SME Spotlight

Building on IP and franchise model to drive growth: Filtec managing director Jimmy Neo

Mr Neo (left) says Filtec is looking into the idea of creating an e-commerce platform for industrial spare parts.
Mr Neo (above) says Filtec is looking into the idea of creating an e-commerce platform for industrial spare parts.ST PHOTO: CHEW SENG KIM

Amid the economic slowdown, one company is building a portfolio of IP, or intellectual property, to secure growth opportunities. In the second part of a series exploring the role of intellectual property in business strategies, Filtec managing director Jimmy Neo tells Wong Wei Han his company's initiatives.

Q Describe Filtec and its area of businesses.

A We are a distributor of industrial products, mainly filters - this is reflected in our company name - but also including lubricants, batteries and spare parts of heavy duty equipment. The company carries over 20 brands, such as Baldwin and Fleetguard filters, as well as Cummins and Caterpillar spare parts.

Filtec was incorporated in 2003 as part of the restructuring of the family business Soon Aik Group, which was a truck spare-part retailer founded by my father in the 70s. The group now has seven subsidiaries, headed by me and my three siblings.

Q How big is Filtec in terms of headcount and business volume?

A Filtec has been growing very steadily since its founding. Between 2004 and 2009, our compound annual growth rate was 30 per cent. By 2010, we were a $20 million company. At that point, we set a five-year goal to double the turnover, and we peaked in 2014 when our sales hit $33 million.

The company hires around 40 people, part of the group's total headcount of around 160 people.

INNOVATION IS KEY

We will keep looking at how we can change or enhance our business model. I have been in the family business since the 90s, and have seen a lot of people come and go in the spare-parts trade. If you don't innovate and adapt to changes, you will disappear from the scene.

FILTEC MANAGING DIRECTOR JIMMY NEO, on the constant need to adapt to changes.

Last year, the economic headwinds were something we couldn't avoid, so our growth has slowed down, but the turnover is still averaging at around $30 million. These are times when we hope the investments we've ploughed in over the years to broaden the product range and to expand overseas will gradually bear fruit.

Q Let's talk about these investments. What are they focused on?

A On top of the global big brands that we distribute, we have also been rolling out our own house brands. The first of these was Rev-1 lubricants, which we launched in 2002, leveraging Singapore's standing as a major refinery hub.

We followed this up with FilteQ, our own filter brand, and the battery line Energeo. The approach is to build up our range based on the company's know-how, as research and development from scratch is still unfeasible at the moment.

Another case of intellectual property that is driving our growth strategy is Traczone, a retail business model that we developed in 2011. It is also one of the group's subsidiaries.

Q What exactly is Traczone? How is it intellectual property?

A It's essentially a franchising business model built as a retail platform for Filtec. It creates a level playing field for us and all our franchisees in the region. Everything that we have - from the brands we distribute, our own brands to the central enterprise resource planning database - the franchisee will also have.

Traczone qualifies as intellectual property because it creates value for the whole supply chain, including Filtec, the franchisee and, most importantly, the customers.

For example, a construction company that operates equipment from different brands can come to a Traczone outlet for one-stop service instead of hunting around for different part distributors.

The platform was launched in Singapore in 2011, followed by the overseas roll-out starting in 2012.

Today, we have franchisees in six countries - Malaysia, Indonesia, the Philippines, Vietnam and Myanmar, alongside Singapore - with a total of 16 outlets.

Q How have these business initiatives benefited Filtec?

A If you look at the business regulations across South-east Asia, the regional expansion of retail businesses faces many hurdles. In Indonesia, for example, foreign ownership of retail businesses is still pretty tightly controlled.

Franchising with Traczone is an effective way for Filtec to grow regionally. Our franchisees have performed well, typically able to generate half a million in US dollars in annual sales within three years.

As for our own products, they now contribute to around 10 per cent of Filtec's sales. We fully realise the challenge involved in deeper penetration in a market dominated by established brands, but the better margins mean these products will remain a component for long-term growth.

Q How else do you plan to innovate for growth?

A An idea that Filtec is exploring is to implement an e-commerce platform on top of Traczone, which is currently still mainly a physical retail channel. The vision is to create the Qoo10 for industrial spare parts. If it goes well, we will have something to show next year, and ideally, it will become another group subsidiary and part of our intellectual property, like Traczone.

One thing is certain: We will keep looking at how we can change or enhance our business model. I have been in the family business since the 90s, and have seen a lot of people come and go in the spare-parts trade. If you don't innovate and adapt to changes, you will disappear from the scene.

A version of this article appeared in the print edition of The Straits Times on September 21, 2016, with the headline 'Building on IP and franchise model to drive growth'. Print Edition | Subscribe