Shanghai or Bust? Follow that Cab!
There's been some good news of late for Coventry-based Manganese Bronze, maker of the iconic black cab.
A Â£17 million order for 1000 cabs from Azerbaijan will boost output at its Shanghai joint venture, and the decision by London's Mayor Boris Johnson to ban cabs over 15 years old on the streets of London from next year may well bring new orders for the Coventry cab maker.
Boris' ban may affect some 3500 cabs in the capital.
That's good news for a firm which has struggled in recent years and which has had to completely restructure itself.
Until the recent downturn, the firm was in fact the UK's largest domestically owned car maker. But when the banking crisis struck and the global economy nose-dived in late 2008, confidence quickly evaporated and gloomy cabbies stopped buying big-ticket black cabs - especially expensive ones from Manganese. Not surprisingly, the firm dipped into the red and has been there ever since.
Even now, with the British economy showing fragile signs of recovery, sales of black cabs are still well down on peak sales, with around 1,650 sales last year - down on some 3,150 in 2007.
But that's not all. The firm has been losing market share in recent years to rival firms like Peugeot and Mercedes. Indeed, waiting for my shuttle bus at Birmingham airport the other day, looking across to the taxi rank I spotted just two traditional black cabs in a line of nine waiting; the others were Peugeots.
Firms like Peugeot and Mercedes can take a van platform and body and convert it to a taxi, thereby keeping costs down. In contrast, Manganese is a one-product one-market specialist with higher costs and has found it very difficult competing with the big boys encroaching on its market.
That competition may well get even worse, with rumours that big players like Volkswagen are planning to enter the market with new cabs designed on the back of high-volume platforms.
So after a very painful few years, in 2010 Manganese shifted manufacturing to China and now just does final assembly here in the Midlands. That shaved around Â£3000 off the costs of a black cab, but saw sizeable jobs losses here and in the local supply chain. It was a matter of survival for the firm.
And the new TX4 cab launched last November has spurred something of a mini-revival for the firm, with Manganese's market share of the taxi cab market now back over 80%.
As well as sourcing its parts from China, Manganese closed its loss making US business, rebranded its taxi outfit, took direct control over its UK dealers, and brought in a new logistics process. All change then.
The firm still lost money in 2010, with pre-tax losses of Â£6.3m (down from to Â£7.3m in 2009). But promisingly, the firm's operating loss was cut from Â£7 million to Â£1.9 million.
But Manganese thinks it can turn in a profit in 2011, and the firm's joint venture with the Chinese firm Geely is now seen as critical to the firm's future success.
Geely has a 20% stake in Manganese, has extended credit terms to the UK firm, and two Geely-linked executives have recently joined the board of Manganese.
The latter fuelled rumours of an imminent Geely takeover which Manganese has been at pains to deny. Geely, of course, acquired Volvo last year and has global ambitions.
The Shanghai joint venture with Geely has helped to open up new Asian markets, such as in Azerbaijan. However, those cabs - and indeed all cabs sold internationally (from Saudi Arabia to Bahrain to France) - will come from the JV in China and not from Coventry.
Another part of the Shanghai strategy is some clever marketing in setting up franchise-style London taxi businesses around the globe. Such ventures are already up and running in Saudi Arabia and Kuwait, with more in the pipeline in France, Italy, Turkey and South America.
And given the relatively high costs of even London taxis made in Shanghai, Manganese is developing the TXN, a more mainstream cut-price Geely-saloon based version for developing countries.
All of this highlights both the threats and opportunities arising from globalisation.
Threats come in the form of job losses and manufacturing hollowing out as assembly is 'lifted and shifted' to lower cost locations like China.
But there are also opportunities - such as joint ventures which can generate the cash to support activities - including investment in research and development - here in the UK.
The reality is that Manganese is a minnow in the global car industry and to survive needs to operate in a high value niche (cabs is one such niche) and have a larger partner to support expensive new product development.
Geely certainly helps in that sense, and may be critical in helping Manganese survive the new competition that's coming. But that still leaves a lot of big question marks around whether or not Manganese and Geely together can use the London Taxi brand to capture market niches around the world from mainstream rivals like Mercedes and Peugeot. The importance of design - as Beverley Nielson highlights in her Post blogs - may well be one element of the firm's brand strength going forward.
While it's Shanghai-or-bust for the firm, I'd still like to see Manganese stay independent so as to keep some degree of strategic control here in the UK, including over R&D in low carbon taxis - where the firm cooperates with local universities.
Professor David Bailey works at Coventry University Business School