Midway Metals - Case Study

Midway Metals is an Australian stainless steel distributor that has operated for over 30 years, with branches across Australia and in New Zealand.  Its business model in Australia and New Zealand is simple: distributing a wide range of high-quality stainless steel products to customers, with impeccable before and after sales service.  By 2005, having successfully built the business at home and gained substantial market share, CEO Paul Batty saw an opportunity for expansion, in particular to booming markets in Southeast Asia, and wanted to understand how to make the move.

In the meantime Anthony Jolly, a long-time former manager at Midway in Australia, had been working in Vietnam since 1999. After deciding to see the region, he had moved into travel, and eventually set up his own travel agency. He had kept in touch with Paul in the years since leaving Midway. When Paul needed advice on Asia, Anthony was a natural first point of contact.

Anthony took on the challenge of undertaking a feasibility study for Midway's expansion. As he worked on the study, Vietnam became a more and more obvious place to start. With Anthony's five years of experience in-country, and the trust Midway could place in him as a successful former employee in Australia, they had a strong foundation for a new operation, without the risks of starting fresh with a new partner in an unfamiliar market. From his time in Vietnam, Anthony knew that starting out in an unknown market with an unfamiliar business culture would be difficult.

Vietnam's economy has grown consistently in recent years, especially in sectors that require stainless steel products. And the presence of other local and international firms focused on manufacturing meant that Midway could draw on skills that already existed in the workforce.

Key learnings

  • Know your market - Drawing on people you trust with experience in-country can help deal with unfamiliar issues and practices.
  • Understand key drivers - The factors that made you successful at home may not apply in a new market. For Midway, the high-quality, specialised products it distributed successfully at home didn't appeal to the local market – it had to find its competitive advantage elsewhere.
  • Find your competitive advantage - Midway had thought its specialised expertise was in distribution. In fact, its decades of experience gave it a deep understanding of the high-quality products that Western markets wanted. This gave it the ability to set up a highly successful production operation in Vietnam.
  • Build your own culture - Midway combined a largely Australian management team with a Vietnamese workforce. But rather than focus on one or the other of these cultures, it built its own organisational culture of openness, transparency, and continuous improvement.
  • Engage with workforce and community - Midway's workforce has the advantage of training and a clean, comfortable factory environment. Although this increases costs, it ensures that good people want to stay – giving Midway a stable, skilled, committed workforce. Its contribution to the local community also helps to ensure a good environment for doing business.

Know your market: using experience in-market to make the setup process smoother

Anthony's history in Vietnam gave him a good understanding of the sources of support available for businesses: he had a strong relationship with Austrade, friends in the Australian Embassy in Vietnam, and he had even been on the board of AusCham (the Australian Chamber of Commerce) in Vietnam.  He built his knowledge further by attending trade shows and getting to know businesspeople who would become Midway's suppliers, customers, and competitors.

Anthony had also had experience working with local businesses and employing Vietnamese people. His understanding of appropriate business practices had been challenged, and he had built an understanding of how to work with and in a different business culture.

Anthony also understood the importance of Vietnamese institutions that could help make the business a success, including the Vietnam Business Forum and local government.  Austrade helped Anthony to contact these organisations, helping him to obtain his local business licence. For Anthony, five years in Vietnam building local knowledge was invaluable in making the setup run smoothly.

The Vietnamese operation, set up as a partnership between Midway and Anthony, was intended to do two things - replicate Midway's successful Australian business model with a distribution business in Vietnam, and build a new business manufacturing stainless steel parts and components to distribute through Midway, other Australian distributors, and international distributors.

The new business in manufacturing was a change of focus - while both Paul and Anthony saw it as an opportunity, the impetus to set up an operation was driven by a requirement from the Vietnamese government that they have some manufacturing component in order to gain a licence.

