A great Australian SME success story - "perhaps we could bottle this mob's blood"

By Alan Kohler

To find the economic green shoot that Treasurer Joe Hockey was talking about yesterday you take Story Bridge across the Brisbane River, go left at Shafston Avenue and then follow Lytton Road to the suburb of Murarrie, where you’ll find NOJA Power.Without even slightly overstating the matter, this business represents the Australian future that the boffins in Canberra and Sydney habitually put into their PowerPoint presentations and Cabinet submissions and the politicians dutifully spruik.

In 13 years, NOJA has become a world leader in high-voltage switchgear. All the products are made in its Murarrie factory and shipped out to 82 countries.The key reason the Reserve Bank cut interest rates yesterday was that non-mining business investment is flagging. The mining boom has ended (again, because it’s a cycle), but thanks to Australia’s high cost of living (specifically housing) and three crushing years of an exchange rate above parity, manufacturing is buggered.According to yesterday’s trade data, manufactured exports fell in March by about half as much as resources exports, and have basically not changed for seven years.

Through all this -- through the GFC and the Dutch disease exchange rate of 2010-2013 -- NOJA Power has quietly built an $80 million a year export manufacturing business on the banks of the Brisbane River.NOJA stands for Neil, Oleg, Jay and Quynh Anh, the company’s four original shareholders and directors. Another joined a couple of years later and the five are Neil O’Sullivan, Oleg Samarski, Jay Manne, Quynh Anh Le and David Dart.Neil is chief executive officer, with 52 per cent of the company; the others own 12 per cent each.

Oleg is quality and service director, Jay is engineering director, Quynh Anh is finance director and David runs R&D.They have pulled off a truly remarkable achievement, creating a global player in high-voltage switches from nothing in 13 years.All five worked for a Brisbane business called Nu-Lec Industries, which was sold by its owner Greg Nunn in 2002 to the French giant, Schneider Electric, for $89m (itself a very fine achievement).Amazingly, Schneider did not lock in O’Sullivan, Samarski, Manne, Le and Dart -- the key personnel in the business -- and they were able to leave pretty much straight away to start their own business.

The first thing they did was to buy a factory, one of five in a block of units, so they would have collateral for bank funding. Then they applied for a START grant for $750,000, which they matched with their own money, and spent the entire $1.5m on research, designing a range of high-voltage switches from the ground up.In 2003 they sold their first piece of equipment to China. And in 2004, two years after starting out, their sales were $5m, almost all of it exports.In 2006, they lined up for another federal grant, this time $2.5m, which they were able to match out of cash flow. More R&D and more innovation, all the while employing more and more people.

They bought the rest of the five units in the block one by one and then a few years ago bought two acres on an industrial estate up the road with $8m in cash.For the past few years, NOJA Power has doubled its turnover every year and now has sales of $80m to 82 countries and is regarded as the world leader in what it does. The company has 200 employees in Brisbane, with another 25 in a small factory in Brazil and full-time sales managers in four countries.

They basically make one product: auto reclosing circuit breakers for high voltage power lines.It’s a specialised, expensive and high-margin line and exactly the sort of thing Australia can get away with as a high-cost country. It will never be a low-cost country no matter how many indentured slaves are imported to pick fruit (see Four Corners on the ABC this week), and no matter when the RBA and APRA try to put a lid on house prices with mythical macroprudential policies while actually cutting interest rates to drive them up.The secret to NOJA’s success was R&D. Neil O’Sullivan says they couldn’t have done it without those two federal government grants.

He and his colleagues invested $20m of their own money on R&D while the government put in $2.25 million. As a part-supplier of that cash, I’d say it was money well spent.O’Sullivan says that apart from the research, the key to success in manufacturing these days is being “globally focused”.“You can be competitive as long as you have a high-quality product that you market well and, importantly, you source components globally as well.“We source our parts in multiple currencies which means we have a natural currency hedge.”He says that at this level of manufacturing, Australian labour is competitive and, in fact, they are better off making the products here than, say, in China.

When asked if they have an exit plan, O’Sullivan says: “No, but I suppose we’ll have to exit one day.“When we do, I’d like to see our young managers take over. We’re very focused on apprenticeships and education programmes and as a result we’ve got a lot of bright young engineers coming who deserve the sort of chance we had.”Australia deserves the same chance. Perhaps we could bottle this mob’s blood.