Dyson bets on Asia to boost lineup of high-tech appliances

Dyson, known for its bagless vacuum cleaners and bladeless fans, wants to develop, make, and sell a lot more products in Asia.

It didn’t take long for the home appliance maker, founded in 1993, to become a household name. Its cord-free models are the top-selling vacuum cleaners in many developed markets and have grabbed the hearts of the middle classes in emerging economies.

The brand is now entering an expansion phase, and founder James Dyson wants to tap the potential of growing Asia.

The Malmesbury, England-based company on Monday revealed an impressive 2016 performance: a 45% jump in sales to 2.5 billion pounds ($3.11 billion) and a 41% increase in earnings before interest, tax, depreciation and amortization, or Ebitda, to 631 million pounds. “2016 was one of our best years yet,” Chief Executive Max Conze said in a news release.

Dyson sold 13 million products worldwide during the year, 3 million more than in 2015.

Asians were responsible for a big part of that increase. Three years after entering China, Dyson saw its sales there surge 244%. Japanese reaffirmed their long-held love for Dyson by buying 30% more of the brand’s products. Although the U.S. remains the company’s largest market by sales, the Asia-Pacific region has been the biggest source of profit for two years in a row.

Sales of cord-free vacuum cleaners in China surged 343% in 2016.

“There is a great thirst for new technology and good design generally in the Far East,” James Dyson, chairman and chief engineer, told The Nikkei in a recent interview. “That’s generally driven a lot of our growth.”

Putting more products on the market isn’t hurting. In 2016, Dyson launched 12 new products, including a quiet, light-weight hair dryer powered by a high-speed digital motor.

Dyson’s products are known for their sleek, cool designs as well as for some rather unconventional use of technology.

Frustrated with existing products quickly losing suction, James Dyson drew inspiration from the industrial cyclones in sawmills and invented the Dual Cyclone vacuum cleaner.

It has now been a quarter-century since the company was born, dad has turned 69 and his baby is among the world’s top-four vacuum cleaner makers by units sold, according to market research company Euromonitor International.

Dyson also enjoys higher profitability than many of its peers, thanks to its innovative, high-end products.

Five Asian appliance makers that have similar revenue as Dyson (around $3 billion to $6 billion) are expected to have Ebitdas ranging from $80 million to $386 million. This high-end figure is less than half what Dyson recorded in 2016.

The company’s share of the nonrobot vacuum cleaner market is increasing. It hit 6.1% last year, up from 5.4% in 2014, despite Dyson’s high prices, ranging from about $300 to $600, according to the company’s U.S. online store.

In another category, Dyson is the world’s 37th-ranked fan-maker, with 0.3% of the highly fragmented market. The company sells its products in 75 countries and regions and gets 90% of its sales outside the U.K.

Now that his last name is a global brand, James Dyson wants his company to take a quantum leap and develop 100 new products by 2020. At least that is what he told Forbes in an interview published in August.

Dyson currently has fewer than 60 products listed on its U.K. website.

In other words, Dyson engineers will need a lot of drawing boards, and the company itself will have to heavily invest in research and development.

Toward that end, Dyson has begun to spend 2.5 billion pounds ($3.1 billion) on cutting-edge batteries, robotics and other future technologies. Its product development spending, part of its R&D budget, in fiscal 2016 hit 236 million pounds, more than double that of 2013.

To reach its new-products goal, Dyson will need to attract a lot of Asian engineering talent. In February, it officially opened the Singapore Technology Center at a cost of 330 million pounds. The city-state has been an important hub for the company since 2012 — it is the only place that makes the motors which are at the heart of Dyson products. With the opening of the center, Singapore will play an even more significant role in Dyson’s expansion.

Dyson wants to hire 200 more software engineers for the center within the next 18 months. “Software is propelling hardware companies at a faster rate than software is propelling software companies,” James Dyson said. “The power comes from the two working together.”

