penetrating the USA market

Sustainable penetration of the lucrative US market by Australian companies is uncommon. Although there may be diminished appetite for market entry by export, investment or full participation due to current exchange rates, the US is still the king of global markets. Many Australian corporates have tried, however not many have succeeded.

Much has been written about the way Yellowtail Wines created as much value organically as Fosters paid for Beringer by acquisition, and the Westfield shopping mall penetration is well known. The successful entry of the US market by listed Australian building materials company James Hardie, is another case study that offers some valuable insights to aspirants.

James Hardie initially entered the US market in 1990 with imported fibre cement roofing and it was apparent by the early 90’s that a prospective market for siding products existed. Siding is the term used for a product we might call weatherboard, and in the USA some of the engineered wood siding products were failing in the southern States. Savvy local operators led by the current Hardie CEO, Louis Gries, made the choice clear – “there is a big market opportunity here. You can have a skimming strategy or a penetration strategy, depending on price”. The right price for a penetration strategy demanded a lower cost base.

Even with the establishment of manufacturing capacity in California, the cost base, at $400 per thousand square feet, would only enable market skimming. It needed to be $200. There were those who thought the task impossible, but the Americans, particularly those from Chicago, are real “can do” people. We assembled a team of American engineers and Australian researchers, committed between 4 and 5% of sales to R&D (an amazing level for a building materials company) and 18 months later had cracked it – a volume market strategy for the biggest building materials market in the world.

What were the critical decisions made to ensure this success?

  • Having a low cost base enabled Hardiplank to be competitively priced for volume
  • Hardie committed from the outset to putting capacity into the market ahead of demand. That takes courage and commitment.
  • Hardie built plants around freight logistics to cover targeted consumer segments
  • A brilliant, hard-nosed sales force won the hearts and minds of the dealers in a classical two step distribution model (which later incorporated direct)
  • The company used customer preference to steer the ongoing R&D with winning new products hitting the mark every time.

James Hardie penetration of the US siding market became so successful that it surprised the industry. In fact, the market was sufficiently attractive that competitors entered – some of the biggest players in the world including Saint Gobain and Temple Inland. They each spent the best part of $100 million on a single plant, only to retreat after some years.

James Hardie was able to grow market share and see off competitors not only because it had driven the cost base down, but because we had also moved way up the experience curve in the process of understanding how to produce at a lower cost. We also empowered the local operation, which had a deep understanding of the market and drove distribution decisions around freight logistics. It was also about a focused corporate and operational mindset, people determined to win and who understood that there were no quick fixes or short cuts. As the architect of the strategy and CEO who started the journey, Keith Barton, used to say….”get the conditions right and the outcomes will flow”.

Today Hardie (as it is known in the USA) owns the market. The Hardie brand has become the generic for fibre cement and the US exceeds 80% of total company revenue. Products now include siding in its many variations and backer board.

The USA new housing market will take quite a while to pick up again, but when it does, watch those fibre cement machines start pumping in the ten USA plants, strategically positioned around the USA


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