Academic journal article Journal of the Australian and New Zealand Academy of Management

Manawatu Knitting Mills: A Management Buy-Out Opportunity

Academic journal article Journal of the Australian and New Zealand Academy of Management

Manawatu Knitting Mills: A Management Buy-Out Opportunity

Article excerpt

ABSTRACT

In skating over thin ice, our safety lies in speed (Ralph Waldo Emerson 1803-82)

PART A: STRUGGLING IN A DERUGULATED WORLD

Context and Environment

In the last few decades, the New Zealand textile, clothing and footwear (TCF) sector has experienced enormous restructuring and has downsized by 90 percent as a result of a rapidly changing business landscape. Manawatu Knitting Mills (MKM) is one of the few survivors. It is the oldest knitting company in New Zealand, having been founded in Palmerston North in 1884. The radical economic reforms of the 1980s had a greater impact on MKM than the Great Depression of the 1930s. MKM had to contend with both industry turmoil and the fallout from the 1987 stock market crash. These events badly affected MKM's parent company, resulting in potentially debilitating financial problems. It was all a huge mess. MKM's management was forced to change their thinking on how the company should be structured and managed. This caused John Hughes, MKM's long-suffering General Manager at that time, to state:

By 1997 it was obvious that there were problems at MKM, in spite of some significant restructuring in the previous three years. It was obvious that the model used was not working. We had to find some way to restructure, reinvent or re-engineer the company. The company had either to find a solution or close.

The Enterprise

The basis of MKM's business is natural fibres. MKM's CEO, John Hughes states that, Our main point of differentiation is that we are a knitwear manufacturer using natural fibres, supplying two specific markets, the tourist market and the sports market.' Possum, camel, alpaca, cashmere and angora fibres are used, but the main raw material is wool, including merino. This is in spite a trend away from wool in recent years. Wool has suffered badly in the consumer's eye outside New Zealand. It is seen as expensive, hard to take care of, scratchy and heavy. MKM has responded by making its woollen garments lighter and by making care easier. 'But we haven't tinkered with the price because we regard our products as having exclusivity qualities.'

The Manager: John Hughes

John Hughes, the current CEO of Manawatu Knitting Mills has been in the 'rag trade' for 30 years. In 1985, he moved to Manawatu Knitting Mills as General Manager. He subsequently became Managing Director of MKM's parent company. This was a family owned business with knitwear, property, and investment interests.

Problem of Being A Subsidiary

MKM's presence as a subsidiary in the group resulted in an undesirable 'ruggedness' in the industry landscape. As a purchaser of wool yarn MKM was paradoxically not only a customer of the parent company, which manufactured wool yarn, but also a competitor to its other customers. As a result, MKM was perceived as a thorn in the side of every parent company customer in Australasia. The problem arose mainly in the tourist market area because MKM was supplying the same products as the parent company's other customers. The issue of intellectual property also had to be considered. As part of the wool spinning process, the parent company was aware of its customers' fashions and seasonal colours. Although there was never an actual conflict of interest, the potential existed. This resulted in MKM being restricted to certain markets only, because of the sensitivity of the parent company trading arrangements. John comments, 'The problem was that if MKM competed on its own merits, our competitors would scream and the flak would come back to us via the parent company.' Every strategy that was employed had to be a compromise to keep the parent company happy.

In spite of these problems, MKM survived, albeit with difficulties in the protected markets of the early 1980s. However, when tariff barriers started coming down in the mid 1980s, the textile and garment industry was forced to undertake substantial restructuring. …

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