Every hardware product today has some code in it that improves the appliance’s functionality. Now, with a world full of companies latching on to the Internet of Things concept, this trend is accelerating. As a result, demand for software engineers has shot through the roof, and hardware companies like Dyson find themselves fighting information technology and software rivals for the best coding talent. The need for engineers who can integrate software and hardware makes the battle all the more intense.

The Singapore center features cutting-edge laboratories. Dyson’s first so-called “connected room” replicates bedroom and living room environments. Engineers are using the room to help them develop and test connected products. Dyson already has air purifiers and robot vacuum cleaners that can be turned on and off via smartphones.

R&D is the engine that powers Dyson. The company now employs 3,500 engineers and scientists around the world. By 2020, it aims to have hired another 3,000. It still does most of its R&D in the U.K. The projects it most wants to keep under wraps are carried out behind closed doors at its headquarters campus.

Last September, Dyson completed a 250 million pound expansion to that campus. In addition, the company has acquired 517 acres to build another technology park in nearby Hullavington that will increase its U.K. footprint tenfold.

Still, Dyson’s growth plans are greater than what England can handle. The U.K. has a serious dearth of skilled engineers. “Britain will need an extra 640,000 engineers by 2020, which is limiting Dyson’s ability to meet its ambitious recruitment needs,” the company said in its press release in February. James Dyson is even setting up a university to educate and train young engineers. But schooling takes time.

This is why Singapore is important. It can attract talent from across Asia and beyond. Research and collaboration flourish in the city-state. The National University of Singapore and Blk 71, a well-known startup community where young and aspiring engineers gather, are located near Dyson’s new tech center.

“Singapore will work in collaboration with the company’s U.K. research team in areas like artificial intelligence, machine learning and robotics,” James Dyson told reporters in the city-state.

Dyson will also do some work in Shanghai, where it will open a development support center.

“Most of Dyson’s products have higher prices than those of existing brands on the market,” said Thidathip Tawichai, global consumer appliances analyst at Euromonitor. “However, what makes Dyson able to grow its profitability and strong presence globally, despite expensive unit prices, is … continuous investment in product development, aiming for innovation.”

For Dyson to hit its 100 new products goal, Thidathip said it will have to “meet the demands of consumers in premium segments that the company targets” and come up with appliances that are not easily imitated.

The manufacturing of Dyson products has long been done in Asia. Going forward, Dyson will depend even more on Asia in this regard. A new plant opened in Calamba, south of Manila, in December. The company’s core manufacturing plant has been in Johor, southern Malaysia, since 2002, when Dyson shuttered its U.K. factory.

As its business grows, the company wants to diversify risk while increasing capacity. The Philippines — with its low labor and business costs as well as a young and massive workforce — fits this plan.

Asian markets are also key to Dyson. It will be “the fastest-growing region in the future, partly driven by population [trends] but also driven by [a swelling] middle class, especially in China but also in Southeast Asia,” Chief Operating Officer Jim Rowan said in February.

Dyson’s focus on emerging markets, however, does not mean it will seek “mass-market appeal,” Rowan said.

In 2016, Dyson opened three gallerylike Dyson Demo concept stores in three Chinese cities — Beijing, Guanzhou and Hangzhou. A Shanghai flagship store will be added later this year.

Dyson will also be setting up flagship stores in major cities across India this year. In a March press release, it said it expects to contribute over 12 billion rupees ($184 million) to India’s economy over the next five years.

The coming years will be crucial. Dyson’s big plans for Asia come with its charismatic founder approaching his 70th birthday.

As Sony and Samsung have proven, it is not easy for a successful company to sustain a management philosophy that brought dramatic growth.

In 2015, Dyson purchased a lighting company owned by Jake Dyson, Jame’s son. The news set the media abuzz. The speculation was that Jake would succeed his father.

If there is a succession plan, however, it remains a closed book. Keep it that way — Dyson’s real challenge is whether it can retain the DNA that has brought it this far.

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