Professional Documents
Culture Documents
James Dyson is the founder of a company that has to date had world-wide sales
of £3 billion. From 1970 onwards he has designed a great variety of products
which include a Sea Truck (sales of $500 million), a Ball Barrow (variation on a
wheel barrow and a market leader within three years of production) and a
Wheelboat (which can travel on sea or land at speeds of up to 64 km/h).
However, it is for the design and production of a bagless vacuum cleaner which
“never loses its suction” that the company is most well known.
The design of the vacuum cleaner came when problems arose in paint spraying
the Ball Barrows (mentioned above). During this process the particle extraction
equipment was constantly clogging and eventually resulted in James Dyson
inventing a solution to his problem. This led to the development of the world’s
first bagless vacuum cleaner. In fact the process was quite long-winded and took
five years and 5,127 prototype models.
The first marketable model, the G Force, won the 1991 International Design Fair
prize in Japan and was launched solely on that market at a premium price of US
$2000. These vacuum cleaners were manufactured under licence in Japan and
not by Dyson, himself, as he lacked the necessary finance. However, the capital
raised from the Japan venture allowed him to open a research centre and factory
in Wiltshire, UK, in June 1993, and to launch a new machine in his home market.
This cleaner, the Dual CycloneTM, was bagless and was the first major design
change since the original invention of the vacuum cleaner in 1901. Within two
years it became the best seller in the UK with much of the marketing being
aimed, for the first time in this industry, at the male population. Since then, more
than 20 million Dyson vacuum cleaners have been sold worldwide and, apart
from the UK, the company is a market leader in the US, Australia, Japan and
much of Western Europe and the cleaners are now sold in 42 countries. Within
the UK every third consumer is now the owner of a Dyson vacuum cleaner. The
objective of advertising at the male population was undertaken due to the
expensive nature of the cleaner compared to competitors and because the
company wanted to emphasise the technological, design and performance
benefits. Previously the emphasis in this market had been on low cost and aimed
at a, mainly, female audience.
The concept of this bagless cleaner has, since, been constantly developed and
there are now even robotic vacuum cleaners (taking 60,000 research hours to
develop) which do not require human intervention but do contain three on board
computers and fifty sensors.
In 2000 the company also revolutionised the washing machine design with the
first machine with two drums. This was patented as the ContrarotorTM.
The company has, in fact, always had problems with patents and their
maintenance. This is because the inventor has to pay to maintain the patent on
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an annual basis. This naturally presented problems in the very early years of
development, especially as it took 14 years to get the first patented design into a
retail outlet. The problems of patent protection are also ongoing and can be seen
in such high profile courts cases, as in 1999, when Hoover UK ltd attempted to
imitate the design of a Dyson cleaner, with Dyson eventually winning the case
claiming a patent infringement. A further example is in the fact that Hoover US
copied his Dual CycloneTM design and Dyson was awarded £4 million in 2002.
The extent of the patent problem can also be seen in the fact that even the
manoeuvrability mechanism of the recent DC15 model has 182 separate patents.
A different type of problem arose in 2006 when Dyson took action to protect their
design rights against Qualtex, the largest European manufacturer and distributor
of domestic appliance spare parts. The right to prevent copying for spare parts
has traditionally lasted for 10 years after original marketing of a design. However,
this has now been overturned and to date Dyson has been awarded £130,000 in
court costs and is in further negotiation with Qualtex concerning further costs,
damages and future licensing arrangements.
The high profile of Dyson within the US has also had a major impact upon the
retailing of electrical goods, with this type of good now dominating the
merchandise displays of many general retailers and appearing in prime
promotional space. It appears that all involved have realised that consumers will
pay a premium price for distinctive features. It is, in fact, these distinctive features
that have particularly aided Dyson in the US, where 80% of such products are
sold in a self-service environment. However, the major traditional manufacturers
are no longer content to allow Dyson to continue unhindered and are beginning
to challenge the newcomer on style and features and on the premium price tag
(i.e. they are not attempting to undercut Dyson).
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In any regard the expansion into the US market was rapid. In 2003 the operating
profits, in the US had been £4.9 million from sales of £32.7 million, whereas in
2004 the equivalent figures were £27.7 million and £236 million, respectively.
Linked to this success in the US (representing 35% of its sales) and Japan (sales
of £50 million in 2005 budgeted to double in 2006) Dyson’s sales reached a total
of £470m in 2005, 80% of which came from outside of the UK. For the same year
pre-tax profit of £103 million was earned which was a rise of 32% on the previous
year (see more detailed accounting information in Appendix 1). Almost all of
these sales and profit come from vacuum cleaners. In the UK, specifically, the
picture has not been quite so healthy where total sales of vacuum cleaners have
fallen during 2004 and 2005, due to a squeeze on household expenditure, and
Dyson’s share by value has fallen from 44% in 2002 to 37% in 2005, although it
is still the market leader.
There could also be said to be some disquiet over whether or not Dyson’s growth
in the US is sustainable. John Hogan, of the Strategic Pricing Group, questioned,
in 2006, whether or not, “They can sustain the perception that they are unique.”
Furthermore he added that as they have moved into mass channels of
distribution they are losing control over their brand building and their pricing as
the large stores will inevitably discount items to consumers in order to produce
higher volume sales. In this sense Hogan is of the opinion that Dyson may have
“tapped out the demographic willing to pay a premium.”
