PNG's ultimate all-rounder

OCTOBER marked KK Kingston’s 40th year of business in Papua New Guinea and in many ways it also represented four decades of transforming adversity into opportunity.
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Published in the November 2012 PNG Report magazine

Like other Australians who struggled to get ahead of the rat race at home, boilermaker Keith Kingston came to Papua New Guinea to make some serious money.

Arriving in 1968, he landed a job building bridges near Popondetta not far off from Kokoda. Those two years left him a changed man. The longstanding family joke is that he was bitten by a bug and inflicted with a terrible disease called entrepreneurialism.

His first dive into business was buying a barber shop in Lae. While cutting hair is a different game to cutting steel, Kingston already demonstrated good marketing instincts as the barber shop became renowned for stocking all the latest Playboy magazines.

After selling the shop for a slight profit, Kingston went on to found his namesake business in 1972.

The initial business was purely based on importing machine and power tools, plus associated goods, from Japan. How it branched out into a diverse range of manufacturing was often a result of overcoming the challenges which can arise, especially in PNG.

KK Kingston's foray into manufacturing chemicals and related products was borne out of frustration. As part of its trade of selling power tools the business also imported degreasers and hand cleaners from Australia to accompany their use.

In what could perhaps be considered a brief anecdote of PNG-related freight mishaps over the decades, the business at one point was in the position where it received two extensively damaged shipments of these chemical products which made them unsaleable.

Instead of repeating this any further, Kingston decided it made more sense to create these products himself.

With a motor taken out of an old washing machine and hooked up to a bath tub, he imported the raw materials and started mixing away.

Getting the formulas right to match the imported products was one achievement, but putting it on the shelves in a suitable form was the next.

The only plastic bottles made in the country at the time were designed for beverages such as soft drinks - not ideal for poisonous chemicals - so KK Kingston bought its first plastics machine to make its own bottles, which was how it first got into manufacturing.

KK Kingston's other moves since have established some well-known brands, with Dazzle Bleach being the flagship product out of the consumer goods it makes.

But this product, which technically represents three of the company's products as it manufactures the bleach, the plastic bottle it is sold in and the plastic cap, took a long time the crack the domestic market.

The first batch of Dazzle did roll off the shelves but not in terms of dazzling sales. In what became an early lesson on quality control, the product was contaminated.

The active ingredient inside consequently started reverting back to chlorine gas at a slow but steady pace. This distorted the shape at the bottom of each bottle enough to make them simply roll away.

Even once this teething issue was ironed out, the bleach still had problems competing with cheaper imports.

Ironically, it was the turmoil in Bougainville which gave the product the final break it needed.

"The odd thing was the success for that category was the war in Bougainville and the unpegging/floating of the kina," general manager Michael Kingston said.

"The kina floated and promptly depreciated to about US20c. So we were suddenly very competitive."

The current business climate is far different, with the kina surging against the US dollar over the past year.

But this, along with the growing list of other challenges to doing business in PNG, can still benefit an experienced player.

While the company has branded its diverse range of business, which includes manufacturing about 1000 products in PNG, among the three divisions of industrial, commercial and retail, it also has a fourth division which is quite uniquely just based on cooking oil sales.

Its business in this field stemmed from a contract it had to produce plastic bottles for a multinational food company which was selling palm oil into the insatiable PNG market for cooking oil.

But after a change in management, the multinational decided to abandon this market.

As part of honouring contractual commitments, KK Kingston consequently jumped on the offer to buy the multinational's high-speed bottling line equipment for just $1 as a settlement deal.

Thanks to this equipment KK Kingston is currently selling about 800 tonnes a month of cooking oil, which is palm oil bought from New Britain and re-sold on the consumer level in sizes ranging from 250 millilitre bottles to 200 litre drums.

Going the extra mile is recognised as an important attribute to gaining success, a concept followed by KK Kingston when it faced an urgent request for caustic soda from the Hidden Valley gold and silver mine in Morobe province.

Scientifically known as sodium hydroxide, this compound is essentially used to help neutralise PH levels in the wastewater which comes from the typical cyanide-based gold production process.

Previously relying on importing this chemical, an unforeseen issue with this supply forced the mine to turn to KK Kingston.

The company did have a caustic stockpile, although it was designated for bleach production.

In any event, it managed to spare a shipping container of the powder and the mine's appreciation of this flexibility has since led to a contract where KK Kingston manufactures and supplies about 23 tonnes a month to the mine.

As for a more traditional approach to business, where one identifies a possible market and serves up a product to meet forecast demand, there is always plenty of scope to misjudge the peculiarities of what sells in PNG.

While KKK's Tuffa water tanks range is a standout brand today, it took some ingenuity to get there.

"When we first brought them to market the only tanks in PNG were galvanised iron," Kingston said.

"We initially couldn't give them away because nobody wanted them."

Ultimately, the solution was a clever promotional ploy which demonstrated that the plastic tanks could take plenty of punishment.