Understand key drivers: dealing with a difficult distribution environment

The Vietnamese distribution operation built a strong presence in the local market. Midway's business model diverged from those of established players. It focused on quality, reliability, and strong customer service. Traditionally, manufacturers and distributors in Vietnam had competed almost exclusively on price. And in Vietnam large international steel mills were prepared to go direct to some end users, cutting out distributors like Midway – something unheard of in the Australian industry.

While Midway was able to build a successful operation in its high-quality, high-service niche, it was always under pressure from the price-focused market. Some practices in Vietnamese industry, which Anthony and Paul had not expected, stymied their ability to sell products that they had regarded as mainstays of the market. Many Vietnamese manufacturers, used to a very limited range of products, were accustomed to processing their own stainless steel. Midway's more specific products were perfectly suited to manufacturers' needs but the manufacturers persisted with cheaply sourced flat steel and shaped it themselves to provide an approximate fit at a lower price. According to Anthony, "the local market didn't require 60 per cent of what we initially brought in".

Many overseas invested businesses however were convinced of the value of Midway's offering. Some were relieved to be offered a service they expected in other markets they worked in. But because these businesses were a minority, Midway's inventories continued to build up. As Anthony reflected, "we were only selling to 10 per cent of the market – the rest perceived the price of stainless steel as much lower than the product we were selling".

When the GFC began to have an impact on demand from 2007, the distribution business came under even greater pressure. After years of fighting against the unfriendly market, Anthony and business partner Paul Batty made the difficult decision to close the distribution business and focus on manufacturing.

Find your competitive advantage: building a booming production business

Surprisingly, while the familiar distribution business encountered problems adapting, the new production operation was going from strength to strength. Anthony was able to keep a close eye on operations and foster a rigorous culture of excellence at the operation. In keeping with Midway's commitment to quality, Anthony developed principles for a precise and well-organised factory.

Anthony did not come to manufacturing with a great deal of previous experience. But he understood the factors that made for efficiency and quality in the products he had distributed in the past, and set up the operation accordingly.

Anthony introduced strict 5S and Kaizen principles as pioneered by Toyota to ensure 'just-in-time' manufacturing - ensuring that all employees were constantly working in the most efficient way possible, in a clean, safe environment.

Build your own culture: creating a truly Midway environment

With Australian management, a largely Vietnamese workforce, and Japanese principles, one might expect cultural tension. In fact the factory was building a strong culture of its own based on transparency and communication, which Anthony describes as 'absolute openness': Midway's values state that 'we are free to speak our minds and able to listen to the ideas of others, without feeling afraid'. Rather than operating based on an 'Australian' or a 'Vietnamese' model of doing business, Midway has taken elements of both and added its own ideas about how to run an organisation.

Anthony and his managers sit in open areas on the factory floor, engaging directly with the workforce. When an employee needed to be trained in something new, Anthony or another manager would typically show them how to do it – whether it be driving a forklift or stacking stainless steel. Some new employees may have been surprised to see their new boss working on the floor with everyone else – but it meant that skills transfers happened quickly, and every employee knew that management understood what was going on.

To help support this cross-cultural workforce, Midway asked a programmer to develop bilingual software systems for all processes, so that neither the predominately Vietnamese-speaking workforce nor the predominately English-speaking management group would be left out or forced to operate in an unfamiliar language. Building this modified system also allowed Midway to add features such as dual currencies and Vietnamese tax compliance – making the day-to-day business of operating internationally far easier.

Midway Vietnam's successes have allowed it to move beyond being a supplier back to Australia. Over the past several years it has gained customers in Asia, Europe and Africa. It is now in the process of negotiating with a large new potential customer, which has been impressed with its quality and systems. It has had a long journey to this point, with a huge investment in time and money, and some pitfalls along the way – but its successes would never have been possible without seeing the opportunity of engagement with Asia and committing to taking it up.

 

Looking to grow your knowledge and capabilities for success in Vietnam? Download this case study and check out the training programs and Asian business events on offer to help you on your way.