Founding a diving services business at the start of a massive boom in WA caused plenty of headaches for one entrepreneur. But surviving the boom has brought great results.
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Entrepreneur: Doug Austin, Managing Director
Company: Divex Asia-Pacific
Business type: A leader in the design, supply, manufacture research and development of diving and deep-sea equipment for international commercial and military markets
Founded: Divex Asia-Pacific was founded in 2003 by Doug Austin (in partnership with Divex UK, the parent company) to support commercial and defence customers for offshore, inshore (harbours, dock construction, etc) and military diving services in the Asia-Pacific region
Employees: 66 (three part-time)
Turnover: (2008 - 2009) approx $40M
Head office: Aberdeen, Scotland; Branches: Henderson, WA, and Sydney
Contact details: Henderson: +61 8 9437 6800; Sydney +61 2 9545 3500
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Key learning points:
- Persist - Keep your eye on the goal - especially when times are tough. Austin says: "If you have faith in adversity and work hard the results tend to follow."
- Product niche - Identify what your customers value about your product or service and focus on achieving that.
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The Divex Asia-Pacific Story
Serendipity is a powerful force in many lives. Take Doug Austin, now managing director of the successful international diving services company, Divex Asia-Pacific. He slipped into the diving industry by accident. "I left uni penniless in 1982 and walked into the first job that was offered to me. It was with a gas company in Scotland that manufactured the specialty breathing gases used deep underwater by commercial divers."
Austin quickly developed a passion for the industry. Think: 20,000 Leagues Under the Sea and Flipper. "I got hooked on the whole idea of commercial diving, building diving bells and putting people down to fantastic water depths."
In 1998 Austin began working in the diving industry in Australia. He soon spotted a potential market for a smaller, light-weight version of the North Sea deep-diving systems he had experience with in Scotland. The two main commercial markets for diving services are: oil field diving (providing equipment for divers working on the seabed, installing pipelines and offshore platforms) and military diving operations (such as mine countermeasures and maritime counter-terrorism).
Austin contacted his former employer, Divex Ltd (where he was sales director from 1987 to 1998), and persuaded them to invest with him in a joint venture to set up a diving services operation. Austin kicked in 20% and Divex UK 80% to form Divex Asia-Pacific in 2003.
The Challenge
Establishing Divex Asia-Pacific in Australia.
The Solution
Austin may have spotted the opportunity for Divex services in Australia but that didn't make it the logical headquarters for a new Asia-Pacific operation. Divex UK's directors, clients and subcontractors were unanimous: set up the business in Singapore. It was regarded as the regional hub of the diving industry because of its relatively low fabrication costs and proximity to big clients.
But Austin thought the start-up should be located in Australia. He knew that the expertise, land, subcontracting skills and marine experience available at the Australian Marine Complex in Henderson, WA, were unmatched. He also argued that the business could be more cost-efficient in Australia. He had reasons of the heart too. "Somewhat selfishly I also wanted to continue living here."
After about six months of negotiation, agreement was reached to locate Divex Asia-Pacific in Australia. The initial strategy was to act as a commercial outlet for Divex UK's products, which worked well.
Within 18 months the Australian company had developed its own design capability and begun making products specifically for local and regional markets. It developed rebreathers that allow military divers to stay safely underwater for long periods without leaving columns of tell-tale bubble traces. Users can swim undetected to a target from a long way out because of the set's endurance. The product was tailored to meet specific clients' needs.
As the oil and gas industry took off in 2006, Divex Asia-Pacific was well positioned to take advantage of an increase in demand for deep-sea products and services. Over the next three years, it won seven multi-million-dollar projects for mobile modular deep diving systems, which allow divers to operate up to 300 metres below sea level. The units are typically installed on a large vessel and can accommodate twelve divers who live inside the system for up to two weeks.
But the boom in WA had a severe downside: a desperate shortage of skilled labour. Austin says: "It was difficult for many of our subcontractors to hold onto enough employees to build our project. It was a significant challenge for a long time and caused us project delays and contractual difficulties with clients." Austin says he communicated regularly and openly with clients about completion of the contracts.
To overcome the labour shortage, Divex Asia-Pacific spread its work among many subcontractors, although that soaked up much more management time. To retain its own staff, Divex Asia-Pacific had to pay wage annual increases of up to 25%. Austin says: "We had to pay the going rate." These costs had to be built into the projects. Clients had to be convinced that these remained good value for money.
Austin believes that the decision to locate in Australia was the right one. "Although the cost of manufacturing in Australia is about 15-20% higher than in Singapore, the quality of workmanship in Australia is significantly higher. In a market where high quality, reliability and safety of equipment are paramount, this has provided Divex Asia-Pacific with its strategic competitive advantage."
Higher labour costs in Australia have been partly offset by reduced spending on property and facilities, with overhead costs as much as 75% lower than in Singapore.
The Result
Divex Asia-Pacific's turnover increased from $3.5 million in 2002-03 to $28 million in 2007-08 to about $40 million in 2008-09. A new office was opened in Sydney to support Australian Defence Force clients on Australia's east coast. The combined employee head count has climbed from two to 66 in six years.
Divex Asia-Pacific's profits grew by more than 30% in each year of its first five years. Its success has been liberally spread among WA fabricators and suppliers who have lapped up more than $20 million in subcontracts in the past two years.
Divex Asia-Pacific has won various awards including the Australian Exporter of the Year in the category of small to medium-size manufacturer for 2008. Austin was named the 2009 Western Region Ernst & Young Entrepreneur of the year in the Technology and Emerging Industries category. He is now a contender for the national award which will be decided later in 2009.