Editorial: Iconic brand did not need to be protected

5:29 AM Saturday Nov 10, 2012

It is always an emotive time when a cherished household brand falls into overseas hands. Such was the case this week when Chinese whiteware company Haier secured control of Fisher & Paykel Appliances.

As the Prime Minister has noted, Fisher & Paykel has "iconic" status in this country as a home-grown manufacturer that not only survived the economic tumult of the 1980s but went on to forge an international reputation for innovation and quality.

Overseas ownership has a considerable ripple effect, with uncertainty extending far beyond the company's workers. And, as the public reaction testifies, there is an intangible blow to a national psyche that may never become totally accustomed to such foreign intrusion.

Circumstances like this always prompt talk of protectionism. This focuses on imposing restrictions on hostile foreign bids so other priority industries do not share Fisher & Paykel's fate. As much was recommended recently by Lord Heseltine, after he was asked by the British Government to review economic growth. Britain has had similar experiences to New Zealand, notably when Cadbury was taken over by food and drink group Kraft. The American company said it would keep a chocolate factory near Bristol open, only to renege on that soon after.

Haier has made similar promises, saying it would not shut Fisher & Paykel's remaining Auckland manufacturing operations and, indeed, would expand the company's New Zealand-based research and development team. It is quite common, however, for such pledges to be broken. Factories are far more easily closed from Qingdao than Auckland.

But that uncomfortable reality does not justify investment barriers. In the case of Fisher & Paykel, it is most instructive to look at why it was able to be taken over by Haier.

Its problems began three years ago when, belatedly, it moved much of its operations to cheaper labour markets, so as to remain competitive with its rivals. In the midst of that costly transition, it was hit by the global financial crisis. With sales down in all its markets, it began to struggle to support the debt costs of its move abroad.

At that point, Fisher & Paykel's 13,000 small shareholders could have come to the rescue by supporting a new issue of shares. There was no sign of enthusiasm for this. Instead, the company's future was secured by Haier taking a 20 per cent stake.

Subsequently, local investors could also have stopped Fisher & Paykel's share price slipping so low that it became an attractive target for the Chinese company. That they did not says something about their view of Fisher & Paykel's prospects. But, more fundamentally, its plight also points to the shallowness of capital resources in New Zealand and the inability to support businesses in strife. As much will always be the case when so much money is tied up in rental property.

If there is a silver lining, it is that the Haier takeover may always have been the best option for increasing Fisher & Paykel's profitability and productivity.

The company is not prospering, despite the valuable technology that undoubtedly played a large part in the Chinese company's interest. It might well have been in for even tougher times.

If a foreign company can return Fisher & Paykel to its former eminence, both the company and the New Zealand economy will have been well served.