With factories in China, R&D in England, and sales and marketing offices everywhere, IAG is aiming to redefine value in pro audio with its Wharfedale line of speaker enclosures, mixers, and power amps. (Company Profile).

Seventy years ago, Gilbert Briggs caused a sensation in the fledgling audio industry with his Wharfedale Bronze speaker. In a competition sponsored by the Bradford Radio Society, golden-eared audio experts said the device produced "unparalleled fidelity" when-connected to the "average wireless radio set." Briggs followed up with a string of design innovations, including the first two-way loudspeaker and the ceramic magnet, making the Wharfedale trademark synonymous with cutting-edge design. Combining this heritage of innovation with a new high-value product line, Wharfedale is hoping to cause a similar sensation as its enters the U.S. pro-audio market.

The Wharfedale Professional line made its U.S. debut at last year's Winter NAMM show. In the ensuing 12 months, the company has strategically expanded its offering of speaker enclosures, power amps, and mixing consoles, laid the foundations for a distribution network, and begun building broader brandname awareness. Having addressed these fundamentals, Lance Schmidt, president of American operations, predicts major market share gains in 2003. "This will be our year," he states.

As an operating unit of International Audio Group (IAG), Wharfedale is a venerable audio pioneer with a unique corporate structure that is ideally suited to the realities of the global market. At a vertically integrated 500,000-square-foot factory in Shenzen, China, about an hour north of Hong Kong, 1,200 IAG employees manufacture every major component, from forming paper speaker cones to molding plastic knobs. A U.K.-based R&D lab, under the direction of veteran loudspeaker designer Steve Hewlett, is entrusted with the task of creating innovative new products that maintain the Wharfedale tradition. IAG Distribution organizations around the world have a mandate to tailor product lines and marketing programs to suit the needs of local markets. These far-flung organizations are joined by a common objective: to redefine industry standards of quality and value. Bernard and Michael Chang, the identical twins who preside over IAG, pragmatically describe this transnational structure as taking advantage of talents and skills wherever they can be found.

But to better understand Wharfedale's unique market positioning, a bit of history is in order. An avid amateur musician and electronics enthusiast, Gilbert Briggs turned to building loudspeakers in 1933 after he lost his day job at a textile mill. With his first workshop situated in the Wharfedale region of Yorkshire, England, he selected Wharfedale as his trademark. Radio was a transformative new technology at the time, much like the internet today, and Briggs hoped to capitalize on it with a line of loudspeakers designed for radios. Within a year after winning the Bradford Radio Society's award, he was building 9,000 loudspeakers annually.

During World War II, Wharfedale gained valuable electronics experience manufacturing thousands of wireless radios for the British Navy. After the War, the company harnessed this expertise to become one of Europe's leading hi-fi manufacturers. A clever promoter, Briggs staged a series of "Live vs. Recorded Concerts" in London's Royal Festival Hall, that compared live performances by classical musicians and Wharfedale speakers. The immensely popular concerts were publicized around the world and further cemented Wharfedale's reputation for exceptional audio quality.

With no heirs to take over the company, Briggs sold Wharfedale to the Rank Organisation, a motion picture studio, in 1958. Rank quickly expanded its audio holdings, purchasing Qaud Electroacoustics, Leak Audio, and Airedale Speakers. The businesses grew and prospered, enjoying a dominant position throughout Europe. When Rank management decided to focus exclusively on motion pictures in 1990, the audio companies were sold to Verity Group, PLC. In 1994, Verity accidentally created a new flat panel transducer technology that had broad commercial and consumer applications. Developing the new technology required a major capital investment, so Verity directors voted to sell all their operating companies to raise the needed funds.

Enter the Chang brothers. The pair had built a thriving Taiwan-based music and audio distribution business and a small OEM electronics manufacturer, but their long-term goal was to manufacture their own products. They also had distributed some of the Verity product lines in Asia. When Verity put its audio group for sale, the brothers scrambled to make a bid. The chance to take control of a group of prestigious British audio brands represented the perfect opportunity to launch their manufacturing business. The fact that all things British enjoy a special prestige in Asian markets added to their enthusiasm.

