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In 1978, while renovating his country house in the Cotswolds, Dyson visited a sawmill where he observed sawdust being sucked into a cone using a spinning column of air. Refusing to pay £75,000 to have one installed in his own factory, Dyson decided he would make one of his own. 
 
According to @Issue: The Journal of Business and Design (vol. 8, no. 1), the source of inspiration was in the following form:

In his usual style of seeking solutions from unexpected sources, Dyson thought of how a nearby sawmill used a cyclone—a 30-foot (9.1 m)-high cone that spun dust out of the air by centrifugal force—to expel waste. He reasoned that a vacuum cleaner that could separate dust by cyclonic action and spin it out of the airstream would eliminate the need for both bag and filter. 

Dyson developed 5,127 Dual Cyclone prototype designs between 1979 and 1984. The first prototype vacuum cleaner, the G-Force, was built in 1983, and appeared on the front cover of Design Magazine the same year.[1] In 1986, a production version of the G-Force was first sold in Japan.  In 1991, it won the International Design Fair prize in Japan, and became a status symbol there, after which the Japanese licensed and sold the product for $2,000 each. 

The biggest vacuum cleaner manufacturers refused to licence his technology, so Dyson decided to design, manufacture and advertise a vacuum cleaner himself. Hoover later admitted that it did consider buying the patent from James Dyson, but only to keep the technology out of the market.[3]

Using the income from the Japanese licence, James Dyson set up the Dyson company, opening a research centre and factory in Wiltshire, England, in June 1993. His first production version of a dual cyclone vacuum cleaner featuring constant suction was the DC01, sold for £200. In their research for the vacuum cleaner, when Dyson asked people whether they would be happy with a transparent container for the dust, most respondents said no. Dyson and his team decided to make a transparent container anyway, primarily for advertising purposes.[4]

After the introduction of the DC02, DC02 Absolute, DC02 De Stijl, DC05, DC04, DC06 and DC04 Zorbster, the root8 Cyclone was introduced in April 2001 as the Dyson DC07, which uses seven smaller funnels on top of the vacuum.  Production moves to Malaysia

Initially, all Dyson vacuum cleaners and washing machines were made in Malmesbury, Wiltshire, England. In 2002, the company transferred vacuum cleaner production to Malaysia. As Dyson was the major manufacturing company in Wiltshire outside of Swindon, this move aroused some controversy, although planning permission to expand the Malmesbury site had been refused, effectively leading Dyson to look elsewhere. A year later, washing machine production was also moved to Malaysia.

Although nearly 800 manufacturing jobs were lost, Dyson states that the cost savings from transferring production to Malaysia enabled investment in R&D at Malmesbury head office, and that the company employs more people in the UK than before the move to Malaysia

 

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