world market, and individual commissioners and new entrants have taken advantage of that. Hornby's retention of their own capability would have been pretty irrelevant to that.

 

As for the rest, whilst what you say has begun to emerge in other sectors, it emerged in model railways primarily through acquisition, not as you say. Kander bought their way into the total control of their products, but really only make money at present from their property dealings. Other factories have operated so much on the margin, as Kander San proved, that such a step change was all but impossible. It is reported that model railways as a hobby has really taken off in China. But all reports suggest that most companies capable of fulfilling this demand have already switched to consumer electronics as a far more profitable use of their factories.

 

In summary, whilst we may well agree with each other about the sentiment of passing the control, skills and physical assets of manufacture to the far east, and China particularly, we diverge on what actually happened, and therefore it may have actually been a very good decision to have moved production, given the number of failures that have occurred, leaving Hornby to go elsewhere, as they have done. We are also seeing the demise, or at least rescue, of some seriously major names in far east manufacturers who attempted to develop their own products as well as make major capital investments, which are crashing partly due to market volatility or competition, due to corruption, due to poor quality control,  but also due to unrealistic borrowings. The emerging Chinese bubble is a serious problem for them, but I don't see how European model companies are in much of a position currently to reverse global trends. That solution may emerge over time, but I don't know what it is. Some, less capital intensive (driven by advanced technology production methods) manufacture is returning to the UK, as Dapol and to a small extent Hornby, are showing, but until someone like Dyson (in his case, Malaysia) does the same on a major scale, I can't see it as a near term strategy for Hornby. I would be happy to be wrong.

[jjb1970]

The decision to outsource is a nuanced one, and I'm not necessarily saying Hornby were wrong. Chinese factories are capable of producing probably the best RTR models available these days and work to remarkably high standards of fidelity to prototype and finish. And despite the price issue the models remain affordable, it is not an empty boast to say that we've never had it so good. From the perspective of a model buyer and enthusiast the only negative I can see from the decision to outsource production to China is that they appear to be less rigorous in assuring the quality of zinc alloys than factories in Europe, the US and Japan. Chinese producers are also very active in what remains of the very high end brass segment too, and there are some beautiful brass models of Chinese prototypes being produced. Model railways is indeed becoming a popular hobby in China and the railway hobby has more enthusiasts around Asia in general than is perhaps realised over here where people tend to ignore even the vast Japanese rail enthusiast base.

That said, my impression from my younger days was that those outsourcing to China underestimated the degree of control they were handing to China and the implications for other market entrants. Hornby never really had a monopoly on OO trains, there has almost always been competition. The same is true for HO trains (more so). New entrants came and went but to enter that market at one time needed major investment and the sort of companies making that investment had similar overheads to Hornby. Today, anybody here could go to the bank and take out a loan or re-mortgage their house and in a few months have a pallet of lovely models to sell, and the Internet means we'd have a global market place to sell them into. This is possible because of factories which provide third party design and manufacturing services to very high standards and the competitive nature of that manufacturing base and we would have faced hugely greater barriers to doing that 25 years ago. That would probably have happened anyway as emerging economies developed, I've been told by at least one large diesel engine "manufacturer" that they know what will happen in Asia as their licensees end up with the know how to bring a competing engine to market and undercut on price but that they had no alternative but to participate in the shift to Asia once it started. This isn't a simple binary right/wrong question.

In terms of the wider question, global trade has lifted countless millions out of poverty and funded development on a scale that people in countries like China, Vietnam, Indonesia etc could only dream about not that long ago. Certainly exploitative capitalism has lifted more people out of poverty and delivered the resources necessary to fund good healthcare, education, access to food etc in developing economies than foreign aid ever has but I guess that's another question. Either way, the improvement in quality of life in developing countries can only be a good thing.

[The Stationmaster]

https://www.bloomberg.com/quote/180:HK

 

@mike storey

See above. Assuming I’ve got the right entity, I don’t think Kader is a much bigger entity than Hornby

 

David

 

Here's Kader's 2016 Annual Report for you to mull over

 

http://www.kader.com/investor_relations/pdf/result2016e.pdf

[The Stationmaster]

That is modern business. Highly successful firms like ARM and Dyson have their high value R&D divisions in the UK and manufacrture overseas or outsource/licence. As indeed Oxford Diecast do. The key for Hornby is to make sure that the product development, R&D, distribution etc functions, as well as the management of the supply chain are world class and profitable.