In 2002, at the same time as expansion to the US, Dyson moved production from
the UK to Malaysia. Much of this decision was prompted by rising labour costs
and also the difficulty of obtaining planning permission for expansion within the
UK. This naturally provoked complaint, at the time, that more UK jobs were being
lost to lower wage economies (initially 800 jobs were lost). However, since that
time the company has more than doubled the size of its business and now
employs almost as many people in the UK as it did before (back up to 1,400
compared to approximately 1,700 in 2002). The wages in the UK have also
tended to rise as most people are employed in design and engineering as
opposed to production. Another side benefit of moving production to Malaysia
was that the commensurate reduction in operating costs provided the budget for
the move into the US.
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The total production of vacuum cleaners in 2004 was 2.6 million units which was
up 400,000 on 2003. These figures compare with only 30,000 in 1993.
The company sees technology as being at the heart of its operations and one-
third of the workforce is involved in research, design and development (RDD). Its
350 engineers and scientists specialise in fluid, mechanical, electrical, thermal,
chemical, acoustic and software engineering. The company spent £50 million on
RDD in 2005 and has spent £180 million in the past decade. In May 2006 the
company announced plans to employ a further 100 scientists and engineers
which were partly being financed by the success of the robotic models in Japan.
This latter model has flourished due to the design of a new Digital Motor which is
greatly reduced in size but can deliver the same power and performance as a
traditional motor and is also faster, lighter and has a greater power-density ratio.
With regard to this situation Graham White, Head of UK Operations for the Italian
producer Candy (whose brands include Hoover), said, “I think James will have to
do something very unusual if he is to replicate the success he has had with
vacuum cleaners in washing machines.” Reasons put forward for the current
problems include the fact that washing machines are quite dull no matter how
they are designed, it is not easy to appreciate new technology and that washing
machines are more complex and feature a host of sophisticated mechanisms,
such as pumps and motors that have to be reliable, whereas vacuum cleaners
are reasonably simplistic.
A further point that Dyson did not overcome with washing machines, which was
overcome with cleaners, was the price. The machines retailed at in excess of
£500 which was double the average market price. It seems that the consumer
could not be persuaded to pay a premium price and even in the best year, 2002,
only 18,000 Contrarotor’sTM were sold out of a total UK market of 2.2 million units.
In 2005 the Dyson sales slumped to 2,500. This latter figure represented only 2%
of the ‘luxury’ washing machine market and in the same year the ContrarotorTM
was withdrawn.
However, Dyson has not given in with regard to these washing machine
ambitions and currently has a research and development team working on a new
model. The key aims of this new model will be to be quieter and to use less water
(which may be a good marketing tool in these time of environmental concern)
and is expected to be released within the next two years.
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Further possible developments include alternative uses for the small, lightweight
digital motor used in the robotic vacuum cleaner in Japan. It is expected that this
motor may appear in many types of industrial good. It has even been suggested
that Dyson have been looking at the possibility to put versions of these motors
into cars in order to power applications such as fans and starter motors, where its
lack of carbon brushes would make it more reliable, durable and lighter than
conventional electric motors. It has also been reported that Dyson have had
interest from three aerospace companies.
The business model, used by Dyson, has gained support within industrial circles
and one such supporter is Edward Atkin. Atkin, himself, made a personal fortune
of £250 million, from building a company known as Advent which produced
babies’ bottles in a high technology, UK, environment. Atkin indicated (in 2006)
that most successful manufacturers require a stable investment environment and
an interest in making world-beating products. These factors are more likely to be
in place if the businesses are privately owned, and also have people with an
interest in engineering at the helm, rather than accountants. He says that, “As
soon as financial criteria become the main method used for evaluation
investment opportunities, the company is almost certainly doomed.”
In addition to this, Atkin added that companies subject to the control of investors
through a stock market flotation are more likely than private entrepreneurs to be
swayed by short-term financial considerations, which are likely to deflect them
from decisions linked to building up a global brand on the back of innovative and
competitive products. Specifically, he also stated that, “It is impossible to forecast
variables like volumes, competitive pricing, raw material costs, interest rates or
currencies three or four years out. What is easy, however, is to appreciate that
speeding up a process, reducing waste, eliminating direct labour and improving
tolerances and reliability will enhance the products and their manufacture, as well
as the experience of the end-user. These benefits will be long term and valid,
irrespective of the output, exchange rate, raw material costs and all other
variables.” Two of the companies that Atkin’s cited as fitting these criteria for
success were JCB and Dyson.
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James Dyson Limited
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Balance Sheet as at 31st December (£000’s)
2004 2003 2002 2001 2000 1999
Fixed Assets
Tangible 67,845 52,713 54,322 59,225 62,186 55,523
Intangible 4,235 4,597 1,704 1,838
72,080 57,310 56,026 61,063 62,186 55,523
Current Assets
Stock 24,238 13,716 18,991 20,066 13,037 9,026
Trade Debtors 82,335 42,031 39,517 45,377 35,368 32,420
Bank & Deposits 56,420 39,984 12,674 6,045 16,223 12,102
Other Debtors 21,584 6,095 3,275 4,820 3,370 2,119
184,577 101,826 74,457 76,308 67,998 55,667
Current Liabilities
Trade Creditors 30,876 16,448 19,596 23,089 21,591 22,848
Expenses owing 28,527 19,125 12,564 17,260 13,822 14,614
Tax (incl. VAT) 26,841 10,396 3,347 7,092 10,505 9,236
Bank Loans & O/D 15 35 3,803 15 3,213
Other liabilities 2,483 3,689 2,672 3,748 7,616 2,743
88,727 49,673 38,214 54,992 53,549 52,654
Long Term
Liabilities
Shareholders
Funds
Issued Capital* 2 2 2 2 2 2
Profit & Loss 149,947 96,166 81,432 72,631 66,523 50,531
Account
149,949 96,168 81,434 72,633 66,525 50,533
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