Boxing clever

West Yorkshire-based electronics manufacturer Pace, a pioneer in the television set-top box market, has established itself as a world-beating company. Maintaining a lead in a fast-moving and expanding market will be its next big test, writes Patrick Murph

There is a British company that has been in satellite TV longer than BSkyB. Its market position is so strong that if you have subscribed to any UK satellite, cable or digital terrestrial services, then you probably use one of its products. But you might not recognise the name.

It started producing set-top boxes in 1987. `We’ve made boxes for Sony, Ferguson, Hitachi and Amstrad among others,’ says Rob Fleming, operations director and head of engineering at Pace Micro Technology, `but the plate on the back says “manufactured by Pace”.’

Pace is a rapidly growing company in a rapidly growing market. Annual world digital set-top box sales are expected to quadruple from just under 15 million units this year to around 60 million by 2005.

Pace’s manufacturing facilities will have to expand to meet this demand, but Fleming says there is sufficient space at its headquarters, a converted 19th century mill in the model industrial town of Saltaire, West Yorkshire. This also houses its main engineering centre, which employs about 1,000 people.

`We’re committed to manufacturing in the UK,’ Fleming says. `Our main expenses are robots, machines and royalties. Labour costs are only a small proportion.’ Of the components in a digital set-top box, 95% are inserted by machine.

Pace also uses contract manufacturing in the UK – Mion in Barnsley and Surface in Poole – and in the Republic of Ireland, Mexico, Brazil and Thailand. But it believes it is not worth owning these factories unless it can fill them all the time.

The fast-moving nature of its market is another reason Pace keeps its main manufacturing operation close to home. Fleming believes rapid change is difficult to manage remotely and that engineers must be on hand to intervene if things go wrong. For a similar reason the company prefers to manufacture itself rather than license its technologies to other firms.

The company spends much of its revenue developing new products. It has been working to reduce time-to-market and time to bulk manufacture. `Having manufacturing on site helps a lot,’ says Chris Boyce, head of strategic business development. `We were eight weeks ahead of the competition for the launch of the first digital service in the UK, and we have been involved in 19 of the 20 digital systems launched to date.’

Fleming admits it will be difficult to maintain Pace’s lead. `It’s taking longer to develop new models – eight months to a year – and there is pressure to reduce that time,’ he says.

Boyce says Pace’s reputation for leading the pack has its business benefits. `You don’t have to walk into an account negotiation with a working demonstration. You can win orders without committing engineering resources,’ he says.

Pace has recruited 120 engineers over the past year to add to its 400-strong engineering team – quite an achievement in the north of England, Fleming says. It also earned the company the Human Resources Excellence prize at this year’s Manufacturing Industry Achievement Awards.

`When we moved to Saltaire there were no electronics firms in the area. Getting enough people with the right skills has been tricky. It took nine or 10 weeks of staff training before we could open this factory.

`There is a shortage of electronic and software engineers in the UK. We’ve been trying to correct this by working with universities and lobbying government.’

Staff retention is therefore crucial. Pace employs one of the largest groups of specialist engineers in the country, but staff turnover has been `minuscule’, says Boyce. This has been achieved by improving the working environment and facilities, introducing a casual dress code and improving training.

Pace can produce around 1.2 million boxes annually on its five Saltaire assembly lines. Saltaire exports around half its output and the company won a Queen’s Award for Export Achievement in 1998.

Despite this, its £460m market capitalisation is tiny compared to competitors such as BT, Microsoft, Packard Bell and Sony. `They all want a piece of the action,’ says Boyce.

Boyce believes Pace’s success is partly down to having a small, focused team. He points out that while its larger competitors spend more on general research and development, their budgets are split between PCs, televisions, videos, stereos and games consoles.

`But we’re not complacent,’ he adds. `We’re a public company, which means takeover is always a possibility. It’s up to us to get the return and say to our shareholders that we are better placed to manage the business.’

The demands of the industry are increasing, with each new broadcaster offering a greater range of services and demanding ever more advanced set-top boxes. Pace’s aim is to deliver them first. `We succeed because we are first,’ says Fleming. `And we are first because we work hard, bloody hard.’