Dated: 12 November 2003
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Eroleen Anderson
Operations, Marketing, Sales Manager, Smith & Stewart
Distribution Ltd.
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Retooling and efficiency are two buzzwords that are being bounced to and fro like a tennis ball on the commercial lawn of expediency.
Recently both the Minister of Industry & Tourism, the Hon. Aloun Ndombet-Assamba and National Commercial Bank’s Managing Director, Mr. Aubyn Hill, a Harvard Business School graduate, centre-staged those two words in their presentation to manufacturers at their monthly meeting at the association’s Duke Street headquarters in downtown Kingston.
Were they speaking to the converted?
Most certainly!
Everyone who sat around that boardroom table, with President Doreen Frankson heading the pack of disgruntled manufacturers had at one time or another, invested hundreds of thousands of dollars retooling their operations in order to make their firms run more efficiently.
The collapse of the financial sector a few years ago, which unfortunately paved the way for FINSAC, wiped out many of their colleagues. For those manufacturers who survived the melt-down, they are now very nervous and edgy about investing another red cent of their hard earned money, especially at a time when the playing field is so lopsided and riddled with financially-rigged business busting mines, such as high interest rates and unfair competition.
The Minister, who has struck an enviable alliance with the manufacturers’ president, seems dead set on changing this negative mindset.
But in response to both the Minister and NCB managing director’s call, Eroleen Anderson, Operations, Marketing and Sales Manager of Smith & Stewart Distributors Ltd. said it was reminiscent of the biblical character, John the Baptist, crying in the wilderness, "Prepare ye the way of the Lord."
In an interview with Businessuite, Anderson, poured out her heart lamenting the obvious lack of support being shown to the manufacturing sector and how it has and still is affecting her company’s operations.
Smith & Stewart Distributors Limited, the makers and distributors of the CrazyJim-brand ice cream, started operations in 1976 at their McArthur, Kingston 11 location, which once accommodated a little house with about six people churning ice cream. Today, the company has grown to be the island largest ice cream manufacturing company, using state-of-the-art machinery and employing over 230 people. They even have their own islandwide distribution network they are in Montego Bay, Ocho Rios, Sav-la-mar, Mandeville, Santa Cruz, May Pen, Spanish Town and Kingston, where they have a total of four outlets. Their fleet of refrigerated trucks is in excess of 25.
The USA and UK markets, including some CARICOM territories, were employing unfair tactics and measures to keep competition out of their markets. In her company’s case, she said the aforementioned markets would go to any length to protect their local markets, particularly the diary farmers. "We don’t have any such protective measures here, as anyone can come in at anytime and displace indigenous enterprises," she said.
In the company’s attempts at getting its products into the USA and UK markets, Anderson said they were bluntly told that they couldn’t. "Furthermore, they couldn’t see the reason for us doing so, not when they were making and producing similar products," she said.
Anderson even pointed a finger at Trinidad, has put in place various protective measures to keep out the competition. However, when you look in our supermarkets, you see shelf after shelf of Trinidadian products on display. Citing the TCBY example, she noted, the only way it could have circumvented the problems encountered trying to get into Trinidad was to set up a plant there to manufacture its products. "That are some of the ways you are being forced into getting your products in some of these protectionist countries. My question is, how many small to medium-sized manufacturing enterprises are in possession of the resources like a TCBY that can afford to set up their own manufacturing establishment in another country? I dare say, none, and that includes us at Crazy Jim. Now that there are measures to open up that market to imports, we’ll see how those walls will come down," she said.
Anderson said another problem the manufacturing sector faces was the fact that they were not able to access government funding at low interest rates. "If this was possible, we would have been better able to get our factories output to maximum level, including the branching out into making novelties. This is certainly a dream, and I hope Minister Ndombet-Assamba comes true for us and we’ll wake up to a better situation where inexpensive funding will enable us to retool and put in the necessary machinery and technology that will allow us to produce more in an efficient environment," she argued.
Right now, the novelties Smith & Stewart sells are all imported from Latin America, the USA and Europe. "If the situation was different," Anderson said, "we’d rather make these items ourselves."
Not being able to do so, they have had to be competing with Nestlé, who is a major competitor, not in terms of manufacturing but in terms of having the enormous ability to import similar types of novelties. "We are not able to effectively compete with them (Nestlé), and if they want tomorrow morning, they can easily wipe us out of the market with cheaper products," she said, noting that the Jamaican dollar wasn’t a factor to Nestlé, as their earnings were in US dollars. As a matter of fact, all Nestlé’s products are imported.
