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British Hi-Fi: Where's It Made? And Other Answers

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    Posted: 11 Jul 2018 at 7:45am
So you decided to buy British?

Armed with my subscription to CompanyCheck.co.uk I decided to check out a big tell-tale sign which the average hi-fi buyer is blissfully unaware of.

It's called the stock figure. No, nothing to do with stocks and shares, this is the value of stock in trade, the amount of parts and materials a manufacturer has on stock to make his products.

I wanted to compare that with the company's worth; profit & loss; turnover... that sort of thing. Why?

Because having been in manufacturing for 31 of my 63 years, I know a bit about just how much stock is required to manufacture goods.

Say, as a manufacturer, you sell £1m worth of goods, and your parts and materials are 40% of your revenue. Your stock throughout the year is £400K.

However, stock is constantly being used up every day, so when the snapshot required for accounting is taken once a year - the stock figure - it is going to be less than £400K.

Let's say on average there is a three month buffer to cover lead-times from suppliers. The stock figure will be a quarter of that £400K. It will be £100,000.

Stock is taxable, so it's prudent to try and reduce what you have at the end of your accounting period (year end). Let's say you can get it down to £80,000. This is not only feasible, it is a good benchmark. It is 8% of revenue. You'd pay £16,000 corporation tax on that!

Unless that is, your stock was made for you!

In which case, you are not a manufacturer, you're a distributor. Distributors carry lots of finished goods at all times so they're available to buy.

I've noticed in several "British Hi-Fi manufacturer's accounts" strong indications of them being distributors and not manufacturers in the true sense of the word. Some lean very closely to distribution, some less so.

For example, one well-known "British manufacturer" records a stock figure of more than £5m and revenue of £10m. That's 50% of revenue.

Others report a much higher figure, and a quite famous brand is nudging 100%, and showing a loss.

With corporation tax at 20% payable on stock this would seem suicidal?

But that depends on how much profit you can make, because if you can make a handsome profit you can easily fork out the tax to HMRC.

The tax on £5m is £1m - that's one million pounds! Ten percent of revenue in the earlier example. Remember, this is revenue and not profit.

These companies also show very poor liquidity ratios, which conventionally would suggest the onset of insolvency, but miraculously their credit ratings are rock solid. How can this be?

The only answer possible is that the stock will last some considerable time - at least an accounting period (1 year) - or possibly two or even more.

Therefore it must have been bought on the cheap!

Where it comes from I have no idea (well, I have a good idea but I have no proof). But I do know, looking at retail prices, and UK labour costs, and the time it takes to manufacture electronics by hand or by automation, that this stock could not all be made in Britain.

So, you decided to buy British, and you went to one of the Hi-Fi chains and they recommended one or more British brands?

If you had my subscription to CompanyCheck.co.uk you could also do a group structure search, and if that didn't produce results, you could also do a director search.

It didn't take long for me to find the same director as majority owner of a "British manufacturer" and at the same time, a major Hi-Fi chain. And the "British manufacturer" showing a giant stock figure of several million.

So did you really buy British? Maybe you don't care? But if you do, then you might feel a little let down?

So who are these manufacturers? Well, it might land me in court if I published that. But I will say it is the majority, and it also includes a couple of "small manufacturers". It doesn't include two Yorkshire manufacturers (one being me), and there's one in Bolton, Lancashire who can also say made in Britain!



Edited by Graham Slee - 24 Jul 2018 at 2:12pm
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Richardl60 View Drop Down
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Richardl60 Quote  Post ReplyReply Direct Link To This Post Posted: 11 Jul 2018 at 12:31pm
Interesting but not surprising that there are common links between manufacturers/retailers/distributors.
There have been letters in the National press recently promoting the direction of travel within the NHS which a bit of investigation indicates the writer was sole director of a company providing the services the letter refers to; this would appear common in most industries I suspect.
 
The stocking argument appears well observed.  'Window dressing' of year end accounts has been common place for many years whether it be corporates or small sole traders.  Depending on whether an organisation is looking to minimise tax, seek funding based on accounts etc the end result may be dressed differently within accounting rules.
 