 

Peco is not in any way making the same products as Hornby - one is track and accessories with minimal labour inputm the other complex locos and rollling stock with significant labour input. Hornby is facing a significant increase in direct competition from new entrants which Peco is not. Rapido et al are not entering the low marging high volume track market, they are entering the quality rolling stock market using a variety of risk reducing approaches to avoid being stuck with stock, such as pre-ordering. With a precarious financial position and growing competition it makes little sense for Hornby to be carrying the burden of manufacturing facilities unless it provides a decisive competitive advantage. It may be that this is what Oxford can bring to the party.

 

Don't confuse Oxford with LCD.  Oxford does not have any control over any production facilities but LCD, which controls Oxford, has a 50% share in a production company in Hong King (which appears to be basically in the die cast model business).  Admittedly that is more a point of pedantry than anything else as the important factor in this is LCD.  And LCD - in the person of its controlling Director - is now CEO of Hornby.  Don't overlook either the fact that Hornby has its production spread around a number of factories in China (11? according to one report) presumably for both model railways and Scalextric (and diecasts?) plus a further manufacturer in India for Airfix kits.  

 

In other words, and as far as we know Hornby's production is far more diversified than Oxford's so no doubt needs to be managed in a different way.  Clearly that could be changed but that would take time and would involve the complexities of moving tolling between factories (although they seem to have established a centralised holding of some tooling) and might again expose them to 'another Sanda Kan' where putting all the eggs in one basket might prove a bigger longer term risk than diversified production, especially when thinks about the reported excessive borrowings of many Chinese manufacturing concerns.  All in all a far more complicated, and potentially risky, game than simply saying the LCD approach would bring something helpful to the party (although co-ownership of  a factory or factories might be a possible avenue and one where LCD clearly has both knowledge and, probably the right contacts in China).

 

Incidentally as far as outsourcing is concerned we already have some interesting contrasts with some illustrative results.  The 'big two'  (Hornby and Bachmann) both do their research for UK outline models in house plus the development work although I think it is fair to say in both cases that production design is done in China although overseen and validated by the UK in-house people who have built up the knowledge bank for each item to enable accurate drawings to be produced in the UK.  At least two commissioners (Kernow and Hattons) also do all their research in the UK, by various means, although - again - production design is done in China but under relatively close checking and approval from the UK.  Oxford Rail in contrast seem to place everything in China with the exception of a scan (where one is done and probably supply of an assembly of photos and possibly drawings obtained from various sources which are sent to China 'as they come' and with no design or advice etc input - hence the results we have seen.  Thus the Oxford approach (model railway wise) comes pretty close to exporting the entire work package and what we get is a Chinese designed and manufactured British outline model with minimal UK input or checking thus taking a Chinese factory to a position where - with a limited UK input it could enter the British market on its own.  There is reportedly at least one Chinese model railway manufacturer (not working for Oxford) who is already sharing financial risk in models produced for the UK market so from two directions we are getting pretty close to the picture painted by JJB where outsourcing production results in providing a sort of springboard for an overseas manufacturer to make an own account entry to the UK market.

 

Anyone who has worked with people from the Far East will be well aware of how quickly they learn and that can be to the extent where they can teach their former 'lecturer' or customer a thing or two.  Please don't regard this as a warning about out-sourcing because it does have its benefits for both sides of the deal but any sort of technology or process transfer would seem to inevitably result in the recipient learning wider skills from the part of the job they area doing.  Don't forget that improvements and economies in production methods and production design can often be far more obvious to the person(s) doing the production work than they can be to the man in the drawing office.

[jjb1970]

The good thing about model railways is that in a sense the bit that can make the biggest difference to the end user is probably the least technical bit and which is easiest to keep in house, namely the prototype research and developing the initial CAD and then ensuring the factory makes the product as per the agreed plans and specification. Apologies if that sounds like I'm belittling the efforts of the research teams, the Hornby research team and their compatriots in other companies are doing a tremendous job but if looking at it from a manufacturing perspective the more difficult and expensive bit starts when somebody has to take those plans and design the tooling and manufacturing process for a model and do everything required to turn it into the final product. That means that a company like Hornby can keep one of the most critical parts of the process in-house at a reasonably modest cost in the greater scheme of things. On the other hand a Chinese factory could also hire a couple of well informed enthusiasts in the UK to provide the same function if they really wanted to.

[Clearwater]

I agree with JJB above but would add that the real value the uk teams (should) add is the understanding / insight into what will sell

And in what quantities. Obvs they’ve not always got that right...