In what was a strong-man contest, KK Kingston offered to give away a free Tuffa Tank to anyone at the Morobe Agricultural Show one year.

Kingston said the contestants were given a 10-pound sledge hammer and three attempts to see if they could break the Tuffa Tank with it.

"We had a queue a mile long as every tough guy decided to have a crack. Some guys kept queuing back up to have another go," Kingston said.

"We didn't give any tanks away but we suddenly started selling them."

Kingston, a qualified economist who prefers to consider operational improvements in contrast to his father, who he views as an "irrepressible visionary", is spending most of his time working on the company's big move to a new site in Lae.

In what will be the sixth major shift in premises since 1972, all of the manufacturing divisions, along with the warehousing and distribution facilities, will be located on a 10-hectare site to triple overall floorspace and improve logistics.

About four hectares of this site will be undeveloped and earmarked for possible future expansions. Kingston said there was huge potential for realising economies of scale and to further refine production processes.

The focus on boosting investment into capital equipment and targeting bottom line growth comes at a time when the costs of doing business in PNG continue to escalate.

While a lot of the rising cost areas are well known, there is always a chance of getting slugged with an unforeseeable expense.

A recent dilemma was courtesy of the government which failed to adequately service the bores used for town water supply.

"Suddenly Lae, which has 7 metres of rain a year, basically had no potable water," Kingston said.

"We very quickly had to figure out a way to get the 60,000 litres a day we require to run our factories."

Due to its product range KKK was adequately provisioned for such a crisis. In the end it trucked over the water it pumped into its tanks from a "fairly clear sort of river" that was suitable.

"Fortunately, being in the chemical game we have a lot of water treatment chemicals around the place so it was not so difficult to treat it," Kingston said.

The general manager, who was born five years after the company was formed, summarised the key difficulties it was facing in terms of exorbitant costs in PNG. At the top of his list was that the government needed to sort out PNG's lacking infrastructure.

"Logistics is often touted as a key thing but it is more than that. It is also power, water and just about every bit of public infrastructure you can think of - education and health care are key parts of retaining staff over here.

"Just basic government services really have to be sorted out. They have a major inflationary effect on our costs of manufacture.

"Last time I checked, we pay about double the price per kilowatt hour that you do in Australia.

"It's a pretty heavy burden to bear compared to China and other Asian places where energy costs are very low."

It could be assumed that PNG manufacturers can compete with Asian exporters in the realm of labour costs, but Kingston said it was a fallacy that PNG had a low cost of labour.

"Labour is not all that cheap in PNG anymore. The government has increased the minimum wage a couple of times which I think is probably misguided.

He said it was Economics 101 that as costs increased demand fell - so increasing labour costs meant less jobs for everyone else.

The other side of the wage pressures is that prices for skilled labour in PNG are reaching historical highs courtesy of the competition from PNG's booming resource scenes.

As an example, he believes that a senior procurement officer can command a salary of 150,000 kina per year, while he also felt the pinch from losing two custom agents to gold mines within six months of them gaining certification.

These people were with KKK for around five years to reach such a milestone and they jumped ship for the opportunity to double their salaries.

"Anything that's not mining and petroleum and relies on skilled workers will be suffering," Kingston said.

"The sad thing in all of this is that there is a huge surplus of people out there that do want jobs but they don't have the skills businesses require."

With the 40th year of trading reached, it's hard to imagine how much more diverse KKK's range of business could be in the coming years.

Either through importing or manufacturing, KK Kingston markets a wide array of goods and services which vary from compressors, generators, household chemicals to industry safety equipment.

It also provides equipment hire and even supplies its own manufactured toilet paper - and this list is just scratching the surface.

If anything there only seems to be one common theme which links all of these endeavours.

"Pretty much every part of the business has been an exercise of opportunity," Kingston said.

On what it takes to succeed in PNG, Kingston believes in patience and perseverance.

"You have to be patient. Things just don't happen here at the speed they do anywhere else in the world."

He also said you needed to get your hands dirty in PNG markets.

"There is a very strong correlation in terms of success for our expat people based on whether they are hands-on managers or ivory tower-type managers. The guys who are hands-on succeed here."

There can be a perception that efficient managers are great at delegating but such an approach might not turn out too well in PNG.

"You can delegate but you have to accept the fact that its 95 per cent follow-up thereafter. You can't just give someone a job and expect it to be done - it just doesn't happen like that."

Once its new premises are finished KK Kingston aims to further expand growth to underpin a Port Moresby Stock Exchange listing in a few years. Who knows what new business areas could emerge if the company's coffers are significantly boosted?

Two years ago it sold a 30% stake to the World Bank's International Finance Corporation and the Kula Fund but the business remains largely in the hands of Kingston and his father who founded the company.

Kingston described the partnership as an interesting one and aims to improve corporate governance outcomes without the company losing any of the entrepreneurial zeal it is known for.

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