I am not sure whether you made it clear above but 'stock' would normally be valued at cost (unless there was an overriding reason not to) whether components, work in progress or finished goods - which may distort the figures a little though large quantities of unsalable stocks often precede business failure!
 
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Post Options Post Options   Thanks (0) Thanks(0)   Quote RichW Quote  Post ReplyReply Direct Link To This Post Posted: 20 Jul 2018 at 9:19am
On a similar topic - products designed & built in Britain are heavily reliant on Far East component manufacture. 
The reliance on these component manufacturers is becoming an issue with many British electronic product manufacturers.
Buyers are finding it increasingly difficult & have a continual struggle to get the parts 
they need on time, if at all.
The buyers in my factory are always the last out the door every evening..

Far East component makers are now apparently increasingly keeping stuff for their home market.
 
Majestic/Enigma, Accession MM & MC.
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Graham Slee View Drop Down
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Graham Slee Quote  Post ReplyReply Direct Link To This Post Posted: 20 Jul 2018 at 11:58am
Originally posted by RichW RichW wrote:


Far East component makers are now apparently increasingly keeping stuff for their home market.
 


Correct!
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Fernando Quote  Post ReplyReply Direct Link To This Post Posted: 25 Jul 2018 at 6:20pm
Today everyone want buy cheap, the quality doesn't matter. We know that, if we want by Made in Britain, we need pay a fortune, that's a main problem...
I'm not 100% sure but the majority British audio iconic brands in the past are Made in China, well, means quality? I'm not so sure, anyway,  how much you pay for any British brand logo made in China? sometimes we need pay a small fortune. In the other hand, if we want buy British we need pay the same fortune, sorry guys, but for me don't make sense...
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Richardl60 Quote  Post ReplyReply Direct Link To This Post Posted: 25 Jul 2018 at 9:53pm
Whilst there are many uk ‘names’ that have been bought up over the years, some also moved manufacturing overseas for economic reasons (e.g Hornby) to survive or grow; this doesn  always work for a variety of reasons.

Do we all shop at Aldi and Lidl?  Many do but not all.  Some will shop for ‘the name’ or brand, others do not and may value service, quality, after sales service.  Others will shop on line and price may well be king but if shopping on line e.g Amazon how many go by price alone, the feedback whilst not wholly reliable is a guide.  Similarly if shopping for new items on eBay we will be guided by price but another is country of origin.  

Whilst this may well be opaque as indicated above I tend to regard ‘made in china’ As a negative an perhaps thats where Graham’s starting point is relevant.

I don’t personally agree made in Britain has to mean paying a premium but depends what the point of reference is?  Against Cheap overseas rubbish probably yes but for quality probably not.  Assuming we are shopping for the product rather than the name or brand then we should be a able to arrive at good quality product without paying the Earth.  Is that why we have something in common with Graham’s products together with other probably niche providers?
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Drewan77 Quote  Post ReplyReply Direct Link To This Post Posted: 25 Jul 2018 at 11:36pm
Originally posted by Richardl60 Richardl60 wrote:

....I tend to regard ‘made in china’ As a negative an perhaps thats where Graham’s starting point is relevant.

I don’t personally agree made in Britain has to mean paying a premium but depends what the point of reference is?  Against Cheap overseas rubbish probably yes but for quality probably not.  Assuming we are shopping for the product rather than the name or brand then we should be a able to arrive at good quality product without paying the Earth.  Is that why we have something in common with Graham’s products together with other probably niche providers?

Just because something is Made In Britain doesn't automatically mean quality, in just the same way as Made In China means poor.

It's good to purchase British where there is a proven track record & the reputation of the product backs up a quality image (such as those produced by HiFi System Components) but not to blindly support locally manufactured items at a higher price 'just because they are British'.

For several years prior to retirement I led the British Standard product development team for a European group. Unlike the French, Spanish, German and Nordic manufactured ranges, our BS products were wholly produced in Shenzhen China at much lower cost, yet the ppm failure rate was consistently the lowest by a significant margin (including the German produced items). 

As said by the economist Adam Smith: "It is the maxim of every prudent master of a family never to attempt to make at home what it will cost him more to make than to buy" (….something that the current American administration would be wise to consider).
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