Anderson argues that if they were now given a chance to put their factory in the position to make novelties and government was prepared to give them some protective measures against importation coming in at a higher rates and to allow them time to grow, then they would definitely want to look at.
She knew there were loan facilities out there that companies like hers could access through entities like the EXIM Bank, but said, the requirements and criteria to accessing these loans weren’t easily met. Even if they were qualified for such loans, she said they weren’t going to get enough money to do what they wanted to do, because most manufacturers operations take millions and millions to be retooled. Even the time you get to pay back the loan, she said, was too short, plus the interest rate was too high.
"We need to access cheaper funds, and going to the regular commercial banks is an impossible task," said Anderson.
In terms of retooling, a year and a half ago, the Smith & Stewart outfit invested a substantial amount of capital in order to bring the local operation up to world standards by putting in a state-of-the-art ice cream making machine. Of course, at that time the Jamaica dollar was in the high 30s and close to $40 to the US$1. As a result of that retooling exercise, they were then able to manufacture two million gallons of ice cream a year, twice as much as they previously manufactured. Besides making their own CrazyJim-brand ice cream, the company also distributes products for other international providers, namely Blue Bunny, Bon Ice Cream and a host of novelties.
Subsequent to the expensive retooling exercise, the dollar slipped from J$40-US$1 to J$60-US$1. Even though the company reportedly made some strides going forward, that development pushed them back to where they basically started. "Everything has gotten more expensive. And everything that we were trying to do out of this expansion has now been cut in half. So, what we have forecasted in terms of paying off our expenditures a year and a half ago, the situation now changed for the worse."
Therefore, when you have people talking about manufacturers need to retool and operate more efficiently, here is one company that did just that a year and a half a go and is today being penalized for doing so with the prevailing instability in the country and the run away dollar. "We borrowed money from the bank to buy all these machinery and now the devaluation of the dollar has basically did us in. For each US dollar we borrowed, we are now paying $6 dollars more for it. So you see, it is not as simple as everybody, especially the government, is making it out to be."
When one considers the level of instability in the economy, as a manufacturer, you have got to each day keep asking yourself "what next?" because you are not sure what to do. "If you put your head, as we have done, you’ll probably have it chopped off."
Despite the tough times and all the attendant problems, Anderson said one of the things they have done to try cushion the blow, particularly where their staff were concerned, was to let them be aware that each time they hear that the dollar drops a cent, they should realise that the company was losing money, and so would be their earning potential. "By so doing, they wouldn’t be unduly alarmed when we say we can give them a wage increase or a bonus at the end of the year."
Now, what should people like Anderson do? "If every time the dollar slips, we follow suit and raise the price of our products, where will it stop? Pricing ourself out of the business is not an option, besides we aren’t going to be forced to start driving nails in our coffin. The sad reality is that, and we have to constantly make ourselves aware of this, is that ice cream isn’t a necessity. It’s a luxury item that a lot of us can do without. Besides, in order to make money in this business, we have got to sell volumes."
`What does she really want to see happen? "The first thing is that the government needs to structure a programme that is geared towards the manufacturing sector, who are really going to use products that are going to come from the other sectors.
"We are the ones that are going to use milk, sugar, rum, fruits, etc. and in order for us to use all the various indigenous products of the island, it will need for them to come and band, not only with us the manufacturers, but also the farmers.
"Right now, there is no cohesion between manufacturers and farmers. Somebody needs to get the two together and see how they can mesh. We would have liked to buy a lot of things Jamaican, but it isn’t cost effective to do so. Most of the local ingredients we put in our products are more expensive than those imported. On the other hand, there is no consistent supply of any one product, because local producers also have their own unique problems that prevent them from satisfying local demand.
"We want to be able to buy everything here. We use more powdered milk than liquid milk, because with powdered milk you don’t have to worry about shelf life and storage. It is cheaper too, and needs no refrigeration, which will cause us to use more electricity, the cost of which is already prohibitive.
"Finally, we’d like the government to broker some kind of deal with the electricity company where manufacturers are given subsidy or some reasonable break that will allow us to pay a completely different rate. We more than any other company , use a phenomenal amount of electricity. It takes a lot to both make and store ice cream. Once ice cream is melted it no longer has any use. Right now, our electricity bill is running over $3-million per month. Therefore, we have to be cutting back on its use, and in cutting back we have had to be importing more of the aggregates we use in our products from abroad."
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