FUTE is a Portuguese ‘David’, competing with great success against several international ‘Goliaths’. Much smaller than worldwide giants, such as Brabantia, Leifheit and Hailo, Fute has increased its sales 10 times within the last 10 years and has the seventh largest world market share of its main product – ironing boards.
How does Fute manage this? Through six factors, all of which are paradigmatic of what small companies should be:
Firstly, double concentration of product and technology – Fute (Factory Utilities Tube Limited) only manufactures products based on metal pipes
1. ironing boards
2. shopping trolleys
This allows scale economies and synergy. While global companies diversify into other household products (cooking utensils, rubbish bins, storage boxes etc.), Fute is faithful to a link between all the products – metal pipes.
Fute adds another one concentration to that of product/technology – geographical concentration. Indeed, the overwhelming majority of its sales comes from only three countries: Portugal, Spain and France, the remaining are passive sales (orders obtained from the exhibition in Frankfurt without any further sales effort, promotion or storage).
Secondly, the above-mentioned geographical areas have three important characteristics – geographical proximity, cultural proximity and they constitute among them a mutual support cluster.
Thirdly, there are great scale economies in Fute’s market, in the cost of raw materials the direct workmanship (the manufacture of metal pipes is automated, thus protecting Fute from third world competition), and even in machinery. Altogether this creates a drop in costs of more than 20 per cent.
Fourthly, there are not only scale economies, there are also ‘dis-economies’ of scale in logistics:
A) in transportation – the product is bulky, thus implying transportation costs in the range of 30 per cent from Asia to Europe and 15 per cent from Germany to Portugal.
B) in storage, where, due to the size of the product, warehouse costs are high.
Fifthly, in order to avoid crashed margins, Fute ‘escapes’ the price segment and targets the segments of 1) quality and 2) delivery: concentrating on providing the ironing tables and shopping trolleys with the brand, colour, material, quantity and delivery date that the customer (distributor) wants.
Finally, Fute has a small structure, thus minimising costs and maximising flexibility (in order to implement the short delivery time referred to in the previous paragraph).
The result for Fute is the growth in sales of over 1,000 per cent within the last decade and the seventh largest worldwide market share of its most important product (ironing boards).
The lesson? Simply, that despite the Goliaths, the Davids can win. What they need is to use strategy and not brute force.