In 1997, a deal was struck whereby the Chang's Sanecore Group purchased Wharfedale, Quad Electroacoustics, Leak Electronics, and Airedale Loudspeakers, to form the International Audio Group. Subsequently, the Changs expanded IAG with the acquisition of Apogee Lighting and a licensing agreement to manufacture the Soundtracs "Topaz" line of mixers.

Born in Taiwan, schooled in the U.S., and currently residing in Hong Kong and Shenzen, the Chang brothers consider themselves citizens of the world. Their approach to business mirrors their cosmopolitan outlook. After the acquisition, they kept engineering, product development, and marketing functions at a U.K.-based facility. However, production was quickly shifted from a group of plants in the U.K. and Eastern Europe to Shenzen, China. Is IAG a Chinese or British enterprise? Neither, they would say. It is a global company that blends U.K. engineering skills with Chinese manufacturing prowess to redefine industry standards of quality and value. They add that to succeed in a fiercely competitive market, you can't allow yourself to be limited by national borders; you have to take advantage of what the world offers.

In siting a factory, the Changs selected the Shenzen province because, as one of the first regions to be liberalized under Deng Xiaoping, it had a well-developed infrastructure. Unlike other areas in China, Shenzen boasts modern roads, easy access to the international port of Hong Kong, and reliable electricity and water supplies. Over the past five years, the original IAG operations have been expanded more than ten times and, as of this writing, the company is in the process of opening an all-new 600,000-square-foot facility.

Prevailing Shenzen wage rates of under $1 an hour give IAG a compelling cost advantage. However, the Changs point out that direct comparisons with Western labor rates are somewhat misleading because, like most Chinese companies, IAG provides its employees with housing, subsidized food, and sports and recreation facilities. Whatever the precise direct labor cost, there is much more to IAG's success than a low hourly wage.

The IAG manufacturing complex in Shenzen is arguably the world's most vertically integrated audio factory. It also showcases the Chinese aptitude for precision manufacturing. Wharfedale's claims of building everything is no idle boast. A metal casting shop produces speaker frames. There is a well-equipped lumber mill that processes wood for over 400 different speaker enclosures. Banks of automated injection molding machinery crank out thousands of knobs, speaker corners, Wharfedale logos, and other plastic parts. In a smaller village five miles from the main facility, machines transform a mix of paper fiber and resins into speaker cones. (The cone facility was located outside of Shenzen to access a water source with fewer mineral impurities that can stain the cones.) There is even a small department that draws titanium into wafer thin speaker diaphragms.

The financial investment to develop these broad-based manufacturing capabilities has been immense. In some respects, it has also slowed IAG's sales growth. However, for the Chang brothers, the investment is an essential foundation for solid long-term success. IAG's vertical integration affords a number of economic benefits. By producing all component parts, the company is better able to manage its inventories. Bypassing outside vendors, the company also captures the middleman's profit. However, the quality benefits of vertical integration are even more compelling. Unlike North America and Europe, where there is a large core of reliable subcontractors who can deliver parts and subassemblies, the emerging Chinese economy has no such support players. "Vertical integration is the only way to do business in China and to build in the quality and value that are our core philosophy," states Steve Woolley, IAG Group managing director. "Unless you build it yourself, you can't guarantee the kind of consistent quality professional audio gear demands."

A important component of IAG's quality control can be found in the person of Steve Hewlett, who has spent his entire career mastering the art of loudspeaker design. A loudspeaker is a motor the combines copper wire and treated paper to move air. But unlike an automobile motor that is measured by the objective standards of horsepower and fuel efficiency, the ultimate test of a loudspeaker is hard-to-quantify, "does it sound good?" criteria. Because of this subjectivity, creating a good product is equal parts art and science. With years of experience at Celestion, Fane, and Wharfedale, Hewlett is well schooled in the art of balancing voice coil size, speaker cone dimensions, and magnet strength to create a pleasing sound.

As IAG's chief engineer he splits his time between Shenzen and the IAG R&D center in Cambs, England. While in the U.K. he directs a team of engineers in the new product development process. When he's in China, his job is to ensure that the product coming off the line perfectly matches up to the original specifications. Paper is an organic material that is influenced by weather changes and the gap for a voice coil is measured in thousands of an inch. These two factors alone make quality control a full-time job.

A large room adjacent to Hewlett's office in Shenzen is filled with hundreds of what he refers to "reference speakers." After engineering completes a design, a "reference" prototype is manufactured, and its audio properties are precisely measured and then captured on computer. Regular production models are routinely checked against the reference model for the slightest deviation. To head off any potential mechanical problems, IAG also conducts "buzz and rattle" tests on a sampling of production. These checks are what ensure exceptionally high consistency on all IAG products. Hewlett adds, "We make sure the customer never gets an unpleasant surprise when he opens the box."

Precise standards and quality checks are why the IAG plant has achieved ISO 9001 certification. Originally developed by the military as a way of identifying and preventing manufacturing flaws, the ISO standard has since been adopted by scores of top-tier manufacturers worldwide. The ISO standard is an obvious source of pride, but Hewlett points to numerous awards and industry accolades as more important indicators of IAG product quality. In the consumer press, IAG's various brands are among the most internationally acclaimed audio products. In the last year alone, England's What Hi-Fi magazine named the Quad 11L hi-fi speaker of the year. The leading Japanese audio journal bestowed its Grand Prix award on the Aierdale Heritage speaker. Hi Fi World gave Quad electrostatic speakers its top five-star rating; and Sound & Vision magazine gave Wharfedale Diamond 8 Series speakers a "superb sound" rating. Woolley states, "These accolades illustrate Hewlett's ability to make superb quality audiophile level speakers as well as great pro and commercial products."

The professional audio press doesn't conduct similar product reviews, but if they did, according to Hewlett, "the Wharfedale VS and EVP series speakers would get raves." While not entirely unbiased, he bases this assessment on compelling specs. Wharfedale's entry level VS line of speakers include a full featured cross-over network, proprietary "Pro-Tech" speaker driver protection circuitry, and a unique Elliptical Wave Guide design for crystal-clear high-end. Better yet, these features are available on a two-way 15" enclosure that has a retail minimum advertised price of just $169. For a slightly higher price, the EVP series delivers better power handling capability, enhanced frequency response, and a sturdier cabinet.

With lengthy career in the music and audio industry that included stints with Peavey Electronics and Harman International, Lance Schmidt has seen his share of exciting product launches. But he is also acutely aware that a compelling product value is not enough to guarantee success. Retailers have to be able to make a profit as well. "Some suppliers view their retailers as an indentured servant who works for them at subsistence wage," he explains. "Over the long term, regardless of how strong the brand name is, this won't work."

In crafting IAG distribution policies, Schmidt has steered clear of chain stores and instituted a generous MAP pricing policy. "Our dealers and contractors are indispensable in our equation. We've set a MAP price that is below similar competitive products but still allows for an exceptional retail margin. It's a true `win-win' situation, not just another cliche. Our long term agenda is creating a profitable line for all our retailers."

Some domestic audio companies are lining up contracts with Chinese manufacturers to address entry-level price points. Others are trying to retool U.S. manufacturing operations to become more efficient and price-competitive. Schmidt contends that IAG's structure represents a better alternative. "If you rely on OEM suppliers and contract manufacturing, you can never control your own destiny," he states. "And if your factories are in the wrong place, you'll have trouble delivering the value the market demands." At IAG, the Chang brothers have bet millions on this global approach to supplying the audio market. It will take a few years to see if their wager delivers a rich payout, but in the meantime, no one seems to be betting against them.

WHAT MAKES CHINA UNIQUE

FOR OVER A CENTURY, music and audio production has been continuously migrating in search of lower labor rates. At the beginning of the 20th century, most production was concentrated in the Northeast. By 1950, it had migrated to the Midwest and the South. Then in the '60s, Japan, with its combination of low-cost and high skills, emerged as a major producer of instruments and electronics.

Dramatic economic development priced Japan out of the market and production shifted to Taiwan and Korea in the late '70s and early '80s. Since the transition from Communism to a more market-based economy, China been the low-cost production destination. The recent growth of Chinese manufacturing has been so dramatic, state economic agencies and informed observers haven't been able to keep track.

China's emergence has prompted many to ask, "Where is the next destination." Steve Woolley, who has previously worked for Japanese and American companies, answers that the industry has only begun to scratch the potential of China. Noting that China has more than ten times the land mass and population of Japan, he says, "China is like an onion with many layers. We are at the outer layer now. As the economic forces that took hold in Japan and Korea takes place here, there are other layers to transition to. It will be a long time before we're done here."