A lifeblood lesson for Australian industry

The right medicine: Brian McNamee’s vision drove CSL’s vision worldwide.AT 33, Brian McNamee was chosen to run the Commonwealth Serum Laboratories: a small government enterprise manufacturing plasma, antibiotics, flu vaccines and other medicaments for Australia and its neighbours.
Nanjing Night Net

This week CSL announced its first $US1 billion global profit for 2011-12. It is now Australia’s most successful manufacturing business, and by a long way.

While CSL, too, is being belted by the high dollar – the annual earnings report a ”foreign currency headwind of $A108 million” – its global structure, with manufacturing plants in four countries, its high productivity and premium products have allowed it to withstand those headwinds, and remain highly profitable. (Its $US1 billion profit was achieved on just $US4.6 billion of sales.)

It has been an amazing journey that few would have expected when, in late 1989, then industry minister John Button headhunted the young McNamee to become director of CSL, with the ultimate aim of privatising it to be a flagship for the fledgling Australian pharmaceutical industry.

It is an unusual story, of a most unusual company, in which the cultures of the scientific researcher and the corporate carnivore have merged to create an enterprise that in some ways defies modern fashions, and in other ways anticipated them.

It is now very much a global company, on the verge of becoming one of the world’s top 20 pharmaceutical companies, and with 90 per cent of its revenues coming from outside Australia. Yet it is based in an unpretentious old building on the wrong side of Royal Park, where CSL has been since 1918. Its head office has only about 20 staff.

Its big markets are the US and Europe, with a fast-growing Asian trade. But it is led by an Australian-dominated board, chaired by molecular biologist Professor John Shine, carries out half of its vast research and development activity in Melbourne – with 400 to 500 researchers – and credits Australian research for much of its global revenue.

It is not just McNamee who has been with the company for decades. Most of his senior executive team have been there for decades, in CSL itself, or in the companies it has acquired. McNamee’s main interest is in strategy, and he is happy to delegate and trust his deputies. He habitually uses ”we”, not ”I”, to explain his thinking. For a top 20 company, it sounds remarkably collegial.

”People think we’re scientists bubbling away with test tubes,” he says with self-deprecation. ”But we think we’re also pretty good at business. We’ve been financially conservative, but operationally very bold and aggressive.”

McNamee’s goal, he says, was to create ”a great Australian company”. He’s done that, and after 23 years at the helm, plans to hand over in July 2013 to Paul Perrault, now head of CSL Behring, its Philadelphia-based plasma subsidiary. A doctor by training, McNamee drifted into pharmaceuticals in his 20s while in Germany after a brief try at emulating his brother Paul on the professional tennis circuit. At 27, he was recruited back to Australia by Fauldings, helped Button draft the Factor f pharmaceuticals industry plan, then ran Pacific Biotech before being conscripted to CSL.

From the outset, McNamee set his sights on building a global business, created by specialising, building scale, innovating, exporting – and making strategic takeovers. They began at a small scale before CSL was floated on the stock exchange in 1994, valued at $300 million. It is now valued at about $20 billion.

”Most of Australia’s assets are stressed: small assets, low scale,” he says. ”It’s either get bigger, or get out. You either consolidate, or get consolidated. We elected to be the consolidator.”

CSL developed its expertise in mergers and acquisitions through smaller takeovers before astounding critics in 2000 by taking over a firm roughly its own size, its Swiss counterpart ZLB Bioplasma, at a time when McNamee was fighting testicular cancer. Four years later it followed that up by acquiring a second big target, US-based Aventis Behring. A third ambitious bid, for US rival Talecris, was blocked by US regulators in 2009.

McNamee says CSL succeeded because it was patient, disciplined and had worked out how the merged companies would fit together.

”Most acquisitions fail, in my view, because people overpay. We were very disciplined about what we bid, and we had a very clear idea of how we would add value to it … You only buy a business when they’re suffering; if they’re not suffering, you overpay.

”You have to decide why you are the natural owner of that business. We never wanted to be a big company. We wanted to be a fine company … very good at what it did.”

CSL is now organised into a global supply chain, collecting and processing plasma and manufacturing a range of products. Its plants in Broadmeadows and Parkville supply Australia, Asia and the Pacific. Its factory at Kankakee, near Chicago, produces plasma intermediaries for all CSL plants and supplies North America. Its plants in the Swiss capital Berne and in Marburg in Germany, supply Europe and the rest of the world.

Mergers were only part of McNamee’s game plan. At the outset, he moved to lift productivity sharply by slashing CSL’s staff. He made exports a prime goal. He cut out low-margin products, and – with some exceptions for Australia – narrowed CSL’s product range to those where it could be globally competitive. And he was lucky that the Hawke government was already building a global-scale plasma plant at Broadmeadows.

With Australian local manufacturing under so much pressure from the high dollar, those remain his core strategies. ”You have to set your focus on world markets,” he says. ”We need to focus on being good at a smaller number of activities. We have to be in the premium products end.

”Switzerland and Germany have worked out how to deal with the problems of an overvalued currency, and that’s primarily the problem we face. If the high dollar is here to stay, we need innovative industries and clusters. We’re very fortunate to be in the Parkville area – the (research) networks it created have been very important for us.”

One other thing McNamee firmly believes Australia must learn from Germany and Switzerland is the importance of wage restraint, to remain globally competitive. CSL has just been through an unusually bruising wage negotiation in which its unions used strike action to win wage rises of 3.75 to 4 per cent over each of the next three years.

This was very different from the way its enterprise-based unions in CSL’s Swiss and German plants operate. Germany entered the euro with an overvalued deutschmark, but won back its lost competitiveness with 15 years of wage restraint. Swiss workers have wage restraint ingrained in them. The OECD reports that since 1995, average wages have risen 22 per cent in Germany, 33 per cent in Switzerland – but 107 per cent in Australia.

So far, CSL has been able to cope with a dollar above parity, but McNamee warns that is no longer inevitable: ”If you combine a high dollar with wages growth that sits ahead of the global competition, it’s inevitable that will put many assets at risk – including CSL’s.”

But this time next year, that will be someone else’s problem. Brian McNamee is not sure what he’ll be doing, but at 55, he’s got a lot of life in him.

This story Administrator ready to work first appeared on Nanjing